<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1996
REGISTRATION NO. 333-13161
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
DOUBLETREE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 860762415
(State or other jurisdiction (I.R.S. Employer
of incorporation or
organization) Identification No.)
</TABLE>
DOUBLETREE CORPORATION
410 NORTH 44TH STREET, SUITE 700
PHOENIX, ARIZONA 85008
(602) 220-6666
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
WILLIAM L. PEROCCHI
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND TREASURER
DOUBLETREE CORPORATION
410 NORTH 44TH STREET, SUITE 700
PHOENIX, ARIZONA 85008
(602) 220-6666
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
WILLIAM J. PHILLIPS, ESQ. RICHARD D. TRUESDELL, JR., ESQ.
CURTIS L. MO, ESQ. DAVIS POLK & WARDWELL
DEWEY BALLANTINE 450 LEXINGTON AVENUE
1301 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10017
NEW YORK, NEW YORK 10019-6092 (212) 450-4000
(212) 259-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and the other to be used in connection with a concurrent
international offering (the "International Prospectus"). The two prospectuses
are identical except for the front outside cover page. The form of U.S.
Prospectus is included herein, and the front outside cover page to be used in
the International Prospectus, labelled "Alternate Page for International
Prospectus," is included herein following the form of U.S. Prospectus.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued October 15, 1996
5,000,000 Shares
LOGO
COMMON STOCK
------------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE 5,000,000 SHARES OF COMMON STOCK BEING OFFERED, 4,000,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,000,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE
THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." THE COMPANY'S COMMON STOCK IS QUOTED ON THE NASDAQ
STOCK MARKET'S NATIONAL MARKET UNDER THE SYMBOL "TREE." ON
OCTOBER 14, 1996, THE REPORTED LAST SALE PRICE OF THE COMMON
STOCK WAS $45 5/8 PER SHARE.
------------------------
The Company will use the net proceeds from the sale of the Shares of Common
Stock made hereby to provide a portion of the financing for the acquisition of
Red Lion Hotels, Inc. pursuant to the Merger (as defined herein). The offering
of Common Stock made hereby is contingent upon the consummation of the Merger,
which in turn is subject to certain conditions. See "The Merger and the
Financing Plan."
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED UPON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share..................... $ $ $
Total(3)...................... $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at
$1,000,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
750,000 additional shares of Common Stock at the price to public, less
underwriting discounts and commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total price to public, underwriting discounts and
commissions and proceeds to the Company will be $ , $ and
$ , respectively. See "Underwriters."
------------------------
The Shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein, and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the Shares of Common Stock will be made on or about
, 1996 at the offices of Morgan Stanley & Co. Incorporated, New
York, New York, against payment therefor in same day funds.
------------------------
MORGAN STANLEY & CO.
Incorporated
MONTGOMERY SECURITIES
SCHRODER WERTHEIM & CO.
November , 1996
<PAGE> 4
[Inside cover page]
[Photographs of Doubletree
hotels and map depicting locations
of Doubletree and Red Lion hotels]
IN CONNECTION WITH THIS OFFERING, THE U.S. UNDERWRITERS MAY OVER-ALLOT OR
THE UNDERWRITERS MAY EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET, SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NASDAQ STOCK MARKET'S NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ STOCK MARKET'S NATIONAL MARKET IN ACCORDANCE WITH RULE
10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE
ACT"). SEE "UNDERWRITERS."
------------------------------
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE
IMPLY THAT THE INFORMATION CONTAINED OR INCORPORATED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
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PAGE
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Incorporation of Certain Documents by
Reference........................... 3
Corporate Organization................ 4
Prospectus Summary.................... 5
Risk Factors.......................... 20
The Merger and the Financing Plan..... 28
Use of Proceeds....................... 32
Common Stock Price Range.............. 32
Dividend Policy....................... 32
Capitalization........................ 33
The Combined Company.................. 34
Unaudited Pro Forma Condensed
Consolidated Financial
Information......................... 37
Selected Consolidated Financial
Data of Doubletree.................. 44
Management's Discussion and Analysis
of Results of Operations and
Financial Condition of Doubletree... 46
Business of Doubletree................ 52
<CAPTION>
PAGE
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Selected Pro Forma Financial,
Historical
Financial and Other Data of Red
Lion................................ 67
Management's Discussion and Analysis
of
Results of Operations and Financial
Condition of Red Lion............... 69
Business of Red Lion.................. 74
Management............................ 82
Security Ownership of Certain
Beneficial
Owners and Management of
Doubletree.......................... 85
Description of Capital Stock of
Doubletree.......................... 88
Certain United States Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 91
Underwriters.......................... 94
Legal Matters......................... 97
Experts............................... 97
Available Information................. 97
Index to Financial Statements......... F-1
</TABLE>
------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Securities and
Exchange Commission (the "Commission") are hereby incorporated by reference in
this Prospectus: (1) the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995; (2) the Company's Quarterly Report on Form 10-Q
for the fiscal quarters ended March 31, 1996 and June 30, 1996; (3) the
Company's Current Reports on Form 8-K dated February 27, 1996, September 12,
1996 and October 16, 1996; and (4) the description of the Common Stock contained
in the Company's Registration Statement on Form 8-A (File No. 0-24392) filed on
June 18, 1994. All documents filed by the Company with the Commission pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), subsequent to the date of this Prospectus and
prior to the termination of the offering hereunder shall be deemed incorporated
by reference herein and to be a part hereof from the date of filing such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus. The Company
will provide without charge to each person to whom this Prospectus is delivered
upon written or oral request, a copy of any or all of such documents that have
been or may be incorporated by reference herein (other than exhibits to such
documents which are not specifically incorporated by reference into such
documents). Requests for such documents should be directed to Doubletree
Corporation, 410 North 44th Street, Suite 700, Phoenix, Arizona 85008, telephone
number (602) 220-6666.
3
<PAGE> 6
CORPORATE ORGANIZATION
DOUBLETREE
Doubletree Corporation (the "Company") was incorporated on May 19, 1994 to
succeed to all the assets, liabilities and business operations of Doubletree
Partners, formerly Guest Quarters Hotel Partnership ("GQHP"). On December 16,
1993, Doubletree Partners and Doubletree Hotels Corporation ("DHC") were
combined through the transfer of the ownership interests in DHC to Doubletree
Partners in exchange for cash and partnership interests in Doubletree Partners
(the "Doubletree Combination Transaction"). On June 30, 1994 (immediately prior
to the initial public offering of the Company's Common Stock), the partners of
Doubletree Partners, other than Samantha Hotel Corporation ("Samantha"),
contributed their general partnership interests to the Company, and the Samantha
owners contributed all the capital stock of Samantha to the Company in
consideration for an aggregate of 15,500,000 shares of Common Stock, distributed
in proportion to their respective ownership interests in Doubletree Partners
prior to such transfers (the "Doubletree Reorganization").
RED LION
Red Lion Hotels, Inc. ("Red Lion") was incorporated in March 1994 as a
wholly-owned subsidiary of Red Lion, a California Limited Partnership (prior to
August 1, 1995, "Historical Red Lion" and, on and after August 1, 1995, the
"Partnership"). Red Lion's operations commenced in March 1995 when Historical
Red Lion contributed a 49.4% interest in a joint venture which owns the Santa
Barbara Red Lion Hotel to Red Lion. Red Lion completed an initial public
offering of Red Lion Common Stock (as defined below) on August 1, 1995 (the "Red
Lion Offering"). After giving effect to the Red Lion Offering, the Partnership
currently owns approximately 67% of outstanding Red Lion Common Stock.
Immediately prior to the closing of the Red Lion Offering, Historical Red Lion
repaid certain of its outstanding indebtedness with existing cash balances and
contributed substantially all of its assets (excluding 17 hotels (the "Red Lion
Leased Hotels"), certain minority joint venture interests and certain current
assets) and certain liabilities to Red Lion (the "Red Lion Formation"). On
August 1, 1995, Red Lion refinanced or repaid substantially all of the debt
contributed pursuant to the Red Lion Formation with the net proceeds of the Red
Lion Offering, borrowings under a new term loan and existing cash (the "Red Lion
Refinancing"). Red Lion also entered into a long-term master lease with the
Partnership for the Red Lion Leased Hotels.
------------------------------
Unless otherwise noted, the statistics set forth in "Business of Red Lion"
in this Prospectus relating to the lodging industry (other than Red Lion
statistics) are from, or have been derived from, information published or
provided by Smith Travel Research, an industry research organization. Smith
Travel Research has not provided any form of consultation, advice or counsel
regarding any aspect of the Merger, and Smith Travel Research is in no way
associated with the proposed transaction.
------------------------------
Doubletree(R), Doubletree Guest Suites(R) and Doubletree Club Hotels(R) are
registered trademarks of the Company, and Club Hotels by Doubletree(TM) and
Sweet Dreams(TM) are trademarks of Doubletree.
Red Lion Hotel(R), Red Lion Inn(R) and Red Lion(R) are registered
trademarks of Red Lion.
4
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere or incorporated by reference in this Prospectus. As used in this
Prospectus, (i) the "Company" or "Doubletree" refers to Doubletree Corporation
and, unless the context otherwise requires, its subsidiaries, (ii) "Red Lion"
refers to Red Lion Hotels, Inc. (and, for periods prior to the Red Lion
Formation, the operations of Historical Red Lion and Historical Red Lion's
subsidiaries, affiliates and joint ventures) and, unless the context otherwise
requires, its subsidiaries, (iii) the "Partnership" means Red Lion, a California
Limited Partnership, and its subsidiaries, subsequent to the Red Lion Formation
and (iv) the "Combined Company" refers to the operations of Doubletree
(including Red Lion) after giving effect to the Merger (as defined herein). For
a discussion of the historic corporate organization of Doubletree and Red Lion,
see "Corporate Organization." Unless the context otherwise requires, all
assumptions relating to the Merger and the Financing Plan (as defined herein),
and to share numbers after giving effect thereto, assume that (a) 5,000,000
shares of Common Stock are issued and sold in the Offering (as defined herein)
at a price of $45.00 per share (the last reported sale price of the Common Stock
on October 4, 1996), (b) 6,925,502 shares of Common Stock are issued in the
Merger, based upon (i) an assumed Final Doubletree Stock Price under the Merger
Agreement (each as defined herein) of $45.00 and (ii) a resulting adjustment of
the Exchange Ratio (as defined herein) from .2398 to .2153 in accordance with
the Merger Agreement, and (c) 2,444,988 shares of Common Stock are issued and
sold pursuant to the GEPT Equity Investment (as defined below) on the basis of
such assumed adjusted Exchange Ratio. See "The Merger and the Financing Plan."
Unless otherwise noted, all information in this Prospectus assumes no exercise
of the U.S. Underwriters' over-allotment option. See "Underwriters."
INTRODUCTION
On September 12, 1996, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Red Lion and RLH Acquisition Corp., a
wholly-owned subsidiary of the Company ("Merger Sub"), pursuant to which, upon
the terms and subject to the conditions thereof, Merger Sub will be merged with
and into Red Lion (the "Merger") and Red Lion will become a wholly-owned
subsidiary of the Company. The total amount of funds required by Doubletree to
consummate the Merger and to pay related fees and expenses is expected to be
approximately $919.7 million, which will be financed in part through the sale of
the Common Stock offered hereby (the "Offering"). The sale of the shares of the
Common Stock in the Offering will occur concurrently with, and is contingent
upon, consummation of the Merger, which in turn is subject to certain
conditions. See "The Merger and the Financing Plan."
THE COMPANIES
DOUBLETREE
Doubletree is one of the nation's leading hotel management companies.
Doubletree provides hotel owners with management and franchise services under
its Doubletree Hotels, Doubletree Guest Suites, Doubletree Club Hotels and Club
Hotels by Doubletree brand names, as well as management services for
non-Doubletree brand hotels. At June 30, 1996, Doubletree managed, leased, or
franchised 179 hotels with an aggregate of 41,232 rooms in 37 states, the
District of Columbia and Mexico. This represents a 63% and 43% increase in
managed, leased or franchised hotels and aggregate room count, respectively,
during the twelve month period ended June 30, 1996. Excluding the hotels which
became part of the Doubletree system through the acquisition of RFS, Inc., a
privately held hotel operator ("RFS Management"), in February 1996 (the "RFS
Acquisition") through which Doubletree significantly expanded its portfolio of
non-Doubletree brand hotels (the "RFS Hotels"), this growth was 17% and 19%,
respectively. See "Business of Doubletree -- The RFS Acquisition." At June 30,
1996, the Company's hotels included 60 Doubletree Hotels, 37 Doubletree Guest
Suites, 13 Doubletree Club Hotels, and 69 hotels operated by Doubletree under
third party brand names or as independent hotels.
5
<PAGE> 8
After the Merger, the principal executive offices of Doubletree will
continue to be located at 410 North 44th Street, Suite 700, Phoenix, Arizona
85008, their telephone number at such address is (602) 220-6666 and Doubletree
maintains a web site at http://www.doubletreehotels.com.
RED LION
Red Lion is a leading full service hospitality company. At June 30, 1996,
Red Lion operated 55 hotels containing 14,540 rooms in the western United
States. In July 1996, Red Lion acquired a hotel in Houston, Texas, containing
319 rooms. In September 1996, Red Lion purchased the Modesto, California hotel,
which it managed prior to such acquisition. These two acquisitions and the April
1996 acquisition of a hotel in San Antonio, Texas are referred to herein as the
"Red Lion 1996 Hotel Acquisitions." Red Lion has long term operating control
over substantially all of its properties. As of September 15, 1996, Red Lion
owned or leased, under a long-term lease, 41 of its 56 hotels. Red Lion's
remaining 15 hotels are operated pursuant to management contracts. Owned hotels
consist of 100% owned properties (17 hotels) and properties in which Red Lion
holds at least a 50% interest through joint venture agreements (seven hotels).
THE COMBINED COMPANY
After the consummation of the Merger, the Combined Company will be one of
the largest full service hotel operating companies in the United States. On a
pro forma basis, as of June 30, 1996, the Combined Company would have had a
portfolio of 234 hotels (197 of which it would have managed and 37 of which it
would have franchised) containing 55,770 rooms in the United States and Mexico.
On a pro forma basis, the Combined Company would have had revenues of $599.3
million for the year ended December 31, 1995 and $327.9 million for the six
months ended June 30, 1996, with operating income of $60.0 million and $45.8
million and net income of $20.2 million and $14.6 million, respectively.
Doubletree's principal business strategy is, and the Combined Company's
principal business strategy will be, to provide its hotel owners with high
quality, responsive hotel management and franchise services designed to improve
hotel profitability and to provide its hotel guests with a high level of
satisfaction. In executing this business strategy, Doubletree seeks to implement
policies and programs designed to increase revenues while minimizing operating
expenses. Doubletree seeks to grow hotel revenues by continuing to strengthen
the Doubletree brand and implementing national, regional and local sales and
marketing programs. Programs designed to reduce costs include providing
purchasing services at favorable prices to hotel owners, offering management
services and the Doubletree brand for one combined fee, minimizing the costs
associated with operating under the Doubletree brand name, and promoting
employee productivity and morale. As a result of these and other Doubletree
business strategies, net operating income for the 46 hotels managed by
Doubletree for the period from January 1, 1991 through December 31, 1995 has,
Doubletree believes, increased on average by approximately 20% per annum during
such period.
Doubletree's growth strategy is, and the Combined Company's growth strategy
will be, focused on four areas: (i) improving the revenue and operating
performance of its existing hotels; (ii) increasing the number of rooms under
its management or brand in its hotel portfolio; (iii) expanding the support
services it offers to hotel owners; and (iv) acquiring other hotel management
companies.
Doubletree believes that it has several competitive strengths that will
enable it to implement its growth strategy and continue to obtain additional
management contracts, leases and franchise agreements, including: (i) a proven
track record of generating profits for hotel owners; (ii) the strength of the
Doubletree brand; (iii) the ability to offer capital and flexible management
structures to hotel owners; (iv) established relationships with institutional
hotel investors; (v) the operation of multiple product lines and brands; and
(vi) the ability to increase penetration into Doubletree's existing markets.
In addition to the Merger, Doubletree has pursued its growth strategy in
1996 by completing the following transactions:
- Acquisition of RFS, Inc. and Strategic Alliance with RFS Hotel Investors,
Inc. In February 1996, Doubletree significantly expanded its portfolio
of non-Doubletree brand hotels with the acquisition of
6
<PAGE> 9
RFS Management, which operates 50 hotels with approximately 7,000 rooms
under such franchise brands as Holiday Inn, Holiday Inn Express,
Residence Inn by Marriott, Hampton Inn, and Comfort Inn. The RFS
Acquisition allows the Combined Company to further pursue non-Doubletree
brand management contract and lease opportunities. Doubletree also
separately negotiated a Right of First Refusal (as defined below in
"Business of Doubletree -- Recent Developments -- Acquisition of RFS
Management") with RFS Hotel Investors, Inc., a leading hotel real estate
investment trust (the "REIT"), which provides a new source of long-term
hotel management and lease opportunities for additions to the Combined
Company's hotel portfolio.
- Formation of Candlewood. Doubletree has entered the mid-priced extended
stay segment of the hotel industry through a joint venture ("Candlewood")
with entities controlled by Mr. Jack DeBoer, the founder of Residence
Inns, whom the industry credits with creating the extended stay concept.
Mr. DeBoer is primarily responsible for the development and day-to-day
operations of Candlewood. Candlewood's first hotel commenced operations
in May 1996. Doubletree believes that Candlewood provides an opportunity
to generate additional revenue and participate in a rapidly expanding and
high demand segment of the lodging industry.
- Formation of Joint Venture Strategic Alliance with Patriot American
Hospitality, Inc. In August 1996, Doubletree and Patriot American
Hospitality, Inc. ("Patriot"), one of the nation's leading hotel real
estate investment trusts, committed to invest $20.0 million and $200.0
million, respectively, of equity capital to acquire hotels that would be
managed, branded and leased by Doubletree. Management believes this
strategic alliance will provide the Combined Company with another source
of long-term hotel management and lease opportunities. The joint venture
has successfully completed the acquisition of four Doubletree hotels.
The Merger is consistent with, and is an important step in, Doubletree's
growth strategy. The Red Lion hotels complement Doubletree's current brand
portfolio and create critical mass for improved national brand awareness. While
there can be no assurance that the integration of Doubletree and Red Lion will
be successful or accomplished in a timely fashion or that the Combined Company
will successfully implement its growth strategy (see "Risk
Factors -- Integration of the Two Companies" and "Risk Factors--Risk of Contract
Turnover"), Doubletree believes the Merger will generate several benefits,
including:
- Doubletree believes that the Combined Company's expanded size and diverse
geographic presence presents opportunities for enhancing Doubletree's
brand recognition. Subject to the receipt of necessary third party
approvals, Doubletree currently intends to convert most of the Red Lion
hotels to one of the Doubletree brands, thereby providing a major
increase in market coverage for Doubletree's full service product,
particularly in the western United States. Based on its examination of
Red Lion hotels, Doubletree believes that such properties are generally
in well maintained condition and of high quality. As a result Doubletree
does not expect that such hotel brand conversions will require
significant capital expenditures. If the plans to convert the Red Lion
hotels to Doubletree brand hotels are successful, the Merger will nearly
double the number of upscale, non-suite Doubletree brand hotels, with
limited overlap in existing markets served. Notwithstanding the increased
size and presence of the Combined Company, Doubletree believes that there
will be a significant number of available markets offering expansion
potential for the Combined Company, including many of the markets in
which the Combined Company's hotels will be located.
- Doubletree believes that as a result of Doubletree's national brand
recognition, marketing strength, and higher average daily rate ("ADR")
structure compared to Red Lion's, the conversion of the Red Lion hotels
to the Doubletree brand presents opportunities for improvement in both
ADR and occupancy rates.
- Doubletree believes that the majority of leases and management agreements
covering the Red Lion hotels are long-term, stable assets that do not
present a significant risk that they will be terminated or renegotiated
in the ordinary course of the Combined Company's business.
7
<PAGE> 10
- Doubletree believes that the Combined Company will create economies of
scale in services provided to its hotel owners, such as centralized
reservations services, national sales and marketing departments,
centralized accounting, management information services and other
administrative departments. As a result of the Merger, Doubletree
believes that the Combined Company will achieve additional cost savings
in these centralized services departments over those that have been
experienced by Doubletree or Red Lion separately. In addition, Doubletree
believes that the opportunity to integrate Red Lion's and Doubletree's
corporate headquarters and services will result in cost savings that will
directly benefit the Combined Company.
- Doubletree believes that the combination of the experienced hotel
employees at each of Doubletree and Red Lion will result in the Combined
Company having a large pool of hotel employees with proven track records
that can further support the implementation of Doubletree's business
strategy and support the Combined Company's future growth. In addition,
the Merger presents Doubletree with the opportunity to augment its
successful corporate management team with individuals from Red Lion's
experienced corporate management team.
- Doubletree believes it can extend its purchasing power and leverage with
vendors to the Red Lion hotels. Doubletree offers purchasing services to
the hotels in its portfolio and uses its purchasing power, and, where
appropriate, the purchasing power of certain of its major stockholders,
to negotiate favorable contract terms with vendors, on both a regional
and national basis. Doubletree believes that the Combined Company's
increased size will further increase its purchasing power with such
vendors and any prospective vendors, which may therefore result in cost
savings to the hotel owners and may generate increased profits for the
Combined Company.
- Doubletree believes Red Lion's significant investments in upgrading its
reservation system will enhance the performance of its current
reservation system. Red Lion has invested approximately $11 million in
developing a new, state-of-the-art central reservations system, which
includes a direct interface with airline reservation systems, advanced
marketing database capabilities and improved revenue management tools,
including real-time room inventory, and is anticipated to be operational
throughout the Red Lion system in early 1997. Doubletree currently
intends to integrate its current reservation system with Red Lion's
reservation system, capitalizing on the best aspects of each system, for
use by the Combined Company's portfolio of hotels.
As a result of the Merger, Doubletree will acquire 100% ownership in 17 of
Red Lion's 56 hotel properties. Doubletree believes that these hotels can
benefit substantially from the implementation of the Combined Company's business
strategy. Doubletree, however, remains focused on managing hotels, and once such
operating improvements outlined above have been realized, will explore all of
its alternatives, including the sale of one or more of such properties while
retaining the right to manage the hotels sold.
It is expected that Doubletree's management team will continue to manage
the operations of the Combined Company after the completion of the Merger.
Doubletree intends to review its own operations and the operations of Red Lion
in order to develop a plan to integrate the operations of both companies,
capitalizing on the best aspects of each organization. Although no specific
plans have been developed, Doubletree anticipates that there are opportunities
to integrate corporate functions, sales and marketing, central reservations and
accounting functions. The Board of Directors of Doubletree will be expanded to
include two additional members to be designated by the Partnership, an entity
affiliated with Kohlberg Kravis Roberts & Co. ("KKR"). The Partnership is the
majority stockholder of Red Lion and will own approximately 12.0% of all
outstanding Doubletree Common Stock upon consummation of the Merger and the
Financing Plan (as defined below). GE Investment Management Incorporated
("GEIM"), Doubletree's principal stockholder, and the Trustees of General
Electric Pension Trust ("GEPT") will together beneficially own an aggregate of
approximately 23.7% of the Doubletree Common Stock upon consummation of the
Merger and the Financing Plan (as defined below). See "The Merger -- The
Financing Plan" and "Security Ownership of Certain Beneficial Owners and
Management of Doubletree."
8
<PAGE> 11
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered
United States offering..................... 4,000,000 shares(1)
International offering..................... 1,000,000 shares
Total................................... 5,000,000 shares(1)
Common Stock to be outstanding after the
Offering................................... 37,459,076 shares(1)(2)(3)
Use of proceeds.............................. To provide a portion of the financing for the
Merger. See "Use of Proceeds" and "The
Merger and the Financing Plan."
The Nasdaq Stock Market's National Market
Symbol..................................... TREE
</TABLE>
- ---------------
(1) Excludes 750,000 shares of Common Stock subject to the U.S. Underwriters'
over-allotment option. See "Underwriters".
(2) Excludes an aggregate of 1,760,275 shares of Common Stock subject to
issuance upon the exercise of options outstanding at August 15, 1996 under
the Company's 1994 Equity Participation Plan, as amended (the "Incentive
Plan").
(3) Assumes 6,925,502 shares of Common Stock are issued in the Merger and
2,444,988 shares of Common Stock are sold pursuant to the GEPT Equity
Investment, based on the assumptions set forth in the first paragraph of
"Prospectus Summary."
THE MERGER AND THE FINANCING PLAN
GENERAL
On September 12, 1996, the Company entered into the Merger Agreement with
Red Lion and Merger Sub, pursuant to which, upon the terms and subject to the
conditions thereof, Merger Sub will be merged with and into Red Lion in the
Merger and Red Lion will become a wholly-owned subsidiary of the Company.
The obligations of the Company and Red Lion to consummate the Merger are
subject to the satisfaction (or waiver) of certain conditions, including, among
others, the approval of the stockholders of Red Lion. The approval of the Merger
by Red Lion stockholders requires the affirmative vote of the holders of a
majority of the outstanding shares of Red Lion Common Stock entitled to vote
thereon. The Partnership has agreed to vote its shares of Red Lion Common Stock
(constituting approximately 66.7% of the total number of shares so entitled to
vote) in favor of approval and adoption of the Merger Agreement and the Merger.
As a result, upon the vote of the Partnership in accordance with such agreement,
approval and adoption of the Merger Agreement and the Merger by the stockholders
of Red Lion are assured. The Merger Agreement may also be terminated under
certain circumstances. If the Merger is approved by the requisite vote of the
Red Lion stockholders and the other conditions to the Merger are satisfied or
waived, the Merger will be consummated and become effective at the time
specified in the Merger Agreement (the "Effective Time"). See "The Merger and
the Financing Plan."
Assuming the conditions to the Merger are met, the closing of the Offering
hereby will occur concurrently with, and will be contingent upon the
consummation of, the Merger at the Effective Time and will provide a portion of
the financing for the Merger.
MERGER CONSIDERATION
Upon consummation of the Merger, each share of common stock, par value $.01
per share, of Red Lion ("Red Lion Common Stock") which is outstanding
immediately prior to the Merger will be converted into the right to receive (i)
$21.30 in cash, plus interest if the Merger does not occur on or prior to
November 18, 1996 (as further described herein, the "Cash Consideration"), and
(ii) 0.2398 shares (the "Exchange Ratio")
9
<PAGE> 12
of the Company's Common Stock, subject to adjustment under certain circumstances
(collectively together with the Cash Consideration, and as further described
herein, the "Merger Consideration"). In addition, upon consummation of the
Merger, each option to purchase Red Lion Common Stock then outstanding under Red
Lion's 1995 Equity Participation Plan (each, a "Red Lion Option") will be
converted into and represent the right to receive (i) the Merger Consideration
into which the share or shares of Red Lion Common Stock issuable upon exercise
of such Red Lion Option would have been converted if such Red Lion Option had
been exercised immediately prior to the effective time of the Merger, reduced by
(ii) the aggregate exercise price for the shares of Red Lion Common Stock then
issuable upon exercise of such Red Lion Option and the amount of any withholding
taxes which may be required thereon. See "The Merger and the Financing Plan."
THE FINANCING PLAN
The total amount of funds required by Doubletree to consummate the Merger
and to pay related fees and expenses is expected to be approximately $919.7
million, including approximately $685.2 million to be paid to stockholders and
optionholders of Red Lion as Cash Consideration in the Merger, approximately
$213.3 million which will be used to retire existing outstanding indebtedness of
Red Lion immediately following consummation of the Merger and $21.2 million of
estimated fees and expenses excluding underwriters discounts and commissions of
the Offering (as defined below). It is currently anticipated that such amounts
will be financed (the "Financing Plan") through (i) $600.0 million of borrowings
under a $736.0 million term loan and revolving credit facility committed by
Morgan Stanley Senior Funding, Inc. and the Bank of Nova Scotia (the "New Credit
Facility"), (ii) approximately $215.0 million in proceeds from the Offering
hereby, net of underwriting discounts and commissions and estimated offering
expenses, at or prior to the Effective Time, (iii) $100.0 million in proceeds
from the sale of newly-issued shares of Doubletree Common Stock, and warrants to
purchase additional newly-issued shares of Doubletree Common Stock (the
"Warrants"), to GEPT or an affiliate thereof (the "GEPT Equity Investment"), and
(iv) cash on hand.
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN MILLIONS)
<S> <C>
Sources of Funds:
Borrowings under the New Credit Facility....................... $600.0
Net proceeds from the Offering................................. 215.0
Proceeds from the GEPT Equity Investment....................... 100.0
Cash on hand................................................... 4.7
------
Total sources of funds.................................... $919.7
======
Uses of Funds:
Cash Consideration in the Merger............................... $685.2
Repayment of existing indebtedness of Red Lion................. 213.3
Estimated fees and expenses, excluding underwriting discounts
and commissions and estimated offering expenses in connection
with the Offering............................................ 21.2
------
Total uses of funds....................................... $919.7
======
</TABLE>
In the event that the Offering is not consummated at or prior to the
Effective Time, Doubletree currently intends to finance the Merger to the extent
necessary, through additional borrowings under the New Credit Facility and
bridge financing of up to $150.0 million for which Doubletree has received a
written commitment from various institutions, including Morgan Stanley Group
Inc. (the "Bridge Loan"). See "The Merger and the Financing Plan -- The
Financing Plan."
RISK FACTORS
See "Risk Factors" beginning on page 20 hereof for information that should
be considered by prospective investors.
10
<PAGE> 13
FORWARD LOOKING INFORMATION
The statements contained in this Prospectus that are not statements of
historical fact may include forward-looking statements that involve a number of
risks and uncertainties. The following factors are among the factors that could
cause actual results to differ materially from the forward-looking statements:
national or local economic conditions affecting the supply and demand for hotel
space; competition in hotel operations, including additional or improved
services or facilities of competitors and price competition; competition for
acquisition and other expansion opportunities which could limit the ability of
Doubletree to implement its external growth strategy; availability of financing
to fund expansion opportunities; and integration of the business of Doubletree
and Red Lion following the Merger. The forward-looking statements should be
considered in light of these factors.
11
<PAGE> 14
UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA OF DOUBLETREE
The following combined statement of operations table presents unaudited pro
forma summary financial information for Doubletree for the year ended December
31, 1995 and the six month periods ended June 30, 1995 and June 30, 1996 as if
the Merger, the Financing Plan, the Red Lion Formation and the Red Lion 1996
Hotel Acquisitions had each occurred on January 1, 1995. Additionally, the
balance sheet data below is based on the unaudited June 30, 1996 balance sheets
of Red Lion and Doubletree and assumes that the Merger and the Financing Plan
were completed as of June 30, 1996 and that the two hotels acquired subsequent
to June 30, 1996 in connection with the Red Lion 1996 Hotel Acquisitions had
been purchased as of June 30, 1996. The unaudited pro forma financial data set
forth below is presented for informational purposes only and may not reflect
Doubletree's future results of operations and financial position or what the
results of operations and financial position would have been had such
transactions occurred on the dates indicated. The information below should be
read in conjunction with the "Unaudited Pro Forma Condensed Consolidated
Financial Information" and notes thereto and "Management's Discussion and
Analysis of Results of Operations and Financial Condition of Doubletree"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE
DECEMBER 31, 30,
------------ -----------------------
PRO FORMA PRO FORMA PRO FORMA
1995 1995 1996
------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues......................................... $599,309 $ 286,670 $ 327,888
Total operating costs and expenses..................... 539,358 250,944 282,127
Operating income....................................... 59,951 35,726 45,761
Interest, net.......................................... (37,050) (18,819) (18,838)
Income before income taxes and minority interest....... 22,901 16,907 26,923
Net income............................................. 20,225 9,352 14,597
Earnings per share(1).................................. 0.55 0.26 0.39
Weighted average common and common equivalent
shares(1)........................................... 36,590 36,355 37,220
OTHER DATA:
Operating Data Excluding Non-Recurring Items
Operating income.................................... $ 77,178(2) $ 35,726 $ 45,761
Net income.......................................... 21,266(3) 8,816(3) 14,597
Earnings per share(1)............................... 0.58(3) 0.24(3) 0.39
EBITDA(4).............................................. $119,296 $ 64,836 $ 75,747
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 62,254
Total assets............................................................ 1,789,450
Long-term debt, net of current portion.................................. 595,000
Stockholders' equity.................................................... 781,047
Book value per common share............................................. $ 20.86
</TABLE>
- ---------------
(1) Pro forma per share information assumes that the approximately 14.4 million
shares to be issued in connection with the Merger were issued as of January
1, 1995.
(2) Excludes $2.6 million of business combination expenses incurred by
Doubletree in the fourth quarter of 1995 related to the RFS Acquisition and
$14.7 million of formation expenses incurred by Red Lion as a result of the
Red Lion Formation in August 1995.
12
<PAGE> 15
(3) Adjusted to (a) provide for increased income tax expense on the excluded
business combination and formation expenses incurred during the year ended
December 31, 1995, (b) exclude the deferred tax benefit of $9.7 million
related to the Red Lion Formation and provide for income taxes at the
statutory rate and (c) provide for taxes on RFS Management's earnings that
were not taxed due to its Sub-Chapter S status for both 1995 periods.
(4) EBITDA represents earnings before interest expense, income taxes, income
(loss) attributable to joint venturers' interest, and depreciation and
amortization. EBITDA is not intended to represent cash flow from operations
as defined by generally accepted accounting principles, and such information
should not be considered as an alternative to net income, cash flow from
operations or any other measure of performance prescribed by generally
accepted accounting principles. EBITDA is included herein because management
believes that certain investors find it to be a useful tool for measuring
the ability to service debt.
For the year ended December 31, 1995 EBITDA includes $14.7 million of
non-recurring formation expenses associated with the Red Lion Formation and
$2.6 million of business combination expenses related to the RFS
Acquisition. Excluding these expenses, EBITDA for the year ended December
31, 1995 would have been $136.5 million.
COMBINED SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JUNE 30,
----------------- -----------------
1994 1995 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
NUMBER OF HOTELS
Owned Hotels.......................................... 21 21 21 22
Management Contracts.................................. 92 97 96 102
Lease Agreements...................................... 21 22 22 73
Franchise Agreements.................................. 23 30 24 37
------ ------ ------ ------
Total.............................................. 157 170 163 234
====== ====== ====== ======
NUMBER OF ROOMS
Owned Hotels.......................................... 5,113 5,113 5,117 5,406
Management Contracts.................................. 25,729 28,105 27,322 29,552
Lease Agreements...................................... 4,608 5,006 5,006 12,234
Franchise Agreements.................................. 4,969 6,641 5,209 8,580
------ ------ ------ ------
Total.............................................. 40,419 44,865 42,654 55,772
====== ====== ====== ======
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JUNE 30,
----------------- -----------------
1994 1995 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
OTHER DATA
Total Doubletree average daily rate(1)................ $82.21 $86.41 $82.22 $87.93
Doubletree branded hotels average daily rate(1)....... 84.59 88.99 88.55 94.99
Red Lion average daily rate........................... 70.52 75.14 74.80 79.75
Total Doubletree occupancy percentage(1).............. 71.0% 71.8% 72.8% 74.5%
Doubletree branded hotels occupancy percentage(1)..... 71.2 71.9 72.1 73.9
Red Lion occupancy percentage......................... 72.1 72.7 72.2 71.0
Total Doubletree REVPAR(1)(2)......................... $58.38 $62.03 $59.86 $65.51
Doubletree branded hotels REVPAR(1)(2)................ 60.22 63.96 63.84 70.20
Red Lion REVPAR(2).................................... 50.85 54.59 54.10 56.61
</TABLE>
- ---------------
(1) For the years ended 1994 and 1995, includes only information for hotels
continuously managed by Doubletree (including RFS Management, but excluding
Red Lion) since January 1, 1994. For the six months ended June 30, 1995 and
1996, includes only information for hotels continuously managed by
Doubletree (including RFS Management, but excluding Red Lion) since January
1, 1995. Doubletree branded hotels include only those hotels managed by
Doubletree under the Doubletree brand. Total Doubletree includes all hotels
(other than Red Lion hotels) managed by Doubletree.
(2) REVPAR is occupancy percentage multiplied by average daily rate.
14
<PAGE> 17
SUMMARY FINANCIAL INFORMATION OF DOUBLETREE
The following tables present summary historical consolidated financial
information for Doubletree, all of which have been restated to give effect to
the RFS Acquisition in February 1996, which was accounted for as a pooling of
interests. The table also presents summary pro forma consolidated financial
information for the year ended December 31, 1993, assuming that the Doubletree
Combination Transaction and the Doubletree Reorganization had each occurred on
January 1, 1993. The information below should be read in conjunction with the
consolidated financial statements of Doubletree and notes thereto and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition of Doubletree." Pro forma results of operations are not necessarily
indicative of the results of operations as they might have been had the
Doubletree Combination Transaction and the Doubletree Reorganization been
consummated at the beginning of the period shown. The results of operations for
the six months ended June 30, 1995 and 1996 are not necessarily indicative of
the results expected for the full year. For a discussion of the historical
corporate organization of Doubletree, see "Corporate Organization."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- --------------------
PRO FORMA(1) ACTUAL ACTUAL ACTUAL ACTUAL
1993 1994 1995 1995 1996
------------ -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues................... $ 56,796 $112,482 $196,586 $91,349 $117,376
Total operating costs and
expenses...................... 41,171 93,711 174,282 79,452 100,181
Operating income................. 15,625 18,771 22,304 11,897 17,195
Interest, net.................... (1,247) 799 3,920 1,726 1,947
Income before income taxes and
minority interest............. 14,378 19,570 26,224 13,623 19,142
Net income....................... 8,615 13,235(2) 17,791 9,387 12,427
Earnings per share............... $ 0.47 $ 0.66(2) $ 0.80 $ 0.43 $ 0.54
Pro forma net income(3).......... $ 18,736 $ 8,851
Pro forma earnings per
share(3)...................... $ 0.84 $ 0.40
Weighted average common and
common equivalent shares(4)... 18,228 20,071 22,219 21,984 22,849
OTHER DATA:
EBITDA(5)........................ $ 19,115 $ 23,344 $ 31,137(5) $15,811 $ 22,225
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30,
1996
--------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....................................................... $ 46,566
Total assets.................................................................... 211,973
Long-term debt, net of current portion.......................................... --
Stockholders' equity............................................................ 154,461
Book value per common share..................................................... $ 6.70
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------- -----------------
1994 1995 1995 1996
------ ------- ------ ------
<S> <C> <C> <C> <C>
SUMMARY OPERATING DATA:
NUMBER OF HOTELS
Doubletree Full-Service Hotels...................... 44 56 49 60
Doubletree Guest Suite Hotels....................... 33 36 34 37
Doubletree Club Hotels.............................. 14 13 14 13
------ ------ ------ ------
Total Doubletree Brand Hotels.................... 91 105 97 110
Non-Doubletree Brand Hotels......................... 13 11 13 69
------ ------ ------ ------
Total Company Hotel Portfolio.................... 104 116 110 179
====== ====== ====== ======
Management Contracts................................ 77 81 81 86
Lease Agreements(6)................................. 4 5 5 56
Franchise Agreements................................ 23 30 24 37
------ ------ ------ ------
Total Company Hotel Portfolio.................... 104 116 110 179
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------- -----------------
1994 1995 1995 1996
------ ------- ------ ------
<S> <C> <C> <C> <C>
NUMBER OF ROOMS
Doubletree Full-Service Hotels...................... 14,207 18,422 16,269 19,334
Doubletree Guest Suite Hotels....................... 7,138 7,693 7,378 8,033
Doubletree Club Hotels.............................. 2,573 2,386 2,573 2,364
------ ------- ------ ------
Total Doubletree Brand Hotels.................... 23,918 28,501 26,220 29,731
Non-Doubletree Brand Hotels......................... 2,620 2,114 2,551 11,501
------ ------- ------ ------
Total Company Hotel Portfolio.................... 26,538 30,615 28,771 41,232
====== ======= ====== ======
Management Contracts................................ 20,952 22,957 22,545 24,407
Lease Agreements(6)................................. 617 1,017 1,017 8,245
Franchise Agreements................................ 4,969 6,641 5,209 8,580
------ ------- ------ ------
Total Company Hotel Portfolio.................... 26,538 30,615 28,771 41,232
====== ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------- -----------------
1994 1995 1995 1996
------ ------- ------ ------
<S> <C> <C> <C> <C>
REVPAR ANALYSIS(7)
Doubletree Full-Service Hotels...................... $56.48 $ 60.08 $58.22 $64.28
Doubletree Guest Suite Hotels....................... 69.57 73.74 77.00 84.13
Doubletree Club Hotels.............................. 41.59 43.99 47.34 50.74
Total Doubletree Brand Hotels.................... 60.22 63.96 63.84 70.20
Non-Doubletree Brand Hotels......................... 49.02 52.51 50.60 54.69
Total Company Hotel Portfolio.................... 58.38 62.03 59.86 65.51
</TABLE>
- ---------------
(1) Assumes that the Doubletree Combination Transaction and the Doubletree
Reorganization had each occurred on January 1, 1993.
(2) Doubletree's effective tax rate for the year ended December 31, 1994 was
32.4% due to the organizational structure of Doubletree prior to its initial
public offering. Had a 35% rate been applied, 1994 net income and earnings
per share would have been $12.7 million and $0.63, respectively.
(3) During the fourth quarter of 1995, Doubletree and RFS Management incurred,
in the aggregate, $2.6 million of business combination expenses related to
the RFS Acquisition which closed in February 1996. RFS Management, as a
Subchapter S corporation for Federal income tax purposes, was generally not
liable for Federal income taxes for 1995. Accordingly, RFS Management did
not provide for Federal
16
<PAGE> 19
income taxes in its 1995 financial statements. Pro forma adjustments have
been made for the year ended December 31, 1995 and the six months ended June
30, 1995 to provide for income taxes on the earnings of RFS Management at
the effective tax rate of Doubletree; also, for the year ended December 31,
1995 pro forma adjustments have been made to exclude the business
combination expenses and provide for a related increase in income tax
expense.
(4) Assumes that the 15,500,000 shares issued in connection with the Doubletree
Reorganization and 2,727,811 shares issued to acquire RFS Management, which
was accounted for as a pooling of interests, were outstanding for all
periods presented.
(5) Includes $2.6 million of business combination expenses related to the RFS
Acquisition. Excluding these expenses, EBITDA would have been $33.7 million
for the year ended December 31, 1995.
(6) Includes one owned hotel (239 rooms).
(7) For the years ended 1994 and 1995, includes only information for hotels
managed by Doubletree (including RFS Management) for the entire two-year
period. For the six months ended June 30, 1995 and 1996, includes only
information for hotels managed by Doubletree (including RFS Management)
during both periods.
17
<PAGE> 20
SUMMARY FINANCIAL INFORMATION OF RED LION
The following tables present pro forma summary consolidated financial
information for 1994 and 1995 for Red Lion giving effect to the Red Lion
Formation and the Red Lion Refinancing as if they had occurred on January 1,
1994 and the actual results of operations for the six months ended June 30,
1996. THE FINANCIAL INFORMATION FOR ALL PERIODS PRESENTED HAS BEEN ADJUSTED TO
CONFORM TO THE FINANCIAL STATEMENT PRESENTATION OF DOUBLETREE. The information
below should be read in conjunction with the consolidated financial statements
of Red Lion and notes thereto, "Unaudited Pro Forma Condensed Consolidated
Financial Information" and notes thereto and "Management's Discussion and
Analysis of Results of Operations and Financial Condition of Red Lion." Pro
forma results of operations are not necessarily indicative of the results of
operations as they might have been had the Red Lion Formation and the Red Lion
Refinancing been consummated at the beginning of the period shown. The results
of operations for the six months ended June 30, 1996 are not necessarily
indicative of the results expected for the full year. For a discussion of the
historical corporate organization of Red Lion, see "Corporate Organization."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
PRO FORMA PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED AS ADJUSTED AS ADJUSTED
1994 1995 1995 1996
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues............................ $ 345,857 $ 375,948 $ 181,810 $ 198,416
Total operating costs and expenses........ 284,515 318,183 148,264 159,106
Operating income.......................... 61,342 57,765(1) 33,546 39,310
Interest, net............................. (18,814) (16,929) (9,496) (6,939)
Income before income taxes and minority
interest............................... 42,528 40,836(1) 24,050 32,371
Net income................................ 24,922 32,751(1) 14,335 18,836
Earnings per share........................ $ 0.80 $ 1.05(1) $ 0.46 $ 0.60
Weighted average common and
common equivalent shares............... 31,313 31,313 31,313 31,313
OTHER DATA:
EBITDA.................................... $ 83,109 $ 81,922(2) $ 45,785 $ 50,592
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................. $ 36,509
Total assets.............................................................. 531,883
Long-term debt, net of current portion.................................... 204,109
Stockholders' equity...................................................... 249,115
Book value per common share............................................... $ 7.96
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------ -----------------
1994 1995 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
SUMMARY OPERATING DATA
NUMBER OF HOTELS:(3)
Owned Hotels.......................................... 21 21 21 22
Management Contracts.................................. 15 16 15 16
Leased Hotels......................................... 17 17 17 17
------ ------ ------ ------
Total.............................................. 53 54 53 55
====== ====== ====== ======
NUMBER OF ROOMS:(3)
Owned Hotels.......................................... 5,113 5,113 5,117 5,406
Management Contracts.................................. 4,777 5,148 4,777 5,145
Leased Hotels......................................... 3,991 3,989 3,989 3,989
------ ------ ------ ------
Total.............................................. 13,881 14,250 13,883 14,540
====== ====== ====== ======
REVPAR:(4)
Owned Hotels.......................................... $56.98 $60.52 $59.88 $63.20
Management Contracts.................................. 47.82 51.10 51.61 53.20
Leased Hotels......................................... 46.60 51.20 49.65 52.45
------ ------ ------ ------
Total.............................................. $50.85 $54.59 $54.10 $56.61
====== ====== ====== ======
</TABLE>
- ---------------
(1) Includes $14.7 million of non-recurring costs associated with the Red Lion
Formation. Excluding these costs, operating income and income before income
taxes and minority interest would have been $72.4 million and $55.5
million, respectively. Net income and earnings per share adjusted to
exclude the costs associated with the Red Lion Formation, to provide for
taxes at the statutory rate and to exclude $9.7 million of deferred tax
benefits related to the Red Lion Formation would have been $32.8 million
and $1.05, respectively.
(2) Includes $14.7 million of non-recurring costs associated with the Red Lion
Formation. Excluding these costs, EBITDA would have been $96.6 million for
the year ended December 31, 1995.
(3) The information reflects the 17 Red Lion Leased Hotels, which were owned
prior to August 1, 1995, as if the hotels were leased on each date
presented.
(4) For the years ended 1994 and 1995, and the six months ended June 30, 1995
and 1996, includes information for all hotels owned or operated under
management contracts and a lease agreement.
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RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information contained in this Prospectus in evaluating
whether to purchase the Common Stock offered hereby.
FINANCING OF THE MERGER; LEVERAGE
Following consummation of the Merger and the Financing Plan described in
"The Merger and the Financing Plan -- The Financing Plan," including the
Offering, Doubletree will have substantial indebtedness, and as a result
significant debt service obligations. After giving effect to the Merger and
assuming the Financing Plan is effectuated, on June 30, 1996 Doubletree would
have had $600.0 million of indebtedness and $781.0 million of stockholders'
equity, resulting in a debt to total capital ratio of 0.43 to 1.00. In addition,
depending on prevailing financial, economic and market conditions (including the
trading market for Doubletree Common Stock) and any other factors or
considerations the Board of Directors or management of Doubletree deems
relevant, Doubletree may finance the Merger through additional borrowings under
the New Credit Facility or the Bridge Loan, in lieu of the sale of Doubletree
Common Stock in the Offering. Accordingly, following the Merger, the amount of
outstanding indebtedness may be greater than contemplated under the Financing
Plan and stockholders' equity may be lower than contemplated under the Financing
Plan, resulting in a debt to total capital ratio of up to 0.57 to 1.00. See "The
Merger and the Financing Plan -- The Financing Plan."
The degree to which Doubletree is leveraged could have important
consequences to holders of Doubletree Common Stock, including the following: (i)
Doubletree's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired; (ii) a substantial portion of Doubletree's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to Doubletree for its
operations; (iii) certain of Doubletree's borrowings are and will continue to be
at variable rates of interest, which causes Doubletree to be vulnerable to
increases in interest rates; and (iv) such indebtedness contains or will contain
numerous financial and other restrictive covenants, including those restricting
the incurrence of indebtedness, the creation or existence of liens, the
declaration or payment of dividends, certain investments, the acquisition of
securities of Doubletree, and certain extraordinary corporate transactions.
Failure by Doubletree to comply with such covenants may result in an event of
default which, if not cured or waived, could have a material adverse effect on
Doubletree.
Doubletree's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness depends on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control.
There can be no assurance that Doubletree's cash flow from its operations will
be sufficient for payment of Doubletree's indebtedness in the future.
INTEGRATION OF THE TWO COMPANIES
In determining the terms of the proposed Merger, the Boards of Directors of
both Doubletree and Red Lion evaluated the companies' respective businesses
based in part on expectations concerning the future operations of the Combined
Company. The evaluations took into consideration the expectation that the
combination of the two companies would produce the beneficial effects described
below in "The Combined Company." In addition, Doubletree and Red Lion believe
that a key benefit to be realized from the Merger will be the integration of
their respective hotel portfolios. There can be no assurance that these
expectations will be fulfilled. The combination of Doubletree and Red Lion
presents certain risks with regard to the integration of the two organizations.
The difficulties of such integration may be increased by the necessity of
coordinating geographically separated organizations; integrating different
strategies and integrating personnel with disparate business backgrounds and
corporate cultures. There can be no assurance that Doubletree and Red Lion will
be able to integrate effectively or in a timely manner. Nor can there be any
assurance that, even if integrated, the Combined Company's product and service
offerings will be successful. The integration and
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consolidation is intended to realize cost savings. There can be no assurance of
the extent to which such cost savings will be achieved, if any. If the Combined
Company is not successful in integrating its strategies and hotel portfolios or
if its integrated products and services fail to achieve market acceptance, the
Combined Company could be adversely affected.
In addition, as a key benefit of the Merger, Doubletree currently intends
to convert most of the Red Lion hotels to one of the Doubletree brands. In some
cases, such hotel brand conversions are subject to the approval of unaffiliated
third parties. There can be no assurance that any such necessary third party
approvals will be obtained.
COMPETITION FOR AND DEPENDENCE ON MANAGEMENT CONTRACTS, LEASES AND FRANCHISE
AGREEMENTS; COMPETITION FOR GUESTS
Competition for management contracts, leases and franchise agreements in
the lodging industry is intense. The Combined Company will compete with national
and regional brand franchisers and management companies, some of which have
greater name recognition than either Doubletree or Red Lion and greater
financial resources than the Combined Company. In addition, smaller hotel
management companies compete against the Combined Company. Doubletree believes
that the Combined Company's ability to secure management contracts, leases or
franchise agreements will be based principally upon the perceived value and
quality of the Combined Company's management services, brand name and the
potential economic advantages to the hotel owner of retaining the Combined
Company's management services or brand names. Doubletree believes that the
perceived value of a brand name to a hotel owner is in part a function of the
success of the hotels currently under management under that brand name.
Competitive factors also include relationships with hotel owners and investors,
marketing support, reservation system capacity and the willingness to make debt
and equity investments (collectively, "Investments") in connection with new
management contracts and leases. No assurance can be given that the Combined
Company will be successful in retaining current, or competing for additional,
management contracts, leases or franchise agreements.
Competition for guests in the lodging industry is also intense. Competitive
factors in the industry include room rates, quality of accommodations, name
recognition, service levels and convenience of location. The Combined Company's
hotels will be located in areas that generally contain numerous other
competitors, some of which have greater name recognition than either Doubletree
or Red Lion and greater financial resources than the Combined Company. There can
be no assurance that demographic, geographic or other changes in markets will
not adversely affect the convenience or desirability of the locales in which the
Combined Company's hotels are located. Further, there can be no assurance that
new or existing competitors will not significantly lower rates, offer greater
convenience, services or amenities, or significantly expand or improve
facilities in a market in which the Combined Company's hotels compete, thereby
adversely affecting the Combined Company's ability to attract guests.
RISK OF CONTRACT TURNOVER
Management contracts, leases and franchise agreements will be acquired,
terminated and renegotiated in the ordinary course of the Combined Company's
business. Many of the management contracts and leases to which Doubletree is a
party may be terminated by the owner of the hotel property if Doubletree fails
to meet certain performance standards, or in the event of a change in control of
the property through sale or foreclosure, or otherwise. Few of the management
contracts and leases to which Red Lion is a party are subject to the same types
of risks. In the event of a termination other than for performance, many
contracts require the hotel owner to pay a termination fee, which may be more or
less than the book value, if any, of the contract asset. If the Combined Company
loses a capitalized management contract, lease or franchise agreement, the
Combined Company will record a write-off of the remaining book value (less any
termination fee received) of such management contract, lease or franchise
agreement, which could have a material adverse effect on the Combined Company's
results of operations and financial condition.
Ownership of individual hotels and hotel portfolios change from time to
time, and management and hotel brands may be changed concurrently. Historically,
Doubletree and Red Lion have been successful in retaining
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management contracts, leases or franchise agreements in the majority of cases,
because of their operating performance and competitive advantages. During 1995,
four hotels managed by Doubletree (all operated under non-Doubletree brands) and
two Doubletree franchised hotels were sold to new owners which did not retain
Doubletree's services. In the six months ended June 30, 1996, two Doubletree
managed hotels operated under the Doubletree brand and one Doubletree franchised
hotel were sold to new owners which did not retain Doubletree's services. None
of these terminations resulted in a material loss to Doubletree. In 1995 and the
six months ended June 30, 1996, Doubletree was able to add 12 and 13 new hotels
(net of the above terminations), excluding the RFS Acquisition, respectively,
and achieved a net growth in rooms of 4,077 and 3,638, respectively.
In 1995 and 1996, Starwood Lodging Trust, or its affiliates ("Starwood"), a
company that owns and manages hotels, has acquired an aggregate of nine
Doubletree brand hotels and one non-Doubletree brand hotel. The nine Doubletree
brand hotels are subject to Doubletree brand franchise agreements, and the non-
Doubletree brand hotel has left the Doubletree system. Starwood has indicated
that three of such franchise agreements will likely be converted to other brands
in early 1997. However, Doubletree currently anticipates that it would terminate
two of the three franchise agreements as a result of the Merger. See "Business
of Doubletree -- Recent Developments." In addition, in 1996, Starwood entered
into a franchise agreement with Doubletree covering a Doubletree brand hotel
that was not previously a part of the Doubletree system. There can be no
assurance that Doubletree will retain the long-term management or franchise of
the hotels that are owned by Starwood. There can be no assurance that the
Combined Company will be as successful in the future as Doubletree and Red Lion
have been in the past in retaining contracts, avoiding a material loss on
contract termination, replacing terminated contracts with favorable new
contracts or renegotiating and converting contracts.
DEPENDENCE ON CERTAIN HOTEL OWNERS
Doubletree manages hotels for, leases hotels from, and franchises its
brands to, (i) certain affiliates of two of its original stockholders, GE
Investment Hotel Partners I, Limited Partnership ("GEHOP") and Metropolitan Life
Insurance Company ("Metropolitan"), (ii) affiliates of certain of its directors
and (iii) other major hotel investors. At June 30, 1996, affiliates of GEHOP and
Metropolitan owned 12 and ten hotels, respectively, that were managed or leased
by Doubletree. On the same date, Doubletree managed four hotels for affiliates
of Norman B. Leventhal, a director of Doubletree. In 1995 Doubletree received in
the aggregate (including reimbursements) $11.8 million, $10.3 million and $3.4
million, respectively, under contracts with these parties. At June 30, 1996,
Doubletree also leased 49 hotels (45 of which it managed) from RFS Partnership,
L.P., a limited partnership (the "Landlord"), of which RFS Hotel Investors, Inc.
(the "REIT") is the sole general partner and 98.6% owner. For a description of
certain of the relationships between Doubletree and the REIT, see "Business of
Doubletree -- The RFS Acquisition." In addition, at June 30, 1996, there were
five unrelated hotel owners that each owned between three and six hotels which
are managed by or franchised from Doubletree.
In addition, Red Lion leases from the Partnership the Red Lion Leased
Hotels pursuant to a long-term lease (the "Partnership Lease"). The Partnership
will continue to own the Red Lion Leased Hotels following consummation of the
Merger. Michael Michelson, a director and stockholder of RLA-GP, Inc. ("RLA"),
the general partner of the Partnership, and Edward Gilhuly, a director and
officer of RLA, will be members of the Doubletree Board of Directors. While Red
Lion believes the terms of the Partnership Lease are fair to Red Lion and the
Partnership, those terms were not negotiated on an arms-length basis.
Although Doubletree and Red Lion each believe that it has satisfactory
relationships with these respective hotel owners, no assurance can be given that
the Combined Company's relationship with these owners will remain satisfactory.
In addition, the Combined Company's growth opportunities are dependent in part
on its ability to maintain satisfactory relationships with these and other
institutional hotel investors, and therefore the failure of the Combined Company
to maintain any of these relationships could have a material adverse effect on
the Combined Company's results of operation and financial condition or its
ability to expand its portfolio of hotels under management or franchise.
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adverse effect on the Combined Company's results of operation and financial
condition or its ability to expand its portfolio of hotels under management or
franchise.
RISKS ASSOCIATED WITH EXPANSION
A major focus of the Combined Company's growth strategy will be to add
significantly to its portfolio of hotels through the acquisition of management
contracts, leases and franchise agreements, individually or in groups, including
through the acquisition of hotel management companies. There can be no assurance
that the Combined Company will be able to obtain new contracts, leases and
franchise agreements, that such contracts, leases and franchise agreements will
be profitable, or that the Combined Company's systems, procedures and controls
and management, financial and other resources, will be adequate to support such
expansion.
There can be no assurance that the Combined Company will be able to
integrate successfully new hotels, new hotel products or new hotel management
company acquisitions into its operations, that new hotels, new hotel products or
new hotel management company acquisitions will achieve revenue and profitability
levels comparable to Doubletree's or Red Lion's existing hotels or that the
combined business will be profitable. Hotels being operated under newly acquired
management contracts or lease agreements, including those of Red Lion, may begin
with lower occupancy and room rates. Furthermore, the Combined Company's
expansion within its existing markets could adversely affect the financial
performance of the Combined Company's existing hotels or its overall results of
operations. Expansion into new markets may present operating and marketing
challenges that are different from those currently encountered by Doubletree and
Red Lion in its existing markets. There can be no assurance that the Combined
Company will anticipate all of the changing demands, including those presented
by the Merger, that expanding operations will impose on its management or its
management information and reservation systems, and the failure to adapt its
systems and procedures could have a material adverse effect on the Combined
Company's business.
RISKS ASSOCIATED WITH OWNING AND LEASING REAL ESTATE
As of June 30, 1996, Doubletree leased 56 hotels and owned one hotel. At
the Effective Time, Doubletree's acquisition of Red Lion will result in
Doubletree leasing 17 additional hotels, owning 17 additional hotels and having
at least a 50% joint venture interest in seven hotels. As a result, the Combined
Company will be subject to varying degrees of risk generally related to leasing
and owning real estate. In addition to general risks related to the lodging
industry, these risks include, among others, liability for long-term lease
obligations, changes in national, regional and local economic conditions, local
real estate market conditions, changes in interest rates and in the
availability, cost and terms of financing, the potential for uninsured casualty
and other losses, the impact of present or future environmental legislation and
compliance with environmental laws, and adverse changes in zoning laws and other
regulations, many of which are beyond the control of the Combined Company.
Moreover, real estate investments are relatively illiquid, which means that the
ability of the Combined Company to vary its portfolio of hotels in response to
changes in economic and other conditions may be limited. Historically,
Doubletree has earned management fees based on a percentage of specified hotel
revenues and its risk has been limited to the extent of its management fee.
However, lease terms typically require the payment of a fixed monthly base rent
regardless of the performance of the hotel leased, in addition to a variable
rent based on a percentage of revenues.
The majority of the hotels that will be leased by the Combined Company will
be leased from the REIT pursuant to the Percentage Leases (as defined in
"Business of Doubletree -- Hotel Operations: Non-Doubletree Brand
Hotels -- Lease and Management Agreements") and the Partnership pursuant to the
Partnership Lease. Each of the Percentage Leases and the Partnership Lease is a
"triple net" lease which requires the lessee to maintain the leased hotel in
good condition and repair and in conformity with all applicable legal
requirements and to make, or cause to be made, all items of maintenance, repair,
replacement and alteration to the leased hotel as necessary for such purpose.
The Percentage Leases, the Partnership Lease and any other leases pursuant to
which the Combined Company is the lessee will expose the Combined Company to the
risk that the hotels covered by such leases will not generate sufficient
revenues to meet the
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Combined Company's lease and other obligations. If such obligations are not met,
the lessor can terminate the lease.
In addition to provisions generally included in "triple net" leases, the
Percentage Leases contain, among other things, a cross-default provision for
events of default under any Percentage Lease acquired as part of the RFS
Acquisition. This cross-default provision could result in additional leverage in
favor of the REIT in the event of a dispute between RFS Management and the REIT.
The Percentage Leases also require RFS Management to continue to make rental
payments and to pay all other charges required under the lease for up to six
months if a hotel is substantially damaged or destroyed and to indemnify the
REIT from and against a number of liabilities, costs and expenses. The REIT has
retained the right to sell one or more of the hotels subject to the Percentage
Leases and to terminate the Percentage Leases relating to such hotels, provided
that in connection with any such termination the REIT pays RFS Management the
fair market value of such lease or offers to lease to RFS Management a
substitute hotel under a lease with a fair market value equal to that of the
lease being terminated. For a more detailed description of the Percentage
Leases, see "Business of Doubletree -- Hotel Operations: Non-Doubletree Brand
Hotels -- Lease and Management Agreements."
The Partnership Lease requires, among other things, Red Lion to pay
substantially all expenses associated with the operation of the Red Lion Leased
Hotels, including all ground lease expense, real estate taxes, insurance,
utilities and services. The Partnership has retained the right to sell one or
more of the Red Lion Leased Hotels, subject to the terms of the Partnership
Lease. Red Lion also has agreed to fully indemnify the Partnership and its
affiliates for any matter arising by reason of or in connection with the
leasing, use, non-use, occupancy, management or operation of each of the Red
Lion Leased Hotels prior to or during the term of the Partnership Lease,
including environmental matters. In connection with the Merger, Doubletree has
agreed to guaranty these indemnification obligations. For a more detailed
description of the Partnership Lease, see "Business of Red Lion -- The
Partnership Lease."
INVESTMENT LOSSES; RISKS ASSOCIATED WITH JOINT VENTURES; CONTINGENT LIABILITIES
Doubletree and Red Lion have made selective Investments in hotels and hotel
ventures in connection with acquiring or maintaining management of hotels and to
enhance the respective value or position of Doubletree and Red Lion in the
lodging industry. They have also made certain financial commitments for the same
purposes. See "Business of Doubletree -- Investments and Commitments" and
"Business of Red Lion -- Joint Ventures." These Investments and commitments may
involve risks of loss different in nature or amount from losses ordinarily
associated with hotel management alone, and losses arising from Investments or
commitments could have a material adverse effect on the Combined Company. There
can be no assurance that the Combined Company will not sustain material losses
on its Investments and commitments.
Investments in joint venture arrangements to acquire or develop additional
hotels may, under certain circumstances, involve risks such as the possibility
that the co-venturer in an investment might become bankrupt, or have economic or
business interests or goals that are inconsistent with the business interests or
goals of the Combined Company, or be in a position to take action contrary to
the instructions or requests of the Combined Company or contrary to the Combined
Company's policies or objectives. Consequently, actions by a co-venturer might
result in subjecting hotels owned by the joint venture to additional risk.
Although the Combined Company will seek to maintain sufficient control of any
joint venture to permit the Combined Company's objectives to be achieved, it may
be unable to take action without the approval of its joint venture partners or
its joint venture partners could take actions binding on the joint venture
without the Combined Company's consent. Additionally, should a joint venture
partner become bankrupt, the Combined Company could, in certain circumstances,
become liable for such partner's share of joint venture liabilities.
In addition, each corporate subsidiary of the Combined Company which serves
as a general partner will be liable for the obligations of the partnership or
joint venture it manages. Although Doubletree believes that it is not
responsible for the liabilities of these subsidiaries, no assurance can be given
that the Combined Company would not be found liable for its subsidiaries'
obligations nor that it would not be required to pay substantial sums to satisfy
its subsidiaries' obligations.
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RISKS ASSOCIATED WITH NEW CONSTRUCTION
Doubletree, through joint ventures and partnerships, is involved in the
construction of several new hotels. Any construction project entails significant
construction risks, including cost overruns, shortages of materials or skilled
labor, labor disputes, unforeseen environmental or engineering problems, work
stoppages, fire and other natural disasters, construction scheduling problems
and weather interferences, any of which, if they occurred could delay
construction or result in a substantial increase in costs of the construction of
the new hotels.
The opening of newly constructed hotels is contingent upon, among other
things, receipt of all required licenses, permits and authorizations. The scope
of the approvals required for a new hotel is extensive, including, without
limitation, state and local land-use permits, building and zoning permits,
health and safety permits and liquor licenses. In addition, unexpected changes
or concessions required by local, regulatory and state authorities could involve
significant additional costs and could delay or prevent the completion of
construction or the opening of a new hotel. There can be no assurance that the
necessary permits, licenses and approvals for the construction and operation of
the new hotels will be obtained, or that such permits, licenses and approvals
will be obtained within the anticipated time frame.
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
The lodging industry may be adversely affected by changes in economic
conditions, changes in local market conditions, oversupply of hotel space, a
reduction in demand for hotel space in an area, changes in travel patterns,
extreme weather conditions, changes in governmental regulations that influence
or determine wages, prices or construction costs, changes in interest rates, the
availability of financing for operating or capital needs, and changes in real
estate tax rates and other operating expenses. Room supply and demand
historically have been sensitive to shifts in GNP growth, which has resulted in
cyclical changes in average daily room and occupancy rates. Overbuilding in the
industry in the mid and late 1980s, when approximately 500,000 rooms were added,
resulted in an oversupply of rooms. This oversupply and the general downturn in
the economy led to depressed industry performance and a lack of capital
available to the industry in the late 1980s and early 1990s. Due in part to the
strong correlation between the lodging industry's performance and economic
conditions, the lodging industry is subject to cyclical changes in revenues.
FLUCTUATIONS IN OPERATING RESULTS
The lodging industry is seasonal in nature with the second and third
quarters generally accounting for a greater proportion of annual revenues than
the first and fourth quarters. Quarterly earnings may be adversely affected by
events beyond the Combined Company's control such as poor weather conditions,
economic factors and other considerations affecting travel. In addition, the
loss of one or several management contracts, leases or franchise agreements, the
timing of achieving incremental revenues from new contracts, leases or franchise
agreements and the realization of a gain or loss upon the sale of hotels in
which Doubletree has an equity interest may also adversely impact earnings
comparisons.
GOVERNMENT REGULATIONS
The hotel industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and beverages (such as health and liquor license laws) and building and
zoning requirements. Also, the Combined Company and its customers are subject to
laws governing their relationships with employees, including minimum wage
requirements, overtime, working conditions and work permit requirements. The
Combined Company will also be subject to federal regulations and certain state
laws that govern the offer and sale of franchises. Many state franchise laws
impose substantive requirements on franchise agreements, including limitations
on noncompetition provisions and termination or nonrenewal of a franchise. Some
states require that certain materials be approved before franchises can be
offered or sold in that state. The failure to obtain or retain liquor licenses
or approvals to sell franchises, or an increase in the minimum wage rate,
employee benefit costs or other costs associated with employees, could adversely
affect the Combined Company. Under the Americans with Disabilities Act of 1990
(the "ADA"), all public
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accommodations are required to meet certain federal requirements related to
access and use by disabled persons. Doubletree and Red Lion each believes that
the hotels under their respective management are substantially in compliance
with these requirements; however, a determination that such hotels are not in
compliance with the ADA could result in the imposition of fines, an award of
damages to private litigants or significant expense to the Combined Company in
bringing these hotels into compliance. These and other initiatives could
adversely affect the Combined Company as well as the hotel industry in general.
See "Business of Doubletree -- Government Regulation" and "Business of Red
Lion -- Government Regulation."
ENVIRONMENTAL REGULATIONS
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. For example, liability may arise as a result of
the historical use of a site or from the migration of contamination from
adjacent or nearby properties. Any such contamination or liability may also
reduce the value of the property. In addition, certain environmental laws and
common law principles could be used to impose liability for release of
asbestos-containing materials ("ACMs") into the air, and third parties may seek
recovery from owners or operators of real properties for personal injury
associated with exposure to released ACMs. Environmental laws also may impose
restrictions on the manner in which property may be used or businesses may be
operated, and these restrictions may require expenditures. In connection with
the ownership or operation of hotels, including properties managed, leased or
franchised by Doubletree or Red Lion, Doubletree or Red Lion, as the case may
be, may be potentially liable for any such costs.
The condition of a limited number of Red Lion's properties has been
affected by historical uses of such properties or activities in the vicinity of
such properties. There can be no assurance that the current condition of
Doubletree's or Red Lion's properties have not been or will not be further
affected by the historical or current uses of such properties or the activities
in the vicinity of Doubletree's or Red Lion's properties or that liability
resulting from non-compliance or other claims relating to environmental matters
will not have a material adverse effect on the Combined Company. See "Business
of Doubletree -- Environmental Matters" and "Business of Red
Lion -- Environmental Matters."
POTENTIAL CONFLICTS OF INTEREST
Certain affiliates of Doubletree are parties to management contracts,
leases and franchise agreements and other business arrangements with Doubletree.
These relationships, coupled with such parties' ownership of Doubletree Common
Stock and their representation on Doubletree's Board of Directors, could give
rise to conflicts of interest. See "Security Ownership of Certain Beneficial
Owners and Management of Doubletree." Doubletree believes that its contracts
with these persons are on terms no less favorable to Doubletree than those that
could have been obtained from unaffiliated third parties. There can be no
assurance that these parties will continue to transact business with the
Combined Company or that they will not attempt to utilize their ownership
positions and contractual rights with the Combined Company to influence the
terms on which they transact business with the Combined Company in the future.
The Combined Company expects to have a policy requiring any material transaction
or agreement with a related party be approved by a majority of the directors not
interested in such transaction or agreement.
Mr. Michelson, a stockholder and a director of RLA, and Mr. Gilhuly, an
officer and director of RLA, will become members of the Board of Directors of
Doubletree upon consummation of the Merger. Their representation on the Board,
as well as the Partnership's ownership of Doubletree Common Stock, could give
rise to a conflict of interest regarding transactions between, or other matters
relating to, the Combined Company and the Partnership, including enforcing any
rights of the Combined Company under, or modifying or amending, the Partnership
Lease with respect to the Red Lion Leased Hotels. Circumstances might arise
where the Partnership will not consent to amendments or modifications of these
contractual arrangements, and the Partnership's lack of consent could adversely
affect the Combined Company's operations. While Red Lion
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believes the terms of the Partnership Lease are fair to Red Lion and the
Partnership, those terms were not negotiated on an arms-length basis.
SIGNIFICANT STOCKHOLDERS
Following completion of the Merger and the Financing Plan, GEIM and GEPT
(collectively, the "GEI Entities") will together beneficially own an aggregate
of approximately 23.7% and the Partnership will own approximately 12.0% of the
total outstanding shares of Doubletree Common Stock. In addition, two members of
the Board of Directors of Doubletree are associated with the GEI Entities, and
the Partnership will have the right to designate two persons to be nominated and
elected to the Board of Directors of Doubletree effective upon consummation of
the Merger. By virtue of their representation on the Board of Directors of
Doubletree and ownership of Doubletree Common Stock, such significant
stockholders can be expected to have substantial influence over the Combined
Company. See "Security Ownership of Certain Beneficial Owners and Management of
Doubletree" and "Management."
ANTI-TAKEOVER PROVISIONS
The Board of Directors of Doubletree has the authority to issue up to
5,000,000 shares of preferred stock and to fix the rights, preferences,
privileges and restrictions, including voting rights, of those shares, without
any further vote or action by the stockholders. The rights of the holders of
Doubletree Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock could have the effect of entrenching
Doubletree's Board of Directors and making it more difficult for a third party
to acquire a majority of the outstanding voting stock of Doubletree. Doubletree
currently has no plans to issue shares of preferred stock. See "Description of
Capital Stock of Doubletree -- Preferred Stock." In addition, the provision in
the certificate of incorporation of Doubletree which requires the vote of at
least 80% of the outstanding shares of Doubletree Common Stock for certain
amendments to the certificate of incorporation could hinder a third party's
ability to acquire control of Doubletree. See "Description of Capital Stock."
PRICE VOLATILITY
The market price of the Doubletree Common Stock could be subject to
significant fluctuations in response to variations in quarterly operating
results and other factors. In addition, the securities markets have experienced
significant price and volume fluctuations from time to time in recent years that
have often been unrelated or disproportionate to the operating performance of
particular companies. These broad fluctuations may adversely affect the market
price of the Doubletree Common Stock. See "Common Stock Price Range."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of Doubletree's Common Stock in the public market after the
implementation of the Merger and Financing Plan could adversely affect the
market price of Doubletree's Common Stock. Upon completion of the Merger and
Financing Plan, assuming no options to purchase Doubletree Common Stock have
been exercised since August 15, 1996, Doubletree will have 37,459,076
outstanding shares of Doubletree Common Stock (38,209,076 if the underwriters'
over-allotment option under the terms of the Offering is exercised in full), of
which 17,731,768 shares are "restricted securities" within the meaning of Rule
144 promulgated under the Securities Act and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available. Following completion of the Merger, the Partnership and certain other
principal stockholders are entitled to certain demand and "piggyback"
registration rights with respect to registration of an aggregate of 17,643,747
shares for offer or sale to the public. The Partnership, the GEI Entities, Mr.
Ferris, Mr. Ueberroth and certain of Doubletree's executive officers and
directors have agreed, subject to certain exceptions, not to offer or sell their
shares of Doubletree Common Stock for a period of 180 days (or, in the case of
such executive officers and directors, 90 days) after the Effective Time. See
"The Merger and the Financing Plan -- The Merger -- Interests of Certain Persons
in the Merger", "Description of Capital Stock of Doubletree -- Registration
Rights" and "Underwriters."
27
<PAGE> 30
THE MERGER AND THE FINANCING PLAN
GENERAL
On September 12, 1996, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Red Lion and RLH Acquisition Corp., a
wholly-owned subsidiary of the Company ("Merger Sub"), pursuant to which, upon
the terms and subject to the conditions thereof, Merger Sub will be merged with
and into Red Lion (the "Merger") and Red Lion will become a wholly-owned
subsidiary of the Company. The closing of the Offering hereby will occur
concurrently with, and will be contingent upon the consummation of, the Merger
and will provide a portion of the financing for the Merger.
MERGER CONSIDERATION
Upon consummation of the Merger, each share of Red Lion Common Stock which
is outstanding immediately prior to the Merger (other than shares owned by or
held in treasury of Red Lion, shares owned by Doubletree or any direct or
indirect wholly owned subsidiary of Red Lion or Doubletree, and shares as to
which appraisal rights have been perfected, and not withdrawn or otherwise lost,
under the Delaware General Corporation Law) will be converted into the right to
receive (i) $21.30 in cash, plus, if the Merger does not occur on or prior to
November 18, 1996, interest accruing at a fluctuating rate per annum equal to
the prime interest rate from time to time of Bankers Trust Company, compounded
daily, on $30.106 plus such accrued interest, for the period commencing on
November 18, 1996 and ending on the day on which the Effective Time occurs (the
"Cash Consideration"), and (ii) 0.2398 shares (the "Exchange Ratio") of the
Company's Common Stock (the "Stock Consideration" and, collectively together
with the Cash Consideration, the "Merger Consideration"); provided, however,
that in the event that the "volume-weighted average quote" of the reported sales
prices per share of the Common Stock quoted on The Nasdaq Stock Market's
National Market ("Nasdaq"), as reported by Bloomberg L.P., for the 10
consecutive trading days (on which shares of the Common Stock are actually
traded) immediately preceding the second business day prior to the Effective
Time (the "Final Doubletree Stock Price"), is equal to or less than $34.89, or
equal to or greater than $38.56, the Exchange Ratio shall be subject to
adjustment as follows: (a) if the Final Doubletree Stock Price is equal to or
less than $31.22, then the Exchange Ratio shall be equal to the sum of 0.2398
plus the quotient obtained by dividing $0.8806 by the Final Doubletree Stock
Price; (b) if the Final Doubletree Stock Price is greater than $31.22 and equal
to or less than $34.89, then the Exchange Ratio shall be equal to the quotient
obtained by dividing $8.3657 by the Final Doubletree Stock Price; (c) if the
Final Doubletree Stock Price is equal to or greater than $38.56 but less than
$42.23, then the Exchange Ratio shall be equal to the quotient obtained by
dividing $9.2463 by the Final Doubletree Stock Price; (d) if the Final
Doubletree Stock Price is equal to or greater than $42.23 but less than $44.07,
then the Exchange Ratio shall be equal to the difference of 0.2398 minus the
quotient obtained by dividing $0.8806 by the Final Doubletree Stock Price; and
(e) if the Final Doubletree Stock Price is equal to or greater than $44.07, then
the Exchange Ratio shall be equal to the quotient obtained by dividing $9.6866
by the Final Doubletree Stock Price. As noted in the first paragraph of
"Prospectus Summary," all assumptions relating to the Merger and the Financing
Plan, and to share numbers after giving effect thereto, assume that (among other
things) 6,925,502 shares of Common Stock are issued in the Merger, based upon an
assumed Final Doubletree Stock Price of $45.00 and a resulting adjustment of the
Exchange Ratio from .2398 to .2153 in accordance with the Merger Agreement.
In addition, upon consummation of the Merger, each option to purchase Red
Lion Common Stock then outstanding under Red Lion's 1995 Equity Participation
Plan (each, a "Red Lion Option") will be converted into and represent the right
to receive (i) the Merger Consideration into which the share or shares of Red
Lion Common Stock issuable upon exercise of such Red Lion Option would have been
converted if such Red Lion Option had been exercised immediately prior to the
effective time of the Merger, reduced by (ii) the aggregate exercise price for
the shares of Red Lion Common Stock then issuable upon exercise of such Red Lion
Option and the amount of any withholding taxes which may be required thereon
(such reductions to be applied on a pro rata basis against the Cash
Consideration and the Stock Consideration comprising such Merger Consideration,
in the respective proportions which such Cash Consideration and Stock
Consideration bear to such Merger Consideration).
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<PAGE> 31
CONDITIONS TO THE MERGER
The obligations of the Company and Red Lion to consummate the Merger are
subject to the satisfaction or, where legally permitted, waiver of certain
conditions, including, among others, (i) the approval of the stockholders of Red
Lion and Doubletree, to the extent required, (ii) the expiration or termination
of the waiting period applicable to the consummation of the Merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the
absence of any statute, rule, regulation, decree, injunction or other order of
any governmental or regulatory authority or any court prohibiting the
consummation of the Merger or any other material transaction pursuant to the
Merger Agreement, (iv) the absence of any change, event, occurrence or
circumstance in the business, operations, properties, financial condition or
results of operations of Red Lion or Doubletree and their respective
subsidiaries (each taken as a whole) which, individually or in the aggregate,
has had or is reasonably likely to have a material adverse effect on the
business, operations, properties, financial condition or results of operations
of Red Lion or Doubletree and their respective subsidiaries, each taken as a
whole.
The approval of the Merger by stockholders of Red Lion requires the
affirmative vote of the holders of a majority of the shares of Red Lion Common
Stock entitled to vote thereon. The Partnership has agreed to vote its shares of
Red Lion Common Stock (constituting approximately 66.7% of the total number of
shares so entitled to vote) in favor of approval and adoption of the Merger
Agreement and the Merger. As a result, upon the vote of the Partnership in
accordance with such agreement, approval and adoption of the Merger Agreement
and the Merger by the stockholders of Red Lion are assured. Doubletree has
received an exemption from certain corporate governance requirements of Nasdaq
for it to obtain the approval of its stockholders for the issuance of Doubletree
Common Stock pursuant to the Merger.
The Merger Agreement may be terminated under certain circumstances,
including, among others, if the Board of Directors of Red Lion changes or
withdraws its recommendation for approval of the Merger by the stockholders of
Red Lion, or if the Company is unable to consummate the Financing Plan described
below (and, therefore, the Merger) due to the nonfulfillment of certain
conditions precedent to the initial loans under the New Credit Facility.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Upon consummation of the Merger and the Financing Plan, the GEI Entities
will beneficially own an aggregate of approximately 23.7%, and the Partnership
will own approximately 12.0%, of the total outstanding shares of the Company's
Common Stock. See "Security Ownership of Certain Beneficial Owners and
Management of Doubletree."
Effective upon consummation of the Merger, the Board of Directors of the
Company will be expanded to include two additional members to be designated by
the Partnership. The Partnership has designated Michael W. Michelson and Edward
I. Gilhuly, each of whom is currently a director of Red Lion. Mr. Michelson is a
stockholder, director and executive vice president of RLA, the general partner
of the Partnership, and Mr. Gilhuly is a director and executive vice president
of RLA. As general partner of the Partnership, RLA has sole voting and
investment power with respect to the shares of Red Lion Common Stock owned of
record by the Partnership and, accordingly, the shares of Common Stock to be
issued to the Partnership in the Merger. Mr. Michelson and George R. Roberts,
who is a stockholder, director and president of RLA, are each general partners
of KKR Associates (Delaware), a limited partner of the Partnership.
In connection with the Merger, certain registration rights will be granted
to the Partnership with respect to the shares of Common Stock to be issued to
the Partnership in the Merger, and the current Common Stock registration rights
held by GEHOP will be extended to cover the shares of Common Stock to be issued
pursuant to the GEPT Equity Investment. See "Description of Capital Stock of
Doubletree -- Registration Rights." The Partnership has agreed not to sell or
otherwise dispose of any such shares of Common Stock for 180 days following the
Merger, except for a distribution to a limited partner of the Partnership (which
shares will represent approximately 2.1% of the Common Stock to be outstanding
after giving effect to the Merger and the Financing Plan).
Pursuant to the Merger Agreement, at the time of the Merger, the Company,
Red Lion and certain affiliates of Red Lion, will enter into a Partnership
Services Agreement (the "Partnership Services
29
<PAGE> 32
Agreement") pursuant to which the Company will, upon request from the
Partnership, provide certain support services to the Partnership in return for a
fee. In addition, pursuant to the Partnership Services Agreement, the Company
will agree to guaranty, subject to defenses available to Red Lion, the
liabilities and obligations of Red Lion owed to the Partnership and its
affiliates arising out of or related to Red Lion's business.
THE FINANCING PLAN
The total amount of funds required by Doubletree to consummate the Merger
and to pay related fees and expenses is expected to be approximately $919.7
million, including approximately $685.2 million to be paid as Cash Consideration
in the Merger, approximately $213.3 million which will be used to repay existing
outstanding indebtedness of Red Lion immediately following consummation of the
Merger and $21.2 million of estimated fees and expenses excluding underwriting
discounts and commissions in connection with the Offering.
It is currently anticipated that such amounts will be financed (the
"Financing Plan") through (i) $600.0 million of borrowings under the New Credit
Facility, (ii) approximately $215.0 million in proceeds from the Offering, net
of underwriting discounts and commissions and estimated offering expenses, (iii)
$100.0 million in proceeds from the GEPT Equity Investment, and (iv) cash on
hand.
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN MILLIONS)
<S> <C>
Sources of Funds:
Borrowings under the New Credit Facility....................... $600.0
Net proceeds from the Offering................................. 215.0
Proceeds from the GEPT Equity Investment....................... 100.0
Cash on hand................................................... 4.7
------
Total sources of funds.................................... $919.7
======
Uses of Funds:
Cash Consideration in the Merger............................... $685.2
Repayment of existing indebtedness of Red Lion................. 213.3
Estimated fees and expenses, excluding underwriting discounts
and commissions and estimated offering expenses in connection
with the Offering............................................ 21.2
------
Total uses of funds....................................... $919.7
======
</TABLE>
Depending on prevailing financial, economic and market conditions
(including the trading market for Doubletree Common Stock) and any other factors
or considerations the Board of Directors of Doubletree deems relevant,
Doubletree may decide to increase the size of the Offering, and sell additional
shares of Doubletree Common Stock in lieu of a portion of such borrowings under
the New Credit Facility.
In the event that the Offering is not consummated at or prior to the
Effective Time, Doubletree currently intends to finance the Merger, to the
extent necessary, through the Bridge Loan and additional borrowings under the
New Credit Facility. In such event, subject to prevailing financial, economic
and market conditions (including the trading market for Doubletree Common Stock)
and any other factors or considerations the Board of Directors or management of
Doubletree deems relevant, Doubletree intends to consummate the Offering or the
issuance of debt as soon as practicable following the Effective Time if it is
able to do so on satisfactory terms, and to use the net proceeds therefrom to
refinance the Bridge Loan and redeem and retire the senior subordinated notes
issued in connection therewith.
New Credit Facility. The New Credit Facility provides for a term loan
facility in the amount of $636.0 million and a revolving credit facility in the
amount of $100.0 million. As part of the Financing Plan, Doubletree intends to
borrow $600.0 million pursuant to the term loan facility. Principal amounts
under the term loan facility become due, commencing in 1997, in the amount of
$7.0 million in such year. Thereafter and through 2004, annual principal
payments under the term loan range from $57.0 million to a maximum of $146.0
million in 2003 with the term loan facility expiring, and the then outstanding
principal amount
30
<PAGE> 33
becoming due and repayable in full, in 2004. The revolving credit facility
expires, and is repayable in full, on the sixth anniversary after the Effective
Time. The term loan and the revolving credit facility each bear interest payable
quarterly at variable rates dependent upon applicable debt coverage ratios.
The New Credit Facility will be guaranteed by all material direct and
indirectly owned subsidiaries of Doubletree, subject to customary exceptions.
The obligations of Doubletree and the guaranteeing entities shall be secured by
a first priority perfected security interest in (i) all stock owned by
Doubletree and the guaranteeing entities (except for the REIT Preferred Shares,
as defined below), (ii) all notes owned by Doubletree and the guaranteeing
entities with a principal amount of $1.0 million or more, and (iii) all other
beneficially-owned tangible and intangible assets of Doubletree and the
guaranteeing entities, to the extent assignable.
The New Credit Facility will contain customary financial covenants, which
may include fixed charge and interest coverage ratios and a maximum ratio of
debt to EBITDA (as defined therein). The New Credit Facility will contain
certain customary covenants which may include, without limitation, restrictions
on mergers, consolidations, acquisitions, sale of assets, payment of dividends,
transactions with affiliates, sale and lease-back transactions, liens, capital
expenditures, debt and investments. The New Credit Facility will include
customary events of default, including a change of control of Doubletree. The
New Credit Facility is subject to numerous conditions. Reference is made to a
copy of the written commitment relating to the New Credit Facility filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
GEPT Equity Investment. Pursuant to the GEPT Equity Investment, at the
Effective Time, GEPT or an affiliate thereof will purchase a number of shares of
Doubletree Common Stock equal to the quotient of $100.0 million divided by a
share price, at GEPT's election of either (i) the implied price per share of
Doubletree Common Stock used for purposes of determining the final Exchange
Ratio or (ii) the market price, net of underwriting discounts, of shares of
Doubletree Common Stock sold in the Offering (or, if the Offering is not
consummated by the Effective Time, the Final Doubletree Stock Price under the
Merger Agreement). GEPT or an affiliate thereof will also be issued five-year
Warrants to purchase 10% of the number of shares of Doubletree Common Stock
purchased by GEPT or any such affiliate at the Effective Time, at an exercise
price per share equal to the price at which GEPT elects to purchase (or elects
for any such affiliate to purchase) such shares at the Effective Time. GEPT has
elected the aforesaid implied price, and is entitled to change its election at
any time until the twentieth trading day prior to the Effective Time. Although
the price of the shares to be sold pursuant to the GEPT Equity Investment is
subject to change based on the actual Final Doubletree Stock Price, such implied
price would be $40.90 per share, assuming, as noted in the first paragraph of
"Prospectus Summary," that the Final Doubletree Stock Price is $45.00 and the
resulting adjusted Exchange Ratio is .2153. As a result, GEPT or such affiliate
would purchase 2,444,988 shares, and Warrants to purchase 244,499 additional
shares, of Doubletree Common Stock pursuant to the GEPT Equity Investment.
31
<PAGE> 34
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
in the Offering (based on an assumed public offering price of $45.00 per share,
representing the last reported sale price of the Common Stock on October 4,
1996, as quoted on Nasdaq), after deducting the underwriting discounts and
commissions and estimated offering expenses payable by the Company in connection
with the Offering, are approximately $215.0 million ($247.4 million if the
Underwriters' over-allotment option is exercised in full).
The Company intends to use the net proceeds from its sale of Common Stock
in the Offering, together with the initial borrowings under the New Credit
Facility and the proceeds from the GEPT Equity Investment and a portion of the
Company's cash on hand, to effect the Merger and pay related fees and expenses.
See "The Merger and the Financing Plan."
COMMON STOCK PRICE RANGE
The Company's initial public offering of Common Stock occurred on July 1,
1994. The Company's Common Stock is quoted on Nasdaq under the symbol "TREE."
The following table sets forth, for the periods indicated, the high and low
closing bid prices for the Common Stock, as quoted on Nasdaq. The high and low
closing bid prices quoted on Nasdaq reflect prices between dealers. They do not
include retail markups, markdowns or commissions and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
Third Quarter.................................................... $19.75 $14.50
Fourth Quarter................................................... 21.75 17.50
YEAR ENDED DECEMBER 31, 1995:
First Quarter.................................................... 19.75 16.25
Second Quarter................................................... 21.50 19.00
Third Quarter.................................................... 24.25 18.75
Fourth Quarter................................................... 25.88 20.50
YEAR ENDING DECEMBER 31, 1996:
First Quarter.................................................... 27.88 23.25
Second Quarter................................................... 35.38 26.50
Third Quarter.................................................... 39.50 31.25
Fourth Quarter (through October 14, 1996)........................ 45.25 40.50
</TABLE>
A recent reported last sales price for the Company's Common Stock as quoted
on Nasdaq is set forth on the cover of this Prospectus. On September 30, 1996,
there were approximately 327 holders of record of the Company's Common Stock.
DIVIDEND POLICY
No dividends have been declared or paid on the Common Stock since the
incorporation of Doubletree. After the consummation of the Merger, Doubletree
currently intends to retain any future earnings for reinvestment in the Combined
Company and does not anticipate paying any cash dividends on the Common Stock in
the foreseeable future. Any payment of dividends in the future will be at the
discretion of the Board of Directors of Doubletree and will be dependent upon
the Combined Company's financial condition, results of operations, capital
requirements and such other factors as the Board of Directors deems relevant.
Doubletree will be prohibited from paying cash dividends or other distributions
due to certain covenants under the New Credit Facility.
32
<PAGE> 35
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996 and as adjusted to reflect the consummation of the Merger and the
Financing Plan, including the sale of shares of Common Stock in the Offering
(all based upon the assumptions set forth in the first paragraph of "Prospectus
Summary.") See "Use of Proceeds." This table should be read in conjunction with
"The Merger and the Financing Plan," the Unaudited Pro Forma Condensed
Consolidated Financial Information and the consolidated financial statements of
the Company and Red Lion and the notes thereto included elsewhere or
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total indebtedness (including current portion of $5,000)............... $ -- $ 600,000
Stockholders' equity(1):
Common Stock, $.01 par value, 100,000,000 shares authorized;
23,070,961 shares issued and outstanding, actual; and 37,441,451
shares as adjusted(2)............................................. 231 374
Additional paid-in capital........................................... 128,061 754,504
Unearned employee compensation....................................... (176) (176)
Unrealized gain on marketable equity securities...................... 26 26
Retained earnings.................................................... 26,319 26,319
-------- --------
Total stockholders' equity........................................ 154,461 781,047
-------- --------
Total capitalization......................................... $154,461 $ 1,381,047
======== ========
</TABLE>
- ---------------
(1) The Company is authorized to issue 5,000,000 shares of preferred stock,
$0.01 par value, none of which is currently outstanding. See "Description of
Capital Stock -- Preferred Stock."
(2) Does not include an aggregate of 1,509,625 shares of Common Stock reserved
for issuance under the Incentive Plan. At September 30, 1996, options to
purchase 1,727,600 shares of Common Stock were outstanding, of which 452,100
were exercisable.
33
<PAGE> 36
THE COMBINED COMPANY
After the consummation of the Merger, Red Lion will become a wholly owned
subsidiary of Doubletree, and its operations will be combined with those of
Doubletree. The Combined Company's corporate headquarters will be in Phoenix,
Arizona. It is expected that Doubletree's management team will continue to
manage the combined operations of the Combined Company after the completion of
the Merger. In addition, the acquisition of Red Lion presents Doubletree with
the opportunity to augment its successful management team with individuals from
Red Lion's experienced management team. The Board of Directors of Doubletree
will be expanded to include two additional members to be designated by the
Partnership, an entity affiliated with KKR. The Partnership is the majority
shareholder of Red Lion and will own approximately 12.0% of Doubletree's Common
Stock upon consummation of the Merger and the Financing Plan. The GEI Entities
will own in the aggregate approximately 23.7% of the Doubletree Common Stock
upon consummation of the Merger and the Financing Plan. See "The Merger and the
Financing Plan -- The Financing Plan" and "Security Ownership of Certain
Beneficial Owners and Management of Doubletree."
Management of Doubletree will review its own operations and the operations
of Red Lion and, upon completion of such review, will develop plans or proposals
regarding, among other things, the integration or combination of the sales and
marketing efforts, administrative support functions and other operations of
Doubletree and Red Lion. Management of Doubletree believes that the Merger will
create a combined entity with the resources to compete more effectively on a
national basis; however, the Combined Company will continue to be subject to the
competitive and economic factors associated with the lodging industry.
BUSINESS AND STRATEGY
After the consummation of the Merger, the Combined Company will be one of
the largest full service hotel operating companies in the United States. On a
pro forma basis, as of June 30, 1996, the Combined Company would have had a
portfolio of 234 hotels (197 of which it would have managed and 37 of which it
would have franchised) containing 55,770 rooms in the United States and Mexico.
On a pro forma basis, the Combined Company would have had revenues of $599.3
million for the year ended December 31, 1995 and $327.9 million for the six
months ended June 30, 1996, with operating income of $60.0 million and $45.8
million and net income of $20.2 million and $14.6 million, respectively.
Doubletree's principal business strategy is, and the Combined Company's
principal business strategy will be, to provide its hotel owners with high
quality, responsive hotel management and franchise services designed to improve
hotel profitability and to provide its hotel guests with a high level of
satisfaction. In executing this business strategy, Doubletree seeks to implement
policies and programs designed to increase revenues while minimizing operating
expenses. Doubletree seeks to grow hotel revenues by continuing to strengthen
the Doubletree brand and implementing national, regional and local sales and
marketing programs. Programs designed to reduce costs include providing
purchasing services at favorable prices to hotel owners, offering management
services and the Doubletree brand for one combined fee, minimizing the costs
associated with operating under the Doubletree brand name, and promoting
employee productivity and morale. As a result of these and other Doubletree
business strategies, net operating income for the 46 hotels managed by
Doubletree for the period from January 1, 1991 through December 31, 1995 has,
Doubletree believes, increased on average by approximately 20% per annum during
such period.
Doubletree's growth strategy is, and the Combined Company's growth strategy
will be, focused on four areas: (i) improving the revenue and operating
performance of its existing hotels; (ii) increasing the number of rooms under
its management or brand in its hotel portfolio; (iii) expanding the support
services it offers to hotel owners; and (iv) acquiring other hotel management
companies.
Doubletree believes that it has several competitive strengths that will
enable it to implement its growth strategy and continue to obtain additional
management contracts, leases and franchise agreements, including: (i) a proven
track record of generating profits for hotel owners; (ii) the strength of the
Doubletree brand; (iii) the ability to offer capital and flexible management
structures to hotel owners; (iv) established relationships with institutional
hotel investors; (v) the operation of multiple product lines and brands; and
(vi) the ability to increase penetration into Doubletree's existing markets.
34
<PAGE> 37
In addition to the Merger, Doubletree has pursued its growth strategy in
1996 by completing the following transactions:
- Acquisition of RFS, Inc. and Strategic Alliance with RFS Hotel Investors,
Inc. In February 1996, Doubletree significantly expanded its portfolio
of non-Doubletree brand hotels with the acquisition of RFS Management,
which operates 50 hotels with approximately 7,000 rooms under such
franchise brands as Holiday Inn, Holiday Inn Express, Residence Inn by
Marriott, Hampton Inn, and Comfort Inn. The RFS Acquisition allows the
Combined Company to further pursue non-Doubletree brand management
contract and lease opportunities. Doubletree also separately negotiated a
Right of First Refusal with the REIT, which provides a new source of
long-term hotel management and lease opportunities for additions to the
Combined Company's hotel portfolio.
- Formation of Candlewood. Doubletree has entered the mid-priced extended
stay segment of the hotel industry through the Candlewood joint venture
with entities controlled by Mr. Jack DeBoer, the founder of Residence
Inns, whom the industry credits with creating the extended stay concept.
Mr. DeBoer is primarily responsible for the development and day-to-day
operations of Candlewood. Candlewood's first hotel commenced operations
in May 1996. Doubletree believes that Candlewood provides an opportunity
to generate additional revenue and participate in a rapidly expanding and
high demand segment of the lodging industry.
- Formation of Joint Venture Strategic Alliance with Patriot. In August
1996, Doubletree and Patriot, one of the nation's leading hotel real
estate investment trusts, committed to invest $20.0 million and $200.0
million, respectively, of equity capital to acquire hotels that would be
managed, branded and leased by Doubletree. Management believes this
strategic alliance will provide the Combined Company with another source
of long-term hotel management and lease opportunities. The joint venture
has successfully completed the acquisition of four Doubletree hotels.
The Merger is consistent with, and is an important step in, Doubletree's
growth strategy. The Red Lion hotels complement Doubletree's current brand
portfolio and create critical mass for improved national brand awareness. While
there can be no assurance that the integration of Doubletree and Red Lion will
be successful or accomplished in a timely fashion or that the Combined Company
will successfully implement its growth strategy (see "Risk
Factors -- Integration of the Two Companies" and "Risk Factors -- Risk of
Contract Turnover"), Doubletree believes the Merger will generate several
benefits, including:
- Doubletree believes that the Combined Company's expanded size and diverse
geographic presence presents opportunities for enhancing Doubletree's
brand recognition. Subject to the receipt of necessary third party
approvals, Doubletree currently intends to convert most of the Red Lion
hotels to one of the Doubletree brands, thereby providing a major
increase in market coverage for Doubletree's full service product,
particularly in the western United States. Based on its examination of
Red Lion hotels, Doubletree believes that such properties are generally
in well maintained condition and of high quality. As a result, Doubletree
does not expect that such hotel brand conversions will require
significant capital expenditures. If the plans to convert the Red Lion
hotels to Doubletree brand hotels are successful, the Merger will nearly
double the number of upscale, non-suite Doubletree brand hotels, with
limited overlap in existing markets served. Notwithstanding the increased
size and presence of the Combined Company, Doubletree believes that there
will be a significant number of available markets offering expansion
potential for the Combined Company, including many of the markets in
which the Combined Company's hotels will be located.
- Doubletree believes that as a result of Doubletree's national brand
recognition, marketing strength, and higher ADR structure compared to Red
Lion's, the conversion of the Red Lion hotels to the Doubletree brand
presents opportunities for improvement in both ADR and occupancy rates.
- Doubletree believes that the majority of leases and management agreements
covering the Red Lion hotels are long-term, stable assets that do not
present a significant risk that they will be terminated or renegotiated
in the ordinary course of the Combined Company's business.
35
<PAGE> 38
- Doubletree believes that the Combined Company will create economies of
scale in services provided to its hotel owners, such as centralized
reservations services, national sales and marketing departments,
centralized accounting, management information services and other
administrative departments. As a result of the Merger, Doubletree
believes that the Combined Company will achieve additional cost savings
in these centralized services departments over those that have been
experienced by Doubletree or Red Lion separately. In addition, Doubletree
believes that the opportunity to integrate Red Lion's and Doubletree's
corporate headquarters and services will result in cost savings that will
directly benefit the Combined Company.
- Doubletree believes that the combination of the experienced hotel
employees of each of Doubletree and Red Lion will result in the Combined
Company having a large pool of hotel employees with proven track records
that can further support the implementation of Doubletree's business
strategy and support the Combined Company's future growth. In addition,
the Merger presents Doubletree with the opportunity to augment its
successful corporate management team with individuals from Red Lion's
experienced corporate management team.
- Doubletree believes it can extend its purchasing power and leverage with
vendors to the Red Lion hotels. Doubletree offers purchasing services to
the hotels in its portfolio and uses its purchasing power, and, where
appropriate, the purchasing power of certain of its major stockholders,
to negotiate favorable contract terms with vendors, on both a regional
and national basis. Doubletree believes that the Combined Company's
increased size will further increase its purchasing power with such
vendors and any prospective vendors, which may therefore result in cost
savings to the hotel owners and may generate increased profits for the
Combined Company.
- Doubletree believes Red Lion's significant investments in upgrading its
reservation system will enhance the performance of its current
reservation system. Red Lion has invested approximately $11 million in
developing a new, state-of-the-art central reservations system, which
includes a direct interface with airline reservation systems, advanced
marketing database capabilities and improved revenue management tools,
including real-time room inventory, and is anticipated to be operational
throughout the Red Lion system in early 1997. Doubletree currently
intends to integrate its current reservation system with Red Lion's
reservation system, capitalizing on the best aspects of each system, for
use by the Combined Company's portfolio of hotels.
As a result of the Merger, Doubletree will acquire 100% ownership in 17 of
Red Lion's 56 hotel properties. Doubletree believes that these hotels can
benefit substantially from the implementation of the Combined Company's business
strategy. Doubletree, however, remains focused on managing hotels, and once such
operating improvements outlined above have been realized, will explore all of
its alternatives, including the sale of one or more of such properties while
retaining the right to manage the hotels sold.
36
<PAGE> 39
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Consolidated Statements of Operations for
the year ended December 31, 1995 and the six month periods ended June 30, 1995
and June 30, 1996 present the results of operations of Doubletree assuming that
the Merger, the Financing Plan, the Red Lion Formation and the Red Lion 1996
Hotel Acquisitions had been completed as of January 1, 1995. All material
adjustments necessary to conform the financial statement presentation of the
results of operations for Red Lion to that of Doubletree and to reflect the
foregoing assumptions are presented in the Reclassification Adjustments and Pro
Forma Adjustments columns, respectively, which are further described in the
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.
The unaudited pro forma consolidated balance sheet presents the historical
consolidated balance sheets of Doubletree and Red Lion adjusted to reflect the
Merger, the Financing Plan and the acquisition of two hotels subsequent to June
30, 1996 in connection with the Red Lion 1996 Hotel Acquisitions as if each had
occurred on June 30, 1996.
The following information is not necessarily indicative of the results of
operations of Doubletree as they may be in the future or as they might have been
had the Merger, the Financing Plan, the Red Lion Formation and the Red Lion 1996
Hotel Acquisitions been consummated at the beginning of the period shown. The
Unaudited Pro Forma Condensed Consolidated Statements of Operations should be
read in conjunction with the audited historical Consolidated Financial
Statements of Doubletree and Red Lion included elsewhere herein and the notes
thereto.
For a discussion of the historical corporate organization of Doubletree and
Red Lion, see "Corporate Organization."
37
<PAGE> 40
DOUBLETREE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
RED LION DOUBLETREE
------------------------------------------------ -----------------------------------
RECLASSIFICATION PRO FORMA
PRO FORMA(1) ADJUSTMENTS(2) AS ADJUSTED ACTUAL ADJUSTMENTS TOTAL
------------ ------------------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Management and franchise fees.......... $ -- $ 11,389 $ 11,389 $ 30,082 $ (299)(a) $ 41,172
Owned hotel revenues................... -- 185,413 185,413 7,081 27,074(a) 219,568
Leased hotel revenues.................. -- 132,213 132,213 141,942 -- 274,155
Purchasing and service fees............ -- 44,634 44,634 16,487 -- 61,121
Other fees and income.................. -- 2,299 2,299 994 -- 3,293
Rooms revenues......................... 277,204 (277,204) -- -- -- --
Food and beverage revenues............. 165,281 (165,281) -- -- -- --
Other revenues......................... 49,884 (49,884) -- -- -- --
-------- --------- -------- -------- -------- --------
Total revenues....................... 492,369 (116,421) 375,948 196,586 26,775 599,309
-------- --------- -------- -------- -------- --------
Operating costs and expenses:
Corporate general and administrative
expenses............................. -- 10,470 10,470 14,413 -- 24,883
Owned hotel expenses................... -- 122,502 122,502 6,049 20,538(a) 149,089
Leased hotel expenses.................. -- 108,877 108,877 132,644 -- 241,521
Purchasing and service expenses........ -- 42,345 42,345 13,925 -- 56,270
Depreciation and amortization.......... 19,327 -- 19,327 4,686 26,355(a) 50,368
Business combination expenses.......... 14,662 -- 14,662 2,565 -- 17,227
Departmental direct expenses:
Rooms................................ 68,393 (68,393) -- -- -- --
Food and beverage.................... 127,450 (127,450) -- -- -- --
Other................................ 18,588 (18,588) -- -- -- --
Property indirect expenses............. 104,010 (104,010) -- -- -- --
Other costs............................ 36,445 (36,445) -- -- -- --
Payments due to owners of managed
hotels............................... 46,895 (46,895) -- -- -- --
-------- --------- -------- -------- -------- --------
Total operating costs and expenses... 435,770 (117,587) 318,183 174,282 46,893 539,358
-------- --------- -------- -------- -------- --------
Operating income......................... 56,599 1,166 57,765 22,304 (20,118) 59,951
Equity in earnings of unconsolidated
joint ventures....................... 2,299 (2,299) -- -- -- --
Interest income........................ 3,697 1,133 4,830 4,147 -- 8,977
Interest expense....................... (21,759) -- (21,759) (227) (24,041)(b) (46,027)
-------- --------- -------- -------- -------- --------
Income before income taxes and minority
interest............................... 40,836 -- 40,836 26,224 (44,159) 22,901
Minority interest share of income
(loss)............................... (758) -- (758) 35 -- (723)
-------- --------- -------- -------- -------- --------
Income before income taxes............... 40,078 -- 40,078 26,259 (44,159) 22,178
Income tax expense..................... (7,327) -- (7,327) (8,468) 13,842(c) (1,953)
-------- --------- -------- -------- -------- --------
Net income............................... $ 32,751 $ -- $ 32,751 $ 17,791 $ (30,317) $ 20,225(3)
======== ========= ======== ======== ======== ========
EARNINGS PER SHARE....................... $ 0.80 $ 0.55(3)
======== ========
Weighted average common and common
equivalent shares outstanding.......... 22,219 36,590
======== ========
</TABLE>
- ---------------
(1) Presents the pro forma operating results of Red Lion as if the Red Lion
Formation and the Red Lion Refinancing had occurred on January 1, 1995. The
pro forma operating results include the operating results of Historical Red
Lion for the seven months ended July 31, 1995, the operating results of Red
Lion for the ten months ended December 31, 1995 and the following pro forma
adjustments: (i) to record $8.5 million of net lease expenses on the Red
Lion Leased Hotels, (ii) to decrease depreciation and amortization by $6.4
million related to the Red Lion Leased Hotels, (iii) to decrease interest
expense by $10.4 million reflecting the Red Lion Refinancing, (iv) to
decrease the minority interest in income from joint venturer by $0.2
million, (v) to increase income tax expense by $11.4 million and (vi) to
eliminate $4.6 million of offsetting other revenues and payments due to
owners of managed hotels.
(2) Reclassifications to conform the financial statement presentations of Red
Lion to that of Doubletree.
(3) During 1995, Doubletree incurred $2.6 million of business combination
expenses related to the RFS Acquisition. The pro forma operating results of
Red Lion include non-recurring costs associated with the Red Lion Formation
of $14.7 million and $9.7 million of deferred tax benefits. Excluding these
items and adjusting income taxes to Doubletree's effective tax rate and the
statutory tax rate for Red Lion, net income and earnings per share on a pro
forma basis would have been $21.3 million and $0.58, respectively.
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
38
<PAGE> 41
DOUBLETREE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
RED LION DOUBLETREE
------------------------------------------------ ---------------------------------------
RECLASSIFICATION PRO FORMA
PRO FORMA(1) ADJUSTMENTS(2) AS ADJUSTED ACTUAL ADJUSTMENTS TOTAL
------------ ------------------- ----------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Management and franchise fees..... $ -- $ 5,441 $ 5,441 $ 14,536 $ (147)(a) $ 19,830
Owned hotel revenues.............. -- 90,171 90,171 3,308 13,658(a) 107,137
Leased hotel revenues............. -- 63,680 63,680 65,534 -- 129,214
Purchasing and service fees....... -- 20,829 20,829 7,478 -- 28,307
Other fees and income............. -- 1,689 1,689 493 -- 2,182
Rooms revenues.................... 135,918 (135,918) -- -- -- --
Food and beverage revenues........ 80,793 (80,793) -- -- -- --
Other revenues.................... 24,114 (24,114) -- -- -- --
-------- --------- -------- -------- -------- --------
Total revenues.................. 240,825 (59,015) 181,810 91,349 13,511 286,670
-------- --------- -------- -------- -------- --------
Operating costs and expenses:
Corporate general and
administrative expenses......... -- 3,954 3,954 7,106 -- 11,060
Owned hotel expenses.............. -- 61,198 61,198 2,936 10,271(a) 74,405
Leased hotel expenses............. -- 53,623 53,623 61,008 -- 114,631
Purchasing and service expenses... -- 19,605 19,605 6,346 -- 25,951
Depreciation and amortization..... 9,884 -- 9,884 2,056 12,957(a) 24,897
Departmental direct expenses:
Rooms........................... 33,534 (33,534) -- -- -- --
Food and beverage............... 63,473 (63,473) -- -- -- --
Other........................... 9,160 (9,160) -- -- -- --
Property indirect expenses........ 51,560 (51,560) -- -- -- --
Other costs....................... 16,954 (16,954) -- -- -- --
Payments due to owners of managed
hotels.......................... 23,858 (23,858) -- -- -- --
-------- --------- -------- -------- -------- --------
Total operating costs and
expenses...................... 208,423 (60,159) 148,264 79,452 23,228 250,944
-------- --------- -------- -------- -------- --------
Operating income.................... 32,402 1,144 33,546 11,897 (9,717) 35,726
Equity in earnings of
unconsolidated
joint ventures.................. 1,689 (1,689) -- -- -- --
Interest income................... 1,810 545 2,355 1,858 -- 4,213
Interest expense.................. (11,851) -- (11,851) (132) (11,049)(b) (23,032)
-------- --------- -------- -------- -------- --------
Income before income taxes and
minority interest................. 24,050 -- 24,050 13,623 (20,766) 16,907
Minority interest share of
(income) loss................... (159) -- (159) (7) -- (166)
-------- --------- -------- -------- -------- --------
Income before income taxes.......... 23,891 -- 23,891 13,616 (20,766) 16,741
Income tax expense................ (9,556) -- (9,556) (4,229) 6,396(c) (7,389)
-------- --------- -------- -------- -------- --------
Net income.......................... $ 14,335 $ -- $ 14,335 $ 9,387 $ (14,370) $ 9,352(3)
======== ========= ======== ======== ======== ========
EARNINGS PER SHARE.................. $ 0.43 $ 0.26(3)
========
Weighted average common and common
equivalent shares outstanding..... 21,984 36,355
========
</TABLE>
- ---------------
(1) Presents the pro forma operating results of Red Lion as if the Red Lion
Formation and the Red Lion Refinancing had occurred on January 1, 1995. The
pro forma operating results include the operating results of Historical Red
Lion for the seven months ended July 31, 1995, the operating results of Red
Lion for the four months ended June 30, 1995 and the following pro forma
adjustments: (i) to record $7.3 million of net lease expenses on the Red
Lion Leased Hotels, (ii) to decrease depreciation and amortization by $5.4
million related to the Red Lion Leased Hotels, (iii) to decrease interest
expense by $8.7 million reflecting the Red Lion Refinancing, (iv) to
decrease the minority interest in income from joint venturer by $0.1
million, (v) to increase income tax expense by $10.6 million, and (vi) to
remove all revenues and expenses of Historical Red Lion for July 1995, which
decreased net income by $3.6 million.
(2) Reclassifications to conform the financial statement presentations of Red
Lion to that of Doubletree.
(3) RFS Management, as a Subchapter S corporation in 1995 for federal income tax
purposes, was generally not liable for federal income taxes. If income
taxes, at Doubletree's effective rate, are provided on RFS Management's
earnings then net income and earnings per share on a pro forma basis would
have been $8.8 million and $0.24, respectively.
See Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information
39
<PAGE> 42
DOUBLETREE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
RED LION DOUBLETREE
-------------------------------------------- ------------------------------------
RECLASSIFICATION PRO FORMA
ACTUAL ADJUSTMENTS(1) AS ADJUSTED ACTUAL ADJUSTMENTS TOTAL
-------- ------------------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Management and franchise fees............ $ -- $ 6,138 $ 6,138 $ 18,519 $ (141)(a) $ 24,516
Owned hotel revenues..................... -- 95,337 95,337 3,979 12,237(a) 111,553
Leased hotel revenues.................... -- 67,501 67,501 86,321 -- 153,822
Purchasing and service fees.............. -- 28,017 28,017 7,585 -- 35,602
Other fees and income.................... -- 1,423 1,423 972 -- 2,395
Rooms revenues........................... 147,445 (147,445) -- -- -- --
Food and beverage revenues............... 81,389 (81,389) -- -- -- --
Other revenues........................... 29,133 (29,133) -- -- -- --
-------- --------- -------- -------- -------- --------
Total revenues......................... 257,967 (59,551) 198,416 117,376 12,096 327,888
-------- --------- -------- -------- -------- --------
Operating costs and expenses:
Corporate general and administrative
expenses............................... -- 4,851 4,851 8,641 -- 13,492
Owned hotel expenses..................... -- 63,263 63,263 3,217 9,166(a) 75,646
Leased hotel expenses.................... -- 55,232 55,232 79,735 -- 134,967
Purchasing and service expenses.......... -- 26,593 26,593 5,648 -- 32,241
Depreciation and amortization............ 9,167 -- 9,167 2,940 13,674(a) 25,781
Departmental direct expenses:
Rooms.................................. 36,991 (36,991) -- -- -- --
Food and beverage...................... 63,634 (63,634) -- -- -- --
Other.................................. 10,079 (10,079) -- -- -- --
Property indirect expenses............... 55,163 (55,163) -- -- -- --
Other costs.............................. 18,028 (18,028) -- -- -- --
Payments due to owners of managed
hotels................................. 26,178 (26,178) -- -- -- --
-------- --------- -------- -------- -------- --------
Total expenses......................... 219,240 (60,134) 159,106 100,181 22,840 282,127
-------- --------- -------- -------- -------- --------
Operating income........................... 38,727 583 39,310 17,195 (10,744) 45,761
Equity in earnings of unconsolidated
joint ventures......................... 1,423 (1,423) -- -- -- --
Interest income.......................... 1,275 840 2,115 2,090 -- 4,205
Interest expense......................... (9,054) -- (9,054) (143) (13,846)(b) (23,043)
-------- --------- -------- -------- -------- --------
Income before income taxes and minority
interest................................. 32,371 -- 32,371 19,142 (24,590) 26,923
Minority interest share of (income)...... (978) -- (978) (22) -- (1,000)
-------- --------- -------- -------- -------- --------
Income before income taxes................. 31,393 -- 31,393 19,120 (24,590) 25,923
Income tax expense....................... (12,557) -- (12,557) (6,693) 7,924(c) (11,326)
-------- --------- -------- -------- -------- --------
Net income................................. $ 18,836 $ -- $ 18,836 $ 12,427 $ (16,666) $ 14,597
======== ========= ======== ======== ======== ========
EARNINGS PER SHARE....................... $ 0.54 $ 0.39
======== ========
Weighted average common and common
equivalent shares outstanding.......... 22,849 37,220
======== ========
</TABLE>
- ---------------
(1) Reclassifications to conform the financial statement presentations of Red
Lion to that of Doubletree.
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
40
<PAGE> 43
DOUBLETREE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
------------------------------------------------
HISTORICAL PRO FORMA
DOUBLETREE ADJUSTMENTS(4) PRO FORMA
---------- -------------- ----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents......................... $ 46,566 $ 15,688(a) $ 62,254
Accounts receivable, net.......................... 20,596 18,400(b) 38,996
Other............................................. 3,421 7,200(b) 10,621
-------- ---------- ----------
Total current assets......................... 70,583 41,288 111,871
-------- ---------- ----------
Notes and other receivables....................... 30,949 1,800(b) 32,749
Investments....................................... 29,892 43,100(b) 72,992
Due from affiliates............................... -- 29,000(b) 29,000
Property and equipment, net....................... 13,815 636,350(b) 650,165
Management contracts, net......................... 48,275 422,300(b) 470,575
Deferred costs and other assets................... 3,231 21,470(b) 24,701
Goodwill, net..................................... 15,228 382,169(b) 397,397
-------- ---------- ----------
$ 211,973 $1,577,477 $1,789,450
======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses............. $ 39,258 $ 93,834(b)(c) $ 133,092
Current portion of long-term debt................. -- 5,000(d) 5,000
-------- ---------- ----------
Total current liabilities.................... 39,258 98,834 138,092
-------- ---------- ----------
Long-term debt, net of current portion............ -- 595,000(d) 595,000
Other long-term liabilities....................... -- 11,776(b) 11,776
Minority interest in consolidated joint
ventures........................................ -- 1,290(b) 1,290
Deferred income taxes............................. 18,254 243,991(b) 262,245
-------- ---------- ----------
Total liabilities............................ 57,512 950,891 1,008,403
-------- ---------- ----------
Common stock...................................... 231 143(e) 374
Additional paid-in capital........................ 128,061 626,443(e) 754,504
Unearned employee compensation.................... (176) -- (176)
Unrealized gain on marketable securities.......... 26 -- 26
Retained earnings................................. 26,319 -- 26,319
-------- ---------- ----------
Total Stockholders' Equity................... 154,461 626,586 781,047
-------- ---------- ----------
$ 211,973 $1,577,477 $1,789,450
======== ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
41
<PAGE> 44
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
DOUBLETREE CORPORATION
1. ASSUMPTIONS
The Unaudited Pro Forma Condensed Consolidated Statements of Operations for
the year ended December 31, 1995 and the six month periods ended June 30, 1995
and June 30, 1996 are presented as if each of the following events occurred on
January 1, 1995: (1) the Merger, including the issuance of approximately $311.6
million of Doubletree Common Stock as Stock Consideration, (2) the Red Lion 1996
Hotel Acquisitions (which are further described below), (3) the borrowing of
$600.0 million under the New Credit Facility, (4) the sale of $100.0 million of
Doubletree Common Stock pursuant to the GEPT Equity Investment, (5) the receipt
of net proceeds of $215.0 million from the Offering, (6) the payment of
approximately $685.2 million in Cash Consideration to the stockholders and
optionholders of Red Lion and (7) the repayment of existing Red Lion
indebtedness of approximately $213.3 million with a portion of the proceeds
obtained from the Financing Plan. See "The Merger and the Financing Plan -- The
Financing Plan." The Merger has been accounted for as a purchase transaction in
accordance with generally accepted accounting principles and, accordingly, the
assets acquired and liabilities assumed were recorded at their estimated fair
values as of that date. The excess of the purchase price over the fair value of
the net assets acquired, goodwill, is being amortized over 40 years.
2. RECLASSIFICATIONS
Reclassifications have been made to the pro forma statements of operations
and balance sheet for Red Lion to conform with the financial statement
presentation used by Doubletree as follows:
-- Red Lion has followed the practice of recording the operating revenues
and expenses and working capital of hotels managed but not owned by Red
Lion. The hotel owners' profit had been recorded as payments due to
owners. Reclassifications have been made to eliminate these amounts and
reflect the net management fee earned by Red Lion.
-- Revenues earned and expenses incurred in providing purchasing and other
services to hotels, previously reported at an amount equal to the net
profit resulting from the transactions, have been grossed up.
-- Reclassification of hotel revenues and expenses as managed, owned and
leased from departmental revenues and expenses
3. PRO FORMA ADJUSTMENTS -- STATEMENTS OF OPERATIONS
The following adjustments have been made to the Unaudited Pro Forma
Condensed Consolidated Statements of Operations:
(a) To record the change in depreciation and amortization resulting
from the application of purchase accounting and amortization of loan fees
related to the Financing Plan. Red Lion acquired one hotel in April of 1996
for $26.0 million and two hotels for $37.3 million (the "Red Lion 1996
Hotel Acquisitions") subsequent to June 30, 1996. The pro forma results of
operations include the operating results of these hotels as if they were
owned as of January 1, 1995. Hotel management fees from the hotel acquired
in September of 1996 (which was previously managed) have been eliminated.
(b) To eliminate actual interest expense of Red Lion and record
interest expense associated with the Financing Plan. An interest rate of
7.63% was assumed for all periods on borrowings under the New Credit
Facility. The effect of a 1/8 percent change in the interest rate would be
approximately $730,000 for the year ended December 31, 1995 and $365,000
for the six months ended June 30, 1995 and 1996, respectively.
42
<PAGE> 45
(c) To reflect an effective tax rate of 40% on all pro forma
adjustments except for amortization of goodwill.
4. PRO FORMA ADJUSTMENTS -- BALANCE SHEET
The following adjustments have been made to the Unaudited Pro Forma
Condensed Consolidated Balance Sheet:
(a) Adjustments to reflect the net increase in cash and cash
equivalents consisting of:
<TABLE>
<S> <C>
Existing Red Lion cash................................... $ 36,509
Acquisition of two hotels subsequent to June 30, 1996.... (37,350)
Proceeds from the GEPT Equity Investment................. 100,000
Net proceeds from the Offering........................... 215,000
Proceeds from borrowings under the New Credit Facility... 600,000
Repayment of existing notes payable...................... (213,319)
Cash Consideration paid pursuant to the Merger........... (685,152)
---------
$ 15,688
=========
</TABLE>
(b) Adjustment to reflect the allocation of the purchase price to the
assets acquired (including the two hotels of the Red Lion 1996 Hotel
Acquisitions acquired subsequent to June 30, 1996), liabilities assumed,
deferred tax liability on the step-up in the historical basis and the
excess of the purchase price over the net assets acquired.
(c) Adjustment to increase accounts payable and accrued expenses by
the estimated costs to be incurred to complete the transaction of $46.3
million including $14.5 million to be incurred in conjunction with the
Financing Plan.
(d) Adjustment to record debt to reflect the Financing Plan.
(e) Adjustment to record the estimated shares to be issued in
connection with the Merger, the Offering and the GEPT Equity Investment all
in accordance with the assumptions set forth in the first paragraph of
"Prospectus Summary."
43
<PAGE> 46
SELECTED CONSOLIDATED FINANCIAL DATA OF DOUBLETREE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables present selected historical consolidated financial
information for Doubletree and its Predecessor, the entity which owned 92% of
GQHP prior to the Doubletree Combination Transaction. Prior to January 1, 1993
the historical financial information for the Predecessor includes only the
operations of GQHP. From January 1, 1993 to December 16, 1993, the historical
financial information for the Predecessor includes the operations of GQHP and
RFS Management and subsequent to such date, includes the combined operations of
GQHP, RFS Management and DHC. The following tables also present selected 1993
pro forma consolidated financial information for Doubletree, giving effect to
the Doubletree Combination Transaction and the Doubletree Reorganization as if
each had occurred on January 1, 1993. The selected historical consolidated
financial information presented below as of and for the years ended December 31,
1994 and 1995 has been derived from the audited financial statements of
Doubletree. The selected historical consolidated financial information presented
below as of and for the fiscal years ended December 31, 1991, 1992 and 1993 has
been derived from the audited financial statements of the Predecessor. The
selected historical consolidated financial information as of and for the six
months ended June 30, 1995 and 1996 has been derived from the unaudited
consolidated financial statements of Doubletree and include all adjustments
consisting only of normal recurring adjustments that management considers
necessary for a fair presentation of the financial information. The results of
operations for the six months ended June 30, 1996 are not necessarily indicative
of the results expected for the full year. For a discussion of the historical
corporate organization of Doubletree, see "Corporate Organization."
The financial information set forth below is qualified in its entirety by,
and should be read in conjunction with, "Management's Discussion and Analysis of
Results of Operations and Financial Condition of Doubletree," the consolidated
financial statements, the notes thereto and other financial and statistical
information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------------- --------------------
PRO
PREDECESSOR FORMA(2) DOUBLETREE DOUBLETREE
------------------------------ -------- --------------------- --------------------
1991(1) 1992(1) 1993 1993 1994 1995 1995 1996
-------- ------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Revenues:
Management and franchise fees.... $ 8,953 $8,556 $10,612 $24,659 $ 26,330 $ 30,082 $ 14,536 $ 18,519
Owned hotel revenues............. 1,728 3,786 9,943 -- 92 7,081 3,308 3,979
Leased hotel revenues............ 2,345 5,932 14,923 19,849 73,769 141,942 65,534 86,321
Purchasing and service fees...... 89 -- 329 8,539 10,746 16,487 7,478 7,585
Other fees and income............ 6,162 419 2,547 3,749 1,545 994 493 972
------- ------- ------- ------- -------- -------- -------- --------
Total revenues................. 19,277 18,693 38,354 56,796 112,482 196,586 91,349 117,376
------- ------- ------- ------- -------- -------- -------- --------
Operating expenses
Corporate general and
administrative expenses........ 5,696 5,683 7,485 11,584 11,879 14,413 7,106 8,641
Owned hotel expenses............. 1,694 2,810 6,400 -- 101 6,049 2,936 3,217
Leased hotel expenses............ 1,796 4,972 14,266 18,523 68,981 132,644 61,008 79,735
Purchasing and service
expenses....................... -- -- 620 8,234 9,807 13,925 6,346 5,648
Depreciation and amortization.... 2,373 599 1,572 2,830 2,943 4,686 2,056 2,940
Business combination expenses.... 17,065 -- 1,865 -- -- 2,565 -- --
------- ------- ------- ------- -------- -------- -------- --------
Total expenses................. 28,624 14,064 32,208 41,171 93,711 174,282 79,452 100,181
------- ------- ------- ------- -------- -------- -------- --------
Operating income................. (9,347) 4,629 6,146 15,625 18,771 22,304 11,897 17,195
Interest expense............... (4,109) -- (1,228) (1,907 ) (831) (227) (132) (143)
Interest income................ 260 159 254 660 1,630 4,147 1,858 2,090
------- ------- ------- ------- -------- -------- -------- --------
Income (loss) before income taxes
and minority
interest....................... (13,196) 4,788 5,172 14,378 19,570 26,224 13,623 19,142
Minority interest share of
(income) loss.................. 6,923 372 175 -- -- 35 (7) (22)
------- ------- ------- ------- -------- -------- -------- --------
Income (loss) before taxes....... (6,273) 4,416 5,347 14,378 19,570 26,259 13,616 19,120
Income tax expense............. 27 65 414 5,763 (3) 6,335(4) 8,468 4,229 6,693
------- ------- ------- ------- -------- -------- -------- --------
Net income (loss)................ $ (6,300) $(4,351) $ 4,933 $ 8,615 $ 13,325(4) $ 17,791 $ 9,387 $ 12,427
======= ======= ======= ======= ======== ======== ======== ========
Earnings per share................. $ 0.47 $ 0.66(4) $ 0.80 $ 0.43 $ 0.54
======= ======== ======== ======== ========
Pro forma net income(5)............ $ 18,736 $ 8,851
======== ========
Pro forma earnings per share(5).... $ 0.84 $ 0.40
======== ========
Weighted average common and common
equivalent
shares outstanding(6)............ 18,228 20,071 22,219 21,984 22,849
======= ======== ======== ======== ========
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------------------------- JUNE 30,
1991(1) 1992(1) 1993 1994 1995 1996
------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $3,621 $5,741 $6,826 $ 23,169 $ 32,652 $ 46,566
Total assets............................................. 12,104 22,368 89,072 134,701 163,107 211,973
Long-term debt, net of current portion................... -- 5,736 25,000 -- -- --
Stockholders' equity..................................... 3,542 9,773 13,645 91,587 114,386 154,461
</TABLE>
- ---------------
(1) Predecessor only.
(2) Gives effect to the Doubletree Combination Transaction and the Doubletree
Reorganization as if each of these events had occurred at January 1, 1993.
(3) The pro forma effective tax rate is higher than the actual effective tax
rate due to fewer than expected restrictions on Doubletree's ability to
utilize net operating loss carryforwards.
(4) Doubletree's effective tax rate for the year ended December 31, 1994 was
32.4% due to the organizational structure of Doubletree prior to its initial
public offering. Had a 35% rate been incurred, 1994 net income and earnings
per share would have been $12.7 million and $0.63, respectively.
(5) During the fourth quarter of 1995, Doubletree and RFS Management incurred
$2.6 million of business combination expenses related to the RFS Acquisition
which closed in February 1996. RFS Management, as a Subchapter S corporation
in 1995 for federal income tax purposes, was not generally liable for income
taxes. Accordingly, RFS Management did not provide for federal income taxes
in its 1995 financial statements. Pro forma adjustments have been made for
the year ended December 31, 1995 and the six months ended June 30, 1995 to
provide for income taxes on the earnings of RFS Management at Doubletree's
effective tax rate; also, for the year ended December 31, 1995 pro forma
adjustments have been made to exclude the business combination expenses and
provide for a related increase in income tax expense.
(6) Assumes that the 15,500,000 shares issued in connection with the Doubletree
Reorganization and the 2,727,811 shares issued to acquire RFS Management,
which was accounted for as a pooling of interests, were outstanding for all
periods presented.
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<PAGE> 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF DOUBLETREE
OVERVIEW
As of June 30, 1996, Doubletree leased and/or managed 142 hotels and had 37
franchise agreements consisting of contracts for 60 full-service Doubletree
Hotels, 37 Doubletree Guest Suites all-suite hotels, 13 limited-service
Doubletree Club Hotels and 69 non-Doubletree brand hotels. As a manager of
hotels, Doubletree is typically responsible for supervising or operating the
hotel in exchange for base fees tied to revenues. In addition, Doubletree may
also earn revenues through incentive fees based on the performance of the hotel
and income from debt and equity investments in the underlying hotel. As a
franchisor, Doubletree licenses its brand name to the hotel operator in exchange
for a franchise fee based on revenues.
Hotel revenues consist of revenues from hotels owned or leased by
Doubletree. For these hotels, Doubletree includes as revenues the entire hotel's
revenues. As the lessee of hotels that Doubletree also manages, Doubletree
exercises similar control over the operation and supervision of the hotel as is
given to it as a manager, however, Doubletree recognizes all revenues and
substantially all expenses associated with the operation of the hotel.
Purchasing and service fees represent fees from purchasing agreements with
preferred vendors, sales of furniture, supplies and other frequently used items
to hotels for a profit, and fees from technical services provided to hotel
owners in connection with the construction/renovation of hotels.
Other fees and income primarily comprise contract termination fees and
equity in income/losses of hotel partnerships and similar ventures, including
gains/losses upon the sale of a hotel.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 (Actual) vs. Six Months Ended June 30, 1995
(Actual)
Total revenues increased $26.0 million or 28% to $117.4 million for the six
months ended June 30, 1996 compared to $91.3 million for the six months ended
June 30, 1995.
Revenues from management and franchise fees increased $4.0 million or 27%
in 1996 compared to the same period in 1995. The increase is attributable to
increased incentive fees of $2.0 million, fees from new contracts (net of
contracts lost) of $1.4 million, and increased fees from comparable hotels of
$0.9 million. The growth in revenue was offset by reduced fees of approximately
$0.3 million from renegotiated contracts and management contracts which
converted to franchise agreements.
Owned hotel revenues increased $0.7 million or 20% in the first six months
of 1996 compared to the same period in 1995 reflecting a significantly improved
occupancy rate at the one owned hotel in Southfield, Michigan.
Leased hotel revenues increased $20.8 million or 32% in the first six
months of 1996 reflecting improved average daily rates and occupancies and the
net addition of ten leased hotels as compared with the same period in 1995. The
margin on leased hotel operating results increased 46% from $4.5 million to $6.6
million, reflecting the net addition of these properties and an improvement in
the operating margin from 6.9% to 7.6%.
Purchasing and service fees increased by $0.1 million in the first six
months of 1996 compared to the same period in 1995. The margin increased by $0.8
million to $1.9 million reflecting a shift in mix from high volume, low margin
bulk purchasing programs (whereby Doubletree purchases goods and resells such
goods to its hotel owners) to preferred vendor programs (whereby Doubletree
earns program management fees only).
Other fees and income increased principally due to dividends from
Doubletree's investment in the convertible preferred stock of the REIT.
General and administrative expenses increased $1.5 million or 22% over the
first six months of 1995 primarily due to the addition of employees, the
formation of a franchise development team and an increase in legal and
professional fees, all of which is attributable to the Company's growth.
Depreciation and
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<PAGE> 49
amortization increased $0.9 million over the comparable 1995 period primarily
due to increased amortization associated with investments in management
contracts. Net interest income increased nominally by $0.2 million.
The provision for income taxes reflects a 35% effective tax rate for the
first six months of 1996 compared with a 31% effective tax rate for the
comparable 1995 period. The lower effective tax rate for 1995 reflects the
election of RFS Management to be taxed as a Subchapter S corporation for income
tax purposes and, therefore, it was generally not subject to federal income
taxes. Had RFS Management been included in the 1995 consolidated income tax
returns of Doubletree, the income tax provision for the first six months of 1995
would have increased by $0.5 million.
Net income and earnings per share for the six months ended June 30, 1996
were $12.4 million and $0.54, respectively, compared to $9.4 million and $0.43,
respectively, in 1995. With a normalized effective tax rate for RFS Management
in 1995 of 35%, net income would have increased from 1995 to 1996 by 40% from
$8.9 million to $12.4 million and per share earnings would have increased 35%
from $0.40 to $0.54.
Year Ended December 31, 1995 (Actual) vs. Year Ended December 31, 1994
(Actual)
Total revenues increased $84.1 million or 75% to $196.6 million for the
year ended December 31, 1995 compared to $112.5 million for the year ended
December 31, 1994.
Revenues from management and franchise fees increased $3.8 million or 14%
due to fees from new contracts (net of contracts lost) of $2.0 million,
increased fees from comparable hotels of $0.9 million and higher incentive fees
of $0.6 million. Fees from renegotiated contracts and fees from contracts which
converted from management to franchise contracts in connection with the sale of
the underlying hotels also increased $0.3 million.
Owned hotel revenues increased $7.0 million representing the full year of
results of the Southfield hotel acquired in December 1994.
Leased hotel revenues increased $68.2 million or 92% principally due to an
increase in the number of leased hotels in 1995 as compared to 1994. Leased
hotel revenues for 1995 reflect the net addition of nine leased hotels since
December 31, 1994 plus the full year of revenues from the 31 hotels RFS
Management began leasing during 1994. The margin on leased hotel results
increased $4.5 million to $9.3 million reflecting the net addition of these
properties since the prior year.
Purchasing and service fees increased $5.7 million or 53% primarily due to
increased purchasing volume and the net addition of new properties and increases
in revenues from existing properties. The margin from purchasing and service
fees increased $1.6 million to $2.6 million or 173% principally reflecting the
implementation of several purchasing agreements that lower the price of products
to the hotel owner while concurrently providing Doubletree with a fee in return
for negotiating and managing the program.
Other fees and income decreased $0.6 million or 36% resulting principally
from $0.8 million of termination fees received in 1994 in connection with the
termination of two management contracts. Doubletree subsequently entered into
management contracts with the new owners of these two hotels.
General and administrative expenses increased $2.5 million or 21%, $2.2
million of which was attributable to the growth of RFS Management, which added
31 hotels in 1994, and $0.3 million which was attributable to DHC's increased
legal costs and costs associated with the formation of the franchise development
team.
Depreciation and amortization increased $1.7 million in 1995 primarily due
to the acquisition of the Southfield, Michigan hotel in December 1994 and
increased amortization associated with investments in management contracts.
Business combination expenses of $2.6 million in 1995 are attributable to
legal, professional and accounting fees, due diligence and certain other
expenses incurred by RFS Management and Doubletree in connection with the
business combination.
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<PAGE> 50
Interest income increased $2.5 million due to an increase in interest
earned on loans to hotel owners in conjunction with obtaining management
contracts and higher interest income on invested cash balances. Interest expense
decreased $0.6 million due to the repayment in July 1994 of all of the
outstanding indebtedness under Doubletree's $30.0 million credit facility with a
portion of the proceeds from the initial public offering.
The provision for income taxes in 1994 reflects a 32.4% effective tax rate
principally due to the organizational structure of Doubletree prior to its
initial public offering in July 1994 offset by a slightly higher rate on the
earnings of RFS Management. The provision in 1995 reflects a combined 32.2%
effective tax rate which is lower than Doubletree's effective rate of 35% due to
the election by RFS Management to be taxed as a Subchapter S corporation
effective January 1, 1995. Accordingly, the earnings of RFS Management for 1995
were generally not subject to federal income taxes.
Net income and earnings per share for the year ended December 31, 1995 were
$17.8 million and $0.80, respectively, compared to $13.3 million and $0.66,
respectively, in 1994. Excluding the business combination expenses in 1995 and
with a normalized effective tax rate for both 1994 and 1995 of 35%, net income
would have increased 47% to $18.7 million from $12.7 million and per share
earnings would have increased 33% to $0.84 from $0.63.
Year Ended December 31, 1994 (Actual) vs. Year Ended December 31, 1993 (Pro
Forma)
Actual revenues increased $55.7 million or 98% to $112.5 million for the
year ended December 31, 1994 compared to $56.8 million during the pro forma 1993
period.
Revenues from management and franchise fees increased $1.7 million or 7% in
1994 due to a $1.1 million increase in fees from comparable hotels, higher
incentive fees of $1.7 million and fees from new contracts (net of contracts
lost) of $0.2 million. These increases were partially offset by $1.1 million of
fee reductions on certain contracts that were either renegotiated or converted
from managed to franchised hotels in connection with the sale of the underlying
hotels; 1993 results included $0.2 million of fees received that had been
written off in prior years.
Owned hotel revenues represent the revenues derived from the Southfield
hotel acquired in December 1994.
Leased hotel revenues increased $53.9 million in 1994 or 272% principally
due to an increase in the number of leased hotels in 1994 as compared to 1993.
Hotel revenues for 1994 reflect the net addition of 33 leased hotels since
December 31, 1993. The margin on hotel results increased $3.5 million to $4.8
million reflecting the net addition of these hotels since the prior year.
Purchasing and service fees increased $2.2 million in 1994 or 26%
principally due to increased purchasing volume and the addition of new hotels
since December 31, 1993 and an increase in technical service fees of $0.6
million. The margin increased $0.6 million to $0.9 million reflecting the
increased activity.
Other fees and income in the pro forma 1993 period included $3.9 million of
gains from the sale of hotels in which Doubletree and RFS Management had equity
interests. Excluding these items, other fees and income for 1994 would have
increased $1.7 million, due to $0.8 million of fees received in connection with
the termination of two management contracts, and increases in franchise
application fees and equity income. Doubletree subsequently entered into
management contracts with the new owners of these two hotels.
General and administrative expenses increased by $0.3 million or 3% in
1994. During 1993, Doubletree recognized as a reduction to general and
administrative expense $1.1 million resulting from an insurance refund.
Excluding the insurance refund, general and administrative expense would have
decreased $0.8 million. The decrease was attributable to $1.8 million in payroll
and other cost savings achieved from the consolidation of the formerly separate
operations of DHC and GQHP offset by $1.0 million of increased administrative
expenses associated with the growth in the number of hotels leased by RFS
Management.
Depreciation and amortization increased $0.1 million or 4% in 1994 due to
the amortization associated with investments in management contracts.
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<PAGE> 51
Interest income increased by $1.0 million principally due to income earned
on the remaining proceeds (after repayment of indebtedness) from Doubletree's
July 1994 initial public offering. Interest expense decreased $1.1 million to
$0.8 million due to the repayment in July 1994 of all of the outstanding
indebtedness under Doubletree's $30.0 million credit facility with a portion of
the proceeds from the initial public offering.
The actual provision for income taxes in 1994 reflects a 32.4% effective
tax rate as compared to the 40% effective tax rate used in the 1993 pro forma
due to the organizational structure of Doubletree prior to its initial public
offering and fewer than expected restrictions on Doubletree's ability to utilize
net operating loss carryforwards. Doubletree's effective tax rate subsequent to
the completion of the initial public offering was 35%.
Net income and earnings per share for the year ended December 31, 1994 were
$13.2 million and $0.66, respectively, compared to $8.6 million and $0.47,
respectively, in the prior year. Excluding the noncomparable items discussed
above and adjusting the effective tax rate to 35% for both 1993 and 1994, net
income would have increased 109% to $12.7 million from $6.1 million and per
share earnings would have increased 91% to $0.63 from $0.33.
Year Ended December 31, 1994 (Actual) vs. Year Ended December 31, 1993
(Actual)
Operating results for the year ended December 31, 1994 reflect the
inclusion of the operating results of DHC which was acquired on December 16,
1993, the addition of new contracts acquired subsequent to the acquisition and
the addition of 33 leased properties during the year. As a result, management
believes that the historical results of operations for the year ended December
31, 1994 are not comparable to the prior year period.
Revenues were $112.5 million, an increase of $74.1 million or 193% for the
year ended December 31, 1994 compared to the same period of 1993. Operating
expenses were $93.7 million, an increase of $61.5 million or 191%. Income before
taxes was $19.6 million, an increase of $14.2 million or 266%. The above changes
are primarily attributable to the inclusion of DHC's operations in the 1994
period and the increase in the number of hotels leased by RFS Management. The
provision for income taxes increased and the minority interest share of net
income decreased reflecting the Doubletree Reorganization and the above
increases.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, Doubletree's balance sheet reflected $31.3 million of
working capital which represents an increase of $10.8 million from December 31,
1995. The increase is principally attributable to $27.4 million of net proceeds
generated by the public offering of Doubletree Common Stock in May 1996 and cash
generated from operations. Doubletree generated cash from operating activities
of $22.6 million during the six months ended June 1996 as compared to $11.3
million during the same period of 1995. The increase was due to increases in net
income, increases in expenses not requiring the use of cash, and an increase in
current liabilities principally due to the timing of hotel lease and income tax
payments.
Doubletree requires capital primarily for making selective investments in
the underlying hotels that it manages as a means of obtaining and enhancing the
profitability of management contracts. Doubletree used $35.6 million of cash for
investing activities in the first six months of 1996 of which $18.5 million was
contributed to RFS Management and subsequently invested in 973,684 shares of
convertible preferred stock in RFS Hotel Investors, Inc. (the "REIT Preferred
Shares"). Additionally, Doubletree made loans to owners of hotels in conjunction
with obtaining new management contracts of $6.4 million and invested $6.6
million in hotel partnerships and ventures, of which $6.2 million was
contributed to Candlewood. Doubletree has committed to contribute up to $15.0
million to Candlewood, of which $7.4 million had been funded as of June 30,
1996. The balance of $7.6 million is anticipated to be contributed during the
six months following June 30, 1996. Such contributions will be used for general
corporate purposes as well as funding a portion of the development/construction
costs of certain hotels.
In addition, in August 1996 Doubletree committed to provide credit support
for a loan facility that will be utilized by Candlewood to arrange to provide
construction and permanent financing to Candlewood
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<PAGE> 52
franchisees on terms that, in most cases, are much more attractive than those
which the franchisees could obtain on their own. The source of the loan facility
will be General Motors Acceptance Corporation Mortgage Group. In providing such
credit support, Doubletree's maximum exposure on any one Candlewood franchise
will be approximately $1.0 million, with the aggregate amount of exposure to
Doubletree for all such credit support capped at between $20.0 and $30.0
million, assuming that the aggregate amount of loans made under the loan
facility is between $100.0 and $150.0 million.
In August 1996, Doubletree and Patriot announced the formation of a joint
venture strategic alliance. Pursuant to the strategic alliance, Doubletree and
Patriot will work together to identify hotels potentially suitable for
acquisition by Patriot, which will then be operated as Doubletree brand hotels
or luxury non-Doubletree brand hotels, in each case to be leased and managed by
Doubletree. Patriot and Doubletree have committed to invest an aggregate of
$200.0 million and $20.0 million, respectively, into the purchase of hotels as
part of the strategic alliance.
Doubletree has guaranteed certain mortgages, leases and construction bonds
up to $6.5 million ($2.9 million of which is collateralized by letters of
credit).
Doubletree has committed to lend up to $9.0 million, $7.0 million of which
is to the owner of the Doubletree Hotel in Somerset, New Jersey, of which $0.7
million is for renovations and $6.3 million is to provide bridge financing, if
needed. The remaining loan commitments are to two other hotels for renovations.
Doubletree is committed, subject to certain conditions, to contributing an
additional $3.1 million to an investment partnership formed for the purposes of
acquiring hotels. Doubletree through its corporate subsidiaries serves as the
general partner of certain limited partnerships which own hotels. Debt of these
partnerships is typically secured by first mortgages on the properties and
generally is nonrecourse to the partners. However, such corporate subsidiaries
are liable, as a general partner, for the recourse obligations of the
partnerships they manage. No assurance can be given that Doubletree will not be
required to fund additional commitments.
Certain hotel management contracts provide that if a hotel does not achieve
agreed-upon performance levels, Doubletree may elect or may be required to fund
any performance shortfalls for a specified period of time. In general, if
Doubletree elects not to fund the shortfall, the hotel owner may elect to
terminate the management contract. If Doubletree elects to fund the shortfall,
but performance standards are not achieved at the expiration of the funding
period, the owner may elect to terminate the management contract at that time.
Doubletree funded $487,000 in June 1996 in connection with a shortfall at one
hotel. There were no shortfall funding payments in 1995 or 1994.
In connection with the acquisition of RFS Management, Doubletree's existing
credit facility was amended, allowing Doubletree to maintain borrowings
outstanding under the credit facility of up to $30.0 million through December
1997, and up to $12.5 million from December 1997 until scheduled maturity in
December 1998. Annually, Doubletree can request an extension of the maturity
date by one year. In May 1996, Doubletree requested an extension which was
granted by the lender. Accordingly, the initial reduction in the commitment has
been extended to 1998 and the maturity date is December 1999. In February 1996,
Doubletree borrowed $5.0 million under the credit facility and repaid the entire
amount by June 30, 1996. The credit facility provides for automatic reductions
in the amount of the facility by 100% of the net proceeds from the sale or other
disposition of certain types of loans or investments or the issuance of certain
debt obligations and by 50% of the new proceeds from the issuance of certain
equity securities. The lender has waived this required reduction with respect to
each of Doubletree's public offerings of common stock.
Following the consummation of the Merger and the related transactions
including the Financing Plan, Doubletree intends to terminate its existing
credit facility described above. After giving effect to the Merger and such
related transactions, Doubletree will have borrowed $600.0 million under the New
Credit Facility and will have $136.0 million available to borrow thereunder (of
which $36.0 million will be available only in certain circumstances).
Additionally, Doubletree intends to raise an additional $315.0 million of net
proceeds pursuant to the GEPT Equity Investment and the Offering. In the event
that the Offering is not consummated at or prior to the Effective Time,
Doubletree intends to obtain substitute financing through the Bridge Loan
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<PAGE> 53
and additional borrowings under the New Credit Facility. All of the net cash
proceeds from these financing transactions are anticipated to be used to
consummate the Merger. In each instance, management believes that a combination
of its existing cash and cash equivalents, net cash to be provided from
operations and its remaining borrowing ability under the New Credit Facility
will be sufficient to fund its current operations and capital expenditures after
the Merger. See "Risk Factors -- Financing of the Merger; Leverage."
51
<PAGE> 54
BUSINESS OF DOUBLETREE
Doubletree Corporation is one of the nation's leading hotel management
companies. At June 30, 1996, Doubletree managed, leased, or franchised 179
hotels with an aggregate of 41,232 rooms in 37 states, the District of Columbia
and Mexico. This represents a 63% and 43% increase in managed, leased or
franchised hotels and aggregate room count, respectively, during the 12 month
period ended June 30, 1996. Excluding the RFS Acquisition, this growth was 17%
and 19%, respectively. See "-- Recent Developments." Doubletree provides hotel
owners with management and franchise services under its Doubletree Hotels,
Doubletree Guest Suites, Doubletree Club Hotels and Club Hotels by Doubletree
brand names, as well as management services for non-Doubletree brand hotels. At
June 30, 1996, Doubletree's hotels included 60 Doubletree Hotels, 37 Doubletree
Guest Suites, 13 Doubletree Club Hotels, and 69 hotels operated by Doubletree
under third party brand names or as independent hotels.
RECENT DEVELOPMENTS
Doubletree has recently taken the following steps to help implement and
further its business and growth strategies:
Acquisition of RFS Management. In February 1996, Doubletree significantly
expanded its portfolio of non-Doubletree brand hotels with the RFS Acquisition.
At June 30, 1996, RFS Management operated 56 hotels, 44 of which were leased and
managed, four of which were leased only, and eight of which were managed for
owners other than the Landlord. The RFS Hotels principally operate in the
limited-service and the extended stay segments of the lodging industry, comprise
8,855 rooms and are operated under such franchise brands as Holiday Inn, Holiday
Inn Express, Residence Inn by Marriott, Hampton Inn and Comfort Inn. With the
RFS Acquisition, Doubletree acquired an independent hotel management company
with experienced hotel management personnel and an established infrastructure,
which will allow Doubletree to pursue further non-Doubletree brand management
contract and lease opportunities. In addition, in connection with the RFS
Acquisition, Doubletree entered into an arrangement with the REIT granting
Doubletree the right to lease and manage any hotels acquired or developed by the
REIT or the Landlord during the ten years following the RFS Acquisition, with
limited exceptions (the "Right of First Refusal"). The Right of First Refusal
provides Doubletree with an additional source of capital for additions to
Doubletree's hotel portfolio. In addition to its ongoing efforts to acquire
hotels, the REIT currently has seven hotels under development which will be
subject to the Right of First Refusal. See "-- The RFS Acquisition."
Formation of Candlewood. In November 1995, Doubletree announced its
entrance into the mid-priced ($40-50 per night) extended stay segment of the
hotel market with its investment in Candlewood, a joint venture with entities
controlled by Mr. Jack DeBoer, the founder of Residence Inns. Candlewood will
develop, own, manage and franchise hotels containing fully furnished studio
units designed to serve the value-oriented extended stay guest. Mr. DeBoer, whom
the industry credits with creating the extended stay concept, is primarily
responsible for the development and day-to-day operations of Candlewood.
Doubletree appoints two of Candlewood's four delegates, and approval of at least
a majority of the delegates is required for all material transactions.
Candlewood's first hotel commenced operations in May 1996. Doubletree has
committed to invest up to $15.0 million of equity capital in Candlewood, of
which $7.4 million was invested at June 30, 1996, and an additional $7.6 million
was to have been invested over the next six months thereafter, for which it will
receive, after a preferred return of and on its capital, 50% of Candlewood's
profits and losses. In September 1996, Candlewood Hotel Company, Inc. filed a
registration statement with the Securities and Exchange Commission to register
its common stock. In connection with the offering, Doubletree's interest in
Candlewood will be converted into an equivalent interest in Candlewood Hotel
Company, Inc. In addition, in August 1996 Doubletree committed to provide credit
support for a loan facility that will be utilized by Candlewood to arrange to
provide construction and permanent financing to Candlewood franchisees on terms
that, in most cases, are much more attractive than those which the franchisees
could obtain on their own. The source of the loan facility will be General
Motors Acceptance Corporation Mortgage Group. In providing such credit support,
Doubletree's maximum exposure on any one Candlewood franchise will be
approximately $1.0 million, with the aggregate amount of exposure to Doubletree
for all such credit support capped at between $20.0 and $30.0 million, assuming
that the aggregate amount of loans made under the related loan facility is
between $100.0 and $150.0 million. Doubletree believes that the Candlewood joint
venture provides it with an
52
<PAGE> 55
opportunity to generate incremental revenues and participate in a quickly
expanding and high demand segment of the lodging industry. The Candlewood joint
venture is in the initial stages of development, and there can be no assurance
of its success. See "-- Investments and Commitments."
Formation of Joint Venture Strategic Alliance With Patriot American
Hospitality, Inc. In August 1996, Doubletree and Patriot announced the
formation of a joint venture strategic alliance. Pursuant to the strategic
alliance, Doubletree and Patriot will work together to identify hotels
potentially suitable for acquisition by Patriot, which will then be operated as
Doubletree brand hotels or luxury non-Doubletree brand hotels, in each case to
be leased and managed by Doubletree. Patriot and Doubletree have committed to
invest an aggregate of $200.0 million and $20.0 million, respectively, into the
purchase of hotels as part of the strategic alliance. The joint venture
strategic alliance provides Doubletree with another source of long-term hotel
management and lease opportunities. The joint venture has successfully completed
the acquisition of four Doubletree hotels. Despite these acquisitions, the joint
venture strategic alliance is in its initial stages, and there can be no
assurance of its success. There is no assurance that Doubletree's equity
investment in any hotel that is purchased as part of the strategic alliance will
be profitable, and the leasing and ownership of hotels presents certain risks
for Doubletree. See "Risk Factors -- Investment Losses; Risks Associated with
Joint Ventures; Contingent Liabilities" and "Risk Factors -- Risks Associated
with Owning and Leasing Real Estate."
Introduction of Club Hotels by Doubletree. In January 1996, Doubletree
introduced "Club Hotels by Doubletree," a new hotel brand specifically targeted
at the frequent business traveler, which was developed by Doubletree in concert
with Steelcase, Au Bon Pain and Kinko's. Each hotel will feature a multi-purpose
Business Club ranging from 2,000 to 5,000 square feet in size. One portion of
the Business Club will be dedicated to the Kinko's self-service business center
and will contain business equipment, such as computer printers, fax machines,
photocopiers and office and shipping supplies. Each Business Club will also
feature private mini offices and small conference rooms designed by Steelcase,
and will feature an Au Bon Pain bakery cafe, where guests may enjoy breakfast,
lunch or dinner. Doubletree plans to grow its new brand through the acquisition
of management contracts of underperforming hotels in target locations, a focused
franchising program and the conversion of certain existing Doubletree Club
Hotels. The first two conversions of hotels to a Club Hotel by Doubletree,
containing a fully operational Business Club, recently opened in Jacksonville,
Florida and San Antonio, Texas.
Sale of TIAA Hotel Portfolio; Cash Distribution. In August 1996, Starwood,
a company that owns and manages hotels, acquired four managed Doubletree brand
hotels from their owner, Teachers Insurance Assurance Association of America.
These hotels are: the Doubletree Hotel Los Angeles (Airport), Doubletree Hotel
San Diego Horton Plaza, Doubletree Hotel Atlanta and Doubletree Hotel
Bloomington (Mall of America). These hotels comprise a part of, and are not in
addition to, the hotels acquired by Starwood discussed in "Risk Factors -- Risk
of Contract Turnover." As part of the purchase and sale transaction, Starwood
retained Doubletree as the manager of the hotels, subject to either party's
right to terminate each management agreement, without cause, on 30 days' prior
written notice. In the event that Doubletree's management or franchise of the
hotels is terminated for any reason, Starwood is required to pay Doubletree a
termination payment the amount of which will be sufficient to recover
Doubletree's asset. Effective October 1, 1996, Starwood converted the short-term
management agreements for the hotels to short-term Doubletree franchise
agreements. Starwood has indicated that three of such franchise agreements will
likely be converted to other brands in early 1997. However, Doubletree currently
anticipates that it would terminate two of the three franchise agreements as a
result of the Merger.
Doubletree, through its subsidiaries, had a minority general partnership
interest in the general partnership that owned the Doubletree San Diego Horton
Plaza. As a result of the sale of the hotel and the liquidation of the general
partnership, Doubletree received a cash distribution of approximately $5.8
million.
THE LODGING INDUSTRY
Overview
Doubletree believes that the lodging industry is benefiting from an
improved supply and demand balance, which has led to overall profitability of
the lodging industry. According to Hospitality Directions, 1995 marked the
lodging industry's third consecutive year of profitability. The report estimates
that the lodging industry
53
<PAGE> 56
earned pretax profits of $7.6 billion in 1995, a 38% increase over the prior
year. Room supply growth in the lodging industry, particularly in the principal
segments in which Doubletree competes, has slowed dramatically in recent years
as the industry has absorbed some of the oversupply of rooms that resulted from
an average annual room supply growth of approximately 4% from 1987 to 1990.
According to industry reports, this growth slowed to 1.3% in 1992, 1.4% in 1993,
1.5% in 1994 and 1.6% in 1995. Increases in occupancy rates (measured by
occupied rooms) increased 3.3% in 1992, 3.1% in 1993, 4.0% in 1994 and 2.9% in
1995. Average daily room rates increased 1.4%, 2.8%, 4.8% and 4.9%,
respectively, during the same periods. Due to the cyclical nature of supply and
demand in the lodging industry, there can be no assurance that such increases
will continue. See "Risk Factors -- Risks Associated with the Lodging Industry."
Industry Segments
Industry segments within the lodging industry are principally based on
levels of service, guest amenities, room size, room configuration and price.
Doubletree's Doubletree brand hotels currently compete in three segments of the
lodging industry: full-service hotels, all-suite hotels, and limited-service
hotels. Full-service hotels typically include swimming pools, meeting and
banquet facilities, gift shops, restaurants, cocktail lounges, room service,
parking facilities and other services. All-suite hotels provide the guest with a
two room suite, including a bedroom and a living room. This segment can also be
further divided depending on the level of food and beverage services provided at
the hotel. Limited-service hotels are moderately priced and typically do not
include services such as extensive meeting and banquet facilities or extensive
food and beverage facilities.
Doubletree's non-Doubletree brand hotels compete in most segments, but
primarily in the limited-service and extended stay segments of the lodging
industry. Extended stay hotels are designed to combine the convenience of a
hotel with many of the comforts of an apartment, and generally contain a
furnished kitchen area and may include living areas separate from sleeping
areas.
HOTEL OPERATIONS: DOUBLETREE BRAND HOTELS
Doubletree Full-Service Hotels
Doubletree's full-service hotels are targeted at business travelers, group
meetings and leisure travelers. The total guest room revenue for the year ended
December 31, 1995 for Doubletree's full-service hotels was derived approximately
40% from business travelers, 41% from group meetings and 19% from leisure
travelers. Doubletree believes these percentages are consistent with other
full-service hotel brands in the industry.
At June 30, 1996, Doubletree's full-service hotel segment included 60
Doubletree hotels in 22 states, the District of Columbia and Mexico, with a
total of 19,334 guest rooms. Of these hotels, 44 were operated by Doubletree
under management contracts and 16 were operated by franchisees licensed to use
the Doubletree brand name at June 30, 1996. Four of the managed hotels were also
leased by Doubletree as of such date.
At June 30, 1996, Doubletree full-service hotels ranged in size from 120 to
720 rooms, and room rates generally ranged from $45 to $280 per night depending
upon location, time of year and day of the week. Doubletree full-service hotels
typically include a swimming pool, gift shop, meeting and banquet facilities, at
least one restaurant and cocktail lounge, room service, parking facilities and
other services. Three of Doubletree's full-service hotels are considered resort
hotels, with additional recreational facilities, such as tennis courts, and two
of these hotels have golf courses.
The following table sets forth certain information regarding the Doubletree
full-service hotels managed or franchised by Doubletree at June 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
HOTELS ROOMS
--------- ---------
<S> <C> <C>
Managed Hotels........................................... 44 14,654
Franchised Hotels........................................ 16 4,680
--- ------
Total............................................... 60 19,334
=== ======
</TABLE>
54
<PAGE> 57
Doubletree Guest Suites All-Suite Hotels
The Doubletree Guest Suites all-suite hotels comprise one of the largest
all-suite hotel chains in the United States as measured by number of suites and
system revenues. All-suite hotels are targeted at business travelers and
families who have a need or desire for greater space than typically is provided
at most traditional hotels. The total guest room revenue for the year ended
December 31, 1995 for Doubletree's all-suite hotels was derived approximately
50% from business travelers, 27% from group meetings and 23% from leisure
travelers.
At June 30, 1996, Doubletree's all-suite hotels included 37 Doubletree
Guest Suites hotels in 18 states and the District of Columbia, with a total of
8,033 guest rooms. Of these hotels, 26 are operated by Doubletree under
management contracts and 11 are operated by franchisees licensed to use the
Doubletree Guest Suites brand name. One of the managed hotels is also owned by
Doubletree.
At June 30, 1996, Doubletree Guest Suites ranged in size from 55 to 460
guest suites, and suite rates generally ranged from $60 to $250 per night. Each
guest suite has a separate living room and dining/work area, with a color
television, refrigerator and wet bar.
The following table sets forth certain information regarding the Doubletree
Guest Suites all-suite hotels managed or franchised by Doubletree at June 30,
1996:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
HOTELS ROOMS
--------- ---------
<S> <C> <C>
Managed Hotels........................................... 26 5,985
Franchised Hotels........................................ 11 2,048
--- -----
Total............................................... 37 8,033
=== =====
</TABLE>
Limited-Service Doubletree Club Hotels
Doubletree Club Hotels and Club Hotels by Doubletree, moderately-priced,
limited-service hotels, are primarily targeted at individual business travelers.
The total guest room revenue for the year ended December 31, 1995 for
Doubletree's limited-service hotels was derived approximately 56% from business
travelers, 25% from group meetings and 19% from leisure travelers.
At June 30, 1996, the Doubletree Club Hotels included 13 hotels in nine
states, with a total of 2,364 guest rooms. Of these hotels, three are operated
by Doubletree under management contracts and 10 are operated by franchisees
licensed to use the Doubletree Club Hotels name.
At June 30, 1996, Doubletree Club Hotels ranged in size from 158 to 215
rooms, and room rates generally ranged from $50 to $135 per night. Doubletree
Club Hotels typically include a pool and a central lounge with open seating for
serving meals and evening cocktails.
The following table sets forth certain information regarding the Doubletree
Club Hotels managed or franchised by Doubletree at June 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
HOTELS ROOMS
--------- ---------
<S> <C> <C>
Managed Hotels........................................... 3 512
Franchised Hotels........................................ 10 1,852
--- -----
Total............................................... 13 2,364
=== =====
</TABLE>
Doubletree plans to grow its new limited-service hotel brand, Club Hotels
by Doubletree, through the acquisition of management contracts of unaffiliated
underperforming hotels, a focused franchising program and the conversion of
certain existing Doubletree Club Hotels. Since June 30, 1996, one Doubletree
Club Hotel in each of Jacksonville, Florida, and San Antonio, Texas, has been
converted to Club Hotels by Doubletree. See "-- Recent
Developments -- Introduction of Club Hotels by Doubletree."
55
<PAGE> 58
Marketing and Sales
To enhance Doubletree's brand recognition and national presence, Doubletree
launched in February 1995 its multi-million dollar "Sweet Dreams" marketing
campaign. The "Sweet Dreams" campaign is intended to increase awareness among
business travelers of Doubletree's distinguishing characteristics and features
the Doubletree cookie -- a symbol of Doubletree's commitment to provide warm and
caring services to its guests. According to Nationwide Surveys, Inc., at
December 31, 1995, brand awareness of the Doubletree brand name in the business
travel segment was at 79%, an all-time Doubletree high.
Doubletree advertises nationally on network and cable TV and in major
newspapers and magazines. Doubletree has established marketing alliances with
major airlines, car rental and credit card companies to share customer lists and
build trade through joint promotions. Additionally, Doubletree is the official
hotel sponsor of the NFL and an official corporate partner of the NCAA. All
Doubletree brand hotels participate in national, regional and local advertising
and promotion programs designed by central marketing services.
Doubletree has a 24-hour central reservations office with an 800 number to
provide a simple and cost-effective means for making reservations and promotes
its branded hotels to reservation-makers, including all major airline
reservation systems and over 32,000 travel agencies in the United States.
Doubletree uses a centralized telemarketing group, is represented at major trade
shows in the United States and abroad, and specifically targets Fortune 500
companies and large national associations. In 1995 Doubletree established a
franchise sales organization and support infrastructure in order to capitalize
on the growth opportunities in franchising.
Management Contracts
Under each of Doubletree's management contracts, Doubletree operates or
supervises all aspects of the hotel's operations, including guest services,
hiring and training of hotel staff (who generally are employees of Doubletree),
sales and marketing, accounting functions, purchasing and budgeting. In exchange
for these services, Doubletree receives a base fee, typically tied to the
hotel's revenues. In addition, Doubletree may receive revenues from incentives
provided in Doubletree's management contracts based on achieving specified
operating performance goals or may earn income through Investments in the
underlying hotel properties. Doubletree's management contracts have average
terms of approximately 14 years, and there is an average of approximately 11
years remaining under existing management contracts. Under the contracts,
Doubletree also provides certain centralized corporate services for which it is
reimbursed at cost, including reservations, sales and marketing, public
relations, accounting, management information systems, internal audit and
specialized training. The hotel owner may purchase hotel supplies from
Doubletree, including brand-specific products, for cost plus a mark-up.
Additionally, Doubletree has implemented several purchasing agreements that
lower the cost of products to the hotel owner while concurrently providing
Doubletree with a fee in return for negotiating and managing the program.
Doubletree also provides design, construction and other technical services for a
fee. The hotel owner generally is responsible for all costs, expenses and
liabilities incurred in connection with operating the hotel, including the
expenses, salaries and benefits of all hotel employees, and generally is
required to provide a certain percentage of hotel revenues for capital
replacement. In addition, Doubletree may be responsible for certain liabilities,
such as workers compensation, environmental and general tort liability,
associated with a hotel's operations. Doubletree carries general liability
insurance to protect itself from most potential liability claims. See
"-- Insurance."
Upon assumption of the management of a hotel, Doubletree concentrates on
improving the value of the hotel while minimizing the impact of the transition
on employees, guests and the local marketplace. In addition, upon conversion of
a hotel to Doubletree management, Doubletree often works with the hotel owner to
renovate the hotel to improve its marketability and value and to meet the other
financial objectives of the owner. To facilitate the conversion, Doubletree
offers certain technical services for a fee, including recommending and
selecting architects and interior designers, as well as controlling the budget
process and supervising construction.
56
<PAGE> 59
Management of Doubletree hotels is coordinated from Doubletree's
headquarters in Phoenix, with a regional operations office in Boston, regional
sales offices in Chicago, Los Angeles and Philadelphia and an accounting office
in Cincinnati.
Franchise Operations
Doubletree's franchised hotels are operated under the Doubletree,
Doubletree Guest Suites and Doubletree Club Hotels brands and include hotels in
the full-service, all-suite and limited-service segments of the hotel industry.
At June 30, 1996, Doubletree franchised 37 hotels with a total of 8,580 guest
rooms. Until 1995, Doubletree had franchised hotels primarily when a managed
hotel was sold to an owner/manager who chose to manage the hotel, while
maintaining the use of one of Doubletree's brand names. In 1995 Doubletree
created a franchise sales organization to capitalize on additional franchising
opportunities as the awareness of the Doubletree brand increased. Doubletree's
centralized corporate services for franchised hotels include centralized
reservations, sales and marketing, public relations and national media
advertising. While franchising remains secondary to hotel management contract
growth, Doubletree intends to take advantage of franchising opportunities on a
selective basis and expects that the percentage of franchised hotels in its
system will increase.
Doubletree's franchise agreements have varying terms and typically require,
among other things, franchisees to pay an initial application fee upon
acceptance of the property, annual franchise fees based upon revenues and
marketing/reservation fees for the costs associated with the use of Doubletree's
centralized corporate services. Doubletree's franchise agreements have average
terms of approximately 11 years, and there is an average of approximately nine
years remaining under existing franchise agreements. Many of Doubletree's
franchisees purchase hotel supplies from Doubletree, including brand-specific
products.
In addition to acting as a franchisor of the Doubletree hotel brands,
Doubletree operates additional hotels as a franchisee under a variety of hotel
brand names. See "-- Hotel Operations: Non-Doubletree Brand Hotels -- Franchise
Agreements."
HOTEL OPERATIONS: NON-DOUBLETREE BRAND HOTELS
Non-Doubletree Brand Hotels
At June 30, 1996, Doubletree managed or leased 69 hotels under
non-Doubletree brands with a total of 11,501 rooms in 27 states, including
luxury, full-service, limited-service and extended stay hotels. See "-- The RFS
Acquisition." These non-Doubletree brand hotels are operated under brand names
such as Hampton Inn, Residence Inn by Marriott, Holiday Inn, Holiday Inn Express
and Comfort Inn or as independent hotels.
Marketing and Sales
Doubletree's marketing and sales objective for its non-Doubletree brand
hotels is to increase the revenues and profitability of those hotels through a
direct sales program at each hotel. In addition to direct sales and marketing
efforts at each franchised hotel, each such hotel takes advantage of the
advertising and promotional strength of its particular franchise organization.
Lease and Management Agreements
At June 30, 1996, of Doubletree's 69 non-Doubletree brand hotels, 46 were
leased and managed, 18 were managed only, four were leased only and one was
owned through the Candlewood joint venture. All of the leased and managed hotels
were leased and managed by Doubletree pursuant to lease agreements (the
"Percentage Leases") with the Landlord under similar terms. See "Risk
Factors -- Dependence on Certain Hotel Owners."
Each Percentage Lease has an initial term of not less than 15 years from
the date of inception (with expiration dates ranging from 2008 to 2015), is
subject to early termination upon the occurrence of certain contingencies and
requires the monthly payment of base rent and the quarterly payment of
percentage rent. During 1995, the base rent component of the Percentage Lease
expense was approximately 47% of total
57
<PAGE> 60
Percentage Lease expense. Top percentage rents ranged from 50% to 76.5% of
incremental room revenue. For the year ended December 31, 1995, room revenue for
each of the RFS Hotels exceeded the amount required to trigger the top tier of
percentage rent. Other than real estate taxes, casualty insurance, maintenance
of underground utilities and structural elements, and furniture, fixtures and
equipment and other capital improvements, which are obligations of the Landlord,
the Percentage Leases require Doubletree to pay rent, personal property taxes,
all costs and expenses and all utility and other charges incurred in the
operation of the hotels. Under each of the Percentage Leases, Doubletree has
agreed to indemnify the Landlord against certain liabilities including (i) any
injury to persons or property at the hotels; (ii) any environmental liability
resulting from conditions caused by Doubletree; (iii) liability resulting from
the sale or consumption of alcoholic beverages at the hotel; and (iv) costs
related to employees at the RFS Hotels. In connection with the RFS Acquisition,
RFS Stockholders have agreed to indemnify Doubletree for undisclosed conditions
existing prior to such acquisition. If the Landlord enters into an agreement to
sell a hotel, it may terminate the Percentage Lease and either (i) pay
Doubletree the fair market value of Doubletree's leasehold interest or (ii)
offer to lease to Doubletree a substitute hotel on terms that would create an
equivalent value. If the REIT terminates its status, for federal tax purposes,
as a real estate investment trust, the Landlord may terminate the Percentage
Leases then in effect and the Right of First Refusal by providing notice to
Doubletree and causing the REIT to redeem any REIT Preferred Shares then owned
by Doubletree. If the termination occurs within 10 years after the closing date
of the RFS Acquisition, the Landlord will pay to Doubletree a varying amount of
liquidated damages plus the fair value of the then existing Percentage Leases.
If the Landlord fails to cure a breach by it under a Percentage Lease,
Doubletree may purchase the relevant hotel from the Landlord for a purchase
price equal to the hotel's then fair market value. Events of default under the
Percentage Leases, in addition to customary events of default, include (i) the
occurrence of an event of default under any other lease between the Landlord and
Doubletree or an affiliate of Doubletree (only with respect to those leases that
were in place at the time of the closing of the RFS Acquisition), (ii) the
failure of RFS Management to maintain a minimum net worth of $15.0 million or a
ratio of total debt to consolidated net worth (as defined in the Percentage
Leases) of 50% or less, exclusive of capitalized leases, and (iii) the
termination by the franchisor, as a result of any action or failure to act by
Doubletree, of the franchise agreement with respect to any RFS Hotel. See
"-- The RFS Acquisition." If an event of default occurs and continues beyond any
cure period, the Landlord may terminate the Percentage Leases as well as the
Right of First Refusal.
Management of the RFS Hotels is coordinated from Doubletree's office in
Memphis, Tennessee. Doubletree uses a centralized accounting and data processing
system for its leased hotels which facilitates financial statement and budget
preparation, payroll management, internal auditing and other support functions
for the on-site hotel management team. Doubletree also provides centralized
control over purchasing and project management.
Franchise Agreements
Of the 69 non-Doubletree brand hotels, 62 are licensed to operate under
franchise agreements, including 15 hotels licensed as Hampton Inn hotels, 12
hotels licensed as Residence Inn by Marriott hotels, six hotels licensed as
Comfort Inn hotels, nine hotels licensed as Holiday Inn Express hotels, 11
hotels licensed as Holiday Inn hotels and nine hotels licensed under other
brands. Holiday Inn and Holiday Inn Express are registered trademarks of Holiday
Inn, Inc. Comfort Inn is a registered trademark of Choice Hotels International,
Inc. Residence Inn by Marriott is a registered trademark of Marriott
Corporation. Hampton Inn is a registered trademark of Promus Hotel Corporation.
Doubletree as lessee holds the franchise license for each hotel it operates and
is responsible for paying the franchise fees.
Generally, each franchise agreement gives Doubletree the right to operate
the particular hotel under a franchise for an initial term of between 10 and 20
years. The franchise agreements provide for termination at the franchisor's
option upon the occurrence of certain events. Doubletree is entitled to
terminate the franchise license by giving at least 12 months notice and paying a
specified amount of liquidated damages. Doubletree has no present intention to
terminate any of such franchises. The franchise agreements under which
Doubletree is a franchisee generally impose similar obligations on Doubletree as
those Doubletree imposes on its franchisees.
58
<PAGE> 61
INVESTMENTS AND COMMITMENTS
Doubletree makes selective Investments in hotels and hotel ventures in
connection with acquiring or maintaining management or the lease of hotels and
to enhance the value or position of Doubletree in the lodging industry. It also
makes certain financial commitments for the same purposes. These Investments and
commitments may be material to Doubletree's financial position and results of
operations, and often are characterized, as compared to Doubletree's ordinary
course operations, by enhanced risk and by lack or attenuation of Company
control.
Doubletree makes Investments in hotels in order to acquire or maintain
management of the hotels in a variety of circumstances. Doubletree may make or
guarantee loans to hotel owners for renovations, acquisitions, conversions, or
working capital, among other things. Such loans or loan guarantees are typically
nonrecourse other than to the hotel property and if secured, are subordinate.
Doubletree may also make Investments in hotels in a variety of forms, including
through partnerships, corporations and limited liability companies, which
typically are minority and illiquid positions. Doubletree believes that such
Investments better align its interests with those of the hotel owners and
provide a competitive advantage in acquiring and maintaining management of
hotels over management companies which do not make investments.
At June 30, 1996, Doubletree had general and/or limited partnership
interests in 17 limited partnerships, 11 of which own hotels while the others
own retail or industrial properties, which interests ranged from less than 1% to
49.9% of the respective partnerships and had an aggregate book value of $10.8
million. At such date, Doubletree also had loans outstanding to certain hotel
owners with an aggregate book value of $31.4 million, and had guaranteed certain
mortgages, leases and construction bonds for hotel owners up to $6.5 million
($2.9 million of which were collateralized by letters of credit). In addition,
at June 30, 1996 Doubletree had committed to lend up to $9.0 million: $7.0
million to the owner of the Doubletree Hotel in Somerset, New Jersey, of which
$0.7 million is for renovations and $6.3 million of which is to provide bridge
financing, if needed; the remaining loan commitments are to two other hotels,
primarily for renovations. See Notes 7 and 16 of Notes to Consolidated Financial
Statements and "Management's Discussion and Analysis of Results of Operations
and Financial Condition of Doubletree -- Liquidity and Capital Resources."
In connection with obtaining hotel management contracts or leases
Doubletree may also make guarantees of hotel performance to an owner, which
guarantees normally are limited in time or amount, and may make payments
directly to the hotel owner, normally in consideration of special financial or
other accommodations to Doubletree in management contract terms and conditions,
which payments are capitalized and amortized. In some circumstances, Doubletree
will acquire a hotel in order to manage it (Doubletree presently owns one
hotel), or agree to hotel lease terms which result in Doubletree assuming
greater operating risks than are associated with management contracts alone. See
"Risk Factors -- Risks Associated with Owning and Leasing Real Estate."
Doubletree's Investments in and commitments regarding hotels for the
purpose of acquiring or maintaining management or lease of a hotel normally do
not extend beyond the period of its management or lease of the hotels. Such
Investments and commitments increase the potential risks, and in some cases the
potential rewards, of such relationships.
Doubletree may also make Investments in institutional hotel owners rather
than in particular hotels, with varying levels of assurance that such
Investments will lead to management arrangements. At June 30, 1996, Doubletree
had invested $18.5 million in the REIT Preferred Shares, and had the Right of
First Refusal with respect to certain future hotel leases from the Landlord.
Additionally, Doubletree had investments in the REIT's common stock and
partnership units of the Landlord with a net book value of $1.4 million. At such
date, Doubletree had Investments with an aggregate book value of $1.8 million,
and commitments to invest, subject to certain conditions, an additional $3.1
million, in Thayer Hotel Investors II ("Thayer"), a limited partnership which
invests in hotel properties and for which Doubletree manages certain hotels. The
terms of Doubletree's investment in Thayer do not assure that Doubletree will be
offered the opportunity to manage hotels acquired by Thayer, but Doubletree
anticipates that at least 50% of the properties acquired by Thayer will either
be managed or franchised by Doubletree.
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<PAGE> 62
Doubletree may also make Investments in other lodging industry companies
for strategic reasons and to enhance Doubletree's value. At June 30, 1996,
Doubletree had invested $7.4 million in Candlewood, and had committed to invest
up to an additional $7.6 million over the next 6 months thereafter. In addition,
in August 1996 Doubletree committed to provide credit support for a loan
facility that will be utilized by Candlewood to arrange to provide construction
and permanent financing to Candlewood franchisees on terms that, in most cases,
are much more attractive than those which the franchisees could obtain on their
own. Also in August 1996, Doubletree formed a joint venture strategic alliance
with Patriot, pursuant to which Doubletree and Patriot will seek to identify
hotels potentially suitable for acquisition and to be operated as Doubletree
brand hotels or luxury non-Doubletree brand hotels, in each case to be leased
and managed by Doubletree. Doubletree has agreed to invest approximately 10% of
the equity in each hotel that is purchased as part of the joint venture
strategic alliance up to an aggregate of $20.0 million. See "-- Recent
Developments" and "Management's Discussion and Analysis of Results of Operations
and Financial Condition of Doubletree -- Liquidity and Capital Resources" and
"Risk Factors -- Investment Losses; Risks Associated with Joint Ventures;
Contingent Liabilities."
HOTEL PROPERTIES
The following table presents as of June 30, 1996 certain comparative
information with respect to Doubletree brand hotels and non-Doubletree brand
hotels:
<TABLE>
<CAPTION>
TOTAL NON-
DOUBLETREE DOUBLETREE
DOUBLETREE DOUBLETREE DOUBLETREE BRAND BRAND
FULL-SERVICE GUEST SUITES CLUB HOTELS HOTELS HOTELS TOTAL
------------ ------------ ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Number of Hotels(1)................... 60 37 13 110 69 179
Total Number of Rooms(1).............. 19,334 8,033 2,364 29,731 11,501 41,232
Average Number of Rooms Per
Hotel(1)............................ 322 217 182 270 167 230
Percentage of all Doubletree Rooms.... 46.9% 19.5% 5.7% 72.1% 27.9% 100.0 %
Occupancy Percentage(2)(3)
Year 1994........................... 70.2% 73.7% 65.9% 71.2% 69.9% 71.0 %
Year 1995........................... 70.8 74.6 66.2 71.9 71.4 71.8
Six Months Ended June 1995.......... 71.5 73.4 71.1 72.1 74.6 72.8
Six Months Ended June 1996.......... 73.0 75.9 71.0 73.9 76.1 74.5
Average Daily Rate(2)(3)
Year 1994........................... $80.44 $94.43 $ 63.10 $84.59 $70.18 $82.21
Year 1995........................... 84.87 98.84 66.42 88.99 73.56 86.41
Six Months Ended June 1995.......... 81.43 104.90 66.58 88.55 67.83 82.22
Six Months Ended June 1996.......... 88.06 110.84 71.46 94.99 71.86 87.93
REVPAR(2)
Year 1994........................... $56.48 $69.57 $ 41.59 $60.22 $49.02 $58.38
Year 1995........................... 60.08 73.74 43.99 63.96 52.51 62.03
Six Months Ended June 1995.......... 58.22 77.00 47.34 63.84 50.60 59.86
Six Months Ended June 1996.......... 64.28 84.13 50.74 70.20 54.69 65.51
</TABLE>
- ---------------
(1) Includes all managed and franchised properties as of June 30, 1996.
(2) For the years ended 1994 and 1995, includes only information for hotels
continuously managed by Doubletree (including RFS Management, but excluding
Red Lion) since January 1, 1994. For the six months ended June 30, 1995 and
1996, includes only information for hotels managed by Doubletree (including
RFS Management, but excluding Red Lion) since January 1, 1995. Doubletree
branded hotels include only those hotels managed by Doubletree under the
Doubletree brand. Total Doubletree includes all hotels (other than Red Lion
hotels) managed by Doubletree.
(3) Based upon rooms occupied, excluding complimentary rooms.
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<PAGE> 63
The following table sets forth, at June 30, 1996, certain information with
respect to Doubletree hotels:
<TABLE>
<CAPTION>
MANAGED(M),
LEASED(L) OR NUMBER OF
HOTEL LOCATION STATE FRANCHISED(F)(1) ROOMS
- ----------------------------------------------- ------------------ ---------------- ---------
<S> <C> <C> <C>
DOUBLETREE FULL-SERVICE HOTELS:
Paradise Valley.............................. Arizona M 387
Phoenix...................................... Arizona F 242
Tucson....................................... Arizona M 295
Little Rock.................................. Arkansas F 290
Anaheim (Orange)............................. California M 454
Carmel Highland.............................. California M 172
Del Mar...................................... California L 220
Los Angeles (Airport)........................ California M 720
Monterey..................................... California F 374
Palm Springs................................. California F 289
Pasadena..................................... California M 350
San Diego (Horton Plaza)..................... California M 450
San Francisco................................ California M 291
San Pedro.................................... California M 226
Santa Rosa................................... California F 247
Ventura...................................... California M 284
Westwood..................................... California F 300
Colorado Springs............................. Colorado M 290
Denver....................................... Colorado F 224
Westminster/Boulder.......................... Colorado L 180
Washington (Park Terrace).................... Dist. of Columbia M 219
Clearwater Beach............................. Florida F 427
Ft. Lauderdale (Oceanfront).................. Florida M 230
Miami (Coconut Grove)........................ Florida L 192
Miami (Grand)................................ Florida M 152
Tampa (Airport).............................. Florida M 500
Atlanta...................................... Georgia M 370
Kansas City (Overland Park).................. Kansas M 357
Metairie (New Orleans Lakeside).............. Louisiana M 210
New Orleans.................................. Louisiana M 363
Baltimore.................................... Maryland M 125
Rockville.................................... Maryland M 315
Ixtapa....................................... Mexico F 120
Mazatlan..................................... Mexico F 280
Detroit (Downtown)........................... Michigan M 250
Bloomington (Mall of America)................ Minnesota M 321
Kansas City (Airport)........................ Missouri F 348
St. Louis (Conference Center)................ Missouri M 223
Somerset..................................... New Jersey M 360
Albuquerque.................................. New Mexico F 294
Santa Fe..................................... New Mexico F 210
Tulsa (Downtown)............................. Oklahoma M 417
Tulsa (Warren Place)......................... Oklahoma M 371
Philadelphia................................. Pennsylvania M 425
Pittsburgh................................... Pennsylvania M 616
Newport...................................... Rhode Island M 253
Nashville.................................... Tennessee M 337
Austin....................................... Texas M 350
Dallas (Campbell Center)..................... Texas M 302
Dallas (Lincoln Centre)...................... Texas M 500
Dallas (Park West)........................... Texas F 339
Houston (Post Oak)........................... Texas M 449
</TABLE>
61
<PAGE> 64
<TABLE>
<CAPTION>
MANAGED(M),
LEASED(L) OR NUMBER OF
HOTEL LOCATION STATE FRANCHISED(F)(1) ROOMS
- ----------------------------------------------- ------------------ ---------------- ---------
<S> <C> <C> <C>
Houston (Allen Center)....................... Texas M 341
Houston (Intercontinental Airport)........... Texas F 315
Salt Lake City............................... Utah F 381
Arlington (National Airport)................. Virginia M 632
Roanoke...................................... Virginia M 332
Tysons Corner (Falls Church)................. Virginia L 404
Seattle (Inn)................................ Washington M 198
Seattle (Plaza).............................. Washington M 221
DOUBLETREE GUEST SUITES:
Tucson....................................... Arizona M 304
Santa Monica................................. California M 253
Washington (New Hampshire Ave)............... Dist. of Columbia M 101
Washington (Pennsylvania Ave)................ Dist. of Columbia F 123
Boca Raton................................... Florida M 182
Ft Lauderdale (Cypress Creek)................ Florida F 254
Ft Lauderdale (Galleria)..................... Florida M 229
Orlando (Airport)............................ Florida F 150
Orlando (Disney)............................. Florida M 229
Orlando (Maingate/Melia)..................... Florida M 150
Tampa Bay (Rocky Point)...................... Florida M 203
Tampa (Busch Gardens)........................ Florida M 129
Tampa (Westshore)............................ Florida F 260
Vero Beach................................... Florida F 55
Atlanta...................................... Georgia M 224
Chicago...................................... Illinois M 345
Glenview..................................... Illinois F 240
Indianapolis................................. Indiana M 137
Lexington.................................... Kentucky F 166
Baltimore (BWI Airport)...................... Maryland M 251
Boston (Cambridge)........................... Massachusetts M 310
Boston (Waltham)............................. Massachusetts M 275
Southfield................................... Michigan M (2) 239
Troy......................................... Michigan M 251
Mount Laurel................................. New Jersey F 129
New York (Times Square)...................... New York M 460
Raleigh (Durham)............................. North Carolina M 203
Cincinnati................................... Ohio M 151
Columbus..................................... Ohio M 194
Dayton....................................... Ohio F 138
Philadelphia (Airport)....................... Pennsylvania M 251
Plymouth Meeting............................. Pennsylvania M 252
Nashville.................................... Tennessee M 138
Austin....................................... Texas M 189
Houston...................................... Texas M 335
Irving (DFW Airport)......................... Texas F 308
Alexandria................................... Virginia F 225
DOUBLETREE CLUB HOTELS:
El Segundo................................... California F 215
Ontario...................................... California F 171
Rancho Bernardo.............................. California F 209
Santa Ana (Orange County Airport)............ California F 170
Lakewood..................................... Colorado F 170
Jacksonville................................. Florida M 167
Boise........................................ Idaho M 158
St. Louis (Riverport)........................ Missouri F 181
</TABLE>
62
<PAGE> 65
<TABLE>
<CAPTION>
MANAGED(M),
LEASED(L) OR NUMBER OF
HOTEL LOCATION STATE FRANCHISED(F)(1) ROOMS
- ----------------------------------------------- ------------------ ---------------- ---------
<S> <C> <C> <C>
Charlotte.................................... North Carolina M 187
Harrisburg................................... Pennsylvania F 176
Philadelphia (Northeast)..................... Pennsylvania F 188
McAllen...................................... Texas F 164
Norfolk...................................... Virginia F 208
NON-DOUBLETREE BRAND HOTELS:
CANDLEWOOD
Wichita...................................... Kansas M (3) 107
COMFORT INN
Conyers...................................... Georgia L 83
Marietta..................................... Georgia L 185
Farmington Hills............................. Michigan L 135
Grand Rapids................................. Michigan L 109
Clemson...................................... South Carolina L 122
Ft. Mill..................................... South Carolina L 153
ECONOLODGE
Orlando (Hawaiian)........................... Florida M 445
DAYS INN
Philadelphia (Airport)....................... Pennsylvania M 177
HAMPTON INN
Denver....................................... Colorado L 138
Lakewood..................................... Colorado L 150
Ft. Lauderdale............................... Florida L 122
Indianapolis................................. Indiana L 131
Lansing...................................... Michigan L 109
Warren....................................... Michigan L 124
Bloomington.................................. Minnesota L 135
Minnetonka................................... Minnesota L 127
Hattiesburg.................................. Mississippi L 155
Lincoln...................................... Nebraska L 111
Omaha........................................ Nebraska L 129
Oklahoma City................................ Oklahoma L 134
Tulsa........................................ Oklahoma L 148
Memphis...................................... Tennessee L 120
Laredo....................................... Texas L 120
HAWTHORNE SUITES
Atlanta...................................... Georgia L 220
HOLIDAY INN
Windsor Locks (Bradley Airport).............. Connecticut M 200
Orlando (Maingate West)...................... Florida M 287
Crystal Lake................................. Illinois L 196
Louisville................................... Kentucky L 169
Lafayette.................................... Louisiana L 242
Flint........................................ Michigan L 171
Clayton...................................... Missouri L 253
Burlington................................... North Carolina M 132
Anderson..................................... South Carolina M 130
Columbia..................................... South Carolina L 175
San Antonio (Riverwalk)...................... Texas M 325
HOLIDAY INN EXPRESS
Orlando (International Drive)................ Florida M 217
Arlington Heights............................ Illinois L 125
Downers Grove................................ Illinois L 123
Bloomington.................................. Minnesota L 142
Tupelo....................................... Mississippi L 124
</TABLE>
63
<PAGE> 66
<TABLE>
<CAPTION>
MANAGED(M),
LEASED(L) OR NUMBER OF
HOTEL LOCATION STATE FRANCHISED(F)(1) ROOMS
- ----------------------------------------------- ------------------ ---------------- ---------
<S> <C> <C> <C>
Franklin..................................... Tennessee L 100
Austin....................................... Texas L 125
San Antonio.................................. Texas M 211
Wauwatosa.................................... Wisconsin L 122
HOWARD JOHNSON
Orlando (Fountain Park)...................... Florida M 400
Orlando (Universal Towers)................... Florida M 302
RAMADA INN
Orlando (Maingate)........................... Florida M 391
Harrisburg................................... Pennsylvania M 254
RESIDENCE INN BY MARRIOTT
Sacramento................................... California L 176
Torrance..................................... California L 247
Wilmington................................... Delaware L (4) 120
Orlando...................................... Florida L 176
Atlanta...................................... Georgia L 128
Ann Arbor.................................... Michigan L 72
Kansas City.................................. Missouri L 96
Fishkill..................................... New York L (4) 136
Charlotte.................................... North Carolina L (4) 80
Providence (Warwick)......................... Rhode Island L (4) 96
Ft. Worth.................................... Texas L 120
Tyler........................................ Texas L 128
SHERATON
Austin....................................... Texas M 249
INDEPENDENT HOTELS
Atlanta (Grand Hotel)........................ Georgia M 244
Portland (Budget Inn)........................ Maine M 112
Boston (Harbor Hotel)........................ Massachusetts M 230
Cambridge (Harvard Square Hotel)............. Massachusetts L 73
Cambridge (Inn at Harvard)................... Massachusetts L 113
Tupelo (Executive Inn)....................... Mississippi L 115
Chapel Hill (Carolina Inn)................... North Carolina M 185
</TABLE>
- ---------------
(1) All leased properties are also managed by Doubletree unless otherwise noted.
(2) Owned and managed by Doubletree.
(3) Owned and managed by the Candlewood joint venture.
(4) Managed by an unaffiliated third party hotel management company.
The principal executive offices of Doubletree are located in Phoenix and
are occupied pursuant to a lease that expires March 31, 1998. In addition to its
executive offices, Doubletree leases office space in Memphis, Boston, Chicago,
Cincinnati, Los Angeles and Philadelphia. Management believes that such
properties are sufficient to meet its present needs and does not anticipate any
difficulty in securing additional space, as needed, on terms acceptable to
Doubletree. See Note 8 of Notes to Consolidated Financial Statements of
Doubletree.
Additionally, Doubletree leases 54 hotels which are located in 24 different
states. Each lease expires between 1998 and 2015 and is subject to early
termination upon the occurrence of certain contingencies. See Note 4 of Notes to
Consolidated Financial Statements of Doubletree.
In addition to the leased hotels, Doubletree acquired on December 22, 1994,
a 239-room all-suite hotel, subject to a 70 year ground lease, in Southfield,
Michigan for approximately $11.0 million. Doubletree also opened the first
Candlewood hotel on May 9, 1996, a 107-room extended stay hotel in Wichita,
Kansas, the first of the Candlewood joint venture.
64
<PAGE> 67
THE RFS ACQUISITION
On February 27, 1996 Doubletree acquired all of the outstanding stock of
RFS Management in exchange for 2,727,811 shares (the "RFS Acquisition Shares")
of Doubletree Common Stock. At June 30, 1996, RFS Management leased 48 hotels
(44 of which it also managed) from the Landlord and managed an additional eight
hotels for third party owners. The sole general partner and approximately 98.7%
owner of the Landlord is the REIT. The 56 hotels, principally operating in the
limited-service and extended stay segments of the market, comprise approximately
9,000 rooms and are operated under such franchise brands as Holiday Inn, Holiday
Inn Express, Residence Inn by Marriott, Comfort Inn and Hampton Inn.
In connection with the RFS Acquisition, Doubletree and the REIT entered
into agreements, pursuant to which Doubletree purchased the REIT Preferred
Shares. There is no current market for the REIT Preferred Shares. The REIT
Preferred Shares pay an annual fixed dividend of $1.45 per share and are
convertible into shares of the REIT's common stock on a one-for-one basis at the
end of seven years. The REIT Preferred Shares are redeemable by the REIT after
seven years. Doubletree has also been granted the Right of First Refusal with
respect to the future lease and management of hotels to be acquired or developed
by the Landlord or the REIT during the ten year period following the RFS
Acquisition. Pursuant to these rights, RFS Management is entitled, for a minimum
of seven years, to written notice from the Landlord specifying the terms and
conditions upon which the Landlord would be willing to lease the hotel to
Doubletree. In the event that Doubletree does not initially agree to such terms
or declines to lease the hotel, Doubletree has the right to match the terms
proposed to an alternative lessee by the Landlord. In the event that the REIT
terminates its status, for federal tax purposes, as a real estate investment
trust, the Landlord may elect to terminate the then existing Percentage Leases
and the Right of First Refusal by providing notice to Doubletree and redeeming
any REIT Preferred Shares then owned by Doubletree; provided, however, if the
termination occurs within ten years after the RFS Closing Date, the Landlord
pays to Doubletree an amount equal to $5.0 million minus $41,667 for each
calendar month which has passed during such ten year period and the Landlord
pays to Doubletree the fair market value of the then existing Percentage Leases,
based upon the remaining length of their terms.
Until the earlier of the expiration of ten years following the closing of
the RFS Acquisition or the date of the redemption or conversion of the REIT
Preferred Shares, without the prior written approval of the Landlord, Doubletree
may not permit any merger or sale of RFS Management's stock or the transfer or
conveyance of all or substantially all of RFS Management's assets, if, as a
result thereof, RFS Management would cease to be controlled by Doubletree. The
foregoing restriction does not restrict any change in control or ownership of
Doubletree.
COMPETITION
Doubletree's managed, leased and franchised hotels compete for guests
against a wide range of lodging facilities offering full-service,
limited-service, all-suite and extended stay lodging options to the public.
Competitive factors in the lodging industry include room rates, quality of
accommodations, name recognition, service levels and convenience of location.
These factors may impact the operations of Candlewood.
Doubletree competes for management contracts, leases, franchise contracts,
acquisition opportunities and other expansion opportunities. See "Risk
Factors -- Competition for and Dependence on Management Contracts, Leases and
Franchise Agreements; Competition for Guests" and "Risk Factors -- Risks
Associated With Expansion."
GOVERNMENT REGULATION
The hotel industry in general, including Doubletree, is subject to numerous
federal, state and local government regulations. See "Risk Factors -- Government
Regulations."
65
<PAGE> 68
ENVIRONMENTAL MATTERS
Doubletree is subject to various Federal, State and local environmental
laws, ordinances and regulations relating to the environment and the handling of
hazardous or toxic substances which may impose significant potential
environmental liabilities. See "Risk Factors -- Environmental Regulations." The
Landlord has indemnified RFS Management against undisclosed matters and certain
environmental liabilities, other than liabilities caused by RFS Management's
acts or grossly negligent failures to act, and the former stockholders of RFS
(the "RFS Stockholders") have, subject to certain limitations and exceptions,
indemnified Doubletree against any such acts or grossly negligent failure to act
by RFS Management prior to the closing of the RFS Acquisition. Based on
Doubletree's current assessment of expenses and actions which may be required,
Doubletree does not believe its liability (if any) with respect to environmental
matters, individually or in the aggregate, will be material to its financial
condition, results of operations, or liquidity. However, because of
uncertainties associated with environmental assessment, remediation and
liability determination, no assurance can be given that Doubletree will not
incur material environmental expense in the future.
INTELLECTUAL PROPERTY
The trademarks "Doubletree Hotels," "Doubletree Guest Suites," "Doubletree
Suites," "Doubletree Club Hotels," "Club Hotels by Doubletree," "Guest Quarters
Suite Hotels," "Guest Quarters Suites by Doubletree" and related marks and logos
are material to Doubletree's business. Doubletree, as well as its franchisees,
actively use these marks. All of Doubletree's material marks are registered, or
are on application for registration, with the United States Patent and Trademark
Office. See "-- Legal Proceedings."
INSURANCE
Doubletree currently has the types and amounts of insurance coverage,
including comprehensive general liability insurance with a coverage limit of
$2.0 million, and additional excess general liability insurance, that it
believes is appropriate for a company in the hotel management business. While
management believes that its insurance coverage is adequate, if Doubletree were
held liable for amounts exceeding the limits of its insurance coverage or for
claims outside of the scope of its insurance coverage, Doubletree's business,
results of operations and financial condition could be materially and adversely
affected.
EMPLOYEES
At June 30, 1996, Doubletree had approximately 14,195 full-time employees
and 3,715 part-time employees. Of these full-time employees, approximately 517
of these employees are employed at the corporate level and approximately 13,678
employees are employed at the hotel properties. The wages and salaries, health
insurance and other employee benefits of persons employed at Doubletree's hotels
are paid out of the operations of the hotel property. Corporate personnel are
paid directly by Doubletree. Employees at three of Doubletree's managed hotels
are members of labor unions. Doubletree has entered into formal negotiations
regarding a collective bargaining agreement at two of such hotels and an interim
recognition agreement was entered into at the third hotel. Doubletree's
management believes its ongoing labor relations are good.
LEGAL PROCEEDINGS
Doubletree is not party to any litigation, other than routine litigation
incidental to the business of Doubletree. Doubletree believes that such
litigation is not material to the business of Doubletree, either individually or
in the aggregate.
66
<PAGE> 69
SELECTED PRO FORMA FINANCIAL, HISTORICAL
FINANCIAL AND OTHER DATA OF RED LION
(IN THOUSANDS, EXCEPT SHARE AND STATISTICAL DATA)
The pro forma financial information provided below generally gives effect
to the Red Lion Formation and the Red Lion Refinancing as if they had occurred
on January 1, 1994 (see Note a below) and, in particular, combines the results
of operations of Historical Red Lion for the portion of 1995 prior to the Red
Lion Formation with Red Lion's results of operations for the portion of 1995
after the Red Lion Formation to show the results of the business for the entire
year. The historical financial data in the table do not reflect the Red Lion
Formation and the Red Lion Refinancing and, accordingly, the table presents data
for Historical Red Lion that (i) includes amounts, including historical
depreciation, attributable to the Red Lion Leased Hotels and other assets
retained by the Partnership and (ii) does not include the base lease expense in
respect of the Red Lion Leased Hotels which has been incurred by Red Lion
subsequent to the Red Lion Formation. The information set forth below should be
read in conjunction with the Consolidated Financial Statements and Notes of Red
Lion, and "Management's Discussion and Analysis of Results of Operations and
Financial Condition of Red Lion," as well as the Pro Forma Consolidated
Statements of Income of Red Lion included elsewhere in this Prospectus. For a
discussion of the historical corporate organization of Red Lion, see "Corporate
Organization."
<TABLE>
<CAPTION>
HISTORICAL RED LION RED LION
---------------------------------------------------- -------------------------------------------------------
SEVEN TEN YEARS ENDED SIX MONTHS ENDED
MONTHS MONTHS DECEMBER 31, JUNE 30,
YEARS ENDED DECEMBER 31, ENDED ENDED --------------------- --------------------
----------------------------------------- JULY 31, DEC. 31, PRO FORMA PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995(B) 1994(A) 1995(A) 1995 1996
-------- -------- -------- -------- -------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING
STATEMENT DATA:
Revenues......... $412,574 $413,489 $440,017 $462,888 $282,206 $214,769 $462,888 $492,369 $240,825 $257,967
Gross operating
profit(c)...... 128,309 135,373 143,661 157,438 98,333 80,201 157,438 173,928 83,048 92,100
Depreciation and
amortization... 36,612 34,630 31,144 31,313 17,053 8,715 19,813 19,327 9,884 9,167
Operating
income(a)...... 35,009 42,307 52,449 63,714 38,420 20,285 60,564 56,599 32,402 38,727
Interest expense,
net............ 45,418 32,055 30,065 32,737 20,316 8,107 19,363 18,062 10,041 7,779
Income (loss)
before income
taxes and
cumulative
effect of
accounting
change......... (9,827) 12,793 21,573 30,983 20,129 11,498 41,536 40,078 23,891 31,393
Cumulative effect
of accounting
change(e)...... -- -- (29,878) -- -- -- -- -- -- --
Income tax
(benefit)
expense(f)..... -- -- -- -- -- (4,107) 16,614 7,327 9,556 12,557
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss)......... $ (9,827) $ 12,793 $ (8,305) $ 30,983 $ 20,129 $ 15,605 $ 24,922 $ 32,751 $ 14,335 $ 18,836
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings per
common share... $ 1.00 $ 0.80 $ 1.05 $ 0.46 $ 0.60
OTHER DATA:
Gross operating
margin(c)...... 31.1% 32.7% 32.6% 34.0% 34.8% 37.3% 34.0% 35.3% 34.5% 35.7%
Occupancy
percentage(g)... 70.4% 70.7% 70.9% 72.1% 73.2% 71.9% 72.1% 72.7% 72.2% 71.0%
Average daily
room rate(h)... $ 66.39 $ 66.11 $ 67.88 $ 70.52 $ 75.14 $ 75.13 $ 70.52 $ 75.14 $ 74.88 $ 79.75
EBITDA(i)........ $ 72,076 $ 77,483 $ 84,806 $ 97,759 $ 59,184 $ 31,285 $ 83,109 $ 81,922 $ 45,785 $ 50,592
</TABLE>
67
<PAGE> 70
<TABLE>
<CAPTION>
HISTORICAL RED LION RED LION
---------------------------------------------------- -------------------------------------------------------
PRO FORMA PRO FORMA PRO FORMA
AS OF DECEMBER 31, AS OF AS OF AS OF AS OF AS OF AS OF
----------------------------------------- JULY 31, DEC. 31, DEC. 31, DEC. 31, JUNE 30, JUNE 30,
1991 1992 1993 1994 1995 1995(B) 1994(A) 1995(A) 1995 1996
-------- -------- -------- -------- -------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Cash and cash
equivalents and
short-term debt
securities..... $ 2,500 $ 1,404 $ 1,278 $ 68,695 -- $ 68,355 -- -- -- $ 36,509
Property and
equipment,
net............ 596,900 563,385 519,632 514,807 -- 336,269 -- -- -- 375,567
Total assets..... 674,231 667,181 626,961 693,344 -- 526,920 -- -- -- 531,883
Long-term debt,
including
current
portion........ 529,803 504,753 468,843 497,302 -- 223,367 -- -- -- 213,328
Partners'/Stockholders'
equity......... 99,687 112,480 104,175 135,158 -- 230,279 -- -- -- 249,115
</TABLE>
- ---------------
(a) The pro forma financial information gives effect to the Red Lion Formation
and the Red Lion Refinancing as if they had occurred on January 1, 1994,
except that certain expenses resulting from the Red Lion Formation and the
Red Lion Offering totaling $14.7 million and the initial recording of
estimated deferred income tax benefits of $9.7 million resulting from the
Red Lion Formation, all of which were included in Red Lion's actual
financial results for the 10 months ended December 31, 1995, are included in
the 1995 pro forma presentation. The expenses resulting from the Red Lion
Formation and Red Lion Offering include $13.3 million for obligations under
an incentive unit plan and a supplemental income retirement agreement which
were contingent upon the completion of the Red Lion Offering. The expenses
resulting from the Red Lion Formation and Red Lion Offering also include the
write-off of previously recorded financing costs, debt discount and
prepayment penalties and expenses of $1.3 million associated with the
transfer of assets to Red Lion. Excluding the nonrecurring expenses
resulting from the Red Lion Formation and Red Lion Offering, pro forma 1995
operating income would have been $71.3 million.
Excluding the impact of the nonrecurring Red Lion Formation costs of $1.3
million, obligations under an incentive unit plan and a supplemental
retirement agreement aggregating $13.3 million, and deferred income tax
benefits of $9.7 million, pro forma net income would have been $32.8 million
or $1.05 per common share for 1995.
(b) Results of operations include five months of actual operations subsequent to
the August 1, 1995 Red Lion Formation date as well as operations of one
joint venture for the period from March 1, 1995 through July 31, 1995.
(c) "Gross operating profit" represents revenues less departmental direct and
property indirect expenses. "Gross operating margin" represents gross
operating profit as a percentage of revenues. Gross operating profit and
gross operating margin are included herein because management uses them as a
measure of hotel operating performance and because management believes these
items are useful in making industry comparisons.
(d) Effective January 1, 1993, Historical Red Lion prospectively changed the
estimated useful lives of its hotels to 40 years from lives averaging 32
years. The effect of this change decreased depreciation expense in 1993 by
approximately $2.6 million. In addition, the 17 Red Lion Leased Hotels were
retained by the Partnership in the Red Lion Formation. Accordingly, the pro
forma data and Red Lion's results of operations for the ten months ended
December 31, 1995 do not include depreciation on the Red Lion Leased Hotels.
(e) Effective January 1, 1993, Historical Red Lion changed its accounting method
for measuring impairment of individual hotel properties from using
undiscounted future cash flows to discounted future cash flows. As a result
of this change, 1993 net income includes a reduction in the carrying value
of one hotel of $29.9 million, which is reflected in the 1993 financial
statements as the cumulative effect of an accounting change.
(f) Historical Red Lion made no provision for income taxes since taxes on income
were the responsibility of the individual partners. Pro forma and Red Lion
income taxes are calculated at an estimated tax rate of 40%. Income taxes
for 1995 pro forma and Red Lion's ten-month period ended December 31, 1995
include a deferred income tax benefit of $9.7 million resulting from the tax
effect of the differences between the book and tax bases of the assets and
liabilities transferred to Red Lion by Historical Red Lion.
(g) Calculated on a per available room per year basis.
(h) Based on rooms occupied.
(i) EBITDA represents earnings before interest expense, income taxes, income
(loss) attributable to joint venturers' interest, depreciation and
amortization and certain other non-cash charges. EBITDA is not intended to
represent cash flow from operations as defined by GAAP, and such information
should not be considered as an alternative to net income, cash flow from
operations or any other measure of performance prescribed by GAAP. EBITDA is
included herein because management believes that certain investors find it
to be a useful tool for measuring the ability to service debt. For the year
ending December 31, 1995, EBITDA includes $14.7 million of expenses
resulting from the Red Lion Formation and the Red Lion Refinancing.
Excluding these expenses, EBITDA would have been $96.6 million.
68
<PAGE> 71
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION OF RED LION
RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the financial statements and
accompanying notes appearing elsewhere in this document. Red Lion believes the
comparison of actual results for the six months ended June 30, 1996 to pro forma
results for the six months ended June 30, 1995 and pro forma results for 1995 to
pro forma results for 1994 provides a more meaningful presentation than a
comparison to actual 1995 operations which represent the results of one hotel
and a relatively short time period since Red Lion's operations commenced.
Six Months Ended June 30, 1996 Compared to Pro Forma Six Months Ended June 30,
1995
Revenues. Red Lion's operating revenues for the six months ended June 30,
1996 were $258.0 million, an increase of $17.2 million or 7% from pro forma
operating revenues of $240.8 for the six months ended June 30, 1995. The change
in operating revenues is primarily a result of increased room and other
revenues.
Room revenues increased 8% to $147.4 million for the six months ended June
30, 1996 as compared to pro forma room revenues of $135.9 million for the six
months ended June 30, 1995. This increase was primarily due to a 7% rise in
average daily room rates to $79.75. Actual occupancy of 71% during the six
months ended June 30, 1996 declined 2% as compared to the pro forma occupancy
rate for the six months ended June 30, 1995. Another component of the increase
was the acquisition of two hotels since June 30, 1995 which contributed
additional room revenues of approximately $6.5 million during the six months
ended June 30, 1996.
A summary of occupancy and room rates for the six months ended June 30 is
as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Occupancy percentage............................... 71.0% 72.2%
Average room rate.................................. $79.75 $74.88
</TABLE>
Other revenues increased 21% to $29.1 million for the six months ended June
30, 1996 as compared to pro forma other revenues of $24.1 million for the six
months ended June 30, 1995 due primarily to increased telephone income, banquet
rentals, ancillary banquet services and insurance proceeds relating to two
hotels which were affected by the February 1996 flood in the Portland, Oregon
area.
Expenses. Departmental direct expenses (expenses related to a specific
function, such as rooms or food and beverage) for the six months ended June 30,
1996 increased 4% over pro forma departmental direct expenses for the six months
ended June 30, 1995. As a percentage of revenues and pro forma revenues,
departmental direct expenses and pro forma departmental direct expenses
decreased to 43% from 44% for the six months ended June 30, 1996 and 1995,
respectively, primarily due to the increase in revenues.
Property indirect expenses for the six months ended June 30, 1996 increased
7% over pro forma property indirect expenses for the six months ended June 30,
1995 and remained constant as a percentage of revenues. Indirect costs include
expenses related to a hotel's general operation, such as utilities, repairs and
maintenance, promotional expenses and administrative costs.
Gross Operating Profit. Red Lion's gross operating profit for the six
months ended June 30, 1996 was $92.1 million, an increase of $9.0 million or 11%
from pro forma gross operating profit of $83.1 million for the six months ended
June 30, 1995. The increase is primarily attributable to the higher revenues
discussed above. Gross operating profit margin for the six months ended June 30,
1996 improved to 36% from pro forma gross operating profit margin of 35% for the
six months ended June 30, 1995.
Payments Due to Owners of Managed Hotels. Revenues and expenses include
operating revenues and expenses of unconsolidated managed properties since the
operating responsibilities associated with those hotels are substantially the
same as those for owned hotels. Payments to owners of those hotels, net of Red
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Lion's management fees, increased approximately $2.3 million for the six months
ended June 30, 1996 as compared to the pro forma payments to owners of managed
hotels for the six months ended June 30, 1995. The increase in payments due to
owners of managed hotels is primarily attributable to improved operating
performance at the managed hotels.
Management fees in connection with the managed hotels increased to $6.1
million for the six months ended June 30, 1996 as compared to pro forma
management fees of $5.4 million for the six months ended June 30, 1995.
Operating Income. Red Lion's operating income for the six months ended
June 30, 1996 was $38.7 million, an increase of $6.3 million or 19% from pro
forma operating income of $32.4 million for the six months ended June 30, 1995.
The increase is primarily attributable to the higher revenues discussed above.
Interest Expense. Interest expense, net, decreased $2.2 million to $7.8
million for the six months ended June 30, 1996 as compared to pro forma interest
expense of $10.0 million for the six months ended June 30, 1996. The decrease is
primarily due to interest income earned during the six months ended June 30,
1996 of approximately $1.3 million and a lower average outstanding principal
balance on Red Lion's debt.
Income Tax Expense. Income tax expense increased $3.0 million to $12.6
million for the six months ended June 30, 1996 as compared to pro forma income
tax expense of $9.6 million for the six months ended June 30, 1995. Red Lion's
estimated effective tax rate is 40% for both quarters.
Net Income. Red Lion's net income increased 31% to $18.8 million ($.60 per
share) for the six months ended June 30, 1996 from pro forma net income of $14.3
million ($.46 per share) for the six months ended June 30, 1995. The increase in
net income is primarily due to increased operating income and decreased interest
expense.
Pro Forma 1995 Compared to Pro Forma 1994
Pro forma net income increased from $24.9 million, or $.80 per share, in
1994, to $32.8 million, or $1.05 per share in 1995, an increase of 31.4%. Net
income for 1995 reflected pre-tax expenses resulting from the Red Lion Formation
and Red Lion Offering totaling $14,662,000, the effects of which were
substantially offset by a deferred income tax benefit of $9,736,000. The net
negative effect of these factors on pro forma income for 1995 was $96,000, or
less than $.01 per share.
Revenues. Pro forma revenues rose from $462.9 million in 1994 to $492.4
million in 1995, an increase of $29.5 million, or 6.4%. The changes in specific
revenue categories are discussed below.
Pro forma room revenues increased 7.6% to $277.2 million in 1995, compared
to $257.7 million in 1994. The increase in pro forma room revenues was due
primarily to a 6.6% increase in average daily room rate, which rose to $75.14.
Occupancy for 1995 increased from 72.1% to 72.7.%
Pro forma food and beverage revenues for 1995 increased 3.8% from 1994. The
increase in pro forma food and beverage revenues was primarily due to an
increase in banquet revenues and the addition of an airport restaurant facility
which opened in late 1994.
Other pro forma revenues for 1995 rose 8.4% over 1994 due mainly to an
increase in meeting room rentals and telephone sales.
Expenses. Pro forma departmental direct expenses (expenses related to a
specific function such as rooms or food and beverage) increased 4.2% in 1995.
However, as a percentage of revenues, pro forma departmental direct expenses
decreased from 44.5% to 43.6% primarily due to effective control of food costs.
Pro forma property indirect expenses increased 4.4% in 1995 but decreased
modestly as a percentage of revenues. Indirect costs include expenses related to
a hotel's general operation, such as utilities, repairs and maintenance,
promotional expenses and administrative costs.
Pro forma gross operating profit (revenues less departmental direct and
property indirect expenses) rose from $157.4 million in 1994 to $173.9 million
in 1995, a 10.5% increase. Pro forma gross operating profit
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<PAGE> 73
margins improved from 34.0% in 1994 to 35.3% in 1995, primarily due to the
decrease in departmental direct expenses as a percentage of revenues.
Pro forma other costs, which include corporate administrative and general
expenses, property taxes, insurance, leases and other miscellaneous costs,
increased 6.5% due primarily to increases in corporate administrative and
general expenses and insurance, while depreciation and amortization fell 2.5%
from 1994 to 1995.
Red Lion's revenues and expenses include operating revenues and expenses of
unconsolidated managed properties since the operating responsibilities
associated with those hotels are substantially the same as those for owned
hotels. Payments to owners of those hotels, net of Red Lion's management fees,
increased 9.5% from 1994 to 1995, primarily due to improved operating
performance of the managed properties.
Management fees in connection with the managed hotels for 1995 increased
6.7% from $10.3 million to $10.9 million. The majority of the management fees
are incentive fees related mainly to Red Lion Inns Limited Partnership (the
"MLP") (see Note 7 to the Consolidated Financial Statements of Red Lion), which
are determined, in part, on the basis of available cash flows. For 1995,
incentive management fees increased $1.0 million.
The pro forma results for 1995 include $14.7 million of nonrecurring costs
associated with the Red Lion Formation and Red Lion Offering (see Note 9 to the
Consolidated Financial Statements of Red Lion). Such costs include approximately
$13.4 million expended in conjunction with an incentive unit plan and a
supplemental income retirement agreement. As the obligations under the plan and
the agreement were contingent upon completion of Red Lion's initial public
offering, no liability or related expense had been recorded by Historical Red
Lion. In addition, Red Lion recognized $1.3 million of expense in connection
with refinancing the assumed debt and transferring Historical Red Lion's assets
to Red Lion.
Pro forma operating income decreased from $60.6 million in 1994 to $56.6
million in 1995 due primarily to the expenses resulting from the Red Lion
Formation and Red Lion Offering. Excluding those expenses, pro forma operating
income would have increased $10.7 million, or 17.7%, in 1995.
Pro forma interest expense increased from $20.8 million in 1994 to $21.8
million in 1995, an increase of 4.8%, due primarily to interest rate increases
on debt not refinanced. Interest income increased $2.3 million as a result of
interest earned on short-term investments acquired with proceeds from the
initial public offering.
Pro forma income tax expense decreased from $16.6 million in 1994 to $7.3
million in 1995, a decrease of $9.3 million. The decrease resulted largely from
$9.7 million of deferred tax benefits recognized as a result of a change in tax
status at the Red Lion Formation date as Historical Red Lion was a partnership
whose partners were responsible for its taxes. The decrease also reflects $4.9
million of tax benefits associated with the $14.7 million in expenses resulting
from the Red Lion Formation and Red Lion Offering. Excluding the tax benefits
resulting from the Red Lion Formation and Red Lion Offering and the resultant
change in tax status, the effective tax rate for 1995 would have been 40.0%, the
same effective rate as 1994.
Red Lion for the Ten Months ended December 31, 1995
The only operations of Red Lion prior to the Red Lion Formation related to
a joint venture interest in one Red Lion hotel that was contributed to Red Lion
by Historical Red Lion in March 1995. On a historical basis, which includes the
actual operations of Red Lion following the August 1, 1995 Red Lion Formation,
Red Lion had net income of $15.6 million for the ten months ended December 31,
1995. The period's net income included an income tax benefit of approximately
$9.7 million, recorded in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," and expenses, net of income
tax benefits, of approximately $9.8 million resulting from the Red Lion
Formation and Red Lion Offering.
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Historical Red Lion 1994 Compared to Historical Red Lion 1993
The comparison of operating results of Historical Red Lion for the years
ended December 31, 1994 and 1993 is based on the actual results of operations of
Historical Red Lion as reflected in its statements of income. Such results do
not include the effects of the Red Lion Formation and Red Lion Refinancing.
Income before cumulative effect of accounting change increased from $21.6
million in 1993 to $31.0 million in 1994, an increase of $9.4 million, or 43.6%
In 1993, Historical Red Lion changed its method of measuring impairment of
individual hotel properties from using undiscounted future cash flows to
discounted cash flows, resulting in a reduction of net income of $29.9 million,
which is reflected as cumulative effect of an accounting change.
Revenues. Revenues increased 5.2% from $440.0 million in 1993 to $462.9
million in 1994. Room revenues rose $15.5 million in 1994, an increase of 6.4%.
The increase in room revenues was due to improvements in occupancy and average
daily room rate at existing hotels and an increase in the number of available
room nights. Average daily room rates rose from $67.88 in 1993 to $70.52 in
1994, a 3.8% increase. Occupancy improved from 70.9% in 1993 to 72.1% in 1994,
while available room nights increased 0.8% from 5,027,000 to 5,068,000. Revenues
from group business increased $5.4 million, or 6.8%, primarily due to a 4.9%
increase in group room nights. Food and beverage revenues increased 1.9% from
$156.2 million in 1993 to $159.2 million in 1994, a year in which Historical Red
Lion completed a program to reformat its restaurants to respond to customer
preferences for more casual dining and lighter fare. Other revenues grew from
$41.6 million in 1993 to $46.0 million in 1994, an increase of 10.6%. This
increase was due primarily to higher banquet-related revenues. The results for
1994 include the first full year of operations of a managed hotel that was added
to the Red Lion system in May of 1993.
Expenses. Departmental direct expenses increased from $201.2 million in
1993 to $205.8 million in 1994, an increase of 2.3%, but decreased as a
percentage of revenues from 45.7% to 44.5%. This decrease as a percentage of
revenues was due primarily to reduced labor costs resulting from higher labor
productivity and to lower food costs resulting from more centralized purchasing.
Property indirect expenses increased 4.8% from $95.1 million in 1993 to
$99.7 million in 1994. As a percentage of revenues, property indirect expenses
remained relatively constant.
Gross operating profit rose from $143.7 million in 1993 to $157.4 million
in 1994, an increase of 9.6%. Gross operating margin improved from 32.6% in 1993
to 34.0% in 1994.
Other costs increased from $18.3 million in 1993 to $19.6 million in 1994,
but remained relatively constant as a percentage of revenues. The increase in
other costs was attributable largely to increases in property taxes, insurance
costs and administrative expenses.
Payments due to owners of managed hotels increased $1.1 million, or 2.7%,
to $42.8 million in 1994. Management fees received in connection with the
managed hotels increased from $6.1 million in 1993 to $10.3 million in 1994, an
increase of 67.8%. These increases were primarily due to an increase of $3.3
million in incentive management fees due to improved operating performance of
the managed hotels.
Operating income climbed from $52.4 million in 1993 to $63.7 million in
1994, an improvement of 21.5%, and increased as a percentage of revenues from
11.9% to 13.8%. The increase in operating income resulted primarily from the
improvement in gross operating profit, offset by increases in other costs,
depreciation and amortization, and payments due to owners of managed hotels.
Equity in earnings of unconsolidated joint ventures increased from $1.2
million in 1993 to $1.3 million in 1994.
Interest expenses, net, increased 8.9% from $30.1 million in 1993 to $32.7
million in 1994. This increase reflects higher interest rates in 1994, partially
offset by a reduction of $4.4 million in average outstanding debt balances, an
increase in average combined cash and cash equivalents balances of $22.6 million
and an increase of $9.3 million in average short-term debt securities balances.
Average combined cash and cash equivalents
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balances and short-term average debt securities balances increased as a result
of borrowings under Historical Red Lion's revolving credit line.
Losses on sale of property reflects a sale of excess land in 1993,
resulting in a $1.7 million loss.
Income attributable to joint venturers' interests increased from $0.3
million in 1993 to $1.3 million in 1994. This item reflects earnings
attributable to the joint venture partners in the five consolidated joint
venture hotels.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased to $36.5 million at June 30, 1996 from $68.4 million at
December 31, 1995 primarily as a result of an acquisition, ongoing capital
expenditures, repayment of term loan principal and seasonal working capital
fluctuations. Red Lion's principal source of cash is hotel operations. Red Lion
and Historical Red Lion historically have generated internal cash flow to meet
operating needs, make capital expenditures and reduce outstanding debt.
At June 30, 1996, commitments relating to capital improvement projects were
approximately $9.6 million. As part of its capital expenditure program, Red Lion
budgets for costs incurred in connection with environmental compliance at its
properties. These costs historically have not been material, and Red Lion does
not anticipate incurring material costs for environmental compliance in the
future.
In connection with the Red Lion Formation, Red Lion repaid the majority of
the debt contributed to Red Lion by Historical Red Lion with the proceeds of the
Red Lion Offering and a new $135.0 million seven year term loan. In addition, on
August 1, 1995, Red Lion obtained a $130.0 million credit line facility of which
$80.0 million is available for acquisitions and $50.0 million is available for
working capital requirements. The credit line facility has a term of seven
years. The term loan and credit line facility (collectively the "Red Lion Credit
Facility") carry a variable interest rate based on LIBOR plus 2% (7.5% at June
30, 1996). Quarterly mandatory prepayments which increase over the term of the
Red Lion Credit Facility are required. In addition, in March of each year a
mandatory prepayment of the Red Lion Credit Facility is required in an amount
equal to 50% of annual excess cash flow (as defined in the credit agreement) for
the prior fiscal year. At August 9, 1996, there was no outstanding balance under
the Red Lion Credit Facility except for the term loan. In connection with the
Merger, it is expected that the Red Lion Credit Facility will be repaid with a
portion of the proceeds of the Financing Plan. See "The Merger and the Financing
Plan -- The Financing Plan."
SEASONALITY
The lodging industry is affected by normally recurring seasonal patterns.
At most Red Lion hotels, demand is higher in the summer and early fall (May
through October) than during the balance of the year. Demand also changes on
different days of the week, with Sunday generally having the lowest occupancy.
INFLATION
The effect of inflation, as measured by fluctuations in the Consumer Price
Index, has not had a material impact on Red Lion's revenue or net income during
the periods under review.
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BUSINESS OF RED LION
GENERAL
Red Lion is a leading full service hospitality company. At June 30, 1996,
Red Lion operated 55 hotels containing 14,540 rooms in the western United
States. In July 1996, Red Lion acquired a hotel in Houston, Texas containing 319
rooms. In September 1996, Red Lion purchased the Modesto, California hotel,
which it managed prior to such acquisition. A typical Red Lion property is a
full service hotel located in close proximity to a business or commercial
center, airport, major highway or tourist destination. Red Lion hotels target
the business traveler (both individual and group) and compete primarily in the
upscale segment of the lodging industry with national chains. For the six months
ended June 30, 1996, Red Lion's average room and occupancy rates were $79.75 and
71.0%, respectively.
Red Lion's operating strengths have translated into strong financial
performance. Red Lion has significantly outperformed the full service segment of
the lodging industry in periods of industry weakness as well as periods of
industry growth, as measured by gross operating margins. For the three years
ended December 31, 1995, Red Lion's gross operating margins ranged from 32.6% to
35.3%, compared to the average for the full service segment during this time
period of 27.4% to 31.8%. Management attributes these higher margins to an
operating strategy that has resulted in high labor productivity, well trained
employees and effective cost controls and to the efficiencies generated through
its centralized support services.
Red Lion has long-term operating control over each of its hotels. This
operating control allows Red Lion to implement consistent standards and programs
at the hotels. As of September 15, 1996, Red Lion owned or leased, under a
long-term lease, 41 of its 56 hotels. Red Lion's remaining 15 hotels are
operated pursuant to management contracts. Owned hotels consist of 100% owned
properties (17 hotels) and properties in which Red Lion holds at least a 50%
interest through joint venture agreements (seven hotels). In addition, Red Lion
owns a 10% interest in the joint venture which owns Red Lion Hotel, Spokane City
Center. See "-- Joint Ventures." Leased properties (17 hotels) are operated
pursuant to a lease, which has a 15 year initial term and is renewable, at the
option of Red Lion, for five additional five year periods on the same terms (the
"Partnership Lease"). See "-- The Partnership Lease." Ten of the managed hotels
are owned by the MLP, and operated by Red Lion pursuant to a management
contract, expiring in 2062, including all renewals. The general partner of the
MLP is a wholly-owned subsidiary of Red Lion. The other five management
contracts (including the contract at the Spokane joint venture) have remaining
terms ranging from one to 20 years and an average remaining term of 12 years,
including all renewals. Under each management contract, Red Lion receives a base
management fee ranging from 3 - 4% of gross revenues plus an incentive
management fee based on the operating performance of the hotels. See
"-- Management Contracts."
HOTELS
Red Lion's properties are high quality, primarily full service hotels. In
addition to restaurants, lounges, banquet and meeting space, these hotels
generally offer premium television channel and movie availability, complimentary
airport shuttle service, swimming pools, room service and valet services. Other
guest amenities may include health and fitness facilities, tennis courts, spas,
gift shops, car rental desks, free parking, hair styling salons, valet parking,
concierge services, business centers, honor bars, in-room two-line telephones
and guest memberships at health clubs, tennis courts and golf courses. Eight Red
Lion hotels containing fewer than 5% of Red Lion's total hotel rooms are limited
service hotels, reflecting the smaller communities where these hotels are
located.
Red Lion's full service hotels have in excess of 688,000 aggregate square
feet of meeting and convention space. These extensive meeting and convention
facilities attract numerous national, regional and local associations and major
corporate groups to Red Lion's hotels for business conventions, conferences,
banquets, receptions, sales meetings, training sessions, seminars and private
celebrations. Red Lion believes that the significant size of, and amenities
provided at, its facilities attract repeat business from these associations and
groups. Fourteen of the hotels have ballrooms that can accommodate groups of
over 1,000 people.
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Red Lion's restaurants, lounges and banquet services are committed to
providing high quality food and beverage services. Food and beverage revenues
constituted 33.6%, 34.4% and 35.5% of Red Lion's revenues in 1995, 1994 and
1993, respectively. Management believes that a significant portion of its
restaurant and lounge business comes from local communities and that this
patronage increases repeat business potential in the local community. Red Lion
renovated or reformatted substantially all of its restaurants during the last
six years in response to customers' desires for a casual dining format and
lighter fare.
The following table sets forth certain information with respect to each of
the hotels currently operated by Red Lion, all of which are managed by Red Lion.
<TABLE>
<CAPTION>
OWNED (O),
MANAGED (M) OR NUMBER OF
HOTEL LOCATION STATE LEASED (L) ROOMS
- ---------------------------------------------------- ----------- -------------- ---------
<S> <C> <C> <C>
Scottsdale, LaPosada Resort......................... Arizona O (1) 262
Bakersfield......................................... California O (1) 262
Costa Mesa, Orange County Airport................... California O (1) 484
Eureka.............................................. California O (2) 178
Glendale............................................ California O (1) 348
Los Angeles, Los Angeles Airport.................... California M 371
Modesto............................................. California O (2) 258
Ontario............................................. California O (1) 339
Redding............................................. California O (2) 194
Rohnert Park, Sonoma County......................... California L (3) 245
Sacramento.......................................... California M (4) 448
Sacramento, Sacramento Inn.......................... California L (3) 376
San Diego........................................... California L (3) 300
San Jose............................................ California O (2) 505
Santa Barbara (Fess Parker's Red Lion Resort)....... California O (1) 360
Colorado Springs.................................... Colorado M (4) 299
Denver.............................................. Colorado M 573
Durango............................................. Colorado L (3) 159
Boise, Boise Downtowner............................. Idaho L (3) 182
Boise, Boise Riverside.............................. Idaho M (4) 304
Kalispell........................................... Montana O (2) 64
Missoula............................................ Montana L (3) 76
Missoula Village.................................... Montana O (1) 172
Omaha............................................... Nebraska M (4) 413
Astoria............................................. Oregon L (3) 124
Bend, Bend North.................................... Oregon L (3) 75
Bend, Bend South.................................... Oregon O (2) 75
Coos Bay............................................ Oregon L (3) 143
Eugene.............................................. Oregon L (3) 138
Springfield......................................... Oregon M (4) 234
Klamath Falls....................................... Oregon O (2) 108
Medford............................................. Oregon L (3) 186
Pendleton........................................... Oregon L (3) 168
Portland, Coliseum.................................. Oregon M 212
Portland, Columbia River............................ Oregon O (2) 351
Portland, Downtown.................................. Oregon M (4) 235
Portland, Jantzen Beach............................. Oregon O (2) 320
Portland/Lloyd Center............................... Oregon M (4) 476
</TABLE>
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<TABLE>
<CAPTION>
OWNED (O),
MANAGED (M) OR NUMBER OF
HOTEL LOCATION STATE LEASED (L) ROOMS
- ---------------------------------------------------- ----------- ------
<S> <C> <C> <C>
Austin, Austin Airport.............................. Texas M (5) 300
Houston............................................. Texas O (2) 319
San Antonio......................................... Texas O (2) 290
Salt Lake City...................................... Utah L (3) 495
Aberdeen............................................ Washington O (2) 67
Bellevue............................................ Washington O (2) 353
Bellevue, Bellevue Center........................... Washington M (4) 208
Kelso............................................... Washington L (3) 163
Pasco............................................... Washington O (2) 279
Port Angeles........................................ Washington O (2) 187
Richland, Richland/Hanford House.................... Washington O (2) 149
Seattle, Seattle Airport............................ Washington L (3) 850
Spokane Valley...................................... Washington M (4) 237
Spokane City Center................................. Washington M (6) 369
Vancouver........................................... Washington L (3) 160
Wenatchee........................................... Washington L (3) 149
Yakima.............................................. Washington O (2) 58
Yakima, Yakima Valley............................... Washington M (4) 209
------
Total..................................... 14,859
======
</TABLE>
- ---------------
(1) Owned and managed by Red Lion pursuant to a joint venture (Red Lion owns at
least a 50% interest in each joint venture).
(2) Wholly-owned (100%) and managed by Red Lion.
(3) All leased properties are also managed by Red Lion.
(4) Owned by the MLP. A wholly-owned subsidiary of Red Lion is the sole general
partner of the MLP.
(5) Owned by Red Lion subject to a non-recourse cash flow mortgage.
(6) Managed by Red Lion pursuant to a joint venture in which Red Lion owns a 10%
interest.
CUSTOMERS AND MARKETING
Customers, Marketing and Sales
Red Lion's customer mix consists of business travelers, leisure travelers,
groups and contract accounts. These customer segments accounted for an estimated
46%, 11%, 33% and 10%, respectively, of total room nights in 1995. Red Lion's
marketing and sales program consists of a centrally coordinated national
marketing team operating through sales offices in Sacramento, Los Angeles, San
Francisco, Portland, Seattle, Chicago and Washington, D.C. and over 300 trained
sales and catering managers located at individual properties. Property sales
personnel participate in local and regional trade shows, design local
promotional and advertising campaigns and use direct solicitation to increase
room and catering sales to national and local groups and associations.
The combined national and local sales force works to expand Red Lion's base
of profitable group business. As a result of its efforts, the number of room
nights attributable to groups has increased from 1.0 million in 1990 to
approximately 1.2 million in 1995 ($93.4 million in revenues in 1995), or 33.2%
of Red Lion's total room nights and 19.0% of total revenues during 1995. In
addition, catering sales personnel assisted in generating $95.6 million in
banquet-related revenues in 1995 (19.4% of total Red Lion revenues for that
period).
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Central Reservations System
In 1995, Red Lion's central reservations system accounted for approximately
32% of Red Lion's total business and leisure traveler room nights. The toll-free
reservation system is available to customers throughout the United States and
Canada. The reservation system provides Red Lion's reservation agents with
information about hotel locations, available rooms and prices in order to assist
customers in booking rooms. In 1995, Red Lion's reservation center processed
over 990,000 calls, contributing approximately 722,000 reservations to the Red
Lion system with approximately a 65% conversion ratio of calls to reservations.
In 1993, Red Lion commenced development of a new central reservations
system, known as "OSCAR," that will include, among other enhanced features, a
direct interface with airlines, increases in marketing database capabilities and
improved revenue management tools, including real time room inventory. Red Lion
anticipates that OSCAR will be operational throughout the Red Lion system in
early 1997 at a total cost of approximately $11 million.
In addition, Red Lion participates in four major airline reservation
systems, American Airlines' "SABRE," United Airlines' "APOLLO," Trans World
Airlines/Delta's "WORLDSPAN" and Continental's "AMADEUS/SYSTEM ONE." These
airline reservation systems have an aggregate of approximately 385,000 computer
terminals on line at approximately 111,000 locations, allowing other travel
agents to book Red Lion hotel reservations when guests are making other travel
arrangements. Red Lion's system includes a direct communications interface with
major airline systems that allows immediate confirmation numbers for
reservations.
HOTEL MANAGEMENT AND CENTRALIZED SUPPORT SERVICES
Hotel Management
Each Red Lion hotel is managed by a general manager and supported by a
regional and corporate management organization. The size of each management team
and its hourly staff varies by hotel, based on the size and business volume of a
particular hotel. Management carefully monitors staffing levels to ensure labor
productivity.
Red Lion's hotel general managers have an average of over 16 years of
experience in the lodging industry, and over 90% of the managers have been
promoted from an existing position with Red Lion. Red Lion's general managers
report directly to a regional vice president. A regional sales director and a
regional controller complete the regional support team. The regional management
teams provide management support and direction to the general managers and their
staff, coordinate communications between the properties and the centralized
support organization and assist in establishing and administering corporate
policies, procedures and standards.
Corporate and Centralized Support Services
Red Lion provides each Red Lion hotel with the benefits of its management
services which are delivered by a network of experienced executives, corporate
personnel and regional managers. Red Lion also provides technical assistance and
training to each hotel's employees for administrative operations, room and guest
services, reservations, maintenance and engineering, retail services, and human
resources and benefits. Other services provided by Red Lion include treasury,
internal audit, credit services, accounting, payroll, tax, legal and risk
management. Red Lion has several auxiliary divisions including: (i) a
centralized procurement division that allows Red Lion to maintain uniform
quality and control costs; (ii) a centralized systems department that supports
all property and corporate computer systems and applications, including a
standardized proprietary property management system and Red Lion's central
reservations system; and (iii) a construction and design department that
administers Red Lion's capital expenditure programs, provides design and product
expertise in selecting materials and equipment, and provides project
administration on major renovation and new construction projects.
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<PAGE> 80
MANAGEMENT CONTRACTS
Red Lion operates 15 hotels pursuant to management agreements under which
it is responsible for the day-to-day operations of the hotels. Ten of the hotels
are owned by the MLP and operated by Red Lion pursuant to a management agreement
expiring in 2062, including all renewal options. A wholly owned subsidiary of
Red Lion is the general partner of the MLP. Red Lion's compensation under the
management agreement with the MLP is comprised of an annual base management fee
equal to 3% of gross revenues of the hotels and an annual incentive management
fee. The annual incentive management fee is a percentage of adjusted operating
profit, subject to increase if certain operating profits targets are met. Red
Lion has received incentive management fees in each year since 1989. Those fees
totaled $4.4 million and $5.4 million in 1994 and 1995, respectively.
The other five management contracts have remaining terms ranging from one
to 20 years, and an average remaining term of 12 years, including renewal
options. Red Lion's compensation under these agreements is comprised of a base
management fee (ranging from 3 - 4% of gross revenues) and an incentive
management fee (based on a percentage of cash flow or operating profit). The
incentive fees under these management contracts totaled $317,000 and $309,000 in
1994 and 1995, respectively.
JOINT VENTURES
Red Lion owns at least a 50% interest in seven joint ventures, each of
which owns a Red Lion hotel. In September 1996, the Partnership exercised its
right to sell to Red Lion for approximately $1.36 million certain minority
interests in these joint ventures that the Partnership had retained in
connection with the Red Lion Formation. In addition to the above, in December
1995 Red Lion acquired a 10% interest in the joint venture which owns the Red
Lion Hotel, Spokane City Center.
In addition to its ownership interest in the joint ventures, Red Lion is
responsible for the day-to-day operations of the hotels owned by the joint
ventures and receives management fees for operating the hotels. Under each joint
venture agreement or separate management agreement with respect to the joint
venture, Red Lion's compensation is comprised of either an annual base
management fee (ranging from 3 - 4% of gross revenues), an annual incentive
management fee (based on a percentage of cash flow or operating profit) or both.
Red Lion has made significant advances to certain of the joint ventures.
Repayment of these advances receives priority distribution from the cash flow of
those joint ventures.
THE PARTNERSHIP LEASE
On August 1, 1995, the Red Lion Leased Hotels were leased by the
Partnership to Red Lion pursuant to the Partnership Lease. The initial term of
the Partnership Lease is 15 years, subject to earlier termination by the
Partnership upon the occurrence of one or more Events of Default (as defined in
the Partnership Lease). In addition, Red Lion has the option to extend the
Partnership Lease on a hotel-by-hotel basis for five additional five year
periods on the same terms. The Partnership's ownership interest in the Red Lion
Leased Hotels is subject to the Partnership Lease.
Rental payments under the Partnership Lease consist of base rent (the "Base
Rent"), payable quarterly, and additional rent (the "Additional Rent"), payable
annually, based on growth in revenues at the Red Lion Leased Hotels. The Base
Rent for all of the Red Lion Leased Hotels is $15 million per year. The
Additional Rent for the Red Lion Leased Hotels will be equal to 7.5% of the
amount, if any, by which the aggregate Operating Revenues (as defined in the
Partnership Lease) for all of the Red Lion Leased Hotels under the Partnership
Lease for the given year exceeds the aggregate Operating Revenues at all such
Red Lion Leased Hotels for the twelve month period commencing October 1, 1995.
This long-term arrangement allows Red Lion to retain all of the benefit from any
increase in operating income from these properties during the term of the
Partnership Lease, subject to the payment of Additional Rent.
The Partnership has retained the right to sell one or more of the Red Lion
Leased Hotels to third parties, subject to the terms of the Partnership Lease.
Upon any sale of a Red Lion Leased Hotel by the Partnership, the Red Lion Leased
Hotel would be leased under a stand alone lease which would be modified to
provide,
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<PAGE> 81
among other things, for a calculation of Additional Rent based on the Gross
Revenues (as defined in the Partnership Lease) of that Red Lion Leased Hotel
alone.
The Partnership Lease is a triple net lease which requires Red Lion to
maintain the Red Lion Leased Hotels in good condition and repair and in
conformity with all applicable legal requirements and to make or cause to be
made all items of maintenance, repair, replacement and alteration to the Red
Lion Leased Hotels as necessary for such purposes. In addition, Red Lion is
required to pay substantially all expenses associated with the operation of the
Red Lion Leased Hotels, including all ground lease expense, real estate taxes,
insurance, utilities and services. If in any year Red Lion fails to spend at
least 3% of the aggregate annual Operating Revenues from all of the Red Lion
Leased Hotels under the Partnership Lease on capital expenditures, including
without limitation renovations, at one or more of the Red Lion Leased Hotels, it
will be required to deposit any shortfall into a reserve account. Any fixtures,
furniture or equipment installed and used in the Red Lion Leased Hotels that are
replaced during the term of the Partnership Lease will become the property of
Red Lion, subject to a security interest therein granted to the Partnership. At
the end of the Partnership Lease, the Partnership will have the option to
purchase any such fixtures, furniture or equipment from Red Lion at their then
fair market value.
The Partnership Lease provides that each of the following constitutes an
Event of Default: (i) failure to pay any monetary obligation, including Base
Rent and Additional Rent, subject to certain limited cure periods, (ii) failure
by Red Lion after notice to comply with any material term, covenant or condition
of the Partnership Lease, (iii) certain events of bankruptcy or insolvency with
respect to Red Lion, (iv) the liquidation or dissolution of Red Lion or
commencement of proceedings therefor, (v) failure by Red Lion, after notice or
passage of time, to vacate or discharge any levy or attachment upon the estate
or interest of Red Lion in any Red Lion Leased Hotel, (vi) voluntary cessation
by Red Lion of operation of any Red Lion Leased Hotel for a certain period,
except as a result of damage, destruction or a partial or complete condemnation,
(vii) default by Red Lion of its obligations under the Red Lion Credit Facility
and (viii) an assignment or subletting by Red Lion without obtaining from the
Partnership any required consent. In addition, the Partnership's lenders have,
pursuant to the terms of its credit facility, certain rights to consent to any
changes to the Partnership Lease, and certain rights to consent to assignments
or sublettings by Red Lion to third parties of hotels that are subject to the
Partnership Lease.
Red Lion has indemnified the Partnership and its affiliates for any matter
arising by reason of or in connection with the leasing, use, non-use, occupancy,
management or operation of each of the Red Lion Leased Hotels prior to or during
the term of the Partnership Lease, including violations of Environmental Laws,
discharges, disposals or releases of Hazardous Materials, presence of Hazardous
Materials, including any which are the result of off-site migration onto the Red
Lion Leased Hotels, and certain exposures to Hazardous Materials (as such terms
are defined in the Partnership Lease) which exist at or are released from any of
the Red Lion Leased Hotels prior to or during the term of the Partnership Lease.
Such indemnities will survive the termination of the Partnership Lease. Pursuant
to the Partnership Services Agreement, Doubletree has agreed to guaranty Red
Lion's indemnity obligations to the Partnership following the Effective Time.
See "The Merger and the Financing Plan -- The Merger -- Interests of Certain
Persons in the Merger."
While Red Lion believes the terms of the Partnership Lease are fair to both
parties, such terms were not negotiated on an arms-length basis.
COMPETITION
Red Lion competes in the upscale and mid-priced sectors of the hospitality
market, depending on the communities in which its hotels are located. In each
locality there are other limited and full service establishments that compete
with Red Lion's hotels. Red Lion's food and beverage operations also compete
with local free standing restaurants and lounges. There is no single competitor
or small number of competitors of Red Lion that is or are dominant in Red Lion's
markets. However, some of Red Lion's competitors have a larger network of
locations and greater financial resources than Red Lion. Competition in the
United States lodging industry is based generally on convenience of location,
price, range of services and guest amenities offered and quality of customer
service and overall product. Red Lion considers the location of its hotels and
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<PAGE> 82
the services and guest amenities provided by it to be among the most important
factors in its business. The present sites of Red Lion's hotels were chosen for
their convenient access to airports, major traffic arteries, commercial centers
and tourist destinations.
ENVIRONMENTAL MATTERS
Most of Red Lion's properties have been subject to Phase I environmental
assessments (which generally provide a physical inspection and database search
but not soil or groundwater analyses). Most of Red Lion's properties have also
been inspected to determine the presence of asbestos. While asbestos-containing
materials are present in certain of Red Lion's properties, Red Lion believes
that these materials have been adequately contained. Red Lion has developed and
implemented an operations and maintenance program that establishes operating
procedures with respect to asbestos-containing materials at such properties.
Red Lion operates a service station located in Vancouver, Washington. In
addition, some of the Red Lion properties are on, adjacent to or near properties
that have contained in the past or currently contain underground storage tanks
and/or above-ground storage tanks used to store petroleum products or other
hazardous or toxic substances. Several of the Red Lion properties have been
contaminated with petroleum products. Monitoring wells have been installed at
some of these sites. In addition, certain of the Red Lion properties are on,
adjacent to or near properties upon which others have engaged or may in the
future engage in activities that may release petroleum products or other
hazardous or toxic substances into the soil or groundwater. One of Red Lion's
hotels is located on property that was used as a landfill. The state agency
responsible for oversight of potentially contaminated properties has determined
the leachate from the landfill has contaminated groundwater, and the state
agency has placed the landfill on the list of sites where a release of hazardous
substances has been confirmed. Although the state agency has not placed the
landfill on the list of sites requiring investigation or remediation, there can
be no assurance that Red Lion will not be required in the future to investigate
or remediate any contamination resulting from the landfill. There can be no
assurance that there are no environmental liabilities or claims of which Red
Lion is unaware or that the current condition of the Red Lion properties,
including the service station, has not been or will not be affected by the
historical or current uses of such properties or the activities in the vicinity
of the Red Lion properties.
Pursuant to the Partnership Lease, Red Lion has indemnified the Partnership
and its affiliates for any matter arising by reason of or in connection with the
leasing, use, non-use, occupancy, management or operation of each of the Red
Lion Leased Hotels prior to or during the term of the Partnership Lease,
including violations of Environmental Laws, discharges, disposal or releases of
Hazardous Materials, presence of Hazardous Materials, including any which are
the result of off-site migration onto the Red Lion Leased Hotels, and certain
exposures to Hazardous Materials (as such terms are defined in the Partnership
Lease) which exist at or are released from any of the Red Lion Leased Hotels
prior to or during the term of the Partnership Lease. Such indemnities will
survive the termination of the Partnership Lease. See "-- The Partnership
Lease." In addition, Red Lion has indemnified the Partnership and its affiliates
from and against any and all liabilities, costs, losses and damages (including
without limitation interest, penalties and costs of mitigation) incurred in
connection with any environmental laws arising out of any event or condition
relating to the assets, liabilities and businesses contributed to Red Lion.
Pursuant to the Partnership Services Agreement, Doubletree has agreed to
guaranty Red Lion's indemnity obligation to the Partnership following the
Effective Time. See "The Merger and the Financing Plan -- The
Merger -- Interests of Certain Persons in the Merger."
EMPLOYEES
As of June 30, 1996, Red Lion employed 11,600 persons, of whom
approximately 90% were nonmanagement employees. Approximately 416 of these
employees work at the corporate headquarters. Red Lion has a career development
program managed by its Human Resources division through which Red Lion's
approximately 1,225 property level management staff receive training to enhance
opportunities for promotion within the Red Lion organization.
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<PAGE> 83
Employees at two of Red Lion's hotels currently are represented by a labor
union. Red Lion's management believes its ongoing labor relations are good.
TRADEMARKS AND SERVICE MARKS
Red Lion, Red Lion Inn and Red Lion Hotel are each registered trademarks of
Red Lion. Red Lion monitors use of similar names and takes appropriate action
when possible infringements occur.
In connection with the sale of Red Lion in 1985, Red Lion licensed the use
of the Red Lion trademark and central reservations system to one of the founders
of Red Lion for the operation of certain Red Lion hotels in Nevada. Under the
terms of the current license agreement, Red Lion licenses its name and central
reservation system for two hotels in Nevada and a hotel in Wyoming (which are
not included in the 56 hotels Red Lion operates) for which Red Lion receives an
annual license fee of $25,000 per hotel. The license agreement terminates with
respect to the hotel in Wyoming at such time as Red Lion opens a hotel in the
Jackson Hole area of Wyoming and otherwise expires with respect to all of these
hotels, two years after the earlier of the death of the founder or transfer of
the founder's interests in the hotels.
Red Lion knows of approximately nine lodging and food service
establishments located in the United States that use "Red Lion" in their names
(some of which may have used the name before the Red Lion chain was
established), but which have no existing or historical relationship with Red
Lion.
LEGAL PROCEEDINGS
Red Lion is involved in various lawsuits arising in the normal course of
business. Red Lion believes that the ultimate outcome of these lawsuits will not
have a material adverse effect on Red Lion.
GOVERNMENT REGULATION
The hotel industry in general, including Red Lion, is subject to numerous
federal, state and local government regulations. See "Risk Factors -- Government
Regulations."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the persons
who are expected to serve as directors and executive officers of Doubletree
following the Merger. The Partnership will designate two persons to be nominated
and elected to the Board of Directors of Doubletree effective upon consummation
of the Merger. The Partnership has designated as its Board members Michael W.
Michelson and Edward A. Gilhuly, each of whom is currently a director of Red
Lion.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- --------------------------------------------------
<S> <C> <C>
Richard J. Ferris........ 60 Co-Chairman of the Board
Peter V. Ueberroth....... 59 Co-Chairman of the Board
William R. Fatt.......... 45 Director
Dale F. Frey............. 64 Director
Ronald K. Gamey.......... 51 Director
Edward A. Gilhuly........ 37 Director
Norman B. Leventhal...... 79 Director
Michael W. Michelson..... 45 Director
John H. Myers............ 51 Director
Richard M. Kelleher...... 47 President and Chief Executive Officer of DHC and
Director of Doubletree
James P. Evans........... 49 Executive Vice President of Operations of DHC
William L. Perocchi...... 39 Executive Vice President, Chief Financial Officer
and Treasurer of Doubletree and DHC
Stephen D. Pletcher...... 52 Senior Vice President of DHC
Margaret Ann Rhoades..... 51 Executive Vice President of Human Resources of DHC
David L. Stivers......... 35 Senior Vice President, General Counsel and
Secretary of Doubletree and DHC and Senior Vice
President of New Business of DHC
Thomas W. Storey......... 40 Executive Vice President of Sales and Marketing of
DHC
Raymond Terry............ 47 President of RFS Management
</TABLE>
Richard J. Ferris, 60, has served as Co-Chairman of the Board of Doubletree
and Doubletree Partners since December 1993. From June 1992 to December 1993,
Mr. Ferris served as Co-Chairman of GQHP. From June 1987 to June 1992, Mr.
Ferris was a private investor. Mr. Ferris is the former Chairman and Chief
Executive Officer of UAL Corporation, a position he held from April 1976 to June
1987. Mr. Ferris serves as a director of The Procter & Gamble Company, Amoco
Corporation, Evanston Hospital Corporation and the PGA Tour Policy Board.
Peter V. Ueberroth, 59, has served as Co-Chairman of the Board of
Doubletree and Doubletree Partners since December 1993. From June 1992 to
December 1993, Mr. Ueberroth served as Co-Chairman of GQHP. From April 1989 to
the present, Mr. Ueberroth has been Managing Director and a principal of The
Contrarian Group, a business management company. From March 1984 to March 1989,
Mr. Ueberroth served as the sixth Commissioner of Major League Baseball. Mr.
Ueberroth serves as a director of Ambassadors International Inc., CB Commercial,
The Coca Cola Company and Transamerica Corporation.
William R. Fatt, 45, has served as a director of Doubletree and Doubletree
Partners since December 1993. Mr. Fatt is Executive Vice President and Chief
Financial Officer of Canadian Pacific Limited, a position he has held since
January 1994. From August 1990 to January 1994, Mr. Fatt was Vice President,
Finance and Accounting and Chief Financial Officer of Canadian Pacific Limited.
From August 1988 to August 1990, Mr. Fatt was its Vice President and Treasurer.
Mr. Fatt serves as a director of Canada Maritime Limited, Canadian Pacific
Hotels & Resorts Inc., Pan Canadian Petroleum Limited and various direct and
indirect subsidiaries of Canadian Pacific Limited.
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Dale F. Frey, 64, has served as a director of Doubletree and Doubletree
Partners since December 1993. From July 1992 to December 1993, Mr. Frey served
as a director of GQHP. Mr. Frey is President, Chief Executive Officer and
Chairman of the Board of Directors of GEIM, a position he has held since
February 1988. Mr. Frey is also President, Chief Executive Officer and Chairman
of General Electric Investment Corporation, a position he has held since July
1984. Mr. Frey is also Vice President of General Electric Company, a position he
has held since June 1980. Mr. Frey serves as a Trustee of GEPT. Mr. Frey also
serves on the Board of Directors of GE Financial Services, Inc., GE Capital
Corporation, USF&G Corporation, Praxair, Inc. and the Damon Runyon-Walter
Winchell Cancer Research Fund and is a Trustee of Franklin and Marshall College.
Ronald K. Gamey, 51, has served as a director of Doubletree and Doubletree
Partners since December 1993. Mr. Gamey is Executive Vice President of Canadian
Pacific Limited, a position he has held since July 1988. Mr. Gamey also serves
as a director of Laidlaw Inc., Canada Maritime Limited, Canadian Pacific Hotels
& Resorts, Inc. and various direct and indirect subsidiaries of Canadian Pacific
Limited.
Edward A. Gilhuly, 37, has been a director of Red Lion since March 1994.
Mr. Gilhuly has been a General Partner or an executive with KKR for more than
five years. Mr. Gilhuly is also a director of Layne-Christensen Company;
Owens-Illinois, Inc.; Owens-Illinois Group, Inc.; Red Lion Properties, Inc.;
Merit Behavioral Care Corporation; and Union Texas Petroleum Holdings, Inc. Mr.
Gilhuly will resign from the board of Red Lion Properties, Inc. at the Effective
Time.
Norman B. Leventhal, 79, has served as a director of Doubletree and
Doubletree Partners since December 1993. From September 1992 to December 1993,
Mr. Leventhal served as a director of GQHP. Mr. Leventhal is Chairman of The
Beacon Companies, a position he has held for more than ten years. Mr. Leventhal
co-founded The Beacon Companies, a major real estate developer, in 1946. Mr.
Leventhal serves as a director of Beacon Properties Corporation. Mr. Leventhal
is a Life Member Emeritus of The Corporation of The Massachusetts Institute of
Technology and a director of The Picower Institute for Medical Research and has
numerous community and civic involvements.
Michael W. Michelson, 45, has been a director of Red Lion since March 1994.
Mr. Michelson has been a General Partner of KKR and KKR Associates for more than
five years. Mr. Michelson is also a director of AutoZone, Inc.; Fred Meyer,
Inc.; Owens-Illinois, Inc.; Owens-Illinois Group, Inc.; Red Lion Properties,
Inc.; and Union Texas Petroleum Holdings, Inc. Mr. Michelson will resign from
the board of Red Lion Properties, Inc. at the Effective Time.
John H. Myers, 51, has served as a director of Doubletree and Doubletree
Partners since December 1993. From July 1992 to December 1993, Mr. Myers served
as a director of GQHP. Mr. Myers is a director and Executive Vice President of
GEIM, a position he has held since February 1988. Mr. Myers is also director and
Executive Vice President of General Electric Investment Corporation, a position
he has held since June 1986. Mr. Myers is a Trustee of GEPT and Wagner College
and also serves on the Board of Directors of Hispaland, S.A., the Butler Capital
Advisory Board and Grimes Aerospace Company.
Richard M. Kelleher, 47, has served as President and Chief Executive
Officer of DHC since December 1993 and as a director of Doubletree since July
28, 1995. From April 1993 to December 1993, Mr. Kelleher served as Chief
Executive Officer and President of GQHP. From December 1989 to April 1993, Mr.
Kelleher was President of Guest Quarters Suite Hotels. In 1983, Mr. Kelleher
co-founded Beacon Hotel Corporation, which merged with GQHP in 1986.
James P. Evans, 49, has served as Executive Vice President of Operations of
DHC since February 1996. From May 1993 through February 1996, Mr. Evans served
as the Senior Vice President Sales and Marketing with Hyatt Hotels Corporation.
From December 1987 through May 1993, Mr. Evans served as Senior Vice President
Sales with Hyatt Hotels Corporation. From May 1975 through December 1987, Mr.
Evans served in a variety of management positions with Hyatt Hotels Corporation.
From January 1972 through May 1975, Mr. Evans served in a variety of sales and
marketing management positions with ITT Sheraton Corporation.
William L. Perocchi, 39, has served as Executive Vice President, Chief
Financial Officer and Treasurer of Doubletree since its formation and DHC since
December 1993. From August 1992 to December 1993,
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Mr. Perocchi served as the Executive Vice President and Chief Financial Officer
of GQHP. From June 1989 to July 1992, Mr. Perocchi served as the Vice President,
Finance for AMETEK Aerospace Products, Inc. From June 1979 to June 1989, Mr.
Perocchi served in various financial management capacities with The General
Electric Company.
Stephen D. Pletcher, 52, has served as Senior Vice President of Technical
Services and Project Management of DHC since December 1993. From January 1988 to
December 1993, Mr. Pletcher served as Senior Vice President, Owner Relations,
Guest Quarters Suite Hotels.
Margaret Ann Rhoades, 51, has served as Executive Vice President of Human
Resources of DHC since February 1996. From January 1995 to February 1996, Ms.
Rhoades served as the Senior Vice President of Human Resources of DHC. From July
1989 through January 1995, Ms. Rhoades served as the Vice President, People
Department with Southwest Airlines. From March 1984 through June 1989, Ms.
Rhoades served as the Senior Vice President, Human Resources, Dallas Region for
Bank One.
David L. Stivers, 35, has served as Senior Vice President New Business of
DHC since January 1, 1996. Since October 1994 Mr. Stivers has served as Senior
Vice President, General Counsel and Secretary of Doubletree and DHC. From May
1988 to October 1994, Mr. Stivers was a corporate lawyer with the law firm of
Latham & Watkins.
Thomas W. Storey, 40, has served as Executive Vice President of Sales and
Marketing of DHC since August 1994. From August 1989 to July 1994, Mr. Storey
served as Executive Vice President of Sales and Marketing of Radisson Hotels
International. From August 1986 to August 1989, Mr. Storey served in a variety
of senior management positions with Marriott Hotels Corporation.
Raymond Terry, 47, has served as President of RFS Management since June
1994. From September 1991 to June 1994, Mr. Terry served as Vice President of
Operations with RFS Management. From December 1984 to September 1991, Mr. Terry
served as Vice President of Operations of Dominion Hospitality Management, Inc.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF DOUBLETREE
The following table sets forth certain information regarding beneficial
ownership of Doubletree Common Stock at August 15, 1996 and as adjusted to
reflect the Merger and the Financing Plan, including the sale of shares of
Common Stock in the Offering, by (i) each person who is known by Doubletree to
own beneficially more than five percent of Doubletree's Common Stock, (ii) each
of Doubletree's current directors and nominees, (iii) each of Doubletree's named
executive officers and (iv) all current Doubletree executive officers and
directors as a group. Except as otherwise indicated, the persons named in the
table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES OF DOUBLETREE COMMON STOCK
BENEFICIALLY OWNED(1)
-----------------------------------------------
BEFORE THE MERGER
AND THE FINANCING AFTER THE MERGER AND
PLAN THE FINANCING PLAN(2)
--------------------- ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
GE Investment Management Incorporated(3)........... 6,060,981 26.2% 6,060,981 16.2%
Trustees of General Electric Pension Trust(4)...... 137,134 * 2,826,620 7.5%
---------- ------- ---------- -------
Total GEI Entities............................... 6,198,115 26.8% 8,887,601 23.7%
3003 Summer Street
P.O. Box 7900
Stamford, Connecticut 06905
Red Lion, a California Limited Partnership(5)...... -- -- 4,499,970 12.0%
4001 Main Street
Vancouver, Washington 98663
Putnam Investments, Inc.(6)........................ 2,446,674 10.6% 2,446,674 6.5%
One Post Office Square
Boston, MA 02109
Ridge Partners, L.P.(7)............................ 1,532,432 6.6% 1,532,432 4.1%
1436 Ridge Road
Northbrook, Illinois 60062
RCM Capital Management(8).......................... 1,315,500 5.7% 1,315,500 3.5%
Four Embarcadero Center
San Francisco, CA 94111
Richard J. Ferris(7)(10)(11)....................... 1,537,432 6.7% 1,537,432 4.1%
Peter V. Ueberroth(9)(10)(11)...................... 1,085,432 4.7% 1,085,432 2.9%
William R. Fatt(10)(11)............................ 5,000 * 5,000 *
Dale F. Frey(10)(12)............................... -- -- -- --
Ronald K. Gamey(10)(11)............................ 5,000 * 5,000 *
Norman B. Leventhal(10)(11)(13).................... 15,000 * 15,000 *
John H. Myers(10)(12).............................. -- -- -- --
Richard M. Kelleher(10)(11)........................ 106,347 * 106,347 *
William L. Perocchi(10)(14)........................ 60,674 * 60,674 *
James P. Evans(10)................................. -- -- -- --
Stephen D. Pletcher(10)(14)........................ 12,500 * 12,500 *
Margaret Ann Rhoades(10)(14)....................... 13,500 * 13,500 *
David L. Stivers(10)(14)........................... 12,500 * 12,500 *
Thomas W. Storey(10)(14)........................... 45,000 * 45,000 *
Raymond Terry(10).................................. 19,748 * 19,748 *
Edward A. Gilhuly.................................. -- -- -- --
Michael W. Michelson(5)............................ -- -- -- --
All current directors and executive officers as a
group (17 persons)(15)........................... 2,918,133 12.5% 2,918,133 7.7%
</TABLE>
- ---------------
* Less than 1%.
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(1) Beneficial ownership as of August 15, 1996 includes shares subject to
options which are exercisable within 60 days after such date. All
expressions of percent of class held assume that the options of the
particular person or group in question, and no others, have been exercised
after such date.
(2) The number of shares of Doubletree Common Stock and percentages reflected
in this column are based on (i) the assumption that the Financing Plan is
effectuated and (ii) the assumptions set forth in the first paragraph of
"Prospectus Summary."
(3) Based on Schedule 13G filed jointly by GEHOP, GEIM, General Electric
Company ("GE") and GEPT. Shares indicated as beneficially owned by GEIM
include 6,049,226 shares owned of record by GEHOP and 1,755 shares owned of
record by GEIM. GEIM is a wholly-owned subsidiary of GE, and thus GE may be
deemed to be the beneficial owner of such 1,755 shares owned by GEIM.
Shares indicated as beneficially owned by GEIM exclude 137,134 shares owned
beneficially and of record by GEPT and, giving effect to the Merger and the
Financing Plan (assuming the exercise of the Warrants), 2,826,620 shares to
be owned of record and beneficially by GEPT and/or an affiliate thereof.
GEHOP, GEIM and GEPT each disclaim beneficial ownership of the shares owned
by the others, and GE disclaims beneficial ownership of the shares owned by
GEHOP and GEPT. Also includes 10,000 shares reserved for issuance upon
exercise of the vested portion of an outstanding option to purchase 20,000
shares granted to GEHOP, which is exercisable within 60 days after August
15, 1996. Each of Messrs. Frey and Myers disclaim beneficial ownership of
such shares.
(4) Based on shares to be beneficially owned by GEPT, after giving effect to
the Merger and the Financing Plan and assuming the exercise of the
Warrants. Each of Messrs. Frey and Myers disclaim beneficial ownership of
all such shares. GEPT disclaims beneficial ownership of all shares owned by
GE, GEIM and GEHOP.
(5) RLA will have sole voting and investment power with respect to the shares
of Doubletree Common Stock to be owned of record by the Partnership. RLA
has a 1% general partnership interest in the Partnership. George Roberts is
the President and a director of RLA. The stockholders of RLA are general
and limited partners of KKR Associates (Delaware). KKR Associates
(Delaware) is a limited partner of the Partnership. Mr. Michelson, who will
be appointed to the Board of Directors of Doubletree following the Merger,
and Mr. Roberts are general partners of KKR Associates (Delaware). Mr.
Michelson and Mr. Roberts will disclaim beneficial ownership of any shares
of Doubletree Common Stock held by the Partnership.
(6) Based on Schedule 13G filed jointly by Putnam Investments, Inc. ("Putnam"),
Marsh & McClennan Companies, Inc. ("MMC"), Putnam Investment Management,
Inc. ("PIM") and The Putnam Advisory Company, Inc. ("TPAC"). Shares
indicated as beneficially owned by Putnam include 1,190,516 and 165,900
shares owned of record by PIM and TPAC, respectively, both wholly-owned
subsidiaries of Putnam. Putnam is a wholly-owned subsidiary of MMC, and MMC
may be deemed to beneficially own such shares. Putnam and MMC disclaim
beneficial ownership of such shares. Putnam, PIM and TPAC have shared
dispositive power with respect to the shares, and Putnam and TPAC have
shared voting power with respect to 105,400 shares owned of record by TPAC.
Neither Putnam, PIM nor TPAC have any voting power with respect to the
remainder of the shares.
(7) Based on Schedule 13D filed by Ridge Partners, L.P. ("Ridge"), Kelrick,
Inc. ("Kelrick") and Richard J. Ferris. Ridge is a limited partnership
whose sole general partner is Kelrick. Ridge is the record owner of the
shares. Kelrick has sole voting and dispositive power with respect to such
shares. Mr. Ferris is the President and holder of 51% of the shares of
Doubletree Common Stock of Kelrick and may be deemed to have the right to
receive or the power to direct the receipt of dividends from, or the
proceeds from the sale of, the shares of Doubletree Common Stock owned by
Ridge. Mr. Ferris disclaims beneficial ownership of the shares owned by
Ridge, except to the extent of his ownership of Kelrick.
(8) Based on Schedule 13G filed jointly by RCM Capital Management ("RCM
Capital"), RCM Limited L.P. ("RCM Limited") and RCM General Corporation
("RCM General"). RCM Capital is the beneficial owner of these shares. RCM
Limited is the general partner of RCM Capital and has beneficial ownership
of these shares only to the extent that RCM Limited may be deemed to have
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beneficial ownership of securities managed by RCM Capital. RCM General is the
general partner of RCM Limited and has beneficial ownership of these shares only
to the extent that RCM General may be deemed to have beneficial ownership of
securities managed by RCM Capital.
(9) Based on Schedule 13D filed by Peter V. and Virginia M. Ueberroth, as
cotrustees of The Ueberroth Family Trust (the "1986 Trust"), Alice J.
Saviez, as trustee of the Ueberroth Investment Trust (the "1994 Trust") and
Peter V. Ueberroth (collectively, the 1986 Trust and the 1994 Trust may be
referred to herein as the "Ueberroth Trusts"). Includes 919,459 shares of
Doubletree Common Stock beneficially owned by Peter V. and Virginia M.
Ueberroth as co-trustees of the 1986 Trust, who have shared voting and
shares dispositive power with respect to such shares. Also includes 160,973
shares of Doubletree Common Stock beneficially owned by Alice J. Saviez as
trustee of the 1994 Trust (who has sole voting and dispositive power with
respect to such shares). Mr. Ueberroth may be deemed to have an interest in
the 1,080,432 shares of Doubletree Common Stock as a trustee and
beneficiary of the 1986 Trust and as a family member of the beneficiaries
of the 1994 Trust. Mr. Ueberroth disclaims beneficial ownership of such
shares.
(10) The address of Messrs. Ferris, Ueberroth, Fatt, Frey, Gamey, Leventhal,
Myers, Kelleher, Evans, Perocchi, Pletcher, Stivers, Storey, Terry and Ms.
Rhoades is c/o Doubletree Corporation, 410 North 44th Street, Suite 700,
Phoenix, Arizona 85008.
(11) Includes 5,000 shares reserved for issuance upon exercise of outstanding
options owned by Messrs. Ferris, Ueberroth, Fatt, Gamey and Leventhal and
75,000 shares reserved for issuance upon exercise of outstanding options
owned by Mr. Kelleher.
(12) Excludes 6,049,226 shares owned of record by GEHOP, 1,755 shares owned of
record by GEIM, which is GEHOP's sole general partner and a direct
wholly-owned subsidiary of GE, and 137,134 shares owned of record by GEPT.
Each of Messrs. Frey and Myers are executive officers and directors of GEIM
and Trustees of GEPT, and Mr. Frey is an executive officer of GE. Messrs.
Frey and Myers have voting and investment power with respect to such shares
and, therefore, may be deemed to be beneficial owners of such shares. Also
excludes 10,000 shares reserved for issuance upon exercise of the vested
portion of an outstanding option to purchase 20,000 shares granted to
GEHOP, which is exercisable within 60 days of August 15, 1996. Also
excludes 2,826,620 shares to be owned of record and beneficially by GEPT
after giving effect to the Merger and the Financing Plan (assuming the
exercise of the Warrants). Each of Messrs. Frey and Myers disclaim
beneficial ownership of all such shares.
(13) Includes 10,000 shares beneficially owned by Muriel Leventhal, Mr.
Leventhal's wife. Mr. Leventhal disclaims beneficial ownership of such
shares.
(14) Messrs. Evans, Perocchi, Pletcher, Stivers, Storey, Terry and Ms. Rhoades
are executive officers of Doubletree but are not directors. Includes
45,000, 12,500, 12,500, 45,000 and 12,500 shares reserved for issuance upon
the exercise of outstanding options held by Messrs. Perocchi, Pletcher,
Stivers, Storey and Ms. Rhoades, respectively, exercisable within 60 days
of August 15, 1996.
(15) Includes shares of Doubletree Common Stock held by Ridge, Peter V. and
Virginia M. Ueberroth, as co-trustees of the 1986 Trust, and Alice J.
Saviez, as trustee of the 1994 Trust (see footnotes 7 and 9 above).
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DESCRIPTION OF CAPITAL STOCK OF DOUBLETREE
The following description of Doubletree's capital stock does not purport to
be complete and is subject in all respects to applicable Delaware law and to the
provisions of Doubletree's Certificate of Incorporation (the "Doubletree
Certificate") and the bylaws of Doubletree (the "Doubletree Bylaws"), copies of
which have been incorporated by reference as exhibits to the Registration
Statement of which this Prospectus is a part.
The authorized capital stock of Doubletree consists of 100,000,000 shares
of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $.01 per share (the "Doubletree Preferred Stock"). After giving
effect to the consummation of the Merger and the Financing Plan, 37,459,076
shares of Doubletree Common Stock are expected to be issued and outstanding, and
no shares of Doubletree Preferred Stock will be issued or outstanding.
COMMON STOCK
Holders of the Doubletree Common Stock are entitled to one vote per share
on all matters to be voted upon by the stockholders. Holders of Doubletree
Common Stock do not have cumulative voting rights, and therefore holders of a
majority of the shares voting for the election of directors can elect all of the
directors. In such event, the holders of the remaining shares will not be able
to elect any directors.
Holders of the Doubletree Common Stock are entitled to receive such
dividends as may be declared from time to time by the Doubletree Board of
Directors out of funds legally available therefor, subject to the terms of
Doubletree's credit agreements restricting payment of dividends. Doubletree does
not anticipate paying cash dividends in the foreseeable future. See "Dividends."
In the event of the liquidation, dissolution or winding up of Doubletree, the
holders of Doubletree Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities.
Holders of Doubletree Common Stock have no preemptive, conversion or
redemption rights and are not subject to further calls or assessments by
Doubletree. All of the outstanding shares of Doubletree Common Stock are, and
the shares to be issued by Doubletree in connection with the Merger will be,
validly issued, fully paid and nonassessable.
The Transfer Agent and Registrar for the Doubletree Common Stock is Harris
Trust Company of California.
PREFERRED STOCK
Doubletree's Board of Directors is authorized to issue from time to time,
without shareholder authorization, in one or more designated series, any or all
of the authorized but unissued shares of Doubletree Preferred Stock with such
dividend, redemption, conversion and exchange provisions as may be provided in
the particular series. Any series of Doubletree Preferred Stock may possess
voting, dividend, liquidation and redemption rights superior to those of the
Doubletree Common Stock. The rights of the holders of Doubletree Common Stock
will be subject to and may be adversely affected by the rights of the holders of
any Doubletree Preferred Stock that may be issued in the future. Issuance of a
new series of Doubletree Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of entrenching Doubletree's Board of Directors and making it
more difficult for a third party to acquire, or discourage a third party from
acquiring, a majority of the outstanding voting stock of Doubletree. Doubletree
has no present plans to issue any series of Doubletree Preferred Stock.
REGISTRATION RIGHTS
In connection with the Doubletree Combination Transaction, certain of
Doubletree's original stockholders entered into a registration rights agreement,
as amended (the "1993 Registration Rights Agreement"), which gives each of such
stockholders certain "piggyback" registration rights with respect to the
registration under the Securities Act of the shares of Doubletree Common Stock
issued to them in the Doubletree Reorganization, including rights to include
such shares in any registration under the Securities Act effected for the
benefit of Doubletree or at the request of another holder of Doubletree Common
Stock. In addition,
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GEHOP and Metropolitan (two of such original stockholders) have demand
registration rights pursuant to which they may require Doubletree to register
under the Securities Act the shares of Doubletree Common Stock issued to them in
the Doubletree Reorganization. According to the terms of the 1993 Registration
Rights Agreement, Doubletree is required to effect two such demand registrations
for GEHOP and one such demand registration for Metropolitan. Upon the exercise
of a demand registration right by Metropolitan, Doubletree may, at its option
and in lieu of effecting such registration, purchase from Metropolitan the
shares required to be registered as a result of such exercise. The 1994 Trust
sold 240,000 shares of Doubletree Common Stock pursuant to the exercise of its
"piggyback" registration rights in Doubletree's public offering completed in
June 1995 and 212,000 shares of Doubletree Common Stock pursuant to its
"piggyback" registration rights in Doubletree's public offering completed in May
1996.
In connection with the RFS Acquisition, pursuant to an amendment to the
1993 Registration Rights Agreement, the RFS Stockholders were granted demand
registration rights pursuant to which, on two occasions, they may require
Doubletree to register the RFS Acquisition Shares under the Securities Act. The
RFS Stockholders sold 1,508,422 shares of Doubletree Common Stock pursuant to
the exercise of one of their demand registration rights in connection with
Doubletree's public offering completed in May 1996. The second registration
demand can occur no earlier than February 27, 1997 and may include the balance
of the RFS Acquisition Shares.
The RFS Stockholders also have "piggyback" registration rights with respect
to any registration under the Securities Act effected for the benefit of
Doubletree or at the request of another holder of Doubletree Common Stock, and
in certain limited circumstances, the right to require Doubletree to file and
maintain a shelf registration statement. For a further description of the RFS
Acquisition, see "Business of Doubletree -- The RFS Acquisition."
Pursuant to the Merger Agreement, at the Effective Time, the 1993
Registration Rights Agreement will be amended to grant to the Partnership four
demand and unlimited "piggyback" registration rights with respect to the shares
of Doubletree Common Stock to be issued to the Partnership pursuant to the
Merger. In addition, the amendment will provide that the shares of Doubletree
Common Stock to be issued to GEPT or an affiliate thereof as part of the
Financing Plan, including any shares that are issued upon the exercise of the
Warrants, will be covered by GEHOP's demand and "piggyback" registration rights.
Doubletree is not required to file a registration statement upon exercise
of any of the above-described demand registration rights within 90 days
following any underwritten public offering of Doubletree Common Stock or
securities convertible into or exchangeable for Doubletree Common Stock. All
expenses of any such registration relating to the subject shares are to be borne
by Doubletree.
CERTAIN PROVISIONS OF DELAWARE LAW
Doubletree is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) with a Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced (excluding shares owned by persons who are
both officers and directors of the corporation and shares held by certain
employee stock ownership plans); or (iii) following the transaction in which
such person became an interested stockholder, the business combination is
approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least
two-thirds of the outstanding voting stock of the corporation not owned by the
interested stockholder.
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LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS
The Doubletree Certificate provides that to the fullest extent permitted by
the DGCL, a director of Doubletree shall not be liable to Doubletree or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Under the DGCL, liability of a director may not be limited (i) for any breach of
the director's duty of loyalty to Doubletree or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases and (iv) for any transaction from which the
director derives an improper personal benefit. The effect of such provision in
the Doubletree Certificate is to eliminate the rights of Doubletree and its
stockholders (through stockholders' derivative suits on behalf of Doubletree) to
recover monetary damages against a director for breach of the fiduciary duty of
care as a director (including breaches resulting from negligent or grossly
negligent behavior), except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of Doubletree
or any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Doubletree Certificate provides that Doubletree shall indemnify its
directors, officers, employees and agents against losses incurred by any such
person by reason of the fact that such person was acting in such capacity.
Doubletree has entered into agreements (the "Indemnification Agreements")
with each of the directors and officers of Doubletree pursuant to which
Doubletree has agreed to indemnify such director or officer from claims,
liabilities, damages, expenses, losses, costs, penalties or amounts paid in
settlement incurred by such director or officer in or arising out of his or her
capacity as a director, officer, employee and/or agent of Doubletree or any
other corporation of which he or she is a director or officer at the request of
Doubletree to the maximum extent provided by applicable law. In addition, such
director or officer is entitled to an advance of expenses to the maximum extent
authorized or permitted by law.
To the extent that the Board of Directors or the stockholders of Doubletree
may in the future wish to limit or repeal the ability of Doubletree to provide
indemnification as set forth in the Doubletree Certificate, such repeal or
limitation may not be effective as to directors and officers who are currently
parties to the Indemnification Agreements, because their rights to full
protection would be contractually assured by the Indemnification Agreements. It
is anticipated that similar contracts may be entered into, from time to time,
with future directors of Doubletree.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following discussion sets forth certain United States Federal income
and estate tax consequences of the ownership and disposition of shares of Common
Stock by Non-U.S. Holders. In general, a "Non-U.S. Holder" is any holder other
than (i) a citizen or resident, as specifically defined for United States
Federal income and estate tax purposes, of the United States, (ii) a corporation
or partnership (or any entity treated as a corporation or partnership for United
States Federal income tax purposes) created or organized in the United States or
under the laws of the United States or of any political subdivision thereof, or
(iii) an estate or trust whose income is includible in gross income for United
States Federal income tax purposes regardless of its source. The discussion is
based on current law, which is subject to change retroactively or prospectively,
and is for general information only. The discussion does not address all aspects
of United States Federal income and estate taxation and does not address any
aspects of state, local or foreign tax laws. The discussion does not consider
any specific facts or circumstances that may apply to a particular Non-U.S.
Holder (including the fact that in the case of a Non-U.S. Holder that is a
partnership, the United States tax consequences of holding and disposing of
shares of Common Stock may be affected by certain determinations made at the
partner level). Accordingly, prospective investors are urged to consult their
tax advisors regarding the application of United States Federal income and
estate tax laws to their particular situations as well as any tax consequences
to them arising under the laws of any state, local or foreign taxing
jurisdiction.
DIVIDENDS
It is not currently contemplated that Doubletree will pay dividends on
Common Stock in the foreseeable future. In general, dividends paid to a Non-U.S.
Holder will be subject to United States withholding tax at a 30% rate (or such
lower rate as may be prescribed by an applicable tax treaty) unless the
dividends are either (i) effectively connected with a trade or business carried
on by the Non-U.S. Holder within the United States, or (ii) if a tax treaty
applies, attributable to a United States permanent establishment maintained by
the Non-U.S. Holder. Dividends effectively connected with such a trade or
business or attributable to such a permanent establishment (if a tax treaty
applies) and so treated as effectively connected income will generally not be
subject to withholding (if the Non-U.S. Holder files certain forms annually with
the "payor," as defined for United States Federal income tax purposes, of the
dividend) and will generally be subject to United States Federal income tax on a
net income basis at regular graduated rates. In the case of a Non-U.S. Holder
which is a corporation, such effectively connected income also may be subject to
the 30% branch profits tax (which is generally imposed on a foreign corporation
on the repatriation from the United States of effectively connected earnings and
profits). The branch profits tax may not apply, or may apply at a reduced rate,
if the recipient is a qualified resident of certain countries with which the
United States has an income tax treaty.
To determine the applicability of a tax treaty providing for a lower rate
of withholding, dividends paid to an address in a foreign country are presumed
under current Treasury Regulations to be paid to a resident of that country,
unless the payor has definite knowledge that such presumption is not warranted
or an applicable tax treaty (or specific United States Treasury Regulations
thereunder) requires some other method for determining a Non-U.S. Holder's
residence. Under current regulations, Doubletree must report annually to the
Internal Revenue Service ("IRS") and to each Non-U.S. Holder the amount of
dividends paid to, and the tax withheld with respect to, each Non-U.S. Holder.
These reporting requirements apply regardless of whether withholding was reduced
or eliminated by an applicable tax treaty. Under the provisions of a specific
treaty or agreement, copies of these reports may also be made available to the
tax authorities in the country in which the Non-U.S. Holder resides.
SALE OF COMMON STOCK
Generally, a Non-U.S. Holder will not be subject to United States Federal
income tax on any gain realized upon the disposition of such holder's shares of
Doubletree Common Stock unless (i) subject to the exception discussed below,
Doubletree is or has been a "United States real property holding corporation" (a
"USRPHC") within the meaning of section 897(c)(2) of the Code at any time within
the shorter of the five-year period preceding such disposition or such holder's
holding period (the "Required Holding Period");
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(ii) the gain is effectively connected with a trade or business carried on by
the Non-U.S. Holder within the United States or, if a tax treaty applies,
attributable to a permanent establishment maintained by the Non-U.S. Holder in
the United States; (iii) the Non-U.S. Holder is an individual who holds the
shares of Doubletree Common Stock as a capital asset and is present in the
United States for 183 days or more in the taxable year of the disposition, and
either (a) such Non-U.S. Holder has a "tax home" (as specifically defined for
United States Federal income tax purposes) in the United States (unless the gain
from the disposition is attributable to an office or other fixed place of
business maintained by such Non-U.S. Holder in a foreign country and such gain
has been subject to a foreign tax equal to at least 10%), or (b) the gain from
the disposition is attributable to an office or fixed place of business
maintained by such Non-U.S. Holder in the United States; or (iv) the Non-U.S.
Holder is subject to tax pursuant to the provisions of United States tax law
applicable to certain United States expatriates.
A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets used
or held for use in a trade or business. It is unclear whether Doubletree
currently is a USRPHC and there can be no assurance that Doubletree is not (or
will not become, by reason of the Merger or otherwise) a USRPHC. However, even
if Doubletree is or becomes a USRPHC, a Non-U.S. Holder would generally not be
subject to tax, or withholding in respect of such tax, on gain from a sale or
other disposition of Doubletree Common Stock by reason of Doubletree's USRPHC
status so long as the Doubletree Common Stock is regularly traded on an
established securities market as defined for purposes of Code section 897(c)
("regularly traded") during the calendar year in which such sale or disposition
occurs provided that such holder does not own and has not owned, actually or
constructively, Common Stock with a fair market value in excess of 5% of the
fair market value of all Doubletree Common Stock outstanding at any time during
the Required Holding Period. Doubletree believes that the Doubletree Common
Stock will be treated as regularly traded.
If Doubletree is or has been a USRPHC within the Required Holding Period,
and if a non-U.S. holder owns or owned in excess of 5% of the fair market value
of Common Stock (as described in the preceding paragraph), such Non-U.S. Holder
of Doubletree Common Stock will be subject to U.S. Federal income tax at regular
graduated rates under certain rules ("FIRPTA tax") on gain recognized on a sale
or other disposition of such Doubletree Common Stock. In addition, if Doubletree
is or has been a USRPHC during the Required Holding Period and the Doubletree
Common Stock were not treated as regularly traded, a Non-U.S. Holder (without
regard to its ownership percentage) would be subject to withholding at a rate of
10% of the amount realized on a sale or other disposition of Doubletree Common
Stock and would be subject to further FIRPTA tax if such tax exceeded the amount
withheld. Any amount withheld would be creditable against such Non-U.S. Holder's
U.S. Federal income tax liability. Non-U.S. holders are urged to consult their
tax advisors concerning the potential applicability of these provisions.
ESTATE TAX
Shares of Doubletree Common Stock owned or treated as owned by an
individual who is not a citizen or resident (as defined for United States
federal estate tax purposes) of the United States at the time of death will be
includible in such individual's gross estate for United States Federal estate
tax purposes (unless an applicable tax treaty provides otherwise) and therefore
may be subject to United States federal estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States Federal income tax law, backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish the information required under the
United States information reporting requirements) and information reporting
requirements apply to payments of dividends. Backup withholding tax and
information reporting requirements will generally not apply to dividends paid on
Doubletree Common Stock to Non-U.S. Holders to which the Company is required to
withhold at a 30% rate or, if applicable, a lower treaty rate, as described
under "-- Dividends."
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The payment of the proceeds from the disposition of shares of Doubletree
Common Stock to or through the United States office of a broker will be subject
to information reporting and backup withholding unless the holder or beneficial
owner certifies, under penalties of perjury, among other things, as to its
status as a Non-U.S. Holder, or otherwise establishes an exemption. Generally,
the payment of the proceeds from the disposition of shares of Doubletree Common
Stock to or through a non-U.S. office of a broker will not be subject to backup
withholding and will not be subject to information reporting. In the case of the
payment of proceeds from the disposition of shares of Doubletree Common Stock to
or through a non-U.S. office of a broker that is a U.S. person or a
"U.S.-related person," existing regulations require information reporting on the
payment unless the broker receives a statement from the owner, signed under
penalties of perjury, certifying, among other things, its status as a Non-U.S.
Holder, or the broker has documentary evidence in its files that the owner is a
Non-U.S. Holder and the broker has no actual knowledge to the contrary. For this
purpose, a "U.S.-related person" is (i) a "controlled foreign corporation" for
United States Federal income tax purposes or (ii) a foreign person 50% or more
of whose gross income from all sources for the three-year period ending with the
close of its taxable year preceding the payment (or for such part of the period
that the broker has been in existence) is derived from activities that are
effectively connected with the conduct of a United States trade or business.
Non-U.S. Holders should consult their tax advisors regarding the application of
these rules to their particular situations, the availability of an exemption
therefrom, and the procedure for obtaining such an exemption, if available.
A Non-U.S. Holder generally may obtain a refund of any excess amounts
withheld by filing the appropriate claim for refund with the IRS.
PROPOSED REGULATIONS
On April 22, 1996, the IRS issued proposed regulations relating to
withholding, backup withholding and information reporting that, if adopted in
their current form, would, among other things, unify current certification
procedures and forms and clarify reliance standards. The proposed regulations
would, among other things, eliminate the general current law presumption that
dividends paid to an address in a foreign country are paid to a resident of that
country and would impose certain certification and documentation requirements
(which, in some cases, could be satisfied by the provision of a certificate of
residence issued by a competent authority of the relevant treaty country) on
Non-U.S. Holders claiming the benefit of a reduced withholding rate with respect
to dividends under a tax treaty. These regulations generally are proposed to be
effective with respect to payments made after December 31, 1997, although in
certain cases they are proposed to be effective only with respect to payments
made after December 31, 1999. Proposed regulations are subject to change,
however, prior to their adoption in final form. Prospective investors are urged
to consult their tax advisors regarding the potential effect on them of the
proposed regulations.
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UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), a syndicate of United
States Underwriters (the "U.S. Underwriters") named below has severally agreed
to purchase, and the Company has agreed to sell to them, severally, shares of
the Company's Common Stock and the syndicate of International Underwriters (the
"International Underwriters") named below has severally agreed to purchase, and
the Company has agreed to sell to them, severally, the respective number of
shares of Common Stock set forth opposite the names of such Underwriters below.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.......................................
Montgomery Securities...................................................
Schroder Wertheim & Co. Incorporated....................................
-------
Subtotal........................................................ 4,000,000
-------
International Underwriters:
Morgan Stanley & Co. International Limited..............................
Montgomery Securities...................................................
J. Henry Schroder & Co. Limited.........................................
-------
Subtotal........................................................ 1,000,000
-------
Total...................................................... 5,000,000
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if any such shares are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any International Shares (as defined below)
being sold by it for the account of any United States or Canadian Person and
(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any International Shares or distribute any prospectus relating to
the International Shares within the United States or Canada or to any United
States or Canadian Person. With respect to any Underwriter that is a U.S.
Underwriter and an International Underwriter, the foregoing representations and
agreements (a) made by it in its capacity as a U.S. Underwriter shall apply only
to shares purchased by it in its capacity as a U.S. Underwriter and (b) made by
it in its capacity as an International Underwriter shall apply only to shares
purchased by it in its capacity as an International Underwriter, and (c) do not
restrict its ability to distribute any prospectus relating to the shares of
Common Stock to any person. The foregoing limitations do not apply to
stabilization actions or to certain other transactions specified in the
Agreement Between U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or
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Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person) and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
U.S. Underwriters and the International Underwriters under the Underwriting
Agreement are referred to herein as the U.S. Shares and the International
Shares, respectively.
Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares so sold shall be the price to public set forth on the cover page hereof,
in United States dollars, less an amount not greater than the per share amount
of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in
Canada in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer or sale of Common Stock in
Canada will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer or sale is
made. Each U.S. Underwriter has further agreed to send to any dealer who
purchases from it any shares of Common Stock a notice stating in substance that,
by purchasing such Common Stock, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, directly or indirectly, any of
such Common Stock in Canada or to, or for the benefit of, any resident of Canada
in contravention of the securities laws of Canada or any province or territory
thereof and that any offer or sale of Common Stock in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made, and that
such dealer will deliver to any other dealer to whom it sells any of such Common
Stock a notice to the foregoing effect.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that: (i) it has not
offered or sold and will not, during the period of six months from the date of
the Offering, offer or sell any shares of Common Stock in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations (1995) (the "Regulations"); (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the Regulations with respect to anything done by it in
relation to the shares of Common Stock in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with the
issue or sale of the shares of Common Stock if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1988 or is a person to whom such document may
otherwise lawfully be issued or passed on.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that it has not offered or
sold, and agrees not to offer or sell, directly or indirectly, in Japan or to or
for the account of any resident thereof, any of the shares of Common Stock
acquired in connection with the distribution contemplated hereby, except for
offers or sales to Japanese International Underwriters or dealers and except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law of Japan. Each International Underwriter further agrees to send
to any dealer who purchases from it any of the Common Stock a notice stating in
substance that, by purchasing such shares, such dealer represents and agrees
that it has not offered or sold and will not offer or sell any of such shares,
directly or indirectly in Japan or to or for the account of any resident thereof
except pursuant to any exemption from the registration requirements of the
Securities and Exchange Law of Japan, and that such dealer will send to any
other dealer whom it sells any of such Common Stock a notice containing
substantially the same statement as contained in the foregoing.
95
<PAGE> 98
The Underwriters propose to offer part of the Common Stock directly to the
public at the price to public set forth on the cover page hereof and part of the
Common Stock to certain dealers at a price which represents a concession not in
excess of $ per share below the public offering price. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of
$ per share to other Underwriters or to certain dealers. After the
initial public offering of the Common Stock, the offering price and other
selling terms may from time to time be varied by the Underwriters.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 750,000 additional shares of Common Stock at the
price to public set forth on the cover page hereof, less underwriting discounts
and commissions. The U.S. Underwriters may exercise such option to purchase
solely for the purpose of covering over-allotments, if any, made in connection
with the offering of the shares of Common Stock hereby. To the extent such
option is exercised, each U.S. Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock offered by the U.S. Underwriters hereby.
The Company, all of the Company's executive officers and Directors and
certain other stockholders of the Company, who will own after the Offering in
the aggregate approximately 11,805,734 shares of Common Stock (including 471,999
shares which can be acquired through currently exercisable options), have agreed
that, without the prior written consent of Morgan Stanley & Co. Incorporated
("Morgan Stanley"), they will not (a) offer, pledge, sell contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or (b) enter
into any swap or other agreement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the Common Stock, whether any
such transaction described in clause (a) or (b) of this paragraph is to be
settled by delivery of such Common Stock or such other securities, in cash or
otherwise, for a period of 180 days (or, in the case of executive officers and
Directors of the Company, 90 days) after the date of this Prospectus, other than
(i) the sale to the Underwriters of the shares of Common Stock under the
Underwriting Agreement, (ii) the issuance of any shares of Common Stock in
connection with the Merger or the GEPT Equity Investment, and (iii) the issuance
by the Company of shares of Common Stock upon the exercise of an option sold or
granted, or the grant of options, pursuant to an existing employee benefit plan
of the Company and outstanding on the date of this Prospectus or upon exercise
of any of the Warrants issued in connection with the Financing Plan.
In addition, the Partnership (which will own 4,499,970 shares of Common
Stock after giving effect to the Merger and the Financing Plan) has agreed with
the Company not to offer or sell its shares of Common Stock for a period of 180
days after the Effective Time (except for certain distributions to a limited
partner of the Partnership as described in "The Merger and the Financing
Plan -- Interests of Certain Persons in the Merger"). The Company has agreed
that, without the prior written consent of Morgan Stanley, it will not waive or
release the Partnership from the foregoing 180-day restriction.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
Pursuant to regulations promulgated by the Commission, market makers in the
Common Stock who are Underwriters or prospective underwriters ("passive market
makers") may, subject to certain limitations, make bids for or purchases of
shares of Common Stock until the earlier of the time of commencement (the
"Commencement Date") of offers or sales of the Common Stock contemplated by this
Prospectus or the time at which a stabilizing bid for such shares is made. In
general, and after the date two business days prior to the Commencement Date (1)
such market maker's net daily purchases of the Common Stock may not exceed 30%
of its average daily trading volume in such stock for the two full consecutive
calendar months immediately preceding the filing date of the Registration
Statement of which this Prospectus forms a part, (2) such market maker may not
effect transactions in, or display bids for, the Common Stock at a price that
exceeds the highest bid for the Common Stock by persons who are not passive
market makers and (3) bids made by passive market makers must be identified as
such.
96
<PAGE> 99
Certain of the Underwriters and their affiliates have from time to time
performed, and continue to perform, various investment banking and other
financial services for the Company.
Morgan Stanley has acted as financial advisor to Doubletree in connection
with the Merger, and has rendered an opinion to the Board of Directors of
Doubletree that the Merger is fair to Doubletree from a financial point of view.
In connection therewith, Doubletree has agreed to pay Morgan Stanley fees of (i)
$1.5 million for rendering its fairness opinion (in the event the Merger is
consummated) and (ii) $500,000 for other advice in connection with its role as
financial advisor. Doubletree has agreed to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley or any of its affiliates against
certain liabilities, including liabilities under Federal securities laws, and
expenses related to Morgan Stanley's role as financial advisor.
Morgan Stanley Senior Funding, Inc. and Morgan Stanley Group Inc.,
affiliates of Morgan Stanley, are being paid customary fees and reimbursed
expenses by the Company in connection with acting as syndication agent under the
New Credit Facility and providing a commitment under the Bridge Loan,
respectively.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Dewey Ballantine. Certain legal matters relating to the
Offering will be passed upon for the Underwriters by Davis Polk & Wardwell.
EXPERTS
The consolidated financial statements and schedule of the Company and its
subsidiaries as of December 31, 1994 and 1995, and for each of the years in the
three-year period ended December 31, 1995, included or incorporated by reference
in this Prospectus have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, as set forth in their reports, which are included
herein, and have been given upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Red Lion Hotels, Inc. as of December 31, 1995
and for the ten month period then ended and the consolidated statements of
operations, partners' equity, and cash flows of Historical Red Lion for the
seven month period ended July 31, 1995 included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, appearing elsewhere herein, and have been so included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements included in this Prospectus relating to Historical
Red Lion and its subsidiaries, to the extent and for the periods indicated in
their reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports. Reference is made to the report on the
Financial Statements of Historical Red Lion, which includes an explanatory
paragraph with respect to changes in accounting for joint ventures and the
accounting method for measuring impairment of hotel properties, effective
January 1, 1993, as discussed in Note 1 of those Financial Statements.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission are available for
inspection and copying at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60601. Copies of such materials can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549 at prescribed rates. The
97
<PAGE> 100
Company's Common Stock is quoted on The Nasdaq Stock Market's National Market,
and certain of the reports, proxy statements and other information concerning
the Company can be inspected at the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington D.C. 20006. Such materials can also be
inspected on the Internet at http://www.sec.gov.
The Company has filed a Registration Statement on Form S-3 (together with
any amendments thereto, the "Registration Statement"), of which this Prospectus
is a part, with the Commission under the Securities Act, with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. The
Registration Statement, including exhibits filed as a part thereof, are
available for inspection and copying as set forth above. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
herein or therein are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
98
<PAGE> 101
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DOUBLETREE CORPORATION
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheet at December 31, 1994, December 31, 1995 and June 30, 1996
(unaudited)...................................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993,
December 31, 1994, December 31, 1995, Six Months Ended June 30, 1995 (unaudited)
and Six Months Ended June 30, 1996 (unaudited)................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993,
December 31, 1994, December 31, 1995, Six Months Ended June 30, 1995 (unaudited)
and Six Months Ended June 30, 1996 (unaudited)................................... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1993, December 31, 1994, and December 31, 1995 and Six Months Ended June 30, 1996
(unaudited)...................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
RED LION HOTELS, INC.
Independent Auditors' Report........................................................ F-24
Consolidated Balance Sheets at December 31, 1995 and June 30, 1996 (unaudited)...... F-25
Consolidated Statements of Income for the Ten Months Ended December 31, 1995,
Four Months Ended June 30, 1995 (unaudited) and Six Months Ended June 30, 1996
(unaudited)...................................................................... F-26
Consolidated Statements of Stockholders' Equity for the Ten Months Ended
December 31, 1995 and Six Months Ended June 30, 1996 (unaudited)................. F-27
Consolidated Statements of Cash Flows for the Ten Months Ended December 31, 1995,
Four Months Ended June 30, 1995 (unaudited) and Six Months Ended June 30, 1996
(unaudited)...................................................................... F-28
Notes to Consolidated Financial Statements.......................................... F-29
HISTORICAL RED LION
Independent Auditors' Reports....................................................... F-43
Consolidated Balance Sheet at December 31, 1994..................................... F-45
Consolidated Statements of Operations for the Years Ended December 31, 1994
and 1993 and the Seven Months Ended July 31, 1995................................ F-46
Consolidated Statements of Partners' Equity for the Years Ended December 31, 1994
and 1993 and the Seven Months Ended July 31, 1995................................ F-47
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and
1993 and the Seven Months Ended July 31, 1995.................................... F-48
Notes to Consolidated Financial Statements.......................................... F-50
</TABLE>
F-1
<PAGE> 102
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Doubletree Corporation
We have audited the consolidated financial statements of Doubletree
Corporation and subsidiaries (Company) and of Samantha Hotel Corporation and
subsidiaries (Predecessor) as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we have also audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule 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 aforementioned Company consolidated financial
statements present fairly, in all material respects, the financial position of
Doubletree Corporation and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for the Company period, in
conformity with generally accepted accounting principles. Further, in our
opinion, the aforementioned Predecessor consolidated financial statements
present fairly, in all material respects, the results of their operations and
their cash flows for the Predecessor period, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Orange County, California
February 27, 1996
F-2
<PAGE> 103
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................................. $ 23,169 $ 32,652 $ 46,566
Restricted cash............................................ 535 -- --
Accounts receivable, net of allowance for doubtful accounts
of $393, $295 and $316, respectively..................... 11,887 17,907 20,596
Current portion of notes and other receivables, including
amounts due from affiliates of $16 in 1994............... 16 390 477
Other...................................................... 1,831 2,694 2,944
-------- -------- --------
Total current assets.................................. 37,438 53,643 70,583
-------- -------- --------
Notes and other receivables, including amounts due from
affiliates of $10,674, $10,755 and $15,342,
respectively............................................. 17,312 24,185 30,949
Investments................................................ 2,606 5,070 29,892
Hotel properties, net...................................... 11,143 10,572 10,289
Leasehold improvements and office equipment, net........... 2,253 3,968 3,526
Management contracts, net.................................. 45,372 49,634 48,275
Goodwill, net.............................................. 17,407 15,431 15,228
Deferred costs and other assets............................ 1,170 604 3,231
-------- -------- --------
$ 134,701 $ 163,107 $ 211,973
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses...................... $ 22,505 $ 25,072 $ 25,347
Leases payable............................................. 4,283 6,744 10,122
Accrued interest payable................................... 11 23 15
Current portion of notes payable........................... 65 672 --
Income taxes payable....................................... 124 585 3,774
-------- -------- --------
Total current liabilities............................. 26,988 33,096 39,258
-------- -------- --------
Deferred income taxes...................................... 14,680 15,625 18,254
Notes payable.............................................. 1,446 -- --
-------- -------- --------
43,114 48,721 57,512
-------- -------- --------
Commitments and contingencies (Notes 4, 7, 8 and 16)
Stockholders' equity:
Common stock, $.01 par value.
Authorized 100,000,000 shares: issued and
outstanding 21,677,811, 22,099,186 and 23,070,961
shares at December 31, 1994 and 1995 and June 30,
1996, respectively.................................... 216 221 231
Additional paid-in capital............................... 93,215 100,462 128,061
Unrealized gain on marketable equity securities.......... -- 22 26
Unearned employee compensation........................... -- (211) (176)
Retained earnings (accumulated deficit).................. (1,844) 13,892 26,319
-------- -------- --------
91,587 114,386 154,461
-------- -------- --------
$ 134,701 $ 163,107 $ 211,973
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 104
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------- ------------------
PREDECESSOR COMPANY COMPANY COMPANY COMPANY
1993 1994 1995 1995 1996
----------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Management and franchise fees.............. $10,612 $ 26,330 $ 30,082 $14,536 $ 18,519
Owned hotel revenues....................... 9,943 92 7,081 3,308 3,979
Leased hotel revenues...................... 14,923 73,769 141,942 65,534 86,321
Purchasing and service fees................ 329 10,746 16,487 7,478 7,585
Other fees and income...................... 2,547 1,545 994 493 972
------- -------- -------- ------- --------
Total revenues.......................... 38,354 112,482 196,586 91,349 117,376
------- -------- -------- ------- --------
Operating costs and expenses:
Corporate general and administrative
expenses................................ 7,485 11,879 14,413 7,106 8,641
Owned hotel expenses....................... 6,400 101 6,049 2,936 3,217
Leased hotel expenses...................... 14,266 68,981 132,644 61,008 79,735
Purchasing and service expenses............ 620 9,807 13,925 6,346 5,648
Depreciation and amortization.............. 1,572 2,943 4,686 2,056 2,940
Business combination expenses (Note 2)..... 1,865 -- 2,565 -- --
------- -------- -------- ------- --------
Total expenses.......................... 32,208 93,711 174,282 79,452 100,181
------- -------- -------- ------- --------
Operating income............................. 6,146 18,771 22,304 11,897 17,195
Interest expense........................... (1,228) (831) (227) (132) (143)
Interest income............................ 254 1,630 4,147 1,858 2,090
------- -------- -------- ------- --------
Income before income taxes and minority
interest................................... 5,172 19,570 26,224 13,623 19,142
Minority interest share of net (income)
loss.................................... 175 -- 35 (7) (22)
------- -------- -------- ------- --------
Income before taxes.......................... 5,347 19,570 26,259 13,616 19,120
Income tax expense......................... (414) (6,335) (8,468) (4,229) (6,693)
------- -------- -------- ------- --------
Net income................................... $ 4,933 $ 13,235 $ 17,791 $ 9,387 $ 12,427
======= ======== ======== ======= ========
Earnings per share (Note 12)................. $ 0.66 $ 0.80 $ 0.43 $ 0.54
======== ======== ======= ========
Weighted average common and common equivalent
shares outstanding......................... 20,071 22,219 21,984 22,849
======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 105
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------- -------------------
PREDECESSOR COMPANY COMPANY COMPANY COMPANY
1993 1994 1995 1995 1996
----------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income............................................................ $ 4,933 $ 13,235 $ 17,791 $ 9,387 $ 12,427
Adjustments to reconcile net income to net cash provided by
operations:
Provision for bad debts............................................. 56 189 211 69 202
Depreciation and amortization....................................... 1,601 3,013 4,686 2,056 2,940
Equity in (earnings) loss of partnerships........................... (992) (373) 91 (231) 37
Gain on termination of management contracts......................... -- (500) -- -- --
Minority interest share of net income............................... (175) -- (35) 7 22
Asset write-offs and other non-cash expenses........................ 615 -- 70 70 35
Deferred income taxes............................................... 42 3,394 3,375 2,118 2,629
Net (deposits to) withdrawals from restricted cash.................. (1,091) 1,179 535 535 --
Increase in accounts receivable..................................... (873) (3,407) (6,187) (5,209) (2,687)
(Increase) decrease in other assets................................. 25 (648) (1,234) (702) (113)
Increase in accounts payable and accrued expenses................... 3,085 6,680 5,225 3,242 7,063
Other, net.......................................................... (313) -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by operations................................ 6,913 22,762 24,528 11,342 22,555
-------- -------- -------- -------- --------
Cash flow from investing activities:
Cash acquired at purchase of Doubletree Hotels Corporation............ 22,819 -- -- -- --
Purchase of Doubletree Hotels Corporation............................. (45,000) -- -- -- --
Purchases of furniture and equipment.................................. (66) (1,877) (2,708) (948) (656)
Investments in partnerships and ventures.............................. (255) (1,021) (2,531) (692) (25,146)
Distributions from partnerships and ventures.......................... 149 603 514 153 292
Investments in management contracts................................... -- (6,607) (7,181) (4,671) (811)
Proceeds from terminations of management contracts.................... -- 2,188 562 408 --
Acquisition of investment property.................................... (12,504) (11,129) -- -- --
Loans to owners of managed hotels..................................... (7,309) (4,935) (7,367) (7,800) (6,381)
Deposits in hotels to obtain management contracts..................... -- (280) 250 250 (250)
Purchase of marketable securities..................................... -- -- (516) (369) --
Increase in deferred costs............................................ -- -- -- -- (2,626)
Other................................................................. 1,255 76 (43) -- --
-------- -------- -------- -------- --------
Net cash used in investing activities.......................... (40,911) (22,982) (19,020) (13,669) (35,578)
-------- -------- -------- -------- --------
Cash flow from financing activities:
Proceeds from issuance of common stock, net of offering costs......... -- 40,261 6,620 6,620 27,372
Proceeds from exercise of common stock options........................ -- -- 249 -- 237
Capital contributions................................................. 135 -- -- -- --
Cash distributions to stockholders.................................... (943) (34) (2,055) (6) --
Minority interest share of Doubletree Partners distributions.......... (80) -- -- -- --
GQEL redemption, purchase of common and preferred stock............... (261) -- -- -- --
Proceeds from borrowings.............................................. 39,640 -- -- -- 5,000
Issuance of redeemable preferred stock................................ 540 -- -- -- --
Purchase of common and redeemable preferred stock..................... (231) (182) -- -- --
Principal payments on notes payable................................... (3,358) (25,414) (839) (807) (5,672)
-------- -------- -------- -------- --------
Net cash provided by financing activities...................... 35,442 14,631 3,975 5,807 26,937
-------- -------- -------- -------- --------
Net increase in cash end cash equivalents............................... 1,444 14,411 9,483 3,480 13,914
Cash and cash equivalents at beginning of year.......................... 7,314 8,758 23,169 23,169 32,652
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period.............................. $ 8,758 $ 23,169 $ 32,652 $ 26,649 $ 46,566
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 106
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL UNEARNED EARNINGS
COMMON PAID-IN ESOP TREASURY EMPLOYEE UNREALIZED (ACCUMULATED
STOCK CAPITAL OBLIGATION STOCK COMPENSATION GAIN DEFICIT) TOTAL
------ ---------- ---------- -------- ------------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Predecessor:
Balances at December 31,
1992........................ $ -- $ 28,459 $ -- $ -- $ -- $ -- $(18,686) $ 9,773
Issuance of 2,727,811 shares
of common stock to acquire
RFS, Inc., accounted for
as a pooling of
interests................. 27 (25) (592) -- -- -- (811) (1,401)
Distributions to
stockholders.............. -- (926) -- -- -- -- -- (926)
Capital contribution........ -- 1,282 -- -- -- -- -- 1,282
Preferred stock dividends... -- -- -- -- -- -- (17) (17)
Termination of ESOP......... -- -- 592 (452) -- -- (371) (231)
Redemption of GQEL minority
interest.................. -- (852) -- -- -- -- -- (852)
Net income.................. -- -- -- -- -- -- 4,933 4,933
---- -------- ----- ----- ----- --- -------- --------
Company:
Balances at December 31,
1993........................ 27 27,938 -- (452) -- -- (14,952) 12,561
Issuance of 15,500,000
shares of common stock to
the partners of Doubletree
Partners in exchange for
their interests in
Doubletree Partners and
Samantha.................. 155 25,051 -- -- -- -- -- 25,206
Proceeds from sale of
3,450,000 shares of common
stock to the public, net
of offering costs of
$4,589.................... 35 40,226 -- -- -- -- -- 40,261
Preferred stock dividends... -- -- -- -- -- -- (34) (34)
Preferred stock
conversion................ -- 440 -- -- -- -- -- 440
Purchase of allocated ESOP
shares.................... -- -- -- (82) -- -- -- (82)
Retirement of treasury
shares.................... (1) (440) -- 534 -- -- (93) --
Net income.................. -- -- -- -- -- -- 13,235 13,235
---- -------- ----- ----- ----- --- -------- --------
Balances at December 31,
1994........................ 216 93,215 -- -- -- -- (1,844) 91,587
Proceeds from sale of
400,000 shares of common
stock to the public, net
of offering costs of
$980...................... 4 6,616 -- -- -- -- -- 6,620
Exercise of common stock
options and other
grants.................... -- 289 -- -- -- -- -- 289
Tax benefits attributable to
common stock options
exercised................. -- 62 -- -- -- -- -- 62
Common stock issued to
employees................. 1 280 -- -- (281) -- -- --
Amortization of unearned
employee compensation..... -- -- -- -- 70 -- -- 70
Marketable equity securities
unrealized gain........... -- -- -- -- -- 22 -- 22
Distributions to
stockholders.............. -- -- -- -- -- -- (2,055) (2,055)
Net income -- -- -- -- -- -- 17,791 17,791
---- -------- ----- ----- ----- --- -------- --------
Balances at December 31,
1995........................ 221 100,462 -- -- (211) 22 13,892 114,386
Proceeds from the sale of
952,300 shares of common
stock to the public, net
of offering costs of
$1,045 (unaudited)........ 10 27,362 -- -- -- -- -- 27,372
Exercise of common stock
options (unaudited)....... -- 237 -- -- -- -- -- 237
Amortization of unearned
employee compensation
(unaudited)............... -- -- -- -- 35 -- -- 35
Marketable equity securities
unrealized gain
(unaudited)............... -- -- -- -- -- 4 -- 4
Net income (unaudited)...... -- -- -- -- -- -- 12,427 12,427
---- -------- ----- ----- ----- --- -------- --------
Balances at June 30, 1996
(unaudited)................. $231 $128,061 $ -- $ -- $ (176) $ 26 $ 26,319 $154,461
==== ======== ===== ===== ===== === ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 107
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
(1) SUMMARY OF BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Doubletree Corporation was incorporated on May 19, 1994 as a Delaware
corporation to succeed to all the assets, liabilities and business operations of
Doubletree Partners, formerly Guest Quarters Hotel Partnership ("GQHP").
Doubletree Corporation and its majority-owned subsidiaries are collectively
referred to as the "Company." At June 30, 1996, the Company managed 86 hotels,
leased 55 hotels, owned one hotel and had franchise agreements with 37 hotels.
On December 16, 1993, Doubletree Partners and Doubletree Hotels Corporation
("DHC") were combined through the transfer of the ownership interests of DHC to
Doubletree Partners in exchange for cash and partnership interests in Doubletree
Partners. On June 30, 1994 (immediately prior to the Company's initial public
offering), the owners of Doubletree Partners (Samantha Hotel Corporation
("Samantha"), Canadian Pacific Hotels (U.S.) Inc. ("CPHUS") and MetPark Funding,
Inc. ("MET")) contributed their ownership interests to the Company and the
Samantha owners contributed Samantha to the Company. In consideration for such
transfer, each of the owners was issued shares of common stock (15,500,000
shares in the aggregate) of the Company in proportion to their direct or
indirect ownership interests in Doubletree Partners prior to such transfer. The
June 1994 transaction has been accounted for as if it were a pooling of
interests. Accordingly, the 1994 consolidated financial statements combine the
previously separate minority interests of CPHUS and MET with the financial
statements of Samantha as if the transaction occurred at the beginning of 1994.
The operating results and cash flows for the periods prior to December 16, 1993
are those of Samantha, the then 92% owner of Doubletree Partners.
On February 27, 1996, Doubletree Corporation acquired a 100% interest in
RFS, Inc. ("RFS Management") in a transaction accounted for as a pooling of
interests. Accordingly, the consolidated financial statements have been restated
to include RFS Management as if it had been acquired at the beginning of the
earliest period presented.
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. Certain financial statement
items from prior years have been reclassified to be consistent with the current
year financial statement presentation. The accounts of DHC and its subsidiaries
are included from the date of acquisition, December 16, 1993. All significant
inter-entity accounts and transactions have been eliminated.
(a) Revenue Recognition
Management fees, franchise fees, purchasing and service fees, and hotel
revenues are recognized when earned.
(b) Hotel Properties
Buildings are carried at cost and depreciated over 30 - 40 years using the
straight-line method. Furniture, fixtures and equipment are depreciated using
the straight-line method over 7 years. Leasehold improvements are amortized over
the shorter of the lives of the assets or the terms of the related leases.
Accumulated depreciation at December 31, 1994 and 1995 and June 30, 1996 was
$182,000, $601,000 and $904,000, respectively.
(c) Investments
Investments in partnerships and ventures are accounted for using the equity
method of accounting when the Company has a general partnership interest or its
limited partnership interest exceeds 5%. All other
F-7
<PAGE> 108
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
investments are accounted for using the cost method with the exception of
marketable equity securities which are recorded at market.
(d) Leasehold Improvements and Office Equipment
Improvements to office leaseholds are amortized over the shorter of the
lives of the assets or the terms of the related leases. Office furniture and
equipment is depreciated using the straight-line method over 3 to 10 years.
Accumulated depreciation at December 31, 1994 and 1995 and June 30, 1996 was
$2,767,000, $2,730,000 and $2,945,000, respectively.
Repairs and maintenance are charged to operations as incurred; major
renewals and improvements at the leased hotels are the responsibility of the
owner.
(e) Management Contracts and Goodwill
Management contracts acquired in the acquisition of DHC represent the
estimated present value of net cash flows expected to be received over the
estimated lives of the contracts and is being amortized using the straight-line
method over the estimated weighted average contract life (25 years) from
December 16, 1993. Management contracts acquired subsequent to the acquisition
represent the cash paid to acquire the contract and are being amortized using
the straight-line method over the life of the respective contract. Management
contracts are carried net of accumulated amortization of $2,199,000, $4,554,000
and $6,224,000 at December 31, 1994 and 1995 and June 30, 1996, respectively.
Goodwill arose in connection with the acquisition of DHC by Doubletree
Partners in December 1993 and is amortized using the straight-line method over
40 years. Goodwill is carried net of accumulated amortization of $389,000,
$835,000 and $1,038,000 at December 31, 1994 and 1995 and June 30, 1996,
respectively.
(f) Deferred Costs and Other Assets
At June 30, 1996 deferred costs and other assets primarily consist of
franchise application fees paid in connection with the acquisition of RFS
Management which are amortized over the lives of the franchise agreements. The
initial cost of obtaining franchise licenses for hotels leased by RFS Management
are paid by the owner. Accumulated amortization at June 30, 1996 is $60,000.
(g) Statements of Cash Flows
All short-term, highly liquid investments purchased with an original
maturity of three months or less are considered to be cash equivalents for
purposes of the statement of cash flows.
Cash paid for interest amounted to $1,188,000, $892,000 and $215,000 for
the years ended December 31, 1993, 1994, and 1995, respectively, and $121,000
and $151,000 for the six months ended June 30, 1995 and 1996, respectively. Cash
paid for income taxes amounted to $456,000, $3,020,000 and $4,631,000 for the
years ended December 31, 1993, 1994 and 1995, respectively, and $768,000 and
$875,000 for the six months ended June 30, 1995 and 1996, respectively.
(h) Income Taxes
Under the asset and liability method of accounting for income taxes,
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets, including net operating loss carryforwards,
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled. The effect
on deferred
F-8
<PAGE> 109
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
(i) Earnings Per Share
Earnings per share is determined by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
year. Common equivalent shares include employee stock options which have been
deemed exercised for the purpose of computing earnings per share. The Company
has no other potentially dilutive securities.
(j) Notes Receivable
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by SFAS No. 118, Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosure, on January 1, 1995. There was no
financial statement impact as a result of such adoption. Management considers a
note to be impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the note. When a
loan is considered to be impaired, the amount of the impairment is measured
based on the present value of expected future cash flows discounted at the
note's effective interest rate. Impairment losses are charged to expense.
Generally, cash receipts will first be applied to reduce accrued interest and
then to reduce principal.
(k) Long-Lived Assets
The recoverability of management contract costs, goodwill, hotel
investments and franchise application fees are periodically evaluated to
determine whether such costs will be recovered from future operations.
Evaluations of goodwill are based on projected earnings, exclusive of goodwill
amortization, on an undiscounted basis. Management contracts are individually
evaluated based on the projected management fee stream on an undiscounted basis.
If the undiscounted earnings or fee streams are insufficient to recover the
recorded assets, then the projected earnings or fee stream is discounted to
determine the revised carrying value and a write-down for the difference is
recorded.
(2) ACQUISITIONS
Acquisition of RFS, Inc.
On February 27, 1996, the Company issued 2,727,811 shares of its common
stock in exchange for all of the outstanding stock of RFS Management (a
privately held hotel operator) in a transaction accounted for as a pooling of
interests. At June 30, 1996, RFS Management operates 56 hotels (44 hotels are
leased and managed, 4 are leased only and 6 are managed).
Effective January 1, 1995, RFS Management was a Subchapter S Corporation
for income tax purposes and, therefore, was not generally liable for income
taxes for the year ending December 31, 1995.
F-9
<PAGE> 110
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents total revenues and net income of the merged
companies. Additionally, the table includes unaudited 1995 pro forma net income
and earnings per share. The 1995 pro forma adjustments exclude business
combination expenses, provide for additional tax expense due to the exclusion of
the business combination expenses and increase the provision for taxes for RFS
Management to a 35% rate which is the Company's 1995 effective tax rate.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
--------------------------------- ENDED
1993 1994 1995 JUNE 30, 1995
------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues
Doubletree........................... $26,229 $ 49,908 $ 74,066 $33,726
RFS Management....................... 12,125 62,574 122,520 57,623
------- -------- -------- -------
Total revenues, as reported............ $38,354 $112,482 $196,586 $91,349
======= ======== ======== =======
Net income
Doubletree........................... $ 4,368 $ 12,578 $ 15,662 $ 7,666
RFS Management....................... 565 657 2,129 1,721
------- -------- -------- -------
Net income, as reported................ $ 4,933 $ 13,235 17,791 9,387
======= ========
Business combination expenses.......... 2,565 --
Pro forma additional income tax
expense.............................. (1,620) (536)
-------- -------
Pro forma net income................... $ 18,736 $ 8,851
======== =======
Pro forma earnings per share........... $ 0.84 $ 0.40
======== =======
Weighted average shares outstanding.... 22,219 21,984
======== =======
</TABLE>
The Company incurred pre-tax expenses in the fourth quarter of 1995 related
to the business combination of approximately $2,565,000. The costs incurred
include legal, professional and accounting fees, due diligence and certain other
costs necessary to complete the transaction.
Certain of the franchisors required the payment of an application fee, as a
result of the merger, of $2,626,000 which is being amortized over the terms of
the respective franchise agreements.
Acquisition of Doubletree Hotels Corporation
On December 16, 1993 Doubletree Partners purchased all of the outstanding
stock of DHC from CPHUS and MET for $72,000,000, including acquisition costs.
The purchase price was established by an assessment of the net assets acquired
and was paid by issuing partnership interests in the amount of $25,852,000
representing a 40% interest in Doubletree Partners and $45,000,000 in cash. The
cash portion of the purchase price was paid by causing DHC to borrow $25,000,000
and using $20,000,000 of DHC's cash. The purchase price of $72,000,000 is
comprised of the $45,000,000 of cash paid and the $27,000,000 of net assets
acquired. The transaction has been accounted for as a purchase. The purchase
price was allocated to the net assets acquired, including management contracts,
based upon their estimated fair market values. The excess of the purchase price
over the estimated fair value of the net assets acquired of $14,936,000 was
recorded as goodwill. During 1994, the Company concluded negotiations and
reached agreements with several key executives of DHC regarding severance and
related benefits. Primarily, as a result, goodwill and liabilities increased by
$2,857,000. The consolidated statement of operations for 1993 includes the
results of operations of DHC from December 16, 1993.
F-10
<PAGE> 111
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma summary presents the consolidated results
of operations of Samantha as if DHC had been acquired at the beginning of 1993.
The pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations that would actually
have resulted had the combination been in effect on the date indicated (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993
-----------------
(UNAUDITED)
<S> <C>
Total revenues............................................... $56,796
=======
Net income................................................... $ 8,615
=======
</TABLE>
In 1993, business combination expenses represented the estimated costs to
close duplicate facilities, relocate certain equipment, make severance payments
to terminated employees and relocate certain other employees of GQHP as a result
of the acquisition of DHC. They also include the write-off of all costs related
to the Guest Quarters name as management determined that all Doubletree and
Guest Quarters hotels would be marketed under the Doubletree brand.
(3) REDEMPTION OF GQEL MINORITY INTEREST
Effective December 16, 1993 Doubletree Partners distributed its ownership
interest in two hotels, its leasehold interest in another hotel and certain
liabilities to its partner, GQ Equities Limited ("GQEL"), in complete redemption
of GQEL's interest in Doubletree Partners. The owners of GQEL were also the
owners of Samantha. On December 16, 1993 the carrying amount of the distributed
assets and the carrying amount of the liabilities, having an aggregate net book
value of $3,056,000, including cash of $261,000, approximated their fair market
value. Pursuant to the redemption agreement, Doubletree Partners and GQEL have
entered into management agreements for each of the hotels, which provide that
Doubletree Partners shall continue to receive base management fees at the
existing rate and an incentive fee, which, if earned, will not be less than 68%
of the hotels' net cash flow (as defined therein). The agreement will terminate
upon the sale of the hotels or the leasehold interests but, in any event, no
earlier than December 16, 1998.
(4) HOTEL PROPERTIES
Owned hotel revenues and expenses represent the operating results of hotels
owned by the Company. The Company currently owns a 239-room hotel in Southfield,
Michigan which was acquired (from a subsidiary of General Electric Capital
Corporation) on December 22, 1994 for approximately $11,129,000 in cash, of
which $556,000 was allocated to land. In December 1992 and July 1993, Doubletree
Partners acquired hotels in Cincinnati and Atlanta, respectively. The purchase
price of the Cincinnati property was $7,950,000 of which $5,168,000 was financed
in the form of a nonrecourse purchase money mortgage note and the balance was
paid in cash. The purchase price of the Atlanta property was $12,000,000, of
which $9,000,000 was financed in the form of a non-recourse mortgage, $2,000,000
was borrowed from an affiliate and the balance was paid in cash. Those hotels
and the Company's leasehold interest in another hotel were distributed to GQEL
on December 16, 1993 at which time GQEL assumed the related financing.
As of December 31, 1993, 1994 and 1995 and June 30, 1996 the Company leased
12, 44 and 52 and 55 hotels, respectively. The Company leased 50 of these hotels
from the REIT at June 30, 1996. All of the Company's leases require the payment
of rent equal to the greater of fixed base rent or percentage rent based on a
percentage of gross room revenue, beverage revenue and food revenue (if the
hotel offers food and beverage service). Substantially all of the hotels leased
from the REIT are cross defaulted with one another. All hotel leases are
operating leases. Percentage rents, included in total lease expense, were
$748,000, $10,961,000 and $25,254,000 for the years ended December 31, 1993,
1994 and 1995, respectively and
F-11
<PAGE> 112
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$12,091,000 and $17,978,000 for the six months ended June 30, 1995 and 1996,
respectively. The Company leases two hotels from affiliates of the General
Electric Pension Trust.
The following is a schedule, by year, of future minimum rental payments
required under non-cancelable hotel operating leases (in thousands) as of
December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
------------
<S> <C> <C>
1996............................................................. $ 29,651
1997............................................................. 30,429
1998............................................................. 28,468
1999............................................................. 27,496
2000............................................................. 24,403
Thereafter....................................................... 209,676
--------
Total future minimum lease payments......................... $ 350,123
========
</TABLE>
The Company leased another hotel, which lease commenced in July 1991 and
required Doubletree Partners to pay all normal, recurring expenses of the hotel
including real estate taxes and interest in lieu of rent. All of these amounts
are included in leased hotel expenses. The lease term expired on December 31,
1994.
(5) RESTRICTED CASH
Restricted cash consisted of amounts in escrow for fixed asset replacement
at hotels under management.
F-12
<PAGE> 113
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) NOTES AND OTHER RECEIVABLES
Notes and other receivables, consisting primarily of loans to owners of
managed hotels, are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
REPAYMENT TERMS ----------------- JUNE 30,
INTEREST RATE INTEREST/PRINCIPAL MATURITY 1994 1995 1996
- ------------- ------------------------------------------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
SECURED:
Monthly/monthly to the extent of cash
12.0% flow....................................... 2006 $ 4,000 $ 4,000 $ 4,500
Monthly/monthly to the extent of cash
10.0% flow....................................... 2005 -- 2,850 2,850
8.0-10.0% Monthly/at maturity........................ 2001 2,250 2,800 2,800
Quarterly/quarterly to the extent of cash
10.0% flow....................................... 2003 -- 2,600 2,575
9.0% Monthly/at maturity........................ 2015 -- 1,625 3,193
Prime-1.5% Monthly/at maturity........................ 2010 -- 1,300 1,300
6.5-9.0% Monthly/at maturity........................ 2000 1,250 1,250 1,250
Monthly/monthly to the extent of cash
8.0% flow....................................... 2014 1,000 1,000 1,000
8.0-10% Various.................................... Upon sale 1,273 1,153 1,313
Notes repaid in full....................... 3,040 1,000 --
------- ------- -------
12,813 19,578 20,781
------- ------- -------
UNSECURED:
7.5% Monthly/at maturity........................ 2000 3,000 3,500 4,000
10.0% Monthly/annually........................... 2000 -- -- 3,000
8.0% Monthly/at maturity........................ 2001 -- -- 1,000
10.0% Quarterly/quarterly........................ 2002 720 720 665
8.50% At maturity/at maturity.................... 2005 -- -- 459
5.75%-10.0% Various.................................... Upon sale 795 777 1,521
------- ------- -------
4,515 4,997 10,645
------- ------- -------
Total notes and other receivables.......... 17,328 24,575 31,426
Less: current portion...................... 16 390 477
------- ------- -------
Non-current portion........................ $17,312 $24,185 $ 30,949
======= ======= =======
</TABLE>
Repayment of notes receivable are generally due upon the earlier of
termination of the management contract or sale of the hotel. At December 31,
1995 and June 30, 1996, the Company does not consider any of its notes
receivable to be impaired.
(7) INVESTMENTS
As of June 30, 1996 the Company and its subsidiaries have general and/or
limited partnership interests in 17 partnerships. Eleven of the partnerships own
hotels while the others own retail or industrial properties. Six of the
partnership interests were acquired in the acquisition of DHC and six were
acquired in the acquisition of RFS Management. The Company's percentage of
ownership in such partnerships at June 30, 1996 ranges from less than 1% to
49.9%. The partnership investments include an investment in a partnership that
is a majority owned subsidiary of the REIT. These partnership interests are
convertible into common stock of the REIT.
F-13
<PAGE> 114
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, unrecorded losses of approximately $381,000, related
to certain limited partnership investments have not been recorded because the
book value of these investments has been reduced to zero. The Company has no
obligation to further fund these investments.
The aggregate carrying value of the partnership interests is less than the
proportionate share of aggregate net assets of such partnerships by
approximately $1,685,000 at December 31, 1995. This difference is principally
the result of previous write-offs of the Company's investment, in excess of that
recorded by certain of the partnerships, offset by losses in excess of amounts
invested which are not reflected in the accompanying financial statements
because the Company has no obligation to further fund the investments.
In October 1995, the Company acquired a 50% interest in Candlewood Hotel
Company, L.L.C. ("Candlewood"). Candlewood will compete in the extended stay
market of the lodging industry and will design, develop and manage and/or
franchise hotels under the Candlewood brand. The Company committed to provide
$15,000,000 of capital to the venture, of which, $7,400,000 has been funded at
June 30, 1996 ($1,200,000 at December 31, 1995).
The Company, through RFS Management, purchased 973,684 shares of the REIT's
convertible preferred stock for $19 per share or approximately $18,500,000. This
investment is recorded at cost as there is no ready market for these securities.
The convertible preferred stock will pay a fixed annual dividend of $1.45 per
share and is convertible on a one-for-one share basis at the end of seven years.
Separately, the REIT granted the Company a 10-year right of first refusal to
manage and lease future hotels acquired or developed by the REIT. The Company
has committed to the REIT to maintain $15,000,000 of net worth in RFS
Management.
Investments also include 35,000 shares of REIT common stock recorded at
market value. The unrealized gain is reflected in stockholders' equity as these
securities are classified as available-for-sale.
Investments consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
REIT convertible preferred stock........................ $ -- $ -- $ 18,500
REIT common shares...................................... -- 538 542
Hotel partnerships...................................... 2,989 3,746 4,171
Candlewood.............................................. -- 1,098 6,991
Other................................................... (383) (312) (312)
------ ------ -------
$2,606 $5,070 $ 29,892
====== ====== =======
</TABLE>
(8) OPERATING LEASES
The Company occupies administrative offices under operating leases which
provide for minimum annual rental charges plus a share of maintenance expenses
and real estate taxes.
Total rent expense for operating leases of office space for the years ended
December 31, 1993, 1994 and 1995 amounted to approximately $816,000, $1,402,000
and $1,597,000, respectively, and $688,000 and $689,000 for the six months ended
June 30, 1995 and 1996, respectively.
F-14
<PAGE> 115
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule, by year, of future minimum rental payments
required under non-cancelable operating leases for administrative office space
(in thousands) as of December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1996................................................................. $1,392
1997................................................................. 1,447
1998................................................................. 874
1999................................................................. 591
2000................................................................. 596
Thereafter........................................................... 1,856
------
Total future minimum lease payments................................ $6,756
======
</TABLE>
(9) NOTES PAYABLE
Note payable due December 16, 1999 with interest payable monthly at LIBOR
plus a variable rate (between 0.675% and 1.50%) related to debt-to-equity and
interest coverage ratios. The note payable is a credit facility which allows
borrowings up to $30,000,000, all of which was available for borrowing at
December 31, 1995. Subsequent to December 31, 1995 the Company borrowed
$5,000,000 under this facility and repaid the entire amount prior to June 30,
1996. Interest related to this borrowing amounted to $105,000. The facility
requires the payment of a quarterly commitment fee that ranges from 0.20% to
0.375% of the unused balance. The loan has various covenants which prohibit the
payment of distributions (including dividends) from DHC and Doubletree Partners
(which owns substantially all of the assets) to their stockholders and partners,
respectively, and restricts the payment of certain expenditures based on the
financial condition of the Company. Various notes receivable and stock of
certain significant subsidiaries have been pledged as collateral. The loan is
guaranteed by the Company, Samantha and Doubletree Partners.
The maximum borrowing which may be outstanding under the facility declines
one year prior to the maturity date to $12,500,000 and is due in full one year
later. The facility provides that, at the election of the Company and approval
by the Lender, the maturity dates can both be extended by one year.
Other notes payable outstanding at December 31, 1994 and 1995 are as
follows:
<TABLE>
<CAPTION>
1994 1995
------ ----
<S> <C> <C>
8% note payable shareholder, repaid March 1996...................... $ 902 $672
10% note payable shareholders, repaid June 1995..................... 609 --
------ ----
$1,511 $672
====== ====
</TABLE>
(10) STOCKHOLDERS' EQUITY
On July 8, 1994, the Company completed its initial public offering of
3,450,000 shares of its common stock at a price to the public of $13 per share.
The net proceeds to the Company, after expenses of the offering and giving
effect to the underwriter's discount, were $40,261,000. The proceeds of the
offering were primarily used for the repayment of debt outstanding under the
credit facility and for general corporate purposes.
In March 1995, the Company issued 2,000 shares of common stock with a fair
value at the date of issuance of $40,000 to certain non-executive employees.
In June 1995, the Company completed an offering of 4,600,000 shares of its
common stock (of which 400,000 shares were newly issued shares of the Company)
at a price to the public of $19 per share. The net
F-15
<PAGE> 116
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
proceeds to the Company, after expenses of the offering and giving effect to the
underwriter's discount, were $6,620,000.
In January 1995, RFS Management issued 12 restricted shares of RFS
Management common stock to certain of its employees. These shares vest ratably
over a four year period from the date of issuance. The estimated fair market
value of these shares at issuance was $281,000. The shares were exchanged for
approximately 36,500 Company common shares, subject to the same restrictions, in
connection with the acquisition of RFS Management.
In February 1996 the Company issued 2,727,811 shares (including the 36,500
restricted shares) of its common stock to acquire all of the outstanding common
stock of RFS Management.
In May 1996, the Company completed an offering of 4,234,300 shares of its
common stock (of which 952,300 shares were newly issued shares of the Company)
at a price to the public of $31.25 per share. The net proceeds to the Company,
after expenses of the offering and giving effect to the underwriter's discount,
were $27,372,000.
(11) STOCK OPTIONS
The Company has one stock option plan, the 1994 Equity Participation Plan
(the "Plan"), in which options may be granted to key personnel to purchase
shares of the Company's common stock at a price not less than the current market
price at the date of the grant. The options vest annually and ratably over the
four-year period from the date of grant and expire ten years after the grant
date. An aggregate of 3,300,000 shares have been authorized for issuance. The
Plan also provides for the issuance of stock appreciation rights, restrictive
stock or other awards, none of which have been granted. Activity in the stock
option plan is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
------------------------ ENDED
PRICE RANGE 1994 1995 JUNE 30, 1996
---------------- --------- ---------- -------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of
year................................ $13.00 - $23.50 -- 967,500 1,103,500
Granted............................... $13.00 - $28.88 1,099,500 193,000 710,270
Exercised............................. $13.00 -- (19,375) (19,745)
Canceled.............................. $13.00 - $17.78 (132,000) (37,625) (27,250)
--------- --------- ---------
Options outstanding, end of period.... $13.00 - $28.88 967,500 1,103,500 1,766,775
--------- --------- ---------
Number of options exercisable......... $13.00 - $20.38 -- 243,750 443,275
Number of shares available for future
issuance............................ 1,032,500 877,125 1,494,105
</TABLE>
(12) EARNINGS PER SHARE
For the year ended December 31, 1994, earnings per share has been
calculated assuming the 15,500,000 shares issued immediately prior to the
initial public offering were outstanding since January 1, 1994. Additionally,
the 2,727,811 shares issued to acquire RFS Management are assumed to be
outstanding for the entire years of 1994 and 1995. Per share data for 1993 has
not been provided as the information is not comparable. The common equivalent
shares include employee stock options which have been deemed exercised using the
treasury stock method for the purpose of computing earnings per share. The
Company has no outstanding securities or agreements which would result in the
issuance of common shares other than common stock equivalents.
F-16
<PAGE> 117
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) TRANSACTIONS WITH RELATED PARTIES
Revenues include amounts derived from entities in which affiliates of the
Company own interests and, in general, exercise operational control. Revenues
derived from these entities were as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES
Management fees and franchise fees........ $ 5,513 $ 15,051 $ 15,241 $ 7,225 $ 9,417
Leased hotel revenues..................... -- -- 11,327 4,236 8,581
Share of partnership income............... -- 243 388 424 12
Interest income........................... 30 847 1,674 706 878
Purchasing and service fees............... 96 4,436 6,288 2,745 1,389
EXPENSES
Hotel expenses............................ -- -- 10,721 3,975 7,823
Administrative office rent................ 334 312 73 35 35
</TABLE>
Additionally, the Company was reimbursed for expenses incurred in providing
centralized services to its managed and/or franchised hotels related to
marketing, central reservations, accounting, data processing, internal audit and
training as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- ------------------
1993 1994 1995 1995 1996
------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Marketing and central
reservations...................... $ 2,587 $ 11,129 $ 11,020 $ 4,465 $ 5,171
Accounting, data processing,
internal audit and training....... 1,151 2,084 1,781 835 989
------- -------- -------- ------- -------
$ 3,738 $ 13,213 $ 12,801 $ 5,300 $ 6,160
====== ======= ======= ====== ======
</TABLE>
Amounts due from affiliates included in accounts receivable at December 31,
1994 and 1995 and June 30, 1996 are $3,877,000, $4,318,000 and $7,102,000,
respectively. Non-current amounts due from affiliates included in other assets
at December 31, 1994 and 1995 and June 30, 1996 are $114,000, $147,000 and
$321,000, respectively.
Amounts due to affiliates included in accounts payable at December 31, 1994
and 1995 and June 30, 1996 amounted to $123,000, $105,000 and $246,000,
respectively.
During 1995 RFS Management, under terms of a consulting agreement, made
payments of $780,000 to Hospitality Advisory Services, Inc. ("HAS"). The
consulting agreement terminated on February 27, 1996 and $75,000 was paid prior
to termination. Subsequently, two of the former HAS shareholders entered into
new consulting agreements, that terminate February 27, 1997, with RFS Management
and were paid $70,000 in total through June 30, 1996.
(14) EMPLOYEE BENEFIT PLANS
The Company participates in 401(k) retirement savings plans. Generally,
employees who are over 21 years of age and have completed one year of service
are eligible to participate in the plans. The Company, except for RFS
Management, matches employee contributions up to 3% of an employee's salary. RFS
Management matches employee contributions up to 2% of an employee's salary. The
aggregate expense under all plans amounted to $135,000, $218,000 and $563,000
for the years ended December 31, 1993, 1994 and 1995, respectively.
F-17
<PAGE> 118
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company, except for RFS Management, maintains a self-insured group
health plan through a Voluntary Employee Benefit Association. This plan is
funded to the limits provided in the Internal Revenue Code. RFS Management
maintains a self-insured group health plan. Liabilities are recorded for
estimated incurred but unreported claims. Aggregate and stop loss insurance
exists at amounts which limit the exposure to the Company, including RFS
Management.
(15) INCOME TAXES
The components of income tax expense consist of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995
---- ------ ------
<S> <C> <C> <C>
Federal:
Current.................................................. $257 $1,559 $3,561
Deferred................................................. 42 3,476 2,832
---- ------ ------
299 5,035 6,393
---- ------ ------
State:
Current.................................................. 115 1,382 1,532
Deferred................................................. -- (82) 543
---- ------ ------
115 1,300 2,075
---- ------ ------
$414 $6,335 $8,468
==== ====== ======
</TABLE>
The actual income tax expense differs from the expected tax expense
computed by applying the Federal statutory income tax rate as a result of the
following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995
------ ----- -----
<S> <C> <C> <C>
Income tax expense at Federal statutory rate............... 34.0% 34.0% 34.0%
Goodwill and other permanent differences................... 0.2 1.1 0.7
State income taxes......................................... 0.8 4.3 5.5
RFS, Inc. S Corp. earnings not taxed....................... -- -- (2.8)
Effect of net operating loss and other carryforwards....... (29.2) -- --
Decrease in valuation allowance............................ -- (8.3) (5.2)
Other...................................................... 2.2 1.3 --
------ ----- -----
8.0% 32.4% 32.2%
====== ===== =====
</TABLE>
The income tax benefit attributable to the use of net operating loss
carryforwards ("NOLs") in the year ended 1993 was $2,129,000 and $47,000 in
1994.
Deferred income taxes result principally from amortization of management
contracts, investments in partnerships and the utilization of NOLs and passive
activity loss carryforwards.
F-18
<PAGE> 119
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................. $ 17,596 $ 15,288
Passive activity loss carryforwards.......................... 2,206 834
Reserves..................................................... 3,540 3,335
Other........................................................ 2,867 3,979
Valuation allowance.......................................... (25,522) (22,605)
-------- --------
Total deferred tax assets................................. 687 831
-------- --------
Deferred tax liabilities:
Management contracts......................................... (13,457) (13,982)
Investments in partnerships.................................. (1,910) (2,474)
-------- --------
Total deferred tax liabilities............................ (15,367) (16,456)
-------- --------
Net deferred tax liability................................... $(14,680) $(15,625)
======== ========
</TABLE>
The Company estimates that, more likely than not, it will not realize a
substantial portion of the benefits of its deferred tax assets. Accordingly, it
has established a valuation allowance to reflect this uncertainty. A portion of
the valuation allowance was established upon the combination of Doubletree
Partners and DHC. In accordance with purchase accounting methodology, to the
extent the tax benefits to which this allowance relates are recognized, the
reduction in the valuation allowance will be applied to reduce goodwill. As of
December 31, 1995, the amount of the valuation allowance subject to this
treatment is approximately $6,500,000. During 1995, $1,530,000 was used and
credited to goodwill. None of this NOL was recognized in 1994.
The Company's federal NOLs of $40,979,000 expire as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT OF
YEAR OF EXPIRATION FEDERAL NOLS
- ------------------ ------------
<S> <C>
2004............................................................. $ 4,320
2005............................................................. 9,860
2006............................................................. 1,230
2007............................................................. --
2008............................................................. 13,086
2009............................................................. 12,483
-------
40,979
Passive loss carryforwards -- no stated expiration............... 2,166
-------
$ 43,145
=======
</TABLE>
Total NOLs for state purposes are less than the amounts stated above due
primarily to shorter carryforward periods.
The Company also has passive loss carryforwards that do not have a stated
expiration term. The tax benefit attributable to these federal and state NOLs
and passive loss carryforwards has been calculated considering the reduced
amount available for state purposes.
F-19
<PAGE> 120
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) COMMITMENTS AND CONTINGENCIES
Certain hotel management contracts provide that if a hotel does not achieve
agreed-upon performance levels, the Company may elect or may be required to fund
any performance shortfalls for a specified period of time. In general, if the
Company elects not to fund the shortfall, the hotel owner may elect to terminate
the management contract. If the Company elects to fund the shortfall, but
performance standards are not achieved at the expiration of the funding period,
the owner may elect to terminate the management contract at that time. The
Company funded one shortfall in the amount of $487,000 in June 1996. The Company
has not funded any other shortfalls during the three year and six month period
ended June 30, 1996.
The Company has guaranteed certain mortgages, leases and construction bonds
up to $6,460,000 ($2,860,000 of which are collateralized by letters of credit).
The Company has also committed to lend up to $8,907,000, $7,007,000 to the owner
of the Somerset hotel, of which $707,000 is for renovations and $6,300,000 is to
provide bridge financing, if needed. The remaining loan commitments are to two
other hotels primarily for renovations.
In October 1995, the Company acquired a 50% interest in Candlewood Hotel
Company, L.L.C. ("Candlewood"). Candlewood will compete in the extended stay
market of the lodging industry and will design, develop and manage and/or
franchise hotels under the Candlewood brand. The Company committed to provide
$15,000,000 of capital to the venture, of which, $7,400,000 has been funded at
June 30, 1996 ($1,200,000 at December 31, 1995). The Company expects to fund the
remainder of its commitment by December 31, 1996.
In addition, in August 1996 Doubletree committed to provide a credit
support for a loan facility that will be utilized by Candlewood to arrange
construction and permanent financing for Candlewood franchisees on terms that,
in most cases, are much more attractive than that which the franchisees could
obtain on their own. The source of the loan facility will be General Motors
Acceptance Corporation Mortgage Group. In providing such credit support,
Doubletree's maximum exposure on any one Candlewood franchise will be
approximately $1 million, with the aggregate amount of exposure for all such
credit support capped at between $20 to $30 million.
In August 1996, Doubletree and Patriot American Hospitality, Inc. formed a
joint venture wherein Doubletree will invest up to $20.0 million of capital to
be combined with up to $200.0 million of capital from Patriot to be used for the
acquisition of hotels. Doubletree will have a 10% interest in the Venture.
The Company has a commitment to contribute an additional $3,127,000 to an
investment partnership formed for the purpose of acquiring hotel properties. The
Company has a 4.35% limited partnership interest and it is anticipated that at
least 50% of the properties acquired will be either managed and/or franchised by
the Company.
The Company is a defendant in various litigation matters arising from the
normal course of its operations. While it is not feasible to predict or
determine the ultimate outcome of these matters, it is the opinion of management
that their ultimate outcome is not likely to have a material adverse effect on
the results of operations and the financial position of the Company.
Metropolitan Life has indemnified the Company against any litigation
matters which occurred prior to the date of acquisition of MetHotels by DHC
(December 6, 1990), and certain indemnification by Canadian Pacific exists for
events which transpired from December 6, 1990 to December 16, 1993.
Four of the hotels leased by the Company are managed by others under
agreements with terms of ten to twenty years. Management fees are based on a
percentage of each hotel's revenues.
F-20
<PAGE> 121
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(17) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE
------------------- 30,
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Accounts payable...................................... $ 6,342 $ 5,592 $ 5,290
Payroll and related costs............................. 3,395 4,805 4,518
Leased and owned hotel expenses....................... 1,609 3,290 4,586
Deferred compensation................................. 2,702 2,106 2,005
Marketing costs....................................... 2,449 2,038 2,168
Business combination expenses......................... 1,013 2,555 1,077
Insurance expense..................................... 1,237 1,055 1,980
Professional fees..................................... 1,209 679 739
Sales tax............................................. 760 1,102 1,427
Other................................................. 1,789 1,850 1,557
------- ------- -------
$22,505 $25,072 $25,347
======= ======= =======
</TABLE>
(18) REIMBURSABLE COSTS
The Company is reimbursed for costs associated with providing central
reservations, sales and marketing, accounting, data processing, internal audit
and employee training services to managed hotels. The Company is also reimbursed
for central reservations and marketing services provided to franchised hotels.
Such costs primarily consist of personnel and related fringe benefits,
advertising, promotional fees and reservation service costs.
(19) MANAGEMENT CONTRACTS
An analysis of management contract activity follows (in thousands):
<TABLE>
<S> <C>
Balance at December 31, 1992............................................... $ 423
Contracts acquired at acquisition of DHC................................... 42,000
Amortization............................................................... (135)
-------
Balance at December 31, 1993............................................... 42,288
Contracts acquired......................................................... 6,607
Contract conversions and terminations...................................... (1,718)
Amortization............................................................... (1,805)
-------
Balance at December 31, 1994............................................... 45,372
Contracts acquired......................................................... 7,181
Contract conversions and terminations...................................... (562)
Amortization............................................................... (2,357)
-------
Balance at December 31, 1995............................................... 49,634
Contracts acquired (unaudited)............................................. 811
Contract conversions and terminations (unaudited).......................... (500)
Amortization (unaudited)................................................... (1,670)
-------
Balance at June 30, 1996 (unaudited)....................................... $48,275
=======
</TABLE>
F-21
<PAGE> 122
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(20) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, notes and other receivables, accounts payable
and accrued expenses, accrued interest payable and income taxes payable, each as
included in the consolidated balance sheets under such captions. With the
exception of notes and other receivables and the investment in RFS Partnership
L.P. units, the carrying amounts of all other classes of financial instruments
approximate fair value due to the short maturity of those instruments or, in the
case of marketable equity securities they are carried at their estimated fair
value. The Company has determined that the fair value of its notes receivable is
not significantly different from their carrying value based on interest rate and
payment terms the Company would currently offer on notes with similar security
to borrowers of similar creditworthiness. RFS Partnership L.P. units, which are
convertible into REIT common shares, have a carrying value of $841,000 and an
estimated fair value of $1,197,000 at December 31, 1995.
(21) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended December 31, 1994 and
1995, restated to reflect the acquisition of RFS Management, is presented below
(in thousands except per share data). The sum of the individual quarterly data
may not equal the annual data due to rounding.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1994
Total revenues....................... $17,186 $ 23,913 $33,272 $ 38,111
Net income........................... 1,884(a) 3,821(a) 4,180 3,350
Earnings per share................... $ 0.10(a) $ 0.21(a) $ 0.19 $ 0.15
Weighted average common and common
equivalent shares outstanding...... 18,228 18,228 21,900 21,938
</TABLE>
- ---------------
(a) The Company's effective tax rate for the quarters ended March 31 and June 30
was 29% and 25%, respectively, due to the organizational structure of the
Company prior to its initial public offering. Had a 35% rate been incurred,
net income and earnings per share would have been $1,648 and $0.09 per share
and $3,073 and $0.17 per share, respectively.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1995
Total revenues....................... $40,580 $ 50,771 $52,891 $ 52,344
Net income........................... 3,645 5,742 5,606 2,798(b)
Earnings per share................... $ 0.17 $ 0.26 $ 0.25 $ 0.12
Net income -- pro forma(c)........... $ 3,490 $ 5,360 $ 5,311 $ 4,575(d)
Earnings per share -- pro forma(c)... $ 0.16 $ 0.24 $ 0.24 $ 0.20(d)
Weighted average common and common
equivalent shares outstanding...... 21,910 22,057 22,443 22,472
</TABLE>
- ---------------
(b) Includes $2,565,000 of business combination expenses.
F-22
<PAGE> 123
DOUBLETREE CORPORATION AND SUBSIDIARIES (COMPANY)
SAMANTHA HOTEL CORPORATION (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Effective January 1, 1995 RFS Management elected to be taxed as a Subchapter
S Corporation for federal income tax purposes. As a result, it was generally
not liable for income taxes and its financial statements for the year ended
December 31, 1995 did not include a provision for federal income taxes. A
pro forma adjustment to each quarter increasing the provision for income
taxes by approximately $0.8 million in the aggregate has been reflected in
the 1995 pro forma results.
(d) Excludes $2,565,000 of business combination expenses and provides for a
related increase in income tax expense.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------
MARCH 31, JUNE 30,
--------- --------
<S> <C> <C>
1996
Total Revenues.................................................. $53,829 $ 63,547
Net income...................................................... 4,878 7,549
Earnings per share.............................................. $ 0.22 $ 0.33
Weighted average common and common equivalent shares
outstanding................................................... 22,584 23,173
</TABLE>
(22) SUBSEQUENT EVENT (UNAUDITED)
On September 12, 1996, Doubletree, through a subsidiary, entered into an
Agreement and Plan of Merger with Red Lion Hotels, Inc. ("Red Lion"), whereby
Doubletree would acquire all of the outstanding common stock of Red Lion. Red
Lion is a full service hospitality company that owns, leases and/or manages 55
hotels as of June 30, 1996 principally in the western United States. The
purchase price, which is subject to adjustment, and includes the assumption of
approximately $213.3 million of indebtedness, is approximately $1.2 billion and
is anticipated to be funded with a combination of newly-issued shares of
Doubletree Common Stock, $600.0 million in institutional debt, and existing
cash. Consummation of the transaction is subject to certain conditions and is
expected to be completed prior to December 31, 1996.
F-23
<PAGE> 124
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Red Lion Hotels, Inc.:
We have audited the accompanying consolidated balance sheet of Red Lion
Hotels, Inc. and subsidiaries (the "Company") as of December 31, 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the ten month period ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Red Lion Hotels, Inc. and
subsidiaries as of December 31, 1995, and the results of their operations and
their cash flows for the ten month period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Portland, Oregon
February 24, 1996
F-24
<PAGE> 125
RED LION HOTELS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................... $ 68,355 $ 36,509
Accounts receivable, net........................................... 19,709 21,761
Accounts receivable -- affiliates.................................. 12,096 4,572
Inventories........................................................ 6,339 6,286
Prepaid expenses and other current assets.......................... 5,461 4,596
Deferred income taxes.............................................. 2,306 2,796
-------- --------
Total current assets....................................... 114,266 76,520
Property and Equipment, net.......................................... 336,269 375,567
Investment in and Advances to Unconsolidated Joint Ventures.......... 16,429 16,274
Goodwill, net........................................................ 21,508 21,147
Deferred Income Taxes................................................ 6,571 4,773
Due from Affiliate................................................... 20,828 25,758
Other Assets, net.................................................... 11,049 11,844
-------- --------
$526,920 $531,883
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................... $ 23,618 $ 18,086
Accrued expenses................................................... 37,197 38,288
Current portion of long-term debt.................................. 7,759 9,219
-------- --------
Total current liabilities.................................. 68,574 65,593
Long-Term Debt, net of current portion............................... 215,608 204,109
Other Long-Term Obligations.......................................... 11,169 11,776
Joint Venturers' Interest............................................ 1,290 1,290
-------- --------
Total liabilities.......................................... 296,641 282,768
-------- --------
Commitments and Contingencies (Notes 5 and 11)
Stockholders' Equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
0 shares issued and outstanding................................. -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
31,312,500 shares issued and outstanding........................ 313 313
Additional paid-in capital and net assets contributed.............. 214,361 214,361
Retained earnings.................................................. 15,605 34,441
-------- --------
Total stockholders' equity................................. 230,279 249,115
-------- --------
$526,920 $531,883
======== ========
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 126
RED LION HOTELS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOUR SIX
MONTHS ENDED MONTHS ENDED
TEN JUNE 30, JUNE 30,
MONTHS ENDED 1995 1996
DECEMBER 31, 1995 (UNAUDITED) (UNAUDITED)
----------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Rooms......................................... $ 115,370 $ -- $ 147,445
Food and beverage............................. 72,711 -- 81,389
Other......................................... 26,688 3,421 29,133
----------- ----------- -------
Total revenues........................ 214,769 3,421 257,967
Operating Costs and Expenses:
Departmental direct expenses:
Rooms...................................... 28,723 -- 36,991
Food and beverage.......................... 54,181 -- 63,634
Other...................................... 7,996 -- 10,079
Property indirect expenses.................... 43,668 -- 55,163
Other costs................................... 17,111 189 18,028
Depreciation and amortization................. 8,715 721 9,167
Payments due to owners of managed hotels...... 19,428 295 26,178
Expenses resulting from the Formation and
Offering................................... 14,662 -- --
----------- ----------- -------
Operating Income.............................. 20,285 2,216 38,727
Equity in Earnings of Unconsolidated Joint
Ventures...................................... 685 -- 1,423
Other Income (Expense):
Interest income............................... 1,600 -- 1,275
Interest expense.............................. (9,707) (1,256) (9,054)
----------- ----------- -------
Total other expense................... (8,107) (1,256) (7,779)
----------- ----------- -------
Income Before Joint Venturers' Interests...... 12,863 960 32,371
Joint Venturers' Interests...................... (1,365) (570) (978)
----------- ----------- -------
Income Before Income Taxes.................... 11,498 390 31,393
Income Tax Benefit (Expense).................... 4,107 1,044 (12,557)
----------- ----------- -------
Net Income...................................... $ 15,605 $ 1,434 $ 18,836
=========== =========== =======
Earnings Per Common Share....................... $ 1.00 $ 14,340 $ 0.60
=========== =========== =======
Weighted Average Common Shares Outstanding...... 15,656,300 100 31,312,500
=========== =========== =======
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE> 127
RED LION HOTELS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
COMMON STOCK CAPITAL AND
----------------- NET ASSETS RETAINED
SHARES AMOUNT CONTRIBUTED EARNINGS TOTAL
------ ------ ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1995............. -- $ -- $ -- $ -- $ --
Net assets contributed................... 20,900 209 34,427 -- 34,636
Net proceeds from initial public
offering............................... 10,063 101 173,287 -- 173,388
Issuance of shares in conjunction with
termination of an incentive unit
plan................................... 350 3 6,647 -- 6,650
Net income............................... -- -- 15,605 15,605
------ ---- -------- ------- --------
Balance at December 31, 1995............. 31,313 313 214,361 15,605 230,279
Net income (unaudited)................... -- -- -- 18,836 18,836
------ ---- -------- ------- --------
Balance at June 30, 1996 (unaudited)..... 31,313 $313 $ 214,361 $ 34,441 $249,115
====== ==== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE> 128
RED LION HOTELS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
TEN MONTHS ENDED 1995 1996
DECEMBER 31, 1995 (UNAUDITED) (UNAUDITED)
----------------- ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income......................................................... $ 15,605 $ 1,434 $ 18,836
Adjustments to reconcile net income to cash provided by operating
activities:
Income attributable to joint venturers' interest................. 1,365 570 978
Distributions to joint venturers................................. (1,702) -- (557)
Equity in earnings of unconsolidated joint ventures.............. (685) -- (1,423)
Depreciation and amortization.................................... 8,715 721 9,167
Amortization of other assets..................................... 1,092 83 656
Deferred income taxes............................................ (8,877) (1,200) 1,308
Issuance of common stock in connection with termination of the
incentive unit plan............................................ 6,650 -- --
Changes in assets and liabilities:
Accounts receivable............................................ (1,097) (1,278) (2,052)
Accounts receivable -- affiliates.............................. (2,015) -- 7,524
Inventories.................................................... (413) -- 53
Prepaid expenses and other current assets...................... (427) -- 865
Accounts payable, accrued expenses and other long-term
obligations................................................. 17,683 -- (4,255)
-------- ------- --------
Net cash provided by operating activities................... 35,894 330 31,100
-------- ------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment, net............................ (16,499) (330) (48,735)
Net increase in due from affiliates................................ (8,017) -- (4,930)
Net increase in other assets....................................... -- (820)
Net (increase) decrease in advances to and investments in
unconsolidated joint ventures.................................... (3,509) -- 1,451
Distributions from unconsolidated joint ventures................... 160 -- 127
Other investing activities......................................... 501 -- --
-------- ------- --------
Net cash used in investing activities....................... (27,364) (330) (52,907)
-------- ------- --------
Cash Flows from Financing Activities:
Cash received from contribution of assets.......................... 10,480 -- --
Net proceeds from common stock issued in the Offering.............. 173,388 -- --
Proceeds from long-term borrowings................................. 135,000 -- 9,000
Repayment of long-term borrowings.................................. (256,467) -- (19,237)
Increase in note payable........................................... 165 -- 198
Other financing activities......................................... (2,741) -- --
-------- ------- --------
Net cash provided by (used in) financing activities......... 59,825 -- (10,039)
-------- ------- --------
Net Increase (Decrease) in Cash and Cash Equivalents................. 68,355 -- (31,846)
Cash and Cash Equivalents at Beginning of Period..................... -- -- 68,355
-------- ------- --------
Cash and Cash Equivalents at End of Period........................... $ 68,355 $ -- $ 36,509
======== ======= ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest......................................................... $ 8,133 $ 1,252 $ 9,211
Income taxes..................................................... 2,945 -- 7,945
Noncash Investing and Financing Activities:
Net assets (other than cash) contributed by Historical Red Lion
(Note 1), including property and equipment of $327,928,
long-term debt of $344,500, investments in and advances to
unconsolidated joint ventures of $12,790, other assets and
amounts receivable from affiliates of $54,644, other long-term
obligations of $7,396, joint venturers' interests of $1,742,
and current assets and current liabilities of $29,572 and
$47,140, respectively.......................................... $ 24,156 $ 93 $ --
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE> 129
RED LION HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations
Red Lion Hotels, Inc. together with its subsidiaries ("Red Lion" or the
"Company") is a full service hospitality company operating 55 hotels in 10
western states. A typical Red Lion property is a full service hotel located in
close proximity to a business or commercial center, airport, major highway or
tourist destination. Red Lion hotels target the business traveler (both
individual and group) and compete primarily in the upscale segment of the
lodging industry.
The Company was incorporated in Delaware in March 1994 as a wholly owned
subsidiary of Red Lion, a California Limited Partnership ("Historical Red
Lion"). The Company's operations commenced in March 1995 when Historical Red
Lion contributed to the Company a 49.4% interest in a joint venture (the "Santa
Barbara Joint Venture") which owns Fess Parker's Red Lion Resort (the "Santa
Barbara Hotel") located in Santa Barbara, California.
The Company initiated an initial public offering of a portion of its common
stock on July 26, 1995 (the "Offering"), which closed August 1, 1995, raising
net proceeds of approximately $173 million. After giving effect to the Offering,
Historical Red Lion owns approximately 67% of the Company.
On August 1, 1995, prior to the closing of the Offering, Historical Red
Lion repaid certain of its outstanding indebtedness with existing cash balances
and contributed substantially all of its assets (excluding 17 hotels and certain
related obligations (the "Leased Hotels"), certain minority joint venture
interests and certain current assets) and certain liabilities to the Company
(the "Formation"). Historical Red Lion subsequent to the Formation and
refinancing of the Company (the "Partnership") retained the Leased Hotels and
the related goodwill, deferred loan costs and mortgage debt, certain minority
joint venture interests and certain current assets.
On August 1, 1995, the Company refinanced or repaid substantially all of
the debt contributed pursuant to the Formation with the net proceeds of the
Offering, borrowings under a new term loan and existing cash (the
"Refinancing"). The Company also entered into a long-term master lease with the
Partnership for the Leased Hotels.
Basis of Presentation
The accompanying financial statements reflect the contribution, at
Historical Red Lion's net book value, of the interest in the Santa Barbara Joint
Venture. Accordingly, the Santa Barbara Joint Venture has been consolidated with
the Company in the accompanying financial statements prior to the Formation. In
connection with the Formation, the other assets and liabilities contributed by
Historical Red Lion have been recorded in the accompanying consolidated
financial statements at Historical Red Lion's net book value at August 1, 1995.
There were no operations of the Company prior to the contribution of the Santa
Barbara Joint Venture. Therefore, the accompanying consolidated financial
statements reflect ten months rather than twelve months of 1995 operations,
consisting of the results of the Santa Barbara Joint Venture for ten months and
the results of the other hotels and operations contributed pursuant to the
Formation for five months.
The Santa Barbara Joint Venture contribution did not transfer the right to
manage the operations of the Santa Barbara Hotel to the Company. Therefore, the
financial statements of the Company prior to the Formation do not include the
operating revenues and expenses of the Santa Barbara Hotel or that hotel's
current assets and current liabilities. These amounts were included in the
financial statements of Historical Red Lion, which continued to manage the Santa
Barbara Hotel. The right to manage the operations of the Santa Barbara Hotel was
transferred to the Company at Formation, and that hotel's operating revenues,
expenses and current assets and current liabilities are reflected in the
consolidated financial statements of the Company beginning August 1, 1995.
F-29
<PAGE> 130
RED LION HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consolidated financial statements include seven joint ventures in which
the Company holds a 49.9% interest. When combined with the interests retained by
the Partnership, the Company and the Partnership own at least 50% of these joint
ventures. Pursuant to an agreement between the Company and the Partnership, the
Company has the power, in its sole discretion, to prescribe the Partnership's
conduct with respect to the joint venture interests held by the Partnership.
Accordingly, the Company consolidates the four joint ventures in which the
combined interests of the Partnership and the Company exceed 50%. The Company
consolidates one of its 50% owned joint ventures because the Company controls
the joint venture through contractual arrangements, has the majority of capital
at risk through its significant ownership percentage and has guaranteed 100% of
the joint venture's third party debt. The unconsolidated joint ventures,
including one other 10% owned joint venture, are accounted for on the equity
method of accounting.
In 1987, Historical Red Lion sold its interest in 10 hotels to Red Lion
Inns Limited Partnership, a publicly traded limited partnership (the "MLP"). Red
Lion Properties, Inc., the general partner of the MLP, was contributed to the
Company in connection with the Formation and is a wholly owned subsidiary of the
Company. The MLP's public limited partners have an effective 98.01% ownership
interest in the MLP's hotels with the general partner retaining the remaining
1.99 % ownership interest. The Company operates the MLP's hotels under a
management agreement.
Operating revenues, expenses and current assets and current liabilities of
the MLP and other management contract hotels (including the three unconsolidated
joint ventures which are also managed by the Company) are included in the
accompanying consolidated financial statements because the operating
responsibilities associated with these hotels are substantially the same as
those for owned hotels. The operating profit, net of management fee income
earned by the Company for managed hotels, is recorded as an expense in the
accompanying consolidated statements of income. The consolidated financial
statements include current assets and current liabilities of $9,933,000 and
$8,843,000 (unaudited) at December 31, 1995 and June 30, 1996, respectively, and
operating revenues of $73,685,000 and $95,128,000 (unaudited) and operating
expenses of $49,263,000 and $62,811,000 (unaudited) for the ten months ended
December 31, 1995 and six months ended June 30, 1996, respectively, related to
the operation of the MLP and other management contract hotels.
One wholly owned hotel was acquired by Historical Red Lion in 1989 subject
to a nonrecourse cash flow mortgage which requires interest payments contingent
on achieving certain levels of performance. Because of the nonrecourse and cash
flow nature of the loan, the mortgage has not been recorded as an obligation and
the property and equipment of the hotel are excluded from the consolidated
financial statements. The mortgage is in substance a management contract with a
purchase option. Accordingly, the hotel is treated as a management contract in
the accompanying consolidated financial statements.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities. While
management endeavors to make accurate estimates, actual results could differ
from estimates.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
The unaudited consolidated financial statements reflect, in the opinion of
the management, all adjustments, all of which are of a normal recurring nature,
necessary to present fairly the financial position of the Company at June 30,
1996 and the results of operations and cash flows for the six month period ended
June 30, 1996 and for the four month period ended June 30, 1995. Interim results
are not necessarily indicative of results to be expected for a full fiscal year.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
F-30
<PAGE> 131
RED LION HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks, time
deposits, commercial paper and U.S. government and other short-term securities
with maturities of three months or less when purchased. The carrying amount
approximates fair value because of the short-term maturity of these instruments.
The balance at December 31, 1995 and June 30, 1996 includes commercial paper of
$6,991,000 and $0 (unaudited) and government obligations of $58,443,000 and
$32,463,000 (unaudited), respectively.
Accounts Receivable
Accounts receivable are shown net of allowances for doubtful accounts of
$361,000 and $221,000 (unaudited) at December 31, 1995 and June 30, 1996,
respectively.
Inventories
Inventories consist primarily of consumable supplies as well as food and
beverage products held for sale. Inventories are valued at the lower of cost,
determined on a first-in, first-out basis, or market.
Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER JUNE 30,
31, 1996
1995 (UNAUDITED)
----------- -----------
<S> <C> <C>
Land........................................... $ 48,126 $ 53,195
Buildings and improvements..................... 321,940 345,580
Furnishings and equipment...................... 122,351 131,166
Construction in progress....................... 14,834 19,803
--------- ---------
507,251 549,744
Accumulated depreciation....................... (170,982) (174,177)
--------- ---------
$ 336,269 $ 375,567
========= =========
</TABLE>
Property and equipment are stated at Historical Red Lion's carrying value
at the date of contribution, plus additions, at cost, made subsequent to the
contribution. Additions and improvements are capitalized at cost, including
interest costs incurred during construction. Normal repairs and maintenance are
charged to expense as incurred. Upon the sale or retirement of property and
equipment, the cost and related accumulated depreciation and amortization are
removed from the respective accounts and the resulting gain or loss, if any, is
included in income.
Base stock (linens, china, silverware and glassware) is depreciated to 50%
of its initial cost on a straight-line basis over three years. Subsequent
replacements are expensed when placed in service. The carrying value of base
stock is included in furnishings and equipment.
Depreciation is computed on a straight-line basis using the following
estimated useful lives:
<TABLE>
<S> <C>
Building and improvements..................................... 10 to 40 years
Furnishings and equipment..................................... 5 to 15 years
</TABLE>
F-31
<PAGE> 132
RED LION HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investment in and Advances to Unconsolidated Joint Ventures
The Company is a partner in three joint ventures which are accounted for on
the equity method of accounting. The Company's equity in and advances to these
joint ventures are shown under the caption "Investment in and Advances to
Unconsolidated Joint Ventures" in the consolidated balance sheets. Because the
Company manages these joint ventures, they are accounted for as managed hotels,
and therefore, the operating revenues, expenses and current assets and current
liabilities of the hotels are included in the consolidated financial statements.
Profits and losses of these joint ventures are allocated in accordance with
the joint venture agreements. The Company's share of the income or losses of the
joint ventures (after management fee income) is recorded under the caption
"Equity in Earnings of Unconsolidated Joint Ventures" in the consolidated
statements of income. If a joint venture experiences operating losses which
reduce the other joint venture partner's equity to a zero balance, the loss
which would otherwise be attributable to the other joint venturer is absorbed
within the Company's consolidated operating results.
Summarized financial information for the unconsolidated joint ventures,
excluding the current assets and current liabilities and operating revenues and
expenses included in the Company's consolidated financial statements, is as
follows (in thousands and unaudited):
<TABLE>
<CAPTION>
DECEMBER
31, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Property and equipment, net....................... $ 35,263 $ 34,486
Goodwill, net..................................... 678 667
Deferred loan costs............................... 541 498
-------- ---------
$ 36,482 $ 35,651
======== =========
LIABILITIES AND PARTNERS' DEFICIT
Net working capital............................... $ 1,741 $ 842
Long-term debt, excluding current portion......... 21,841 21,364
Company advances.................................. 27,384 27,606
Partners' deficit................................. (14,484) (14,161)
-------- ---------
$ 36,482 $ 35,651
======== =========
</TABLE>
<TABLE>
<CAPTION>
TEN MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
Revenues (payments from the Company representing
gross operating profit, net of management
fees)........................................... $ 2,729 $ 4,996
Expenses (principally depreciation and interest on
outside debt and Company advances).............. 3,276 5,215
----------- -----------
Net............................................... $ (547) $ (219)
============ ===========
</TABLE>
Goodwill
Historical Red Lion acquired interests in certain hotels, motor inns and
supporting auxiliary enterprises in 1985. Goodwill resulted from the acquisition
and represents the excess of purchase price over the fair value of net assets
acquired. Goodwill relates primarily to the hotels contributed to the Company by
Historical Red Lion and is being amortized on a straight-line basis over its
estimated useful life of approximately 40 years. Amortization expense was
$301,000 and $361,000 (unaudited) for the ten months ended December 31, 1995
F-32
<PAGE> 133
RED LION HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and six months ended June 30, 1996, respectively. Accumulated amortization
aggregated $7,219,000 and $7,580,000(unaudited) at December 31, 1995 and June
30, 1996, respectively.
Deferred Loan Costs
Deferred loan costs incurred in connection with the Company's indebtedness
are included in other assets, net, and are amortized over the life of the
associated debt.
Accrued Expenses
Accrued expenses include the following items (in thousands):
<TABLE>
<CAPTION>
DECEMBER JUNE 30,
31, 1996
1995 (UNAUDITED)
----------- -----------
<S> <C> <C>
Accrued payroll and related costs................. $22,253 $20,085
Accrued interest.................................. 2,311 2,153
Other............................................. 12,633 16,050
------- -------
$37,197 $38,288
======= =======
</TABLE>
Other Long-Term Obligations
The Company provides for the uninsured portions of medical, property,
liability and workers compensation claims. Such costs are estimated each year
based on historical claims data relating to operations. While actual results may
vary from estimates, the Company maintains stop-loss insurance to minimize the
effect of large claims on financial results. The long-term portion of accrued
claims costs relates primarily to general liability and workers compensation
claims which are not expected to be paid within one year and is reflected in
other long-term obligations.
The Company's retirement savings plan includes a non-qualified Supplemental
Employee Retirement Plan ("SERP") designed to supplement key employees whose
benefits would otherwise be reduced due to certain statutory limits of a 401(k)
plan. In addition, the Chief Executive Officer of the Company has entered into a
separate supplemental income retirement agreement with the Company. Both of
these obligations are reflected in long-term obligations.
Income Taxes
The Company utilizes the liability method to account for income taxes.
Under the liability method, deferred taxes are provided for the effects of
temporary differences between the financial statement and tax bases of assets
and liabilities.
Property Indirect Expenses
Property indirect expenses include undistributed property expenses for
selling, general and administrative, utilities, repairs and maintenance and an
allocation of certain corporate services (such as marketing, legal, tax and
accounting services) related to the operation of the properties.
Other Costs
Other costs include corporate administrative and general expenses, property
taxes, insurance, leases and other miscellaneous costs.
F-33
<PAGE> 134
RED LION HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Payments Due to Owners of Managed Hotels
Payments due to owners of managed hotels is analogous to rent owed to
outside owners due to the nature of the management contracts and the control the
Company has over operations. The amounts shown in the consolidated statement of
income are net of management fee income of $4,994,000 and $6,138,000 (unaudited)
earned by the Company for the ten months ended December 31, 1995 and six months
ended June 30, 1996, respectively.
Joint Venturers' Interests
The Company is a partner in eight joint ventures, each of which owns a
separate hotel. The assets and liabilities of five of the eight joint ventures
are fully consolidated due to the Company's control of the ventures. The other
joint ventures are accounted for on the equity method of accounting (see
"Investment in Unconsolidated Joint Ventures"). The caption "joint venturers'
interests" represents the net equity attributable to the joint venturers'
interests, including their share of income, losses, distributions and
contributions.
Profits and losses of each joint venture are allocated in accordance with
the joint venture agreement. If a joint venture experiences operating losses
which reduce the other joint venture partner's equity to a zero balance, the
loss which would otherwise be attributable to the other joint venturer is
absorbed within the Company's consolidated operating results.
Earnings per Share and Stock Options
Earnings per share is computed based on the weighted average number of
common shares outstanding during the period. Common stock equivalents have not
been included in the earnings per share calculation since their effect is
immaterial.
Impairment of Long-Lived Assets
In March 1995, the Company adopted Statement of Financial Accounting
Standards (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." Management evaluates its ability
to recover the recorded value of long-lived assets such as property and
equipment, goodwill, investments in and advances to unconsolidated joint
ventures and deferred loan costs at least annually, unless events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. If the sum of projected undiscounted future cash flows is less than
the carrying amount of the asset, an impairment loss would be recognized to the
extent that the carrying amount of the asset differs from its fair value
measured on a discounted cash flow basis. No impairment losses were recorded for
the ten months ended December 31, 1995 or six months June 30, 1996.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," effective January 1, 1996. SFAS No. 123 defines a fair value
based method of accounting for employee stock options or similar instruments and
permits companies to adopt that method of accounting for all of their employee
stock compensation plans. However, it also allows a company to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting prescribed by APB Opinion No. 25 ("APB No. 25"), "Accounting for
Stock Issued to Employees." The Company has elected to continue to measure
compensation cost in conformity with APB No. 25 and to make pro forma
disclosures of net income and earnings per share in its annual report on Form
10-K for the year ended December 31, 1996, as if the fair value based method of
accounting defined in SFAS No. 123 had been applied.
F-34
<PAGE> 135
RED LION HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER JUNE 30,
31, 1996
1995 (UNAUDITED)
----------- -----------
<S> <C> <C>
Term loan, LIBOR plus 2% (8.0% at December 31,
1995 and 7.5% at June 30, 1996) payable
through 2002................................. $ 133,750 $ 123,869
Mortgages, variable rates (7.0% - 8.3% at
December 31, 1995 and 6.6% - 7.0% at June 30,
1996) payable through 1998................... 84,900 84,545
Note payable, 8.69, payable through 2022....... 4,717 4,914
-------- --------
223,367 213,328
Current portion of long-term debt.............. (7,759) (9,219)
-------- --------
Long-term debt, net of current portion......... $ 215,608 $ 204,109
======== =========
</TABLE>
The annual principal requirements for the five years subsequent to June 30,
1996 are as follows (in thousands and unaudited):
<TABLE>
<S> <C>
1997...................................................... $ 9,219
1998...................................................... 101,045
1999...................................................... 19,375
2000...................................................... 20,000
2001...................................................... 27,125
Thereafter................................................ 36,564
--------
$213,328
========
</TABLE>
The Company has available a $130 million credit line facility of which $80
million is available for acquisitions and $50 million is available for working
capital requirements. The credit line facility has a term of seven years. The
term loan and credit line facility (collectively the "Credit Facility") carry a
variable interest rate based on LIBOR plus 2% (8.0% at December 31, 1995 and
7.5% at June 30, 1996). Quarterly mandatory prepayments which increase over the
term of the Credit Facility are required. In addition, in March of each year a
mandatory prepayment of the Credit Facility is required in an amount equal to
50% of annual excess cash flow (as defined in the credit agreement) for the
prior fiscal year. The $80.0 million available for acquisitions is anticipated
to be utilized by the Company to finance the addition of hotels to the Red Lion
chain through acquisitions, management contracts, joint ventures or leases. At
June 30, 1996, there was no outstanding balance on the credit line facility. All
debt and credit facilities are secured by the hotels owned by the Company or by
its joint venture interests.
The Company's credit facilities contain covenants which, among other
things, prohibit the payment of cash dividends, require certain levels of
tangible net worth and require the maintenance of debt coverage, interest
coverage, leverage and debt-to-equity ratios. As of December 31, 1995, the
Company was in compliance with these covenants.
The Company had outstanding letters of credit totaling $5,604,000
(unaudited) at June 30, 1996. These letters of credit expire at various dates
ranging from July to October, 1996.
F-35
<PAGE> 136
RED LION HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest Rate Swap Agreements
The Company enters into interest rate swap agreements in order to reduce
its exposure to interest rate fluctuations. The agreements have effectively
converted floating rate debt, which is tied to LIBOR, to fixed rates.
Accordingly, the net interest received or paid on the interest rate swap is
recorded as an adjustment to interest expense.
At December 31, 1995 and June 30, 1996, the Company had three interest rate
swap agreements outstanding which have substantially converted $75 million of
debt from floating LIBOR based rates to fixed rates ranging from 5.19% to 5.57%.
The agreements expire from September 1997 to March 1998. Interest income earned
by the Company relating to interest rate swap agreements for the ten months
ended December 31, 1995 and six months ended June 30, 1996, was $215,000 and
$74,000 (unaudited), respectively, and is included as an adjustment to interest
expense.
These agreements are with major commercial banks and management does not
anticipate a credit loss due to nonperformance.
5. LEASES
Certain hotels are located on leased land. Certain leases contain rental
provisions and renewal options which are based on a percentage of revenues,
changes in the Consumer Price Index or changes in property values. All land
leases extend over the remaining estimated useful lives of the buildings
situated thereon. The Company also leases certain office space and equipment
under operating leases. The Company leases 17 hotels (Leased Hotels) from the
Partnership. The Leased Hotels are leased for an initial term of 15 years. The
Company may extend the lease on a hotel-by-hotel basis for five additional
five-year periods at comparable terms. Total land, office and equipment and
Leased Hotels rent expense was $6,676,000 and $8,342,000 (unaudited) for the ten
months ended December 31, 1995 and six months ended June 30, 1996, respectively.
Future minimum rental payments required under land, office and equipment leases
and Leased Hotels for the five years subsequent to June 30, 1996 are as follows
(in thousands and unaudited):
<TABLE>
<S> <C>
1997...................................................... $ 16,403
1998...................................................... 16,367
1999...................................................... 16,050
2000...................................................... 16,029
2001...................................................... 16,004
Thereafter................................................ 155,490
--------
$236,343
========
</TABLE>
6. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution 401(k) retirement plan for all full
time, non-union employees who have completed one year of service and who have
attained the age of 21 years. Under the 401(k) plan, the Company contributes
amounts equal to each participant's elected contributions up to 6% of eligible
compensation. Pension expense under this plan was $723,000 and $1,385,000
(unaudited) for the ten months ended December 31, 1995 and six months ended June
30, 1996, respectively.
The Company also has a non-qualified supplemental employee retirement plan.
The SERP was designed to complement the 401(k) plan by restoring benefits
otherwise lost by certain employees due to the statutory limits in the 401(k)
plan. The pension expense under the SERP was $80,000 and $128,000 (unaudited)
for the ten months ended December 31, 1995 and six months ended June 30, 1996,
respectively.
F-36
<PAGE> 137
RED LION HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1995, the Company adopted the 1995 Equity Participation Plan (the
"Incentive Plan") which provides for the issuance of incentive or nonqualified
stock options, stock appreciation rights and other awards to key employees,
officers, consultants and non-employee directors at the discretion of the
Compensation Committee. The vesting period is determined at the date of grant
and generally ranges from zero to five years beginning on the date of grant. The
following table summarizes stock option transactions:
<TABLE>
<CAPTION>
SHARES UNDER OPTION PRICE
OPTION PER SHARE
------------ ------------------
<S> <C> <C>
Options outstanding at February 28, 1995............. -- --
Options granted, at fair market value on date of
grant.............................................. 2,250,833 $19.00 to $21.50
Options forfeited.................................... (15,000) $19.00
---------
Options outstanding at December 31, 1995............. 2,235,833 $19.00 to $21.50
Options granted, at fair market value on date of
grant (unaudited).................................. 142,500 $18.25 to $20.875
Options forfeited.................................... (161,000) $19.00
---------
Options outstanding at June 30, 1996 (unaudited)..... 2,217,333 $18.25 to $21.50
=========
</TABLE>
At December 31, 1995 and June 30, 1996, there were 696,667 options
exercisable and 1,064,157 and 1,082,667 (unaudited) shares available for grant
under the Incentive Plan, respectively.
7. RELATED PARTY TRANSACTIONS
Prior to the Formation the Santa Barbara Hotel was operated and managed by
Historical Red Lion. Management fees paid to Historical Red Lion were $385,000
for the five months ended July 31, 1995 and are included in other costs.
Investments in and advances to unconsolidated joint ventures includes two
notes receivable from one joint venture in the amounts of $1,500,000 and
$2,009,000 at December 31, 1995 and $1,387,000 and $2,009,000 (unaudited) at
June 30, 1996. The notes bear interest at a fixed rate of 10.0% and prime plus
1.0% (9.5% at December 31, 1995 and 9.25% at June 30, 1996), respectively. The
$1,387,000 note matures on November 21, 2003. The $2,009,000 note has an
unspecified term and is to be repaid based on cash flow available for
distribution, as defined. In addition, other assets, net, includes a note
receivable from a joint venture partner in the amount of $1,628,000 and
$1,714,000 (unaudited) at December 31, 1995 and June 30, 1996, respectively,
which bears interest at a rate based on prime (10.5% at December 31, 1995 and
10.2% at June 30, 1996) and has an unspecified term with repayment amounts based
on cash flow available for distribution, as defined. In addition, accounts
receivable-affiliates includes $4,120,000 and $3,448,000 (unaudited) at December
31, 1995 and June 30, 1996, respectively, receivable from the management
contract hotels and other related parties other than Red Lion Inns Limited
Partnership.
The Company leases the Leased Hotels from the Partnership. Annual lease
payments aggregate $15,000,000. Lease expense for the period from the Formation
through December 31, 1995 and for the six months ended June 30, 1996 totaled
$6,250,000 and $7,500,000 (unaudited), respectively.
Transactions with Red Lion Inns Limited Partnership
A wholly owned subsidiary of the Company serves as general partner and owns
1.99 percent of the MLP. The general partner is responsible for management and
administration of the MLP. In accordance with the partnership agreement, the MLP
reimburses the Company for related administrative costs.
Under a management agreement, the MLP pays base and incentive management
fees to the Company. Base management fees payable to the Company are equal to 3%
of the annual gross revenues of the MLP hotels. Incentive management fees
payable to the Company are equal to the sum of 15% of adjusted gross
F-37
<PAGE> 138
RED LION HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operating profit up to $36 million (operating profit target) and 25% of adjusted
gross operating profit in excess of the operating profit target. Adjusted gross
operating profit is gross operating profit less base management fees.
Incentive management fees are only payable to the extent that cash flow
available for distributions and incentive management fees exceeds the amount
required to pay the annual priority distribution to the MLP's limited partners.
Cash flow is defined as pre-tax income (or loss) before noncash charges
(primarily depreciation and amortization) and incentive management fees, but
after the reserve for capital improvements and principal payments on certain
debt.
The Company also charges the MLP hotels for their pro rata share of support
services such as computer, advertising, public relations, promotional and sales
and central reservation services.
All MLP personnel are employees of the Company. All costs for services of
such employees are reimbursed to the Company by the MLP. These costs include
salaries, wages, payroll taxes and other employee benefits. Additionally,
auxiliary enterprises owned by the Company sell operating supplies, furnishings
and equipment to the MLP.
The aggregate amounts, excluding personnel related expenses, charged by the
Company to the MLP under the arrangements described above are as follows (in
thousands):
<TABLE>
<CAPTION>
TEN MONTHS SIX MONTHS
ENDED ENDED
DECEMBER JUNE 30,
31, 1996
1995 (UNAUDITED)
----------- -----------
<S> <C> <C>
Management fees................................... $ 3,614 $ 4,336
Support services.................................. 1,732 3,430
Purchases from auxiliary enterprises.............. 6,064 7,195
General Partner administrative expenses........... 197 283
</TABLE>
Included in accounts receivable-affiliates and due from affiliate is
$19,078,000 and $22,455,000 (unaudited) at December 31, 1995 and June 30, 1996,
respectively, representing amounts receivable from the MLP primarily for
advances made by the Company and Historical Red Lion for capital improvements
which exceeded the 3% reserve established in accordance with the provisions of
the management agreement. Such amounts are presented net of current assets and
current liabilities related to the managed MLP hotels of $2,194,000 and
$3,231,000 (unaudited) at December 31, 1995 and June 30, 1996, respectively. The
current balance of $2,823,000 and $1,064,000 (unaudited) at December 31, 1995
and June 30, 1996, respectively, is included in accounts receivable-affiliates.
The remaining balance of $16,255,000 and $21,391,000 (unaudited) at December 31,
1995 and June 30, 1996, respectively, is classified as due from affiliate.
Amounts receivable from the MLP earn interest at the rate of prime plus 0.5%
(9.0% at December 31, 1995 and 8.75% at June 30, 1996).
Accounts receivable-affiliates and due from affiliate also include certain
other advances to and deferred incentive management fees receivable from the
MLP. A total of $3,726,000 was advanced to the MLP to fund distributions during
the first 36 months of the MLP's operations. The advance is non-interest
bearing, has an unspecified term and is to be repaid out of available cash flow
or refinancing proceeds. Additionally, non-interest bearing deferred incentive
management fees receivable of $6,000,000 were contributed to the Company in the
Formation. At December 31, 1995, $5,153,000 and $847,000 are classified as
accounts-receivable-affiliates and due from affiliate, respectively. The Company
received $5,299,000 (unaudited) of such fees during the six months ended June
30, 1996. Of the total remaining balance of $701,000 (unaudited), $641,000
(unaudited) is classified as due from affiliate and $60,000 (unaudited) as
accounts receivable-affiliates at June 30, 1996.
F-38
<PAGE> 139
RED LION HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized income statement information for the MLP is as follows (in
thousands and unaudited):
<TABLE>
<CAPTION>
AUGUST 1
THROUGH SIX MONTHS
DECEMBER ENDED
31, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
Revenues.......................................... $16,884 $19,677
Net income........................................ 2,364 1,722
</TABLE>
Revenues of the MLP represent the gross operating profit (operating
revenues less operating expenses) of the MLP hotels as this amount is similar to
gross rent received from the Company to manage the hotels. As discussed in Note
1, the operating revenues and expenses of the MLP hotels are consolidated.
Consolidation of the operating revenues and expenses of the MLP does not affect
the Company's cash flow or net income except to the extent that management fees
were earned.
Summarized balance sheet information for the MLP, not included in the
accompanying consolidated balance sheets (including amounts due to the Company)
is as follows (in thousands and unaudited):
<TABLE>
<CAPTION>
DECEMBER
31, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
Cash............................................... $ 229 $ 448
Noncurrent assets, primarily property and
equipment........................................ 166,038 169,112
Current liabilities................................ 29,094 28,164
Long-term obligations, net of current portion...... 117,266 124,178
Deferred income taxes.............................. 1,673 1,919
Partners' equity................................... 18,234 15,299
</TABLE>
8. INCOME TAXES
Income tax benefit (expense) consists of the following (in thousands):
<TABLE>
<CAPTION>
TEN MONTHS SIX MONTHS
ENDED ENDED
DECEMBER JUNE 30,
31, 1996
1995 (UNAUDITED)
----------- -----------
<S> <C> <C>
Current
Federal......................................... $(3,928) $ (9,814)
State........................................... (842) (1,435)
Deferred
Federal......................................... 7,767 (1,144)
State........................................... 1,110 (164)
------- ---------
Total tax benefit (expense)..................... $ 4,107 $ (12,557)
======= =========
</TABLE>
F-39
<PAGE> 140
RED LION HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective tax rate varies from the statutory rate due to the following
(in thousands):
<TABLE>
<CAPTION>
TEN MONTHS
ENDED SIX MONTHS
DECEMBER JUNE 30,
31, 1996
1995 (UNAUDITED)
----------- -----------
<S> <C> <C>
Expected tax expense at federal statutory rates... $(4,007) $ (10,988)
Deferred income tax benefit due to the difference
between the book and tax bases of net assets
contributed..................................... 9,736 --
Nondeductible Formation and Offering Costs........ (879) --
State income taxes................................ (586) (1,570)
Other............................................. (157) 1
-------- ---------
Total tax benefit (expense)............. $ 4,107 $ (12,557)
======== =========
</TABLE>
Since Historical Red Lion was a partnership, no deferred tax benefits had
been provided on the net assets contributed to the Company. In accordance with
SFAS No. 109, "Accounting for Income Taxes," the Company recorded net deferred
tax assets of $1.2 million and $8.5 million related to the contribution of the
Santa Barbara Joint Venture and the Formation, respectively.
The components of the net deferred income tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER JUNE 30,
31, 1996
1995 (UNAUDITED)
----------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Basis difference in joint ventures.............. $ 9,720 $ 9,960
Accrued expenses................................ 5,851 5,852
Payroll related costs and other................. 1,734 1,687
------- ---------
Total deferred tax assets............... 17,305 17,499
DEFERRED TAX LIABILITIES:
Basis difference in property and equipment...... (8,428) (9,930)
------- ---------
Net deferred tax asset.......................... $ 8,877 $ 7,569
======= =========
Net deferred tax assets are presented as follows
(in thousands):
Current deferred tax asset........................ $ 2,306 $ 2,796
Noncurrent deferred tax asset..................... 6,571 4,773
------- ---------
Net deferred tax asset.................. $ 8,877 $ 7,569
======= =========
</TABLE>
9. EXPENSES RESULTING FROM THE FORMATION AND OFFERING
Expenses resulting from the Formation and Offering include certain
Formation costs of $1,314,000 and expenses resulting from the Offering of
$11,348,000 and $2,000,000 related to the termination of an incentive unit plan
and assumption of the obligation of a supplemental income retirement agreement,
respectively.
10. INSURANCE PROCEEDS (UNAUDITED)
On February 8, 1996, three of the Company's hotels were evacuated due to
flooding in northwestern Oregon and southwestern Washington. Two of the hotels
were damaged by flood waters, have reopened and have been repaired. The third
hotel was undamaged and reopened quickly. As the Company maintains flood and
business interruption insurance, management does not believe that the ultimate
outcome will have a
F-40
<PAGE> 141
RED LION HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
material adverse effect on the results of operations or financial position of
the Company. Moreover, as the Company's flood insurance policy covers the
replacement cost of the damaged property, insurance proceeds will likely exceed
the net book value of the underlying property, resulting in the recognition of
gains when such proceeds are received.
11. COMMITMENTS AND CONTINGENCIES
At June 30, 1996, the Company had commitments relating to capital
improvement projects aggregating approximately $9,619,000 (unaudited).
In connection with the Formation, the Company agreed to indemnify the
Partnership with respect to any potential obligations arising out of the
transfer to the Company of certain assets and the assumption of certain
liabilities. Management is not aware of any such obligations.
Beginning August 2, 1996, for a period of 60 days, the Partnership has the
option to require the Company to purchase its retained joint venture interests
for $1,290,000.
The Company is party to litigation arising in the ordinary course of
business. In the opinion of management, these actions will not have a material
adverse effect, if any, on the Company's financial position, results of
operations or liquidity.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments and the
methods and assumptions used to estimate such fair values at December 31, 1995,
are as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
--------- ----------
<S> <C> <C>
Accounts receivable-affiliates (Note 7).............. $ 12,096 $ 11,990
Due from affiliate (Note 7).......................... 20,828 20,080
Long-term debt....................................... (223,367) (223,367)
Interest rate swaps.................................. -- 24
</TABLE>
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and other long-term obligations is a
reasonable approximation of their fair value.
The carrying value of accounts receivable-affiliates approximates fair
value due to the short-term nature of the receivable. The carrying value of due
from affiliate includes non-interest bearing receivables at December 31, 1995
aggregating $4,573,000, as discussed in Note 7. The fair value of due from
affiliate is determined using estimated rates for similar notes, based on
anticipated repayment dates. Based on borrowing rates currently quoted by
financial institutions for debt with similar terms and remaining maturities, the
carrying value of long-term debt approximates fair value.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly results of the Company are not comparable since the quarter
ended June 30, 1995 only includes the operations of one joint venture
contributed by Historical Red Lion in March 1995. The quarter ended September
30, 1995 includes the operations of that joint venture for the quarter as well
as the results of the Company subsequent to the Formation. The quarter ended
December 31, 1995 was the first full quarter of
F-41
<PAGE> 142
RED LION HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operations subsequent to the Formation. Summarized quarterly financial data are
as follows (in thousands, except share and per share amounts, room and occupancy
statistics):
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
JUNE DECEMBER
30, SEPTEMBER 30, 31, JUNE 30,
1995 1995 1995 1996
------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues......................................... $ 2,764 $ 89,274 $ 122,074 $ 137,317
Operating income................................. $ 1,800 $ 4,290 $ 13,779 $ 24,343
Net income....................................... $ 220 $ 7,902 $ 6,269 $ 12,388
Earnings per share............................... $ 2,200 $ 0.38 $ 0.20 $ 0.40
Weighted average common shares outstanding....... 100 20,875,033 31,312,500 31,312,500
Occupancy percentage............................. -- 80.7% 65.5% 75.3%
Average room rate................................ $ -- $ 76.93 $ 73.51 $ 81.12
</TABLE>
14. SUBSEQUENT EVENTS (UNAUDITED)
On August 7, 1996, the Company acquired a 319 room hotel in Houston, Texas
for $21.75 million. Additionally, on September 6, 1996, the 258 room hotel in
Modesto, California which was previously managed by Red Lion was purchased by
the Company for $15.6 million.
F-42
<PAGE> 143
INDEPENDENT AUDITORS' REPORT
To the Partners of Red Lion, a California Limited Partnership:
We have audited the accompanying consolidated statements of operations,
partners' equity and cash flows of Red Lion, a California Limited Partnership
("Historical Red Lion"), and subsidiaries for the seven month period ended July
31, 1995. These financial statements are the responsibility of Historical Red
Lion's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Historical Red Lion and subsidiaries for the seven month period ended
July 31, 1995, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
February 24, 1996
F-43
<PAGE> 144
INDEPENDENT AUDITORS' REPORT
To the Partners of Red Lion, a California Limited Partnership:
We have audited the accompanying consolidated balance sheet of Red Lion, a
California Limited Partnership ("Historical Red Lion"), and subsidiaries as of
December 31, 1994, and the related consolidated statements of operations,
partners' equity and cash flows for each of the two years in the period ended
December 31, 1994. These financial statements are the responsibility of
Historical Red Lion's management. Our responsibility is to express an opinion on
these 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Historical
Red Lion and subsidiaries as of December 31, 1994, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, Historical
Red Lion has given retroactive effect to the changes in accounting for their
investment in two joint ventures and its accounting for joint venturers'
interests. Also, as discussed in Note 1 to the consolidated financial
statements, effective January 1, 1993, Historical Red Lion changed their
accounting method for measuring impairment of hotel properties.
ARTHUR ANDERSEN LLP
Portland, Oregon
February 7, 1995
F-44
<PAGE> 145
HISTORICAL RED LION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 27,804
Short-term debt securities.................................................... 40,891
Accounts receivable, net...................................................... 17,486
Accounts receivable, affiliates............................................... 13,138
Inventories................................................................... 6,361
Prepaid expenses and other current assets..................................... 3,729
--------
Total current assets.................................................. 109,409
--------
PROPERTY AND EQUIPMENT, NET..................................................... 514,807
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES..................................... 14,281
OTHER ASSETS:
Goodwill, net................................................................. 36,453
Other, net.................................................................... 18,394
--------
Total assets.......................................................... $693,344
========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................................................. $ 19,290
Accrued expenses.............................................................. 33,007
Current portion of long-term debt............................................. 108,358
--------
Total current liabilities............................................. 160,655
--------
LONG-TERM DEBT, EXCLUDING CURRENT PORTION..................................... 388,944
OTHER LONG-TERM OBLIGATIONS................................................... 7,682
JOINT VENTURERS' INTEREST..................................................... 905
COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 4 & 5)
PARTNERS' EQUITY.............................................................. 135,158
--------
Total liabilities and partners' equity................................ $693,344
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-45
<PAGE> 146
HISTORICAL RED LION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
SEVEN MONTHS 31,
ENDED JULY 31, ---------------------
1995 1994 1993
-------------- -------- --------
<S> <C> <C> <C>
REVENUES:
Rooms................................................. $161,834 $257,699 $242,193
Food and beverage..................................... 92,570 159,154 156,242
Other................................................. 27,802 46,035 41,582
-------- -------- --------
Total revenues................................ 282,206 462,888 440,017
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Departmental direct expenses:
Rooms.............................................. 39,670 64,121 60,785
Food and beverage.................................. 73,269 124,070 123,518
Other.............................................. 10,592 17,586 16,935
Property indirect expenses............................ 60,342 99,673 95,118
Other costs........................................... 10,787 19,570 18,346
Depreciation and amortization......................... 17,053 31,313 31,144
Payments due to owners of managed hotels.............. 32,073 42,841 41,722
-------- -------- --------
OPERATING INCOME........................................ 38,420 63,714 52,449
EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURES..... 1,614 1,327 1,213
OTHER EXPENSE:
Interest expense, net................................. (20,316) (32,737) (30,065)
Loss on sale of property.............................. -- -- (1,701)
-------- -------- --------
Total other expense........................... (20,316) (32,737) (31,766)
-------- -------- --------
INCOME BEFORE JOINT VENTURERS' INTERESTS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE........................... 19,718 32,304 21,896
JOINT VENTURERS' INTERESTS.............................. 411 (1,321) (323)
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE.... 20,129 30,983 21,573
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
(NOTE 1).............................................. -- -- (29,878)
-------- -------- --------
NET INCOME (LOSS)....................................... $ 20,129 $ 30,983 $ (8,305)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-46
<PAGE> 147
HISTORICAL RED LION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
AND SEVEN MONTHS ENDED JULY 31, 1995
(In thousands)
<TABLE>
<CAPTION>
PARTNERS' ACCUMULATED
CAPITAL DEFICIT TOTAL
--------- ----------- --------
<S> <C> <C> <C>
BALANCE, December 31, 1992................................ $ 180,000 $ (67,520) $112,480
Net loss.................................................. -- (8,305) (8,305)
-------- -------- --------
BALANCE, December 31, 1993................................ 180,000 (75,825) 104,175
Net income................................................ -- 30,983 30,983
-------- -------- --------
BALANCE, December 31, 1994................................ 180,000 (44,842) 135,158
Net income................................................ -- 20,129 20,129
-------- -------- --------
BALANCE, July 31, 1995.................................... $ 180,000 $ (24,713) $155,287
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-47
<PAGE> 148
HISTORICAL RED LION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31,
JULY 31, --------------------
1995 1994 1993
------------ -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 20,129 $ 30,983 $ (8,305)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of accounting change................ -- -- 29,878
Loss on sale of property.............................. -- -- 1,701
Income attributable to joint venturers' interests..... (411) 1,321 323
Equity in earnings of unconsolidated joint ventures... (1,614) (1,327) (1,213)
Depreciation and amortization......................... 16,316 31,313 31,144
Amortization of other assets (principally deferred
loan costs)......................................... 737 1,927 1,612
Decrease (increase) in accounts receivable, net....... (1,185) (2,217) 72
Increase in accounts receivable, affiliates........... (1,441) (1,545) (6,253)
Decrease (increase) in inventories.................... 435 (520) 714
Decrease (increase) in prepaid expenses and other
current assets...................................... (1,305) 89 (249)
Increase (decrease) in accounts payable, accrued
expenses and other long-term obligations............ (4,548) 4,920 5,139
-------- -------- --------
Total adjustments........................................ 6,984 33,961 62,868
-------- -------- --------
Net cash provided by operating activities........ 27,113 64,944 54,563
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment....................... (15,858) (23,959) (20,002)
Proceeds from sale of property and equipment............. -- -- 1,190
Distributions to joint venturers......................... (252) (1,241) (467)
Purchase of short-term debt securities................... (19,694) (44,307) --
Proceeds from sales of short-term debt securities........ 60,585 3,416 --
Other investing activities, net.......................... 1,751 72 1,911
-------- -------- --------
Net cash (used in) provided by investing
activities..................................... 26,532 (66,019) (17,368)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings....................... $ 1,223 $ 1,892 $ 50,430
Net increase (decrease) in revolving lines of credit..... -- 72,000 (14,148)
Repayment of long-term debt.............................. (13,839) (45,523) (71,550)
Other financing activities............................... -- (768) (2,053)
-------- -------- --------
Net cash (used in) provided by financing
activities..................................... (12,616) 27,601 (37,321)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 41,029 26,526 (126)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 27,804 1,278 1,404
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 68,833 $ 27,804 $ 1,278
======== ======== ========
</TABLE>
F-48
<PAGE> 149
HISTORICAL RED LION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED YEARS ENDED
JULY 31, DECEMBER 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest,
net of capitalized portion............................ $ 23,633 $ 28,368 $ 26,738
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of property for noncash consideration........... $ -- $ -- $ 1,500
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-49
<PAGE> 150
HISTORICAL RED LION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Red Lion, a California Limited Partnership ("Historical Red Lion"),
acquired interests in certain hotels, motor inns and supporting auxiliary
enterprises on April 10, 1985, which were previously operating as Red Lion Inns
and Thunderbird Motor Inns. One of the previous principal owners contributed his
ownership interests in exchange for a limited partnership interest in Historical
Red Lion.
On April 14, 1987, Historical Red Lion sold its interest in 10 hotels to
Red Lion Inns Limited Partnership, a publicly traded limited partnership (the
"MLP"). Red Lion Properties, Inc., a wholly-owned subsidiary of Historical Red
Lion, is the general partner of the MLP. Since completion of this sale, the
MLP's limited partners have had an effective 98.01% ownership interest in the
hotels with the general partner retaining the remaining 1.99% ownership
interest. Historical Red Lion operates the MLP's hotels under a management
agreement.
Basis of Presentation
The accompanying consolidated financial statements include Historical Red
Lion, its wholly-owned subsidiaries and five of its seven partially owned joint
ventures. Historical Red Lion consolidates those entities which it controls.
Historical Red Lion is the managing general partner, controls and owns 75
percent, 66.67 percent, 66.67 percent, 51 percent and 50 percent of the joint
venture interests of the five consolidated joint ventures. Historical Red Lion
consolidates one of its 50 percent owned joint ventures because Historical Red
Lion controls the joint venture through contractual arrangements, has the
majority of capital at risk through its significant ownership percentage and has
guaranteed 100 percent of the joint venture's third party debt. The remaining
two joint ventures are accounted for using the equity method of accounting. Each
of the seven joint ventures is a single purpose venture whose only business is
the operation of one Red Lion hotel.
Operating revenues and expenses and current assets and current liabilities
of the MLP and other management contract hotels (including the two
unconsolidated joint ventures which are also managed by Historical Red Lion) are
included in the accompanying consolidated financial statements because the
operating responsibilities associated with these hotels are substantially the
same as those for owned hotels. The operating profit net of management fee
income for managed hotels is recorded as an expense in the accompanying
consolidated statements of operations. The consolidated financial statements
also include the following amounts related to managed hotels (including the two
unconsolidated joint ventures which are also managed by Historical Red Lion):
current assets and current liabilities of $8,121,000 at December 31, 1994;
operating revenues of $155,668,000, $166,283,000 and $110,684,000 for the years
ended December 31, 1993 and 1994 and for the seven month period ended July 31,
1995, respectively; and operating expenses of $107,801,000, $113,131,000 and
$72,216,000 for the years ended December 31, 1993 and 1994 and for the seven
month period ended July 31, 1995, respectively.
One wholly-owned hotel was acquired in 1989 subject to a non-recourse
cash-flow mortgage which requires interest payments contingent on achieving
certain levels of performance. Because of the non-recourse and cash flow nature
of the loan, the mortgage has not been recorded as an obligation, and the
property and equipment of the hotel are excluded from the accompanying
consolidated financial statements. The mortgage is in substance a management
contract with a purchase option. Accordingly, the hotel is treated as a
management contract in the accompanying consolidated financial statements.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
F-50
<PAGE> 151
HISTORICAL RED LION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks, certificates
of deposit, time deposits and U.S. government and other short-term securities
with maturities of three months or less when purchased. The carrying amount
approximates fair value because of the short term maturity of these instruments.
Short-Term Debt Securities
Short-term debt securities include treasury bills, commercial paper and
other short-term debt securities with maturities greater than three months when
purchased. All of these securities mature within ten months from December 31,
1994. As the securities are actively traded, Historical Red Lion has classified
these investments as trading securities and these securities are recorded at
market which approximated cost at December 31, 1994.
Accounts Receivable
Accounts receivable are shown net of allowances for doubtful accounts of
$357,000 at December 31, 1994 and approximate fair value.
Inventories
Inventories consist primarily of consumable supplies as well as food and
beverage products held for sale. Inventories are valued at the lower of cost,
determined on a first-in, first-out basis, or market.
Property and Equipment
Property and equipment consist of the following at December 31, 1994 (in
thousands):
<TABLE>
<S> <C>
Land............................................................. $ 70,579
Buildings and improvements....................................... 500,922
Furnishings and equipment........................................ 183,506
Construction in progress......................................... 7,878
--------
762,885
Less allowance for depreciation and amortization................. (248,078)
--------
$ 514,807
========
</TABLE>
Additions and improvements are capitalized at cost, including interest
costs incurred during construction. There was no capitalized interest during the
seven month period ended July 31, 1995, or during each of the two years ended
December 31, 1994. Normal repairs and maintenance are charged to expense as
incurred. Upon the sale or retirement of property and equipment, the cost and
related accumulated depreciation and amortization are removed from the
respective accounts and the resulting gain or loss, if any, is included in
income.
Base stock (linens, china, silverware and glassware) is depreciated to 50%
of its initial cost on a straightline basis over three years. Subsequent
replacements are expensed when placed in service. The carrying value of base
stock is included in furnishings and equipment as noted above.
Depreciation and amortization of property and equipment were computed on a
straight-line basis using the following estimated useful lives:
<TABLE>
<S> <C>
Buildings....................................................... 40 years
Improvements.................................................... 10-15 years
Furnishings and equipment....................................... 3-15 years
</TABLE>
F-51
<PAGE> 152
HISTORICAL RED LION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective January 1, 1993, Historical Red Lion prospectively changed the
estimated useful lives of its buildings to 40 years from lives averaging 32
years. The change was made to align building lives with actual experience and
common industry practice. The effect of the change was to decrease depreciation
expense for 1993 by approximately $2,600,000.
Effective January 1, 1993, Historical Red Lion changed its accounting
method for measuring impairment of hotel properties from using undiscounted
future cash flows to discounted future cash flows. Historical Red Lion made this
change because it believes this is a preferable method of measuring impairment
of hotel properties. As a result of this change, the 1993 consolidated financial
statements include a reduction in the carrying value of one hotel of $29,878,000
reflected as a cumulative effect of accounting change in the accompanying
consolidated statements of operations for the year ended December 31, 1993. The
reduction in depreciation expense as a result of this change was $994,000 in
1993.
Investment in Unconsolidated Joint Ventures
Historical Red Lion is a partner in two joint ventures that are accounted
for on the equity method of accounting. Historical Red Lion's equity in and
advances to these joint ventures are shown under the caption "Investment in
Unconsolidated Joint Ventures" in the accompanying consolidated balance sheets.
Because Historical Red Lion manages these joint ventures, they are accounted for
as managed hotels, and therefore, the operating working capital of the hotels
are consolidated in the accompanying consolidated balance sheets.
Profits and losses of these joint ventures are allocated in accordance with
the joint venture agreements. Because the hotels are accounted for as managed
hotels, the operating revenues and expenses are consolidated in the accompanying
statements of operations with Historical Red Lion's share of the income or
losses of the joint ventures (after management fee income) recorded under the
caption "Equity in Earnings of Unconsolidated Joint Ventures." If a joint
venture experiences operating losses which reduce the other joint venture
partner's equity to a zero balance, the loss which would otherwise be
attributable to the other joint venturer is absorbed within Historical Red
Lion's consolidated operating results.
Summarized financial information for the unconsolidated joint ventures,
excluding the working capital and operating revenues and expenses which are
consolidated in Historical Red Lion's consolidated financial statements, is as
follows (in thousands and unaudited):
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
ASSETS
Total current assets............................................ $ 470
Property and equipment, net..................................... 24,161
Goodwill, net................................................... 701
Other assets.................................................... 68
--------
$ 25,400
========
LIABILITIES AND PARTNERS' DEFICIT
Total current liabilities....................................... $ 1,076
Long-term debt, excluding current portion....................... 8,913
Historical Red Lion advances.................................... 26,973
Partners' deficit............................................... (11,562)
--------
$ 25,400
========
</TABLE>
F-52
<PAGE> 153
HISTORICAL RED LION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31,
JULY 31, -----------------
1995 1994 1993
------------ ------ ------
<S> <C> <C> <C>
Revenues (payments from Historical Red Lion
representing gross operating profit)....... $4,533 $6,642 $5,831
Expenses (principally depreciation and
interest on
outside debt and Historical Red Lion
advances).................................. 4,484 6,850 5,817
------ ------ ------
Net income (loss)............................ $ 49 $ (208) $ 14
====== ====== ======
</TABLE>
Goodwill
Goodwill resulted from the April 10, 1985 acquisition and represents the
excess of purchase price over the net fair value of assets acquired and is being
amortized on a straight-line basis over 40 years. Accumulated amortization was
$11,177,000 at December 31, 1994. Management evaluates its accounting for
goodwill impairment, considering such factors as historical and future
profitability, annually, or more frequently when events or changes in
circumstances indicate that the carrying amount of goodwill may not be
recoverable. To perform that review, the Company estimates the sum of expected
future discounted cash flows from operating activities. If the estimated net
cash flows are less than the carrying amount of goodwill, the Company will
recognize an impairment loss in an amount necessary to write down goodwill to a
fair value as determined from expected future discounted cash flows. Management
believes that the goodwill at December 31, 1994 is realizable and the
amortization period is appropriate.
Deferred Loan Costs
Deferred loan costs are included in other assets, net and represent prepaid
mortgage financing fees which are amortized over the life of the associated
mortgages.
Other Assets
Other assets include approximately $2.7 million of costs incurred through
December 31, 1994 related to the initial public offering. This amount was
contributed to Red Lion Hotels, Inc. and netted against the proceeds of such
initial public offering.
Accrued Expenses
Accrued expenses include the following items at December 31, 1994 (in
thousands):
<TABLE>
<S> <C>
Accrued payroll and related costs.................................. $20,682
Accrued interest................................................... 2,676
Other.............................................................. 9,649
-------
$33,007
=======
</TABLE>
Insurance Reserves
Historical Red Lion provides for the uninsured costs of medical, property,
liability and workers compensation claims. Such costs are estimated each year
based on historical claim data relating to operations conducted through December
31, 1994. The long-term portion of accrued claims costs relate primarily to
general liability and workers compensation claims and are reflected in other
long-term obligations in the accompanying consolidated balance sheets.
F-53
<PAGE> 154
HISTORICAL RED LION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Historical Red Lion is a limited partnership. Accordingly, no provision is
made for income taxes as taxes on income are the responsibility of the partners.
The allocation of taxable income or loss and depreciation expense to each
partner is based on the terms of the partnership agreement.
Property Indirect Expenses
Property indirect expenses include undistributed property expenses for
selling, general and administrative, utilities, repairs and maintenance, and an
allocation of certain corporate services (such as marketing, legal, tax and
accounting services) related to the operation of the properties.
Other Costs
Other costs include corporate administrative and general expenses, property
taxes, insurance, leases and other miscellaneous costs.
Payments Due to Owners of Managed Hotels
"Payments due to owners of managed hotels" is analogous to rent owed to
outside owners due to the nature of the management contracts and the control
Historical Red Lion has over operations. The amounts shown on the statements of
operations are net of management fee income of $6,145,000 and $10,311,000 for
1993 and 1994, respectively, and $6,395,000 for the seven month period ended
July 31, 1995.
Joint Venturers' Interests
Historical Red Lion is a partner in seven joint ventures, each of which
owns a separate hotel. The assets and liabilities of five of the seven joint
ventures are fully consolidated in the accompanying financial statements. The
other joint ventures are accounted for on the equity method of accounting (see
Investment in Unconsolidated Joint Ventures above). The assets and liabilities
attributable to joint venturers' interests existing at the date of the April 10,
1985 acquisition were valued at historical amounts and were not revalued to
reflect appraised values at that date. The caption "joint venturers' interests"
represents the net equity attributable to the joint venturers' interests,
including their share of income, losses, distributions and contributions.
Profits and losses of each joint venture are allocated in accordance with a
joint venture agreement. If a joint venture experiences operating losses which
reduce the other joint venture partner's equity to a zero balance, the loss
which would otherwise be attributable to the other joint venturer is absorbed
within Historical Red Lion's consolidated operating results.
Prior Year Restatements
In 1994, Historical Red Lion retroactively changed two of its accounting
principles for all years presented in the accompanying consolidated financial
statements as follows:
- In prior years, Historical Red Lion generally absorbed losses
attributable to other joint venturers' interests once the equity of
the other joint venturer was reduced to zero. However, certain
distributions and losses attributable to other joint venturers'
interests were not absorbed by Historical Red Lion if such amounts
were deemed recoverable from the fair value of the joint ventures'
assets. Accordingly, these distributions and losses were reflected
as joint ventures' interests in the consolidated balance sheets. In
1994, Historical Red Lion changed its accounting policy to absorb
all losses and distributions to outside joint venturers once a
partner's equity has been reduced to zero. Historical Red Lion
changed its accounting policy for joint ventures'
F-54
<PAGE> 155
HISTORICAL RED LION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest to more closely align with the accounting treatment discussed
in Emerging Issues Task Force No. 94-2 issued in 1994. This change
decreased income before cumulative effect of accounting change by
$515,000 for the year ended December 31, 1993. The change also
increased accumulated deficit at December 31, 1991 by approximately
$11.8 million.
- Two of Historical Red Lion's 50 percent owned joint ventures, which
had been previously consolidated, are now accounted for on the
equity method. Historical Red Lion's five other joint ventures
continue to be consolidated in the accompanying financial
statements. There was no effect of this change on net income or
partners' equity in any year.
Prior Year Reclassifications
Certain prior year amounts have been reclassified to conform to current
year presentation.
2. LONG-TERM DEBT
Long-term debt at December 31, 1994 consists of the following (in
thousands):
<TABLE>
<S> <C>
Mortgages, secured by hotel properties, variable rates, 7.13% to
10%, payable in varying installments through 1999............... $390,750
Mortgages, secured by hotel properties, fixed rates, 8.75% to 11%,
payable in varying installments through 2008.................... 4,211
Note payable, fixed rate, 8.69%, payable through 2022............. 4,341
Bank revolving credit lines, unsecured............................ --
Term loan, unsecured, variable rate, 8.06%, payable through
1997............................................................ 98,000
--------
497,302
Current portion of long-term debt................................. (108,358)
--------
Long-term debt, excluding current portion............... $388,944
========
</TABLE>
The annual principal requirements for the five years subsequent to December
31, 1994 are as follows (in thousands):
<TABLE>
<S> <C>
1995............................................................ $108,358
1996............................................................ 110,328
1997............................................................ 215,120
1998............................................................ 46,992
1999............................................................ 15,298
Thereafter...................................................... 1,206
--------
$497,302
========
</TABLE>
The current portion of long-term debt at December 31, 1994 includes $87
million related to balloon payments on four mortgages which are due in 1995.
Management believes that these maturities can be satisfied from existing or
future financing resources.
Loan Extension Options
The above presentation of principal payments due for each of the five years
subsequent to December 31, 1994 and thereafter reflects Historical Red Lion's
plan to exercise certain options under the existing loan agreements to extend
the due dates of various loans.
F-55
<PAGE> 156
HISTORICAL RED LION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revolving Credit Lines and Term Loan
At December 31, 1993, Historical Red Lion had two revolving credit line
facilities, with a combined total amount available of $105 million, of which
$32,218,000 was outstanding, including amounts due under the cash management
system.
Historical Red Lion's primary credit agreement provided a $100 million
three-year revolving credit line with variable interest rates that varied, at
Historical Red Lion's option, on the bank's prime rate, certificate of deposit
rate or the London Interbank Offering Rate (LIBOR). The weighted average
interest rate for 1993 was 5.4%, with the rate at December 31, 1993, equal to
5.3%. At December 31, 1993, $26 million was outstanding under this line.
The credit agreement, with the same interest rate options, converted to a
three-year term loan on September 1, 1994. At December 31, 1994, $98 million was
outstanding under this term loan. Quarterly principal payments, equal to 2% of
the term loan balance as of September 1, 1994, will be required through 1997 at
which time the remaining principal balance will be due and payable. The weighted
average interest rate for 1994 was 6.92% with the rate at December 31, 1994
equal to 8.06%. Historical Red Lion must maintain, among other things, certain
financial covenants over the term of the loan. As of December 31, 1994,
Historical Red Lion was in compliance with these covenants.
Historical Red Lion also had a $5 million line of credit which was
terminated in 1994.
Historical Red Lion had outstanding letters of credit of $10,762,000 at
December 31, 1994. These letters of credit are unsecured.
Interest Rate Swap Agreements
Historical Red Lion enters into interest rate swap agreements in order to
lessen its exposure to interest rate changes. The agreements have effectively
converted floating rate debt, which is tied to LIBOR, to fixed rate debt. The
interest cost relating to interest rate swap agreements for the years ended
December 31, 1993 and 1994 was $1,345,000 and $743,000, respectively, and
interest income for the seven months ended July 31, 1995 was $353,000.
At December 31, 1994, Historical Red Lion had three interest rate swap
agreements outstanding which have substantially converted $75 million of debt
from floating LIBOR based rates to all-in fixed rates ranging from 7.01% to
7.39% in 1994. The terms of the agreements range from four and one half to five
years.
These agreements are with major commercial banks and the exposure to a
credit loss in the event of nonperformance by the banks is minimal.
Disclosures About Fair Value of Financial Instruments
Based on the borrowing rates currently quoted by financial institutions for
bank loans with terms and maturities similar to Historical Red Lion's long-term
debt, the carrying value of such debt approximates its fair value. Based on
quotes obtained from dealers, Historical Red Lion would have had a gain of
approximately $5,375,000 to settle the interest rate swap agreements at December
31, 1994.
3. LEASES
Certain Historical Red Lion hotels are located on leased land. Two of these
leases contain rental provisions which are based on a percentage of revenues.
All land leases extend over the remaining useful lives of the buildings situated
thereon. Historical Red Lion also leases certain office space and equipment
under operating leases. Total land, office and equipment rent expense was
$1,252,000 and $1,350,000 for the years ended December 31, 1993 and 1994,
respectively and $961,000 for the seven months ended July 31, 1995.
F-56
<PAGE> 157
HISTORICAL RED LION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments subsequent to December 31, 1994 required
under land, office and equipment leases are as follows (in thousands).
<TABLE>
<S> <C>
1995............................................................... $ 975
1996............................................................... 945
1997............................................................... 898
1998............................................................... 721
1999............................................................... 668
Thereafter......................................................... 12,786
-------
$16,993
=======
</TABLE>
4. EMPLOYEE BENEFIT PLANS
Historical Red Lion has a defined contribution 401(k) retirement plan for
all full time, non-union employees who have completed one year of service and
who have attained the age of 21 years.
Under the 401(k) plan, Historical Red Lion contributes amounts equal to
each participants' elected contributions up to 6% of eligible compensation.
Pension expense under this plan was $1,670,000 and $1,758,000 for the years
ended December 31, 1993 and 1994, respectively, and $1,338,000 for the seven
months ended July 31, 1995.
Historical Red Lion also has a non-qualified supplemental employee
retirement plan ("SERP"). The SERP was designed to complement the 401(k) plan by
restoring participants' benefits otherwise lost by certain employees due to the
statutory limits in the 401(k) plan. The pension expense under the SERP was
$287,000 and $322,000 for the years ended December 31, 1993 and 1994,
respectively, and $126,000 for the seven months ended July 31, 1995.
Certain management employees are participants in an incentive unit plan.
Participation units are awarded at the discretion of Historical Red Lion's
general partner. No units have been awarded since 1991. Awarded units vest five
years after the award date and are payable five years after vesting or earlier
under certain circumstances. Unit values are determined by various formulas tied
to cash flow, as defined, and appreciation in value of Historical Red Lion and
partners' equity. No accrual for this plan was required for the years ended
December 31, 1993 or 1994, or the seven month period ended July 31, 1995.
The Chief Executive Officer of Historical Red Lion has an incentive
compensation agreement, the value of which is tied to the increase, if any, in
the value of Historical Red Lion's partners' equity. No accrual for this
agreement was required for the years ended December 31, 1993 or 1994, or the
seven month period ended July 31, 1995.
5. COMMITMENTS AND CONTINGENCIES
At December 31, 1994, Historical Red Lion had commitments, relating to
capital improvement projects, of $7,994,000.
Historical Red Lion is party to litigation arising in the ordinary course
of business. In the opinion of management, these actions will not have a
material adverse effect, if any, on Historical Red Lion's financial position,
results of operations or liquidity.
6. RELATED PARTY TRANSACTIONS
At December 31, 1994, other assets, net, include $1,483,000 of interest
bearing notes receivable from a joint venturer.
F-57
<PAGE> 158
HISTORICAL RED LION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other significant related party transactions are discussed in Notes 1
and 7.
7. TRANSACTIONS WITH RED LION INNS LIMITED PARTNERSHIP
As discussed in Note 1, Red Lion Properties, Inc. ("Properties"), a
wholly-owned subsidiary of Historical Red Lion, serves as general partner and
owns 1.99% of the MLP.
Historical Red Lion manages the MLP hotels pursuant to a management
agreement and receives a base management fee equal to 3% of annual gross
revenues plus an incentive management fee based on adjusted gross operating
profit, as defined in the management agreement. The management agreement, which
began in 1987, has a seventy-five year term including renewal options.
Historical Red Lion also charges the MLP hotels for their pro rata share of
support services such as computer, advertising, public relations, promotional
and sales and central reservation services.
All the MLP personnel are employees of Historical Red Lion and its
affiliates. Additionally, auxiliary enterprises owned by Historical Red Lion
sell operating supplies, furnishings and equipment to the MLP. In the opinion of
management, sales to the MLP by the auxiliary enterprises were made at prices
and terms which approximate arms-length transactions.
The aggregate amounts, excluding personnel related expenses, charged to the
MLP under the arrangements described above were as follows (in thousands):
<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31,
JULY 31, -----------------
1995 1994 1993
------------ ------ ------
<S> <C> <C> <C>
Management fees...................................... $4,956 $7,456 $4,029
Support services..................................... 2,409 3,778 3,653
Purchase from auxiliary enterprises.................. 5,184 9,513 9,409
</TABLE>
Incentive management fees are subordinate to distributions by the MLP to
facilitate current payment of distributions to the limited partners. The
subordinated fees accrue without interest up to a maximum amount of $6 million.
This ceiling was reached in 1988 and, because management does not anticipate it
will be paid during 1995, such amount has been classified as non-current under
the caption other assets, net, in the consolidated balance sheet at December 31,
1994.
At December 31, 1994, other assets, net, include $3,726,000 which
Properties advanced to the MLP under a $4 million credit facility made available
to facilitate cash distributions to partners during the MLP's first 36 months of
operations. The amount outstanding under this facility will be repaid to
Historical Red Lion out of either (i) cash flow after payment of priority
distributions and incentive management fees or (ii) sale or refinancing proceeds
prior to any distribution to limited partners.
In addition to the incentive management fee and general partner loan
discussed above, Historical Red Lion was due $13,482,000 from the MLP for
services, payroll funding and capital expenditure funding provided as of
December 31, 1994. These amounts are included in accounts receivable, affiliates
in the consolidated balance sheet, net of working capital related to the managed
MLP hotels of $1,160,000, at December 31, 1994.
F-58
<PAGE> 159
HISTORICAL RED LION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized income statement information for MLP is as follows (in
thousands):
<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31,
JULY 31, -------------------
1995 1994 1993
------------ ------- -------
<S> <C> <C> <C>
Revenues........................................... $ 22,258 $35,620 $32,511
======= ======= =======
Income before cumulative effect of change in
accounting principle............................. 2,153 2,929 3,206
Cumulative effect of change in accounting for
income taxes..................................... -- -- (1,351)
------- ------- -------
Net income......................................... $ 2,153 $ 2,929 $ 1,855
======= ======= =======
</TABLE>
Revenues of the MLP represent the gross operating profit (operating
revenues less operating expenses) of the MLP hotels as this amount is similar to
gross rent received from Historical Red Lion to manage the hotels. As discussed
in Note 1, the operating revenues and expenses of the MLP hotels are
consolidated in Historical Red Lion's consolidated financial statements.
Consolidation of the operating revenues and expenses of the MLP does not
affect Historical Red Lion's cash flow or net income except to the extent that
management fees were paid.
Summarized balance sheet information for the MLP, not included in the
accompanying consolidated balance sheet (including amounts due from and owed to
Historical Red Lion) is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Cash.................................................................... $ --
Noncurrent assets, primarily property and equipment..................... 165,205
Current liabilities..................................................... 17,343
Long-term obligations, net of current portion........................... 123,430
Deferred income taxes................................................... 1,401
Partners' equity........................................................ 23,031
</TABLE>
8. LOSS ON SALE OF PROPERTY
During 1993, Historical Red Lion recorded a loss of $1,701,000 which
resulted from the sale of excess land and other assets.
9. SUBSEQUENT EVENTS (UNAUDITED)
On August 1, 1995, Historical Red Lion contributed substantially all of its
assets (excluding 17 hotels (the "Leased Hotels"), certain minority joint
venture interests and certain current assets) and certain liabilities to Red
Lion Hotels, Inc. ("RLHI") in exchange for 20,899,900 shares of RLHI's common
stock. An additional 10,062,500 shares of RLHI's common stock were sold to the
public at the August 1, 1995 closing of RLHI's initial public offering, raising
net proceeds of $173,388,000.
Also on August 1, 1995, Historical Red Lion paid $50,052,000 of the
remaining indebtedness and contributed the Leased Hotels and the remaining
related debt to a new partnership wholly-owned by Historical Red Lion. Such
debt, aggregating approximately $91,136,000, was repaid with proceeds from a
$97,500,000 refinancing of the Leased Hotels.
F-59
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[DOUBLETREE LOGO]
<PAGE> 162
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued October 15, 1996
5,000,000 Shares
DOUBLETREE CORPORATION LOGO
COMMON STOCK
------------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE 5,000,000 SHARES OF COMMON STOCK BEING OFFERED, 1,000,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 4,000,000 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS. SEE "UNDERWRITERS." THE COMPANY'S COMMON STOCK IS
QUOTED ON THE NASDAQ STOCK MARKET'S NATIONAL MARKET UNDER THE
SYMBOL "TREE." ON OCTOBER 14, 1996, THE REPORTED LAST SALE
PRICE OF THE COMMON STOCK WAS $45 5/8 PER SHARE.
------------------------
The Company will use the net proceeds from the sale of the Shares of Common
Stock made hereby to provide a portion of the financing for the acquisition of
Red Lion Hotels, Inc. pursuant to the Merger (as defined herein). The offering
of Common Stock made hereby is contingent upon the consummation of the Merger,
which in turn is subject to certain conditions. See "The Merger and the
Financing Plan."
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED UPON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
---------------- ------------------ ----------------
<S> <C> <C> <C>
Per Share..................... $ $ $
Total(3)...................... $ $ $
</TABLE>
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at
$1,000,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
750,000 additional shares of Common Stock at the price to public, less
underwriting discounts and commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total price to public, underwriting discounts and
commissions and proceeds to the Company will be $ , $ and
$ , respectively. See "Underwriters."
------------------------
The Shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein, and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the Shares of Common Stock will be made on or about
, 1996 at the offices of Morgan Stanley & Co. Incorporated, New
York, New York, against payment therefor in same day funds.
------------------------
MORGAN STANLEY & CO.
International
MONTGOMERY SECURITIES
J. HENRY SCHRODER & CO. LIMITED
November , 1996
<PAGE> 163
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered. All amounts are estimates
except the Securities and Exchange Commission registration fee and the NASD
filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO
BE PAID
----------
<S> <C>
Securities and Exchange Commission Registration Fee...................... $ 79,304
NASD Filing Fee.......................................................... 23,500
Nasdaq National Market Application Fee................................... 17,500
Printing costs........................................................... 250,000
Legal fees and expenses (other than blue sky)............................ 250,000
Accounting fees and expenses............................................. 175,000
Blue Sky fees and expenses............................................... 40,000
Transfer Agent and Registrar fees and expenses........................... 5,000
Miscellaneous............................................................ $ 159,696
---------
Total.......................................................... $1,000,000
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the Delaware General Corporation Law ("the DGCL"), a
director of the Company shall not be liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director. Under the
current DGCL, liability of a director may not be limited (i) for any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases and (iv) for any transaction from which the
director derives an improper personal benefit. The effect of the provision of
the Company's Certificate of Incorporation is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (i) through (iv) above. This provision does not limit or eliminate the
rights of the Company or any stockholder to seek nonmonetary relief such as a
injunction or rescission in the event of a breach of a director's duty of care.
In addition, the Company's Certificate of Incorporation provides that the
Company shall indemnify its directors, officers, employees and agents against
losses incurred by any such person by reason of the fact that such person was
acting in such capacity.
In addition, the Company has entered into agreements (the "Indemnification
Agreements") with each of the directors and officers of the Company pursuant to
which the Company has agreed to indemnify such director or officer from damages,
judgments, fines, penalties, settlements and costs, attorneys' fees and
disbursements, and costs of attachment or similar bonds, investigation, or any
expenses of establishing a right to indemnification under the Indemnification
Agreements incurred by such director or officer and arising out of his or her
capacity as a director, trustee, officer, employee and/or agent of the
corporation of which he or she is a director or officer to the maximum extent
provided by applicable law. In addition, such director or officer will be
entitled to an advance of expenses to the maximum extent authorized or permitted
by law to meet the obligations indemnified against; provided, however, that the
director or officer will repay to the Company any expenses previously advanced
to the extent that it is determined that such expenses were not reasonable in
that the director or officer was not entitled to indemnification therefor.
II-1
<PAGE> 164
To the extent that the Board of Directors or the stockholders of the
Company may in the future wish to limit or repeal the ability of the Company to
indemnify directors, such repeal or limitation may not be effective as to
directors and officers who are currently parties to the Indemnification
Agreements, because their rights to full protection are contractually assured by
the Indemnification Agreements. It is anticipated that similar contracts may be
entered into, from time to time, with future directors of the Company.
ITEM 16. EXHIBITS.
(a) EXHIBITS.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.
2.1** -- Agreement and Plan of Merger dated as of September 12, 1996, by and among
Doubletree Corporation, RLH Acquisition Corp. and Red Lion Hotels, Inc.
2.2* -- Form of Third Amendment to the Incorporation and Registration Rights Agreement to
be entered into by and among Doubletree Corporation, GE Investment Hotel Partners
I, Limited Partnership, Metpark Funding Inc., The Ueberroth Family Trust,
Ueberroth Investment Trust, Richard J. Ferris, Ridge Partners, L.P., Robert M.
Solmson (for himself and as attorney-in-fact for the RFS Shareholders, as defined
therein), Canadian Pacific Hotels Holdings (U.S.) Inc. and Red Lion, a California
Limited Partnership.
2.3* -- Form of Partnership Services Agreement to be entered into by and among Doubletree
Corporation, Red Lion Hotels, Inc., Red Lion, a California Limited Partnership
and the affiliates thereof identified therein.
4.1*** -- Certificate of Incorporation of Doubletree Corporation.
4.2*** -- By-Laws of Doubletree Corporation.
5.1 -- Opinion of Dewey Ballantine as to the legality of the securities.
10.1* -- Acquisition Financing Letter dated September 12, 1996 among Morgan Stanley Senior
Funding, Inc., The Bank of Nova Scotia and Doubletree Corporation, relating to
the New Credit Facility described in the Prospectus included in this Registration
Statement.
10.2* -- Summary of Terms and Conditions dated September 10, 1996, as agreed to among
Morgan Stanley Group, Inc., The Bank of Nova Scotia, First Union Corporation,
Societe Generale Investment Corporation and Doubletree Corporation, relating to
the Bridge Loan described in the Prospectus included in this Registration
Statement.
10.3* -- Commitment letter dated September 6, 1996, as supplemented on September 12, 1996,
from General Electric Investment Corporation to Doubletree Corporation.
10.4 -- Form of Securities Purchase Agreement by and between Doubletree Corporation and
the Trustees of General Electric Pension Trust.
10.5 -- Form of Warrant to Purchase Common Stock of Doubletree Corporation to be issued
to General Electric Pension Trust or an affiliate thereof.
10.6 -- Form of Credit Agreement by and among Doubletree Corporation, Morgan Stanley &
Co. Incorporated, as syndication agent, The Bank of Nova Scotia, as
administrative agent, and the lenders identified therein.
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Arthur Andersen LLP.
23.4 -- Consent of Dewey Ballantine (included in Exhibit 5.1).
23.5* -- Consent of Michael W. Michelson.
</TABLE>
II-2
<PAGE> 165
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<S> <C> <C>
23.6* -- Consent of Edward I. Gilhuly.
24.1* -- Powers of Attorney.
27.1* -- Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K dated September 12, 1996.
*** Previously filed by the Registrant in Registration No. 33-79188 and
incorporated by reference herein pursuant to Rule 12b-32 of the Exchange
Act.
(b) FINANCIAL STATEMENT SCHEDULES:
Schedule VII Valuation and Qualifying Account
All other schedules are omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or controlling persons of
the Registrant pursuant to the provisions described under Item 14 or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 166
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Phoenix, State of Arizona, on this
31st day of October, 1996.
DOUBLETREE CORPORATION,
a Delaware corporation
By: *
------------------------------------
Richard J. Ferris
Co-Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by each of the following
persons in the capacities indicated on October 31, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- -----------------------------------------------
<C> <S>
* Co-Chairman of the Board and Director
- ---------------------------------------- (Principal Executive Officer)
Richard J. Ferris
* Co-Chairman of the Board and Director
- ----------------------------------------
Peter V. Ueberroth
/s/ WILLIAM L. PEROCCHI Executive Vice President, Chief Financial
- ---------------------------------------- Officer and Treasurer (Principal Financial and
William L. Perocchi Accounting Officer)
* Director
- ----------------------------------------
William R. Fatt
* Director
- ----------------------------------------
Dale F. Frey
* Director
- ----------------------------------------
Ronald K. Gamey
* Director
- ----------------------------------------
Norman B. Leventhal
* Director
- ----------------------------------------
John H. Myers
* Director
- ----------------------------------------
Richard M. Kelleher
*By /s/ DAVID L. STIVERS
- ----------------------------------------
David L. Stivers
Attorney-in-fact
</TABLE>
II-4
<PAGE> 167
SCHEDULE VII
DOUBLETREE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE ------------------------------------- BALANCE
AT CHARGED TO CHARGED TO ACQUIRED IN AT
YEAR ENDED BEGINNING COSTS AND OTHER DHC END OF
DECEMBER 31, DESCRIPTION OF YEAR EXPENSES ACCOUNTS ACQUISITION DEDUCTIONS YEAR
- ------------ ------------------------ --------- ---------- ---------- ----------- ---------- -------
<C> <S> <C> <C> <C> <C> <C> <C>
1995 Allowance for doubtful
accounts................ $ 393 211 0 0 (309)(1) $ 295
1994 Allowance for doubtful
accounts................ $ 291 189 0 0 (87)(1) $ 393
1993 Allowance for doubtful
accounts................ $ 15 56 0 260 (40) $ 291
</TABLE>
- ---------------
(1) Represents write-offs of amounts previously reserved.
<PAGE> 168
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C> <C>
EXHIBIT
NUMBER DESCRIPTION PAGE
- -------- --------------------------------------------------------------------------- ----
1.1 -- Form of Underwriting Agreement.............................................
2.1** -- Agreement and Plan of Merger dated as of September 12, 1996, by and among
Doubletree Corporation, RLH Acquisition Corp. and Red Lion Hotels, Inc.....
2.2* -- Form of Third Amendment to the Incorporation and Registration Rights
Agreement to be entered into by and among Doubletree Corporation, GE
Investment Hotel Partners I, Limited Partnership, Metpark Funding Inc., The
Ueberroth Family Trust, Ueberroth Investment Trust, Richard J. Ferris,
Ridge Partners, L.P., Robert M. Solmson (for himself and as
attorney-in-fact for the RFS Shareholders, as defined therein), Canadian
Pacific Hotels Holdings (U.S.) Inc. and Red Lion, a California Limited
Partnership................................................................
2.3* -- Form of Partnership Services Agreement to be entered into by and among
Doubletree Corporation, Red Lion Hotels, Inc., Red Lion, a California
Limited Partnership and the affiliates thereof identified therein..........
4.1*** -- Certificate of Incorporation of Doubletree Corporation.....................
4.2*** -- By-Laws of Doubletree Corporation..........................................
5.1 -- Opinion of Dewey Ballantine as to the legality of the securities...........
10.1* -- Acquisition Financing Letter dated September 12, 1996 among Morgan Stanley
Senior Funding, Inc., The Bank of Nova Scotia and Doubletree Corporation,
relating to the New Credit Facility described in the Prospectus included in
this Registration Statement.
10.2* -- Summary of Terms and Conditions dated September 10, 1996, as agreed to
among Morgan Stanley Group, Inc., The Bank of Nova Scotia, First Union
Corporation, Societe Generale Investment Corporation and Doubletree
Corporation, relating to the Bridge Loan described in the Prospectus
included in this Registration Statement.
10.3* -- Commitment letter dated September 6, 1996, as supplemented on September 12,
1996, from General Electric Investment Corporation to Doubletree
Corporation.
10.4 -- Form of Securities Purchase Agreement by and between Doubletree Corporation
and the Trustees of General Electric Pension Trust.........................
10.5 -- Form of Warrant to Purchase Common Stock of Doubletree Corporation to be
issued to General Electric Pension Trust or an affiliate thereof...........
10.6 -- Form of Credit Agreement by and among Doubletree Corporation, Morgan
Stanley & Co. Incorporated, as syndication agent, The Bank of Nova Scotia,
as administrative agent, and the lenders identified therein................
23.1 -- Consent of KPMG Peat Marwick LLP...........................................
23.2 -- Consent of Deloitte & Touche LLP...........................................
23.3 -- Consent of Arthur Andersen LLP.............................................
23.4 -- Consent of Dewey Ballantine (included in Exhibit 5.1)......................
23.5* -- Consent of Michael W. Michelson............................................
23.6* -- Consent of Edward I. Gilhuly...............................................
24.1* -- Powers of Attorney.........................................................
27.1* -- Financial Data Schedule....................................................
</TABLE>
- ---------------
* Previously filed.
** Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K dated September 12, 1996.
*** Previously filed by the Registrant in Registration No. 33-79188 and
incorporated by reference herein pursuant to Rule 12b-32 of the Exchange
Act.
<PAGE> 1
Exhibit 1.1
__________ Shares
Doubletree Corporation
Common Stock
UNDERWRITING AGREEMENT
November __, 1996
MORGAN STANLEY & CO. INCORPORATED
MONTGOMERY SECURITIES
SCHRODER WERTHEIM & CO. INCORPORATED
c/o MORGAN STANLEY & CO. INCORPORATED
1585 Broadway
New York, N.Y. 10036
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
MONTGOMERY SECURITIES
J. HENRY SCHRODER & CO. LIMITED
c/o MORGAN STANLEY & CO. INTERNATIONAL LIMITED
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs:
SECTION 1. Introductory. Doubletree Corporation, a Delaware
corporation ("Doubletree"), proposes to sell to the several underwriters (as
defined below) an aggregate of ______ shares (the "Firm Common Shares") of
Doubletree's common stock, $.01 per share ("Common Stock"). It is understood
that, subject to the conditions hereinafter stated, ________ Firm Common Shares
(the "U.S. Firm Common Shares") will be sold to the several U.S. underwriters
named in Schedule A I hereto (the "U.S. Underwriters") in connection with the
offering and sale of such U.S. Firm Common Shares in the United States and
Canada to United States and Canadian Persons (as such
<PAGE> 2
terms are defined in the Agreement between U.S. and International Underwriters
of even date herewith), and _______ Firm Common Shares (the "International Firm
Common Shares") will be sold to the several International Underwriters named in
Schedule A II hereto (the "International Underwriters") in connection with the
offering and sale of such International Firm Common Shares outside the United
States and Canada to persons other than United States and Canadian persons. The
U.S. Underwriters and the International Underwriters are hereinafter
collectively referred to as the "Underwriters". In addition, Doubletree proposes
to grant the U.S. Underwriters an option to purchase up to _________ additional
shares of Common Stock (the "Optional Common Shares"), as provided in Section 3
hereof, for the purposes of covering over-allotments in connection with the sale
of the Common Shares. The Firm Common Shares and, to the extent such option is
exercised, the Optional Common Shares are hereinafter collectively referred to
as the "Common Shares."
The Common Shares are being issued and sold in connection with
the acquisition (the "Acquisition") of Red Lion Hotels, Inc., a Delaware
corporation ("Red Lion"), by Doubletree. The Acquisition is being effected
pursuant to an Agreement and Plan of Merger, dated as of September 12, 1996 (the
"Merger Agreement"), by and among Doubletree, RLH Acquisition Corp., a Delaware
corporation and a wholly owned Subsidiary of Doubletree ("Merger Sub"), and Red
Lion. Pursuant to the Merger Agreement, Merger Sub will merge with and into Red
Lion with Red Lion continuing as the surviving corporation, and Doubletree will
acquire all of the issued and outstanding capital stock of Red Lion (the
"Merger"). At the time the Merger is consummated (the "Effective Time"), each
share of common stock, par value $.01 per share, of Red Lion (the "Red Lion
Common Stock") will be converted into the right to receive certain cash
consideration and Common Stock pursuant to the terms of the Merger Agreement. At
or prior to the closing of the Merger (the "Merger Closing"), Doubletree will,
in connection with the financing in part of the Merger, (i) enter into a Credit
Agreement (the "Senior Credit Facility") among Doubletree, Morgan Stanley Senior
Funding, Inc. as Syndication Agent and Arranger, The Bank of Nova Scotia as
Administrative Agent, and the lenders party thereto, and (ii) issue to General
Electric Pension Trust ("GEPT") or an affiliate thereof (collectively, the "GE
Entity") shares of Common Stock and warrants to purchase shares of Common Stock
(the "GE Warrants") for an aggregate purchase price of $100,000,000 (the "GE
Investment") pursuant to an agreement (the "GE Agreement"), dated September 6,
1996, between Doubletree and General Electric Investment Corporation. The shares
of Common Stock issued to the holders of Red Lion Common Stock pursuant to the
Merger and issued to the GE Entity pursuant to the GE Investment are referred to
herein collectively as the "Merger Shares." The Merger Agreement, the Senior
Credit Facility, the GE Agreement and this Agreement are collectively referred
to herein as the "Transaction Documents." The term "Company" as used herein
means Doubletree after giving effect to the Merger, on a stand-alone basis
excluding any subsidiaries. The term "Subsidiary" means (i) in the case of
Doubletree: each of the
2
<PAGE> 3
direct and indirect subsidiaries of Doubletree listed on Schedule D-1 hereto;
(ii) in the case of Red Lion: each of the direct and indirect subsidiaries of
Red Lion listed on Schedule D-2 hereto; and (iii) in the case of the Company:
Red Lion and each of the entities listed on Schedule D-1 and Schedule D-2
hereto, 50% of more of the voting or equity interests of which are owned
directly or indirectly by the Company after giving effect to the Merger.
Doubletree understands that the Underwriters propose to make a
public offering of their respective portions of the Common Shares on the
effective date of the Registration Statement hereinafter referred to or as soon
thereafter as in your judgment is advisable. Doubletree hereby confirms that the
U.S. Underwriters and any United States dealers have been authorized to
distribute or cause to be distributed each U.S. Preliminary Prospectus (as
defined below) and are authorized to distribute the U.S. Prospectus (as defined
below), as from time to time amended or supplemented, and that the International
Underwriters and any International dealers have been authorized to distribute or
cause to be distributed each International Prospectus (as defined below), as
from time to time amended or supplemented on the effective date of the
Registration Statement hereinafter referred to or as soon thereafter as in your
judgment is advisable.
Doubletree hereby confirms its agreement with respect to the
purchase of the Common Shares by the Underwriters as follows:
SECTION 2. Representations and Warranties of Doubletree.
Doubletree hereby represents and warrants to the Underwriters that:
(a) A registration statement on Form S-3 (File No. 333-13161)
with respect to the Common Shares has been prepared by Doubletree in conformity
in all material respects with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission. Doubletree has prepared and has filed or
proposes to file prior to the effective date of such registration statement an
amendment or amendments to such registration statement, which amendment or
amendments have been or will be similarly prepared. There have been delivered to
you two signed copies of such registration statement and amendments, together
with two copies of each exhibit filed therewith. Conformed copies of such
registration statement and amendments (but without exhibits) and of the related
Preliminary Prospectus (as defined below) have been delivered to you in such
reasonable quantities as you have requested. Doubletree will next file with the
Commission one of the following: (i) prior to effectiveness of such registration
statement, a further amendment thereto, including the form of final Prospectus
(as defined below), (ii) a final Prospectus in accordance with Rules 430A and
424(b) of the Rules and Regulations or (iii) a term sheet (the "Term Sheet")
as described in and in accordance
3
<PAGE> 4
with Rules 434 and 424(b) of the Rules and Regulations. As filed, the final
Prospectus, if one is used, or the Term Sheet and the latest Preliminary
Prospectus sent or given to purchasers of the Common Shares by the
Underwriters prior to or at the same time as the confirmation of such sale,
if a final Prospectus is not used, shall include all Rule 430A Information
(as defined below) and, except to the extent that you shall agree in writing
to a modification, shall be in all substantive respects in the form furnished
to you prior to the date and time that this Agreement was executed and
delivered by the parties hereto, or, to the extent not completed at such date
and time, shall contain only such specific additional information and other
changes (beyond that contained in the latest Preliminary Prospectus) as
Doubletree shall have previously advised you in writing would be included or
made therein.
The term "Registration Statement" shall mean such registration
statement (including exhibits, amendments and supplements thereto) at the time
such registration statement becomes effective and, in the event any
post-effective amendment thereto becomes effective prior to the First Closing
Date (as defined), shall also mean such registration statement as so amended;
provided, however, that such term shall also include all Rule 430A Information
deemed to be included in such registration statement at the time such
registration statement becomes effective as provided by Rule 430A of the Rules
and Regulations. The term "Preliminary Prospectus" shall mean any preliminary
prospectus relating to the Common Shares and delivered to you as well as any
preliminary prospectus included in the Registration Statement at the time it
becomes effective that omits Rule 430A Information. The term "Preliminary
Prospectus" shall refer to both the U.S. preliminary prospectus (the "U.S.
Preliminary Prospectus") to be used in connection with the offering and sale of
U.S. Firm Common Shares in the United States and Canada to United States and
Canadian Persons and the international preliminary prospectus (the
"International Preliminary Prospectus") to be used in connection with the
offering and sale of International Firm Common Shares outside the United States
and Canada to persons other than United States and Canadian Persons. The
International Preliminary Prospectus is identical to the U.S. Preliminary
Prospectus except for the outside front cover page. The term "Prospectus" shall
mean: (i) the prospectus relating to the Common Shares in the form in which it
is first filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations; (ii) if a Term Sheet is not used and no filing pursuant to Rule
424(b) of the Rules and Regulations is required, the form of final prospectus
included in the Registration Statement at the time it becomes effective; or
(iii) if a Term Sheet is used, the Term Sheet in the form in which it is first
filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations,
together with the latest Preliminary Prospectus sent or given to purchasers of
the Common Shares by the Underwriters prior to or at the same time as the
confirmation of such sale. The term "Rule 430A Information" shall mean
information with respect to the Common Shares and the offering thereof permitted
to be omitted from the Registration Statement when it becomes effective pursuant
to Rule 430A of the Rules and Regulations. The term
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<PAGE> 5
"Prospectus" shall refer to both the U.S. prospectus (the "U.S. Prospectus") to
be used in connection with the offering and sale of U.S. Firm Common Shares in
the United States and Canada to United States and Canadian Persons and the
international prospectus (the "International Prospectus") to be used in
connection with the offering and sale of International Firm Common Shares
outside the United States and Canada to persons other than United States and
Canadian Persons. The International Prospectus is identical to the U.S.
Prospectus except for the outside front cover page.
Any reference in this Agreement to the Registration Statement,
the Prospectus, or any Preliminary Prospectus previously filed with the
Commission pursuant to Rule 424 shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Securities Act which were filed under the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Exchange Act") on or before the date of this Agreement or
the date of the Prospectus or any Preliminary Prospectus, as the case may be;
and any reference to "amend", "amendment" or "supplement" with respect to the
Registration Statement, the Prospectus or any Preliminary Prospectus shall be
deemed to refer to and include any documents filed under the Exchange Act after
the date of this Agreement, or the date of the Prospectus or any Preliminary
Prospectus, as the case may be, which are deemed to be incorporated by reference
therein.
(b) Each document, if any, filed or to be filed pursuant to the
Exchange Act, and incorporated by reference in the Prospectus complied or will
comply, in each case when so filed, in all material respects with the Exchange
Act and the applicable rules and regulations of the Commission thereunder; the
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus, and each Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and Regulations
and, as of its date, has not included any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; at
the time the Registration Statement became effective, and at all times
subsequent thereto up to and including each Closing Date hereinafter mentioned,
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, will contain all material statements and information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, and the Registration Statement, when it became effective, did not
and, as amended or supplemented, if applicable, will not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
neither the Prospectus, nor any amendment or supplement thereto, will include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary, in light of the circumstances under
which they were made, to make the
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<PAGE> 6
statements therein not misleading; provided, however, no representation or
warranty contained in this subsection 2(b) shall be applicable to information
contained in or omitted from any Preliminary Prospectus, the Registration
Statement, the Prospectus or any such amendment or supplement that is described
in the "blood letter" to be delivered by the Representatives to Doubletree on
the First Closing Date.
(c) The Company and each of its corporate Subsidiaries has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, and each partnership
Subsidiary is a duly formed general or limited partnership and is validly
existing as a general or limited partnership under the laws of the state of its
organization, each with full power and authority (corporate or partnership and
other) to own and lease its material assets and properties and conduct its
business in all material respects as now being conducted and as described in the
Registration Statement; as of the First Closing Date referred to below, except
as disclosed in the Registration Statement or in the "Parent Disclosure
Schedule" or "Company Disclosure Schedule" referred to in the Merger Agreement
(copies of which have been furnished to Morgan Stanley & Co. Incorporated on
behalf of the Underwriters), the Company will own all of the outstanding capital
stock, or the general or limited partnership interests, of the Subsidiaries that
are corporations or partnerships, free and clear of all claims, liens, charges
and encumbrances, other than as imposed by applicable law or as disclosed in the
Registration Statement; the Company and each of the Subsidiaries are in
possession of and operating in material compliance with all authorizations,
licenses, permits, consents, certificates and orders material to the conduct of
their respective businesses, all of which are valid and in full force and
effect; the Company and the Subsidiaries that are corporations or partnerships
are duly qualified to do business and in good standing as foreign corporations,
or foreign partnerships, as the case may be, in each jurisdiction in which the
ownership or leasing of their respective properties or the conduct of their
respective businesses requires such qualification, except for jurisdictions in
which the failure to so qualify would not have a material adverse effect upon
the Company and its Subsidiaries; taken as a whole; and no proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing, or seeking
to revoke, limit or curtail, such power and authority or qualification. Each of
the subsidiaries and each of the affiliates of Doubletree and of Red Lion which
meets the criteria in the definition of "significant subsidiary" pursuant to
Rule 1-02(w) of Regulation S-X under the Securities Act, after giving effect to
the Merger, is listed on either Schedule D1 or D2 hereof.
(d) Immediately prior to the First Closing Date and the Merger
Closing, the issued and outstanding shares of Common Stock will have been duly
authorized and validly issued, will be fully paid and nonassessable, will have
been issued in compliance with all applicable federal and state securities laws,
will not have been issued in violation of or subject to any preemptive rights or
other rights to subscribe for
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<PAGE> 7
or purchase securities, and will conform in all material respects to the
description thereof contained in the Prospectus. All issued and outstanding
shares of capital stock of each corporate Subsidiary have been duly authorized
and validly issued and are fully paid and nonassessable. Except as disclosed in
or contemplated by the Prospectus and the financial statements of the Company,
Doubletree or Red Lion and the related notes thereto, included in the
Prospectus, or in the "Parent Disclosure Schedule" or "Company Disclosure
Schedule" referred to above, the Company, as of the First Closing Date, will not
have, and no Subsidiary has, outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements (if any), and the
options or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be shown
with respect to such plans, arrangements, options and rights.
(e) Immediately prior to the First Closing Date, the Common
Shares, and immediately prior to the Merger Closing, the Merger Shares, will
have been duly authorized and, when issued, delivered and paid for in the manner
set forth in the applicable Transaction Document, will be validly issued, fully
paid and nonassessable, and will conform to the description thereof contained in
the Prospectus. Immediately prior to the First Closing Date and the Merger
Closing, except as disclosed in the Registration Statement, no preemptive rights
or other rights to subscribe for or purchase will exist with respect to the
issuance and sale of the Common Shares and the Merger Shares, respectively.
Immediately prior to the First Closing Date and the Merger Closing, except for
the former shareholders of RFS, Inc., no stockholder of Doubletree will have any
right which will not have been waived to require Doubletree to register the sale
of any shares owned by such stockholder under the Act in the public offering
contemplated by this Agreement. No further approval or authorization of the
stockholders or the Board of Directors of the Company will be required for the
issuance and sale of the Common Shares or the Merger Shares as contemplated by
the applicable Transaction Document.
(f) Each of Doubletree and Merger Sub has the full right, power
and authority to enter into each of the Transaction Documents to which it is a
party and to perform the transactions contemplated thereby. The Transaction
Documents have been duly authorized, executed and delivered by Doubletree and
constitute valid and binding agreements of Doubletree, and the Merger Agreement
has been duly executed and delivered by Merger Sub and constitutes the valid and
binding obligation of Merger Sub, enforceable against Doubletree and Merger Sub,
as the case may be, in accordance with the terms thereof, except (A) as limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally, (B) that the remedy of
7
<PAGE> 8
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought and (C) to the extent that rights to
indemnity or contribution under a Transaction Document may be limited by
federal, state or provincial securities laws or the public policy underlying
such laws. The execution and delivery by Doubletree and Merger Sub of the
Transaction Documents to which it is a party and the consummation by Doubletree
and Merger Sub of the transactions under the Transaction Documents to which it
is a party will not (i) violate any provisions of the certificate or articles of
incorporation or bylaws of any of the Company or any of its Subsidiaries, and
(ii) will not conflict with, result in the breach or violation of, or
constitute, either by itself or upon notice or the passage of time or both, a
default under any hotel management agreement or franchise agreement to which the
Company or any of its Subsidiaries is a party or any other agreement, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other instrument
that is material to the Company and its Subsidiaries, taken as a whole, and to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries or any of their respective properties may be bound or
affected, any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to any of the Company or any of the Subsidiaries or
any of their respective properties, except in each case for any such violations,
breaches or defaults which would not, individually or in the aggregate, have a
material adverse effect on the Company and its Subsidiaries, taken as a whole.
No consent, approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body is required for the
execution and delivery by Doubletree or Merger Sub of the Transaction Documents
to which it is a party or the consummation by Doubletree or Merger Sub of the
transactions contemplated by the Transaction Documents to which it is a party,
except for (i) compliance with the Act, the Exchange Act and the Blue Sky laws
applicable to the public offering of the Common Shares by you, (ii) the
clearance of such offering with the National Association of Securities Dealers,
Inc. (the "NASD"), (iii) compliance with statutes, rules or regulations
regulating the consumption, sale or serving of alcoholic beverages, and (iv) in
the case of the Merger Agreement, (A) such as relate to the matters set forth in
Section 5.17 or 5.18 of the Merger Agreement, and (B) where the failure to
obtain any such consent, approval, authorization or order would not,
individually or in the aggregate, have a material adverse effect on the Company
and its Subsidiaries, taken as a whole.
(g) KPMG Peat Marwick, Deloitte & Touche LLP and Arthur Andersen
LLP who have expressed their opinion with respect to the financial statements
and schedules filed with the Commission as a part of the Registration Statement
and included in the Prospectus, are independent accountants as required by the
Act and the Rules and Regulations.
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<PAGE> 9
(h) As of the First Closing Date, the consolidated financial
statements and schedules of Doubletree and its subsidiaries, and the related
notes thereto, and the consolidated financial statements and schedules of Red
Lion and its subsidiaries, included in the Registration Statement and the
Prospectus will present fairly in all material respects the consolidated
financial position of Doubletree and its Subsidiaries and of Red Lion and its
Subsidiaries, as the case may be, as of the respective dates of the consolidated
balance sheets included in such financial statements and schedule, and the
consolidated results of operations for the periods indicated in the consolidated
statements of income or operations, cash flows and stockholders' equity or
partners' equity, as the case may be, included in such consolidated financial
statements and the other information purported to be shown therein of Doubletree
and its subsidiaries, or of Red Lion and its subsidiaries, as the case may be.
Such consolidated financial statements, schedule and related notes have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as noted therein) as certified in each case by one of
the independent accountants named in subsection 2(g). The Registration Statement
includes all of the financial statements and schedules required under the Act to
be included in the Registration Statement. Immediately prior to the First
Closing Date, the selected financial data set forth in the Prospectus under the
captions "Summary Consolidated Financial Information of Doubletree,"
"Capitalization," "Selected Consolidated Financial Information of Doubletree"
and "Selected Pro Forma Financial, Historical Financial and Other Data of Red
Lion," will present fairly in all material respects the information set forth
therein on the basis stated in the Registration Statement. The pro forma
financial statements and the related notes thereto included or incorporated by
reference in the Registration Statement and the Prospectus present fairly in all
material respects the information shown therein and have been prepared in
accordance with Article XI of Regulation S-X, and the assumptions used in the
preparation thereof (taken as a whole) are reasonable and, based upon such
assumptions, the adjustments used therein are appropriate to give effect to the
transactions and circumstances referred to therein.
(i) Except as disclosed in the Prospectus, and except as to
breaches, events of default and defaults which individually or in the aggregate
would not have a material adverse effect on the Company and its Subsidiaries
taken as a whole, none of the Company or any of its Subsidiaries is in violation
or default of any provision of its certificate or articles of incorporation or
bylaws, or is in breach of or default with respect to any provision of any
agreement, judgment, decree or order, or any mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it is a party
or by which it or any of its properties is bound; and there does not exist any
state of facts which constitutes an event of default (as defined in such
documents) on the part of any of the Company or any such Subsidiary or which,
with notice or lapse of time or both, would constitute such an event of default.
9
<PAGE> 10
(j) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which have not
been described or filed as required. The contracts so described in the
Prospectus are in full force and effect on the date hereof; and none of the
Company or any of its Subsidiaries, nor to the best of Doubletree's knowledge,
any other party is in breach of, or default under, any of such contracts, which
breach or default would have a material adverse effect on the Company and its
Subsidiaries, taken as a whole.
(k) There are no legal or governmental actions, suits or
proceedings pending or, to the best of Doubletree's knowledge, threatened to
which the Company or any of its Subsidiaries is a party or of which property
owned or leased by the Company or any of its Subsidiaries is the subject,
including actions related to environmental or discrimination matters, which
actions, suits or proceedings might reasonably be expected to, individually or
in the aggregate, prevent or materially and adversely affect the transactions
contemplated by this Agreement or by any other Transaction Document or result in
a material adverse change in the condition (financial or otherwise), properties,
business or results of operations of the Company and its Subsidiaries, taken as
a whole; and no labor disturbance by the employees of the Company or any of its
Subsidiaries exists or is imminent which might reasonably be expected to affect
materially and adversely such condition, properties, business or results of
operations. None of the Company or any of its Subsidiaries is a party or subject
to the provisions of any injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body which would
have such a material adverse effect.
(l) The Company and each of its Subsidiaries has good and valid
title to all the properties and assets reflected as owned in the financial
statements hereinabove described or as described elsewhere in the Prospectus,
subject to no lien, mortgage, pledge, charge or encumbrance of any kind except
(i) those, if any, reflected in such financial statements or as described
elsewhere in the Prospectus and (ii) those which are not material in amount and
do not materially and adversely affect the use made and proposed to be made of
such property and assets by the Company, the Subsidiaries and Candlewood. The
Company and each of its Subsidiaries holds its leased properties under valid and
binding leases, with such exceptions as are not materially significant in
relation to the business of the Company and its Subsidiaries, taken as a whole.
Immediately prior to the First Closing Date, except as disclosed in the
Prospectus, the Company and each of its Subsidiaries will own or lease all such
properties as are necessary to their respective operations as now conducted or
as proposed in the Prospectus to be conducted.
(m) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) neither the Company nor any of
its Subsidiaries has
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<PAGE> 11
incurred any material liabilities or obligations, indirect, direct or
contingent, or entered into any material verbal or written agreement or other
transaction which, in the case of Red Lion and its Subsidiaries, is known to
Doubletree and which, in any event, is not in the ordinary course of business
and could reasonably be expected to result in a material reduction in the
future earnings of the Company and its Subsidiaries, taken as a whole; (ii)
neither the Company nor any of its Subsidiaries has sustained any loss or
interference with their respective businesses or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance,
which, in the case of Red Lion and its Subsidiaries, is known to Doubletree
and which, in any event, would have a material adverse effect on the Company
and its Subsidiaries, taken as a whole; (iii) the Company has not paid or
declared any dividends or other distributions with respect to its capital
stock and the Company and the Subsidiaries are not in default in the payment
of principal or interest on any outstanding debt obligations; (iv) except as
described in the Prospectus, there has not been any change in the capital
stock (other than upon the sale of the Common Shares hereunder or the Merger
Shares and the GE Warrants under the Transaction Documents) or indebtedness of
the Company or any of the Subsidiaries that is material to the Company and the
Subsidiaries, taken as a whole (other than in the ordinary course of business);
and (v) there has not been any material adverse change, in the condition
(financial or otherwise), business, properties or results of operations
prospects of the Company and the Subsidiaries, taken as a whole.
(n) The Company and the Subsidiaries, together, have sufficient
trademarks, trade names, service marks, patent rights, copyrights, licenses,
know-how and other similar intellectual rights (collectively, "Intangibles") to
conduct their respective businesses as now conducted; and the Company has no
knowledge of any material infringement by it or the Subsidiaries of any
Intangible of others, and there is no claim being made against the Company or
the Subsidiaries regarding any Intangible which could have a material adverse
effect on the condition (financial or otherwise), business or results of
operations of the Company and the Subsidiaries, taken as a whole.
(o) Doubletree has not been advised, and has no reason to
believe, that any of it, or any Subsidiary is not conducting business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which it is conducting business, all applicable local, state and federal
environmental laws and regulations (which are addressed below), except where
failure to be so in compliance would not materially and adversely affect the
condition (financial or otherwise), business, results of operations or prospects
of the Company, and the Subsidiaries, taken as a whole.
(p) The Company and the Subsidiaries have filed all necessary
federal, material state and income foreign tax returns and have paid all taxes
shown as due thereon; and Doubletree has no knowledge of any tax deficiency
which has been or might be asserted or threatened against the Company, the
Subsidiaries or Candlewood which
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<PAGE> 12
could materially and adversely affect the business, operations or properties of
the Company, and the Subsidiaries, taken as a whole.
(q) Doubletree is not and, after giving effect to the offering
and sale of the Common Shares and the application of the proceeds thereof as
described in the Prospectus and to the issuance of the Merger Shares, the
Company will not be an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(r) The Company has not distributed and will not distribute prior
to the First Closing Date any offering material in connection with the offering
and sale of the Common Shares other than any Preliminary Prospectus, the
Prospectus, the Registration Statement and the other materials permitted by the
Act.
(s) Except as would not have a material adverse effect on the
Company and its Subsidiaries taken as a whole, the Company and each of the
Subsidiaries maintains insurance of the types and in the amounts generally
deemed adequate for its business, including, but not limited to, insurance
covering real and personal property owned or leased by the Company, the
Subsidiaries and Candlewood against theft, damage, destruction, acts or
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
(t) None of Doubletree or its Subsidiaries or, to the knowledge
of Doubletree, Red Lion or its Subsidiaries has at any time during the last five
years (i) made any unlawful contribution to any candidate for foreign office, or
failed to disclose fully any contribution in violation of law, or (ii) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
(u) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
(v) To the best knowledge of Doubletree, each of the Company and
its Subsidiaries has obtained all permits, licenses and other authorizations
that are required under all environmental laws, including but not limited to the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), Resource
Conservation & Recovery Act (42 U.S.C. Section 6901 et seq.), Safe Drinking
Water Act (21 U.S.C. Section 349, 42 U.S.C. SectionSection 201, 300f). Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.), Clean Air Act (42
U.S.C. Section 7401 et seq.), Comprehensive Environmental Response, Compensation
and Liability
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<PAGE> 13
Act (42 U.S.C. Section 9601 et seq.), other applicable state and other laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes into the environment (including without limitation, ambient air,
surface water, ground water or land), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes, or any other applicable regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder (collectively, the "Environmental Laws"),
except to the extent failure to have any such permit, license or authorization,
individually or in the aggregate, would not have a material adverse effect on
the condition (financial or otherwise), business or results of operations of the
Company and the Subsidiaries, taken as a whole. Except as described in the
Prospectus, the Company and the Subsidiaries are in compliance with all terms
and conditions of any required permits, licenses, authorizations, limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in the Environmental Laws, except to the
extent failure to comply would not have a material adverse effect on the
condition (financial or otherwise), business or results of operations of the
Company and the Subsidiaries, taken as a whole.
[(w) To the best knowledge of Doubletree, there are no past or
present events, conditions, circumstances, activities, practices, incidents,
actions or plans relating to the business as presently being conducted by the
Company or any Subsidiary that interfere with or prevent compliance or continued
compliance with the Environmental Laws, or which would be reasonably likely to
give rise to any legal liability (whether statutory or common law) or otherwise
would be reasonably likely to form the basis of any claim, action, demand, suit,
proceeding, hearing, notice of violation, study, investigation, remediation or
cleanup based on or related to the generation, manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge, release into the workplace, the community or the
environment of any pollutant, contaminant, chemical or industrial, toxic, or
hazardous substance or waste, except for any liabilities or any claims, demands
or other actions specified above that will not individually or in the aggregate
have a material adverse effect on the Company and the Subsidiaries, taken as a
whole.]
(x) The Common Shares have been duly authorized for quotation on
the NASDAQ Stock Market's National Market.
SECTION 3. Purchase, Sale and Delivery of Common Shares. On the
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, Doubletree agrees to issue
and sell to the Underwriters the Common Shares as provided in Section 1. The
Underwriters agree, severally and not jointly, to purchase from Doubletree the
number of Firm Common
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<PAGE> 14
Shares described above. The purchase price per share to be paid by the several
Underwriters to Doubletree shall be $____ per share.
Delivery of certificates for the Firm Common Shares to be
purchased by the Underwriters and payment therefor shall be made at the offices
of Morgan Stanley & Co. Incorporated, 1585 Broadway, New York, N.Y. (or such
other place as may be agreed upon by Doubletree and the Underwriters) at 10
A.M., New York City time, on November __, 1996(1), not later than the eighth
full business day following the first date that any of the Common Shares are
released by you for sale to the public (or at such other time and date, not
later than one week after such fourth full business day, as may be agreed upon
by Doubletree and the Underwriters) (the "First Closing Date"); provided,
however, that if the Prospectus is at any time prior to the First Closing Date
recirculated to the public, the First Closing Date shall occur upon the later of
the third full business day following the first date that any of the Common
Shares are released by you for the sale to the public or the date that is 48
hours after the date that the Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be made
by or on behalf of Doubletree to you, for the respective accounts of the
Underwriters, against payment by you, for the accounts of the Underwriters, of
the purchase price therefor by wire transfer payable in same day funds to the
order of Doubletree. The certificates for the Firm Common Shares shall be
registered in such names and denominations as you shall have requested at least
two full business days prior to the First Closing Date, and shall be made
available for checking and packaging on the business day preceding the First
Closing Date at such location in New York, New York, as may be designated by
you. Time shall be of the essence, and delivery at the time and place specified
in this Agreement is a further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, Doubletree hereby grants an option to the U.S. Underwriters to purchase,
severally and not jointly, up to an aggregate of _______ Optional Common Shares
at the purchase price per share to be paid by the U.S. Underwriters for the U.S.
Firm Common Shares, for use solely in covering any over-allotments made by the
Underwriters in the sale and distribution of the Firm Common Shares. The option
granted hereunder may be exercised at any time (but not more than once) within
30 days after the first date that any of the Common Shares are released by you
for sale to the public, upon notice by you to the Company setting forth the
aggregate number of Optional Common Shares as to which the U.S. Underwriters are
exercising the option, the names and denominations in which the certificates for
such Optional Common Shares are to be registered and the time and place at which
such
- --------
1 Three or four business days after pricing.
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<PAGE> 15
certificates are to be delivered. Such time of delivery (which may not be
earlier than the First Closing Date and being herein referred to as the "Second
Closing Date") shall be determined by you, but if at any time other than the
First Closing Date shall not be earlier than three nor later than ten full
business days after delivery of such notice of exercise. The number of Optional
Common Shares to be purchased by each U.S. Underwriter shall be determined by
multiplying the number of Optional Common Shares to be sold by the Company
pursuant to such notice of exercise by a fraction, the numerator of which is the
number of U.S. Firm Common Shares to be purchased by such U.S. Underwriter as
set forth opposite its name in Schedule A I and the denominator of which is ____
(subject to such adjustments to eliminate any fractional share purchases as you
in your discretion may make). Certificates for the Optional Common Shares being
purchased will be made available for checking and packaging on the business day
preceding the Second Closing Date at such location in New York, New York, as may
be designated by you. The manner of payment for and delivery of such Optional
Common Shares shall be the same as for the Firm Common Shares purchased as
specified in the two preceding paragraphs. At any time before lapse of the
option, you may cancel such option by giving written notice of such cancellation
to the Company. If the option is canceled or expires unexercised in whole or in
part, the Company will deregister under the Act the number of Optional Common
Shares as to which the option has not been exercised.
Subject to the terms and conditions hereof, the Underwriters
propose to make a public offering of their respective portions of the Common
Shares as soon after the effective date of the Registration Statement as in your
judgement is advisable and at the public offering price set forth on the cover
page of and on the terms set forth in the final Prospectus, if one is used, or
on the first page of the Term Sheet, if one is used.
SECTION 4. Covenants of Doubletree. Doubletree covenants and
agrees that:
(a) Doubletree will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective. If the Registration Statement has become or becomes effective
pursuant to Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations,
Doubletree will file the Prospectus, properly completed, pursuant to the
applicable paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such timely
filing. Doubletree will promptly advise you in writing (i) of the receipt of any
comments of the Commission, (ii) of any request of the Commission for amendment
of or supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus or for
additional information, (iii) when the Registration Statement shall have become
effective and (iv) of
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the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of the institution of any proceedings for that
purpose. If the Commission shall enter any such stop order at any time,
Doubletree will use its best efforts to obtain the lifting of such order at the
earliest possible moment. Doubletree will not file any amendment or supplement
to the Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus if you have not been furnished with a
copy a reasonable time prior to such filing, if you reasonably object to
Doubletree filing such document or if the document to be filed is not in
compliance with the Act and the Rules and Regulations.
(b) Doubletree will prepare and file with the Commission,
promptly upon your request, any amendments or supplements or the Registration
Statement or the Prospectus which in your judgment may be necessary or advisable
to enable the Underwriters to continue the distribution of the Common Shares and
will use its best efforts to cause the same to become effective as promptly as
possible. Doubletree will fully and completely comply with the provisions of
Rule 430A of the Rules and Regulations with respect to information omitted from
the Registration Statement in reliance upon such Rule.
(c) As soon as practicable, but not later than 45 days after the
end of the first quarter ending after the first anniversary of the effective
date of the Registration Statement (as defined in Rule 158(c) of the Rules and
Regulations), Doubletree will make generally available to its security holders
an earnings statement (which need not be audited) covering a period of 12
consecutive months beginning after the effective date of the Registration
Statement which will satisfy the provisions of the last paragraph of Section
11(a) of the Act.
(d) Doubletree shall cooperate with you and your counsel in order
to qualify or register the Common Shares for sale under (or obtain exemptions
from the application of) the Blue Sky laws of such jurisdictions as you
designate, will comply with such laws and will continue such qualifications,
registrations and exemptions in effect so long as reasonably required for the
distribution of the Common Shares. Doubletree shall not be required to qualify
as a foreign corporation or to file a general consent to service of process in
any such jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation. Doubletree will advise you
promptly of the suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such purpose,
and in the event of the issuance of any order suspending such qualification,
registration or exemption, Doubletree, with your cooperation, will use its best
efforts to obtain the withdrawal thereof.
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(e) During the period of five years hereafter, the Company will
furnish to each of the Underwriters: (i) as soon as practicable after the end of
each fiscal year, copies of the Annual Report of the Company containing the
balance sheet of the Company as of the close of such fiscal year and statements
of income, stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public accountants: (ii) as soon as
practicable after the filing thereof, copies of each proxy statement and annual
and other report filed by the Company with the Commission, the NASD or any
securities exchange; and (iii) as soon as available, copies of any report or
communication of the Company mailed generally to holders of its Common Stock.
(f) During the period of 90 days after the date of the
Prospectus, without your prior written consent (which consent may be withheld at
your sole discretion), the Company will not other than (i) in accordance with
the employee benefit plans described in the Prospectus or in any document
incorporated by reference in the Prospectus, (ii) the sale of the Common Shares
hereunder, (iii) the issuance of the Merger Shares pursuant to the Transaction
Documents or (iv) the issuance of Common Stock upon exercise of any GE Warrants,
(A) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (B) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (A) or (B) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise.
(g) Doubletree will apply the net proceeds of the sale of the
Common Shares hereby and the sale of Merger Shares pursuant to the GE Agreement
substantially in accordance with its statements under the caption "Use of
Proceeds" and "the Merger and the Financial Plan" in the Prospectus.
You may, in your sole discretion, waive in writing the
performance by the Company of any one or more of the foregoing covenants or
extend the time for their performance.
SECTION 5. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, Doubletree agrees to pay all costs, fees and expenses incurred in
connection with the performance of the obligations of Doubletree hereunder and
in connection with the transactions contemplated hereby (except as set forth
herein), including without limiting the generality of the foregoing: (i) all
expenses incident to the issuance and delivery of the Common Shares (including
all printing and engraving costs), (ii) all fees
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<PAGE> 18
and expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other taxes in connection with the issuance and
sale of the Common Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel and the Company's independent accountants, (v) all costs and
expenses incurred in connection with the preparation, printing, filing, shipping
and distribution of the Registration Statement, each Preliminary Prospectus and
the Prospectus (including all exhibits and financial statements) and all
amendments and supplements provided for herein, this Agreement, the preliminary
and the Final Blue Sky Memoranda, (vi) all filing fees, attorneys' fees and
expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all of any part of the Common Shares for offer and sale under
the Canadian provincial securities laws and U.S. state Blue Sky laws, (vii) the
filing fee of the NASD and any fees and expenses relating to inclusion of the
Common Shares on the Nasdaq Stock Market, (viii) the costs and expenses of the
Company relating to investor presentations on any "road show" undertaken in
connection with the marketing of the offering of the Shares, including, without
limitation, expenses associated with the production of road show slides and
graphics, fees and expenses of any consultants (other than the Underwriters)
engaged in connection with the road show presentations with the prior approval
of the Company, travel and lodging expenses of the representatives (other than
the Underwriters) and officers of the Company and any such consultants, and the
cost of any aircraft chartered by the Company or by the Underwriters on behalf
of the Company in connection with the road show, and (ix) all other fees, costs
and expenses referred to in Item 16 of the Registration Statement. Except as
provided in this Section 5, Section 7 and Section 9 hereof, the Underwriters
shall pay all of their own expenses, including the fees and disbursements of
their counsel (excluding those relating to qualification, registration or
exemption under the securities and Blue Sky laws and the Blue Sky Memoranda
referred to above) and the costs and expenses of the Underwriters relating to
investor presentations on any "road show" undertaken in connection with the
marketing of the offering of the Shares (such as fees and expenses of their
consultants, and travel and lodging expenses of the Underwriters and their
representatives).
SECTION 6. Conditions of the Obligations of the Underwriters and
the Company. (i) The obligations of the several Underwriters to purchase and pay
for the Firm Common Shares on the First Closing Date and the Optional Common
Shares on the Second Closing Date shall be subject to the accuracy of the
representations and warranties on the part of Doubletree herein set forth as of
the date hereof and as of the First Closing Date or the Second Closing Date, as
the case may be, to the accuracy of the statements of Doubletree officers made
pursuant to the provisions hereof, to the performance by Doubletree of its
obligations hereunder, and to the following additional conditions:
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(a) The Registration Statement shall have become effective not
later than 10:00 A.M., New York City Time, on the date of this Agreement, or at
such later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rule and Regulations, the Prospectus shall have been filed in the manner and
within the time period required by Rule 424(b) of the Rules and Regulations; and
prior to such Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge of
Doubletree or you, shall be contemplated by the Commission; and any request of
the Commission for inclusion of additional information in the Registration
Statement, or otherwise, shall have been complied with to your satisfaction.
(b) You shall be satisfied that since the respective dates as of
which information is given in the Registration Statement and Prospectus, (i)
except as set forth in or contemplated by the Registration Statement or the
Prospectus, there shall not have been any change in the capital stock other than
as provided for herein or in accordance with the employee benefit plans
described in the Prospectus or in any document incorporated by reference in the
Prospectus of the Company or any of the Subsidiaries or any material change in
the indebtedness (other than in the ordinary course of business) of the Company
or any of the Subsidiaries, (ii) except as set forth in or contemplated by the
Registration Statement or the Prospectus, no material verbal or written
agreement or other transaction shall have been entered into by the Company or
any of the Subsidiaries, taken as a whole, (iii) no loss or damage (whether or
not insured) to the property of the Company or any of the Subsidiaries shall
have been sustained which materially and adversely affects the condition
(financial or otherwise), business, properties or results of operations of the
Company or the Subsidiaries, taken as a whole, (iv) no legal or governmental
action, suit or proceeding affecting the Company or any of the Subsidiaries
which would have a material adverse effect on the Company or the Subsidiaries,
taken as a whole, or which affects or may affect the material transactions
contemplated by this Agreement shall have been instituted or threatened and (v)
there shall not have been any material adverse change in the condition
(financial or otherwise), business, properties or results of operations of the
Company or the Subsidiaries, taken as a whole, which makes it impractical or
inadvisable in your judgment to proceed with the public offering or purchase the
Common Shares as provided hereby.
(c) There shall have been delivered to you the Firm Common Shares
and, if any Optional Common Shares are then being purchased, such Optional
Common Shares.
(d) The NASD, upon review of the terms of the public offering of
the Common Shares, shall not have objected to the fairness and reasonableness of
the underwriting terms and arrangements as proposed in this Agreement.
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<PAGE> 20
(e) The representations and warranties of the Company contained
in this Agreement and in the certificates delivered pursuant to Section
6(f)(iii) shall be true and correct when made and on and as of the First Closing
Date or the Second Closing Date, as the case may be, as if made on such
respective date and the Company shall have performed all covenants and
agreements and satisfied all the conditions contained in this Agreement required
to be performed or satisfied by it at or before such respective Closing Date.
(f) There shall have been furnished to you on the First Closing
Date and/or the Second Closing Date, as appropriate, in form and substance
reasonably satisfactory to you, except as otherwise expressly provided below:
(i) An opinion of Dewey Ballantine, special counsel for
Doubletree (or as to paragraphs 1, 2, 3, 4, 6 and 12 of David Stivers,
General Counsel for Doubletree), addressed to the Underwriters and dated
the First Closing Date or the Second Closing Date, as the case may be,
to the effect that:
(1) Doubletree and each of its corporate Subsidiaries has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation.
(2) Doubletree, and each of its Subsidiaries has full corporate,
partnership or limited liability company power and authority to own and
lease its assets and properties and conduct its business as now being
conducted and as described in the Registration Statement.
(3) The authorized, issued and outstanding capital stock of the
Company are as set forth under the caption "Capitalization" in the
Prospectus; all of the issued and outstanding shares of Common Stock
have been duly authorized and validly issued, are fully paid and
nonassessable, have been issued in transactions that were registered or
exempt from registration under the Act, and were not issued in violation
of or subject to any preemptive rights contained in any applicable
statute or the Certificate of Incorporation of Doubletree; and the
description thereof contained under the caption "Description of Capital
Stock" in the Prospectus is an accurate summary in all material respects
of the information required therein by Form S-3 under the Act.
(4) Except as set forth in the Registration Statement or in the
disclosure schedules delivered in connection with the Merger Agreement,
all of the issued and outstanding shares of the corporate Subsidiaries
of Doubletree have been duly and validly authorized and issued, are
fully paid and nonassessable and are owned directly or indirectly by
Doubletree, free and clear of all liens,
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<PAGE> 21
encumbrances, equities or claims; and, to the knowledge of such counsel,
all of the partnership interests of the partnership Subsidiaries of
Doubletree are owned directly or indirectly by Doubletree, except as set
forth in the Registration Statement or in the disclosure schedules
delivered in connection with the Merger Agreement.
(5) The certificates evidencing the Common Shares to be delivered
hereunder and the Merger Shares to be delivered under the Merger
Agreement and the GE Agreement are in proper form under the Delaware
General Corporation Law (the "DGCL"), have been duly authorized and,
when duly countersigned by Doubletree's transfer agent and registrar and
delivered to you or upon your order or GEPT or its order against payment
of the agreed consideration therefor in accordance with the provisions
of the applicable Transaction Document, the Common Shares and the Merger
Shares represented thereby will be validly issued, fully paid and
nonassessable and will not have been issued in violation of or subject
to any preemptive rights contained in any applicable U.S. federal or New
York state statute or the Certificate of Incorporation of Doubletree.
(6) Except as disclosed in or contemplated by the Prospectus,
there are no outstanding options, warrants or other rights issued by
Doubletree calling for the issuance of, and no commitments, plans or
arrangements of Doubletree to issue, any shares of capital stock of
Doubletree or any security convertible into or exchangeable for capital
stock of Doubletree.
(7) (A) The Registration Statement has become effective under the
Act, and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or preventing the use of the
Prospectus has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission; and any
required filing of the Prospectus and any supplement thereto pursuant to
Rule 424(b) of the Rules and Regulations has been made in the manner and
within the time period required by such Rule 424(b).
(B) Each document filed pursuant to the Exchange Act and
incorporated by reference in the Registration Statement and the
Prospectus (except for financial statements and schedules as to
which such counsel need not express any opinion) complied when so
filed as to form in all material respects with the Exchange Act
and the applicable rules and regulations of the Commission
thereunder.
(C) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material
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respects with the requirements of the Act and the Rules and
Regulations; it being understood, however, that such counsel
expresses no opinion with respect to the financial statements,
schedule and other financial, numerical and statistical data
included in the Registration Statement, the Prospectus and each
amendment or supplement thereto.
(D) To such counsel's knowledge, there are no U.S. federal
or New York state statutes or regulations or franchises, leases,
contracts or agreements of a character required by the Act to be
described in the Registration Statement or Prospectus or to be
filed as exhibits to the Registration Statement which are not
described or filed, as so required.
(E) To such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending or threatened
against Doubletree or any of its Subsidiaries which are so
required to be described in the Prospectus which are not
described as required.
(8) Doubletree has the corporate power and authority to enter
into this Agreement and to sell and deliver the Common Shares to be sold
by it to the several Underwriters; this Agreement has been duly
authorized, executed and delivered by Doubletree.
(9) Doubletree and the Merger Sub have the corporate power and
authority to enter into the Merger Agreement and Doubletree has the
corporate power and authority to issue and deliver the Merger Shares to
be issued pursuant to the Merger; Doubletree has the corporate power and
authority to enter into each other Transaction Document; each
Transaction Document has been duly authorized, executed and delivered by
Doubletree and the Merger Agreement has been duly authorized, executed
and delivered by Merger Sub.
(10) No approval, authorization, order, consent, registration,
filing, qualification, license or permit of or with any U.S. federal or
New York state court, regulatory, administrative or other governmental
body that, in such counsel's experience, are normally applicable to
transactions of the type contemplated by this Agreement or any other
Transaction Document, is required to be obtained by the Company for the
execution and delivery of any of the Transaction Documents by
Doubletree, or the execution and delivery of Merger Agreement by Merger
Sub, or the sale by Doubletree of the Common Shares to the Underwriters
or the issuance by Doubletree of the Merger Shares, except (i) such as
have been obtained and are in full force and effect under the Act, (ii)
such as may be required under applicable Blue Sky laws in connection
with the purchase and distribution of the Common Shares by the
Underwriters, as to which
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no opinion is rendered, (iii) such as arise under statutes, rules or
regulations regulating the consumption, sale or serving of alcoholic
beverages, as to which no opinion is rendered and (iv) in the case of
the Merger Agreement, (A) such as relate to the matters set forth in
Sections 5.17 or 5.18 of the Merger Agreement, and (B) such as would not
individually or in the aggregate, have a material adverse effect on the
Company and its Subsidiaries, taken as a whole.
(11) The execution and delivery by Doubletree of, and the
performance by Doubletree of its obligations under, the Transaction
Documents and the sale by Doubletree of the Common Shares to the several
Underwriters and the issuance by Doubletree of the Merger Shares by
Doubletree will not violate any of the provisions of the Certificate of
Incorporation or bylaws of Doubletree, [or any agreement or other
instrument binding upon Doubletree or any of its Subsidiaries that is
material to the Company and its Subsidiaries, taken as a whole,] or, to
the knowledge of such counsel, cause Doubletree to violate any U.S.
federal or New York State statute, judgment, decree, order, rule or
regulation of any court or governmental body applicable to the Company
except that no opinion shall be rendered as to federal securities laws
or applicable Blue Sky laws or statutes, rules or regulations regulating
the consumption, sale or serving of alcoholic beverages.
(12) To such counsel's knowledge, no holders of Capital Stock of
Doubletree have rights, which have not been waived, to the registration
of shares of Common Stock because of the filing of the Registration
Statement by Doubletree or the offering of Common Shares pursuant
hereto.
(13) Doubletree is not and, after giving effect to the offering
and sale of the Common Shares and the application of the proceeds
thereof as described in the Prospectus and to the issuance of the Merger
Shares, the Company will not be an "investment company" within the
meaning of the Investment Company Act of 1940.
(14) The statements (A) in the Prospectus under the captions
"Certain United States Federal Tax Considerations for Non-U.S. Holders
of Common Stock," "Description of Capital Stock" and "Underwriters" and
(B) in the Registration Statement in Items 14 and 15, in each case
insofar as such statements constitute summaries of the legal matters,
documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein.
In rendering such opinion, such counsel may rely on certificates
of officers of Doubletree and its subsidiaries and of governmental officials,
and may limit their opinions to U.S. federal law, the Delaware General
Corporation Law and, in the case of
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<PAGE> 24
Dewey Ballantine, New York state law or, in the case of the General Counsel of
Doubletree, California state law. Dewey Ballantine shall also include a
statement to the effect that such counsel has participated in conferences with
officers and other representatives of Doubletree, representatives of the
independent public accountants of Doubletree, and the Underwriters and its
representatives, at which the contents of the Registration Statement were
discussed and, although such counsel is not passing upon, and does not assume
any responsibility whatsoever for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus, and have
not made any independent check or verification thereof, during the course of
such participation (relying as to materiality to a large extent on the
statements of officers and other representatives of Doubletree), no facts came
to their attention that caused them to believe that the Registration Statement
or the Prospectus, at the time the Registration Statement became effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or that the Prospectus contains an untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; it being understood that such counsel expresses no opinion with
respect to the financial statements, schedules and other financial, numerical
and statistical data included in the Registration Statement or the Prospectus.
(ii) An opinion of Latham & Watkins, special counsel for Red
Lion, addressed to the Underwriters and dated the First Closing Date or the
Second Closing Date, as the case may be, to the effect that:
(1) Red Lion has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation.
(2) Red Lion and each of its subsidiaries has full
corporate, partnership or limited liability company power and authority
to own and lease its assets and properties and conduct its business as
now being conducted and as described in the Registration Statement.
(3) Red Lion has the corporate power and authority to
enter into the Merger Agreement have been duly authorized, executed and
delivered by Red Lion.
(iii) Such opinion or opinions of Davis Polk & Wardwell, counsel
for the Underwriters, dated the First Closing Date or the Second Closing Date,
as the case may be, with respect to the incorporation of the Company, the
sufficiency of all corporate proceedings and other legal matters relating to
this Agreement, the validity of the
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<PAGE> 25
Common Shares, the Registration Statement and the Prospectus and other related
matters as you may reasonably require, and Doubletree shall have furnished to
such counsel such documents and shall have exhibited to them such papers and
records as they may reasonably request for the purpose of enabling them to pass
upon such matters. In connection with such opinions, such counsel may rely on
representations or certificates of officers of Doubletree and governmental
officials.
With respect to subparagraph (9) of paragraph (ii) above, Davis
Polk & Wardwell may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto (other than the documents incorporated
by reference) and review and discussion of the contents thereof (including
documents incorporated by reference), but are without independent check or
verification except as specified.
(iv) A certificate of Doubletree executed by a Co-Chairman of the
Board or the President and the chief financial or accounting officer of
Doubletree, dated the First Closing Date or the Second Closing Date, as the case
may be, to the effect that:
(1) The representations and warranties of Doubletree set
forth in Section 2 of this Agreement were true and correct as of the
date of this Agreement and are true and correct in all material respects
as of the First Closing Date or the Second Closing Date, as the case may
be, and Doubletree has complied in all material respects with all the
agreements and satisfied in all material respects all the conditions on
its part to be performed or satisfied on or prior to such Closing Date.
(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus filed
as a part of the Registration Statement or any amendment or supplement
thereto; no stop order suspending the effectiveness of the Registration
Statement has been issued; and to the best of the knowledge of the
respective signers, no proceedings for that purpose have been instituted
or are pending or contemplated under the Act.
(v) On the date before this Agreement is executed and also on
each Closing Date, a comfort letter addressed to you, as Representatives of the
Underwriters, from each of KPMG Peat Marwick, Deloitte & Touche LLP and Arthur
Andersen LLP, independent accountants, the first one to be dated the day before
the date of this Agreement, and the second one to be dated the First Closing
Date and the third one (in the event of a Second Closing hereunder) to be dated
the Second Closing Date, in form and substance reasonably satisfactory to you.
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(vi) On or before the First Closing Date, the "lock-up" letters,
each substantially in the form of Exhibit A hereto, from each of the
stockholders listed on Schedule C hereto and each director and executive officer
of Doubletree delivered to you shall be in full force and effect.
All such opinions, certificates, letters and documents shall be
in compliance with the provisions hereof only if they are reasonably
satisfactory to you and to Davis Polk & Wardwell, counsel for the Underwriters.
Doubletree shall furnish you with such manually signed or conformed copies of
such opinions, certificates, letters and documents as you request. Any
certificate signed by any officer of Doubletree and delivered to the
Underwriters or to counsel for the Underwriters shall be deemed to be a
representation and warranty by Doubletree to the Underwriters as to the
statements made therein.
(g) Each of the Transaction Documents shall be in full force and
effect on the First Closing Date, and Doubletree shall have no reason to believe
that each of the actions contemplated or required to occur and each of the
conditions contemplated or required to be satisfied at or prior to the Merger
Closing, shall not occur or shall not be satisfied in all material respects, in
each case, as of the time such action or condition is required to occur or be
satisfied, and no waiver, amendment or modification of any provision of any of
the Transaction Documents shall have occurred, other than any such action or
condition or any such waiver, amendment or modification which in the
Underwriters' reasonable judgment does not make it impracticable to market the
Common Shares on the terms and in the manner contemplated in the Prospectus;
and, simultaneous with or prior to, the First Closing Date, the Company shall
have received (A) such proceeds under the Senior Credit Facility as described in
the Prospectus and (B) the proceeds from the GE Investment pursuant to the GE
Agreement.
(h) Simultaneous with or prior to the First Closing Date, the
Merger shall have been consummated pursuant to the Merger Agreement, the Merger
Shares shall have been issued pursuant to the applicable Transaction Document
and such other consideration to be paid to the holders of Red Lion Common Stock
pursuant to the terms of the Merger Agreement shall have been delivered (or
transmitted for delivery) to such holders or the Exchange Agent under the Merger
Agreement.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you to Doubletree
without liability on the part of any Underwriter or Doubletree except for the
expenses to be paid or reimbursed by Doubletree pursuant to Sections 5 and 7
hereof and except to the extent provided in Section 10 hereof.
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(ii) The obligations of Doubletree to issue and sell to the
several Underwriters the Firm Common Shares on the First Closing Date and the
Optional Common Shares on the Second Closing Date shall be subject to the
following condition:
(a) Simultaneous with or prior to the First Closing Date, the
Merger shall have been consummated pursuant to the Merger Agreement, the
Merger Shares shall have been issued pursuant to the applicable
Transaction Document and such other consideration to be paid to the
holders of Red Lion Common Stock pursuant to the terms of the Merger
Agreement shall have been delivered (or transmitted for delivery) to
such holders or the Exchange Agent under the Merger Agreement.
SECTION 7. Reimbursement of Underwriters' Expenses.
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 7 or Section 13 hereof, or if the sale to
the Underwriters of the Firm Common Shares at the First Closing Date is not
consummated because of any refusal, inability or failure on the part of
Doubletree to perform any agreement herein or to comply with any provision
hereof, Doubletree agrees to reimburse the Underwriters upon demand for all
out-of-pocket expenses that shall have been reasonably incurred by them in
connection with the proposed purchase and the sale of the Firm Common Shares,
including but not limited to reasonable fees and disbursements of counsel,
printing expenses, travel expenses, postage and telephone charges relating
directly to the offering contemplated by the Prospectus. Any such termination
shall be without liability of any party to any other party except that the
provisions of this Section and Section 5 and Section 9 hereof shall at all times
be effective and shall apply.
SECTION 8. Effectiveness of Registration Statement.
Doubletree will use its best efforts to cause the Registration Statement to
become effective, to prevent the issuance of any stop order suspending the
effectiveness of the Registration Statement and, if such stop order be issued,
to obtain as soon as possible the lifting thereof.
SECTION 9. Indemnification and Contribution.
(a) Doubletree agrees to (i) indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act against any losses, claims, damages, liabilities or expenses,
joint or several, to which such Underwriter or such controlling person may
become subject, under the Act, the Exchange Act, or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of Doubletree) insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in
27
<PAGE> 28
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state in any of them a material fact required to be
stated therein or necessary (with respect to the Prospectus or any Preliminary
Prospectus, in light of the circumstances under which they were made) to make
the statements in any of them not misleading; and (ii) reimburse each
Underwriter and each such controlling person for any legal and other expenses as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage, liability or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with the information furnished in writing by the Representatives to
Doubletree; and provided further that the indemnification provisions contained
in this paragraph (a) with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter (or to the benefit of any person controlling
such Underwriter) on account of any such loss, claim, damage, liability or
expense arising from the sale of any Common Shares by such Underwriter to any
person if a copy of the Prospectus shall not have been delivered or sent to such
person within the time required by the Act and the regulations thereunder and
the untrue statement or alleged untrue statement or omission or alleged omission
of a material fact contained in such Preliminary Prospectus was corrected in the
Prospectus. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
(b) Each Underwriter agrees to severally indemnify and hold
harmless Doubletree, the Company, each of its directors, each of its officers
who signed the Registration Statement and each person, if any, who controls
Doubletree or the Company within the meaning of the Act against any losses,
claims, damages, liabilities or expenses to which Doubletree or the Company or
any such director, officer or controlling person may become subject, under the
Act, the Exchange Act or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary (with respect to the Prospectus or any Preliminary Prospectus, in
light of the circumstances under which they were made) to make the statements in
any of them not misleading, in each case to the extent, but only to
28
<PAGE> 29
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with the information furnished in writing by the
Representatives to Doubletree or the Company; and will reimburse Doubletree and
each such director, officer or controlling person for any legal and other
expenses, as such expenses are reasonably incurred by Doubletree or the Company
or any such director, officer or controlling person in connection with
investigating, defending, settling compromising or paying any such loss, claim,
damage, liability, expense or action. This indemnity agreement will be in
addition to any liability which the Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under the indemnity agreement contained in this Section or to the extent it is
not prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it may wish, jointly
with all other indemnifying parties similarly notified, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party. The
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnifying
party, indemnified party and any others the indemnifying party may designate in
such proceeding and shall pay the fees and disbursements of such counsel related
to such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the sole expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed in writing to the
retention by the indemnified party of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party. It is understood that the indemnifying party shall not,
in respect of the legal expenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all such indemnified parties and that all such fees and expenses
shall be reimbursed as they are incurred. Such firm shall be designated in
writing by Morgan Stanley & Co.
29
<PAGE> 30
Incorporated, in the case of parties indemnified pursuant to paragraph (a) of
this Section, and by the Company, in the case of parties indemnified pursuant to
paragraph (b) of this Section. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes
either (i) an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding or (ii) a conditional
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding which release is applicable, to the same
manner and extent, to the indemnifying party; provided, however, that the
foregoing shall not apply to settlements in respect of any officer or director
of an indemnifying party which may be effected without the consent of the
indemnified party; provided, further, that nothing herein, including, without
limitation, the failure of an indemnifying party to satisfy any condition to the
settlement, shall limit any rights of an indemnified party as provided
hereunder.
(d) If the indemnification provided for in this Section 9 is
required by its terms but is for any reason held to be unavailable to hold
harmless an indemnified party under paragraphs (a) or (b) of this Section 9 in
respect of any losses, claims, damages, liabilities or expenses referred to
herein, then each applicable indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of any losses, claims,
damages, liabilities or expenses referred to herein (i) in such proportion as is
appropriate to reflect the relative benefits received by Doubletree on the one
hand and the Underwriters on the other hand from the offering of the Common
Shares or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
Doubletree on the one hand and of the Underwriters on the other hand in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The respective relative benefits received by
Doubletree and the Underwriters shall be deemed to be in the same proportion, in
the case of Doubletree, as the total price paid to Doubletree for the Common
Shares sold by them to the Underwriters (net of underwriting commissions but
before deducting expenses), and, in the case of the Underwriters, as the
underwriting commissions received by them, in each case bears to the total of
such amounts paid to Doubletree and the amounts received by the Underwriters as
underwriting commissions. The relative fault of Doubletree and the Underwriters
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
30
<PAGE> 31
to state a material fact relates to information supplied by Doubletree or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in paragraph (c) of this Section 9, any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The provisions set forth in paragraph (c) of this Section 9 with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this paragraph (d); provided, however, that no
additional notice shall be required with respect to any action for which notice
has been given under such paragraph (c) for purposes of indemnification.
Doubletree and the Underwriters agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined solely by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the amount of the total
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it. No person guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 9 are several in proportion to their respective underwriting commitments
and not joint.
SECTION 10. Default of Underwriter. It shall be a condition to
this Agreement and the obligation of Doubletree to sell and deliver the Common
Shares hereunder, and of each Underwriter to purchase the Common Shares in the
manner as described herein, that, except as hereinafter in this paragraph
provided, each of the Underwriters shall purchase and pay for all the Common
Shares agreed to be purchased by such Underwriter hereunder upon tender to the
Underwriters of such shares in accordance with the terms hereof. If any
Underwriter defaults in its obligation to purchase Common Shares hereunder on
either the First or Second Closing Date, the non-defaulting Underwriter or
Underwriters shall have the right to purchase, or to seek another person or
persons to purchase, all, but shall not be under any obligation to purchase any,
of the Common Shares; and if such non-defaulting Underwriter or Underwriters and
such other person or persons do not purchase all of the Common
31
<PAGE> 32
Shares, this Agreement will terminate without liability of the non-defaulting
Underwriter or Underwriters or Doubletree except for the expenses to be paid by
Doubletree pursuant to Section 5 hereof and except to the extent provided in
Section 9 hereof.
If Common Shares to which a default relates are to be purchased
by the non-defaulting Underwriter or Underwriters or by another person or
persons, the non-defaulting Underwriter or Doubletree shall have the right to
postpone the First or Second Closing Date, as the case may be, for not more than
five business days in order that the necessary changes in the Registration
Statement, Prospectus, this Agreement and any other documents, as well as any
other arrangements, may be effected. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability for
its default.
SECTION 11. Effective Date. This Agreement shall become effective
immediately as to Sections 5, 7, 9, and 13 hereof and, as to all other
provisions, (i) if at the time of execution of this Agreement the Registration
Statement has not become effective, at 2:00 P.M., New York time, on the first
full business day following the effectiveness of the Registration Statement, or
(ii) if at the time of execution of this Agreement the Registration Statement
has been declared effective, at 2:00 P.M., New York time, on the first full
business day following the date of execution of this Agreement; but this
Agreement shall nevertheless become effective at such earlier time after the
Registration Statement becomes effective as you may determine on and by notice
to the Company or by release of any of the Common Shares for sale to the public.
For the purposes of this Section 11, the Common Shares shall be deemed to have
been so released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of notices (i) advising
your sales personnel that the Common Shares are released for public offering, or
(ii) offering the Common Shares for sale to securities dealers, whichever may
occur first.
SECTION 12. Termination. Without limiting the right to terminate
this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by Doubletree or, by you by
notice to the other parties hereto at any time prior to the time this Agreement
shall become effective as to all its provisions, and any such termination shall
be without liability on the part of Doubletree to any Underwriter (except for
the expenses to be paid or reimbursed by Doubletree pursuant to Sections 5 and 7
hereof and except to the extent provided in Section 9 hereof) or of any
Underwriter to Doubletree (except to the extent provided in Section 9 hereof).
32
<PAGE> 33
(b) This Agreement may also be terminated by you prior to the
First Closing Date by notice to Doubletree (i) if material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the Nasdaq stock market's national market
by the NASD, or trading in securities generally shall have been suspended on
either such Exchange or in the over the counter market by the NASD, or a general
banking moratorium shall have been established by federal or, New York
authorities, (ii) if an outbreak of major hostilities or other national or
international calamity or any substantial change in political, financial or
economic conditions shall have occurred or shall have accelerated or escalated
to such an extent, as, in the judgment of the Underwriters, to affect materially
and adversely the marketability of the Common Shares, (iii) if any adverse event
shall have occurred or shall exist which makes untrue or incorrect in any
material respect any statement or information contained in the Registration
Statement or the Prospectus or which is not reflected in the Registration
Statement or the Prospectus but should be reflected therein in order to make the
statements or information contained therein not misleading in any material
respect or (iv) if there shall be any action, suit or proceeding pending or
threatened, or there shall have been any development or prospective development
involving particularly the business or properties or securities of the Company,
any of the Subsidiaries or Candlewood or the transactions contemplated by this
Agreement, which, in the judgment of the Underwriters, may materially and
adversely affect the Company's business or earnings and makes it impracticable
or inadvisable to offer or sell the Common Shares. Any termination pursuant to
this Section 12(b) shall be without liability on the part of any Underwriter to
the Company or on the part of the Company to any Underwriter (except for
expenses to be paid or reimbursed by the Company pursuant to Sections 5 and 7
hereof and except to the extent provided in Section 9 hereof).
SECTION 13. Representations and Indemnities to Survive Delivery.
The respective indemnities, agreements, representations, warranties and other
statements of Doubletree of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter,
Doubletree or any of its partners, officers or directors or any controlling
person, as the case may be, and will survive delivery of and payment for the
Common Shares sold hereunder and any termination of this Agreement.
SECTION 14. Notices. All communications hereunder shall be in
writing and, if sent to the Underwriters, shall be mailed, delivered or
telecopied and confirmed to Morgan Stanley & Co. Incorporated, 1585 Broadway,
New York, N.Y. 10036 Attention: __________, FAX: (212) 761-0260, with a copy to
Davis Polk & Wardwell, 450 Lexington Avenue, New York, NY 10017, Attention:
Richard D. Truesdell, Jr., Esq., FAX: (212) 480-4800; and if sent to Doubletree
or the Company shall be mailed,
33
<PAGE> 34
delivered or telecopied and confirmed to the Company at 410 North 44th Street,
Suite 700, Phoenix, Arizona 85008, Attention: David L. Stivers, Esq., FAX: (602)
220-6602, with a copy to Dewey Ballantine, 1301 Avenue of the Americas, New
York, NY 10019, Attention: William J. Phillips, Esq. and Curtis L. Mo, Esq.,
FAX: (213) 259-6333. The Company or you may change the address for receipt of
communications hereunder by giving notice to the others.
SECTION 15. Successors. This Agreement will inure to the benefit
of and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 9 hereof, and in each case their
respective successors, personal representatives and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations hereunder. The term "successors" shall not include
any purchaser of the Common Shares as such from any of the Underwriters merely
by reason of such purchase.
SECTION 16. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 17. Applicable Law. This Agreement shall be governed by
and construed in accordance with the internal laws (and not the laws pertaining
to conflicts of laws) of the State of New York.
SECTION 18. General. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
several counterparts, each one of which shall be an original, and all of which
shall constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and
the singular and the plural include one another. The Section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by Doubletree and you.
34
<PAGE> 35
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among Doubletree and you, all in accordance with
its terms.
Very truly yours,
DOUBLETREE CORPORATION
By:
----------------------------------------
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted by us in
New York, New York as of the date first above written.
MORGAN STANLEY & CO. INCORPORATED
MONTGOMERY SECURITIES
SCHRODER WERTHEIM & CO. INCORPORATED
By: MORGAN STANLEY & CO. INCORPORATED
By:
--------------------------------------------
Title:
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
MONTGOMERY SECURITIES
J. HENRY SCHRODER & CO. LIMITED
By: MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By:
--------------------------------------------
Title:
35
<PAGE> 36
A I
Number of Firm Common
Name of Underwriter Shares to be Purchased
------------------- ----------------------
MORGAN STANLEY & CO. INCORPORATED
MONTGOMERY SECURITIES
SCHRODER WERTHEIM & CO. INCORPORATED
TOTAL
A-1
<PAGE> 37
<TABLE>
<CAPTION>
A II
Number of Firm Common
Name of Underwriter Shares to be Purchased
------------------- ----------------------
<S> <C>
MORGAN STANLEY & CO. LIMITED
MONTGOMERY SECURITIES
J. HENRY SCHRODER & CO. LIMITED
TOTAL
</TABLE>
A-2
<PAGE> 38
<TABLE>
<CAPTION>
SCHEDULE B
FIRM COMMON SHARES SHARES TO BE SOLD
- ------------------ -----------------
<S> <C>
Doubletree Corporation __________
SUBTOTAL __________
OPTIONAL COMMON SHARES
Doubletree Corporation __________
TOTAL
==========
</TABLE>
B-1
<PAGE> 39
SCHEDULE C
Name of Stockholder to execute "lock-up" agreement
C-1
<PAGE> 40
EXHIBIT A
[Form of Lock-Up Letter]
_____________, 1996
Morgan Stanley & Co. Incorporated
[NAMES OF OTHER CO-MANAGERS]
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co.
Incorporated ("Morgan Stanley") proposes to enter into an Underwriting Agreement
(the "Underwriting Agreement") with Doubletree Corporation, a Delaware
corporation (the "Company"), providing for the public offering (the "Public
Offering") by the several Underwriters, including Morgan Stanley (the
"Underwriters"), of ___ shares (the "Shares") of the Common Stock, $.01 par
value, of the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending [90] days after the date of the final prospectus
relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to the sale of any
Shares to the Underwriters pursuant to the Underwriting Agreement. In addition,
the undersigned agrees that, without the prior written consent of Morgan Stanley
on behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending [90] days after the date
<PAGE> 41
of the Prospectus, make any demand for or exercise any right with respect to,
the registration of any shares of Common Stock or any security convertible into
or exercisable or exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a
number of factors, including market conditions. Any Public Offering will only be
made pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
-------------------------
(Name)
-------------------------
(Address)
A-2
<PAGE> 1
Exhibit 5.1
[DEWEY BALLANTINE LETTERHEAD]
October 31, 1996
Doubletree Corporation
410 North 44th Street
Suite 700
Phoenix, Arizona 85008
Ladies and Gentlemen:
We have acted as special counsel for Doubletree Corporation, a Delaware
corporation (the "Company"), in connection with the filing of a Registration
Statement on Form S-3 (File No. 333-13161), as amended (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Act"), for the
purpose of registering under the Act the sale of up to 5,750,000 shares (the
"Shares") of the Company's common stock, par value $.01 per share, by the
Company.
We have examined a copy of the Certificate of Incorporation of the
Company as certified by the Department of State of the State of Delaware and
copies of resolutions adopted by the Board of Directors of the Company and the
Pricing Committee thereof and such other documents as we have deemed relevant
to expressing the opinions contained herein. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
presented to us as originals, the conformity to the originals of all documents
presented to us as copies, and the authenticity of the originals of such latter
documents.
Based upon the foregoing, we are of the opinion that, when the
Registration Statement becomes effective under the Act and the Shares are sold
by the Company as provided in the Registration Statement, the Shares will be
validly issued, fully paid and non-assessable.
This opinion may be relied upon exclusively by you, and may not be
relied upon by any other person without our prior written consent.
<PAGE> 2
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of the name of our firm under the caption
"Legal Matters" in the prospectuses which are included as a part of the
Registration Statement. In giving this consent, we do not thereby admit that we
are within the category of persons whose consent is required by Section 7 of
the Act or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ DEWEY BALLANTINE
--------------------------------
2
<PAGE> 1
EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of October 31, 1996 (this
"Agreement"), by and between Doubletree Corporation, a Delaware corporation (the
"Seller"), and the Trustees of General Electric Pension Trust, a New York
common law trust (the "Buyer"). Capitalized terms used and not otherwise
defined herein shall have the respective meanings ascribed to them in the Merger
Agreement referred to below.
RECITALS
WHEREAS, the Seller, RLH Acquisition Corp., a Delaware corporation and
a wholly owned subsidiary of the Seller ("Merger Sub"), and Red Lion Hotels,
Inc., a Delaware corporation ("Red Lion"), are parties to an Agreement and Plan
of Merger dated as of September 12, 1996 (the "Merger Agreement"), pursuant to
which Merger Sub will merge with and into Red Lion (the "Merger") and Red Lion
will become a wholly owned subsidiary of the Seller; and
WHEREAS, in order to finance a portion of the Cash Consideration
payable under the Merger Agreement and other fees and expenses related to the
Merger, the Seller wishes to issue and sell to the Buyer or an affiliate
thereof, and the Buyer wishes to purchase (or to cause an affiliate of the Buyer
to purchase) from the Seller, (i) the number of shares of Common Stock, par
value $.01 per share, of the Seller ("Common Stock") determined in accordance
with Section 1.2 below (the "Shares") and (ii) warrants, substantially in the
form attached hereto as Exhibit A, entitling the holders thereof to purchase an
aggregate of 10% of such number of Shares (the "Warrants"), all upon the terms
and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
Section 1.1 Purchase and Sale of Securities. Upon the terms and
subject to the conditions set forth in
<PAGE> 2
this Agreement, the Buyer agrees to purchase (or to cause an affiliate of the
Buyer to purchase) from the Seller, and the Seller agrees to issue and sell to
the Buyer or such affiliate, the Shares and the Warrants (collectively, the
"Securities"), for an aggregate purchase price of $100,000,000 in immediately
available funds (the "Purchase Price").
Section 1.2 Elected Price. The actual number of Shares purchased
hereunder shall be equal to the quotient (rounded to the nearest whole number)
of the Purchase Price divided by the "Elected Price" determined as follows:
(a) The Seller has heretofore notified the Buyer that the expected
date of the Closing under the Merger Agreement is November 8, 1996. The
Seller shall use its best efforts to notify the Buyer of any changes
hereafter in the expected date of the Closing (the original notice, and
each notice of change, of the expected date of the Closing, a "Closing Date
Notice").
(b) The parties have agreed that, at or prior to the close of business
on the twentieth day immediately prior to the date on which the Closing
occurs (the "Closing Date"), the Buyer shall be entitled to elect a per
Share purchase price (the "Elected Price") consisting of either (i) the
Acquisition Price (as defined below), or (ii) the Market Price (as defined
below), by giving written notice to the Seller of its election thereof (an
"Election Notice"). For purposes hereof:
"Acquisition Price" means an implied price per share of Common
Stock equal to the product obtained by multiplying (i) a fraction, the
numerator of which is the initial Exchange Ratio or 0.2398 and the
denominator of which is the final adjusted Exchange Ratio, by (ii)
$36.7253. For purposes of illustration, assuming that the Final Parent
Stock Price were $45 (resulting in a final adjusted Exchange Ratio of
0.2153), then the Acquisition Price would be equal to $40.90. All
calculations of the Acquisition Price shall be made in a manner
consistent with the foregoing illustration.
"Market Price" means (A) if the Seller shall consummate an
underwritten public offering of at least $100,000,000 of its Common
Stock at or immediately prior to the Closing, the per share price at
which shares of Common Stock are sold to the underwriters (e.g. net of
any underwriting discounts) in connection with such underwritten public
offering, or (B) otherwise, the Final Parent Stock Price under the
Merger Agreement.
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(c) The Buyer has delivered an Election Notice dated October 10, 1996
in which it elected the Acquisition Price to be the Elected Price. The Buyer
shall be entitled hereafter to change its election with respect to the Elected
Price by delivering one or more subsequent Election Notices, specifying a
different Elected Price. If the actual Closing Date is three (3) or more days
later than November 8, 1996, the last Election Notice received by the Seller not
less than 20 business days (as defined in the Merger Agreement) prior to the
actual Closing Date shall supercede all other Election Notices given hereunder,
and the Elected Price determined in accordance with such last Election Notice
shall be final and binding upon the parties hereto.
Section 1.3 Closing. Subject to the satisfaction or waiver of the
conditions to closing set forth in Article IV hereof, the closing of the
purchase and sale of the Securities hereunder shall take place at the time, date
and place of the Closing under the Merger Agreement. At the Closing, (a) the
Seller shall issue and deliver to the Buyer (or an affiliate thereof designated
by the Buyer) one or more certificates representing each of the Securities, all
registered in the name of the Buyer or such affiliate, against (b) payment by
the Buyer or such affiliate, as the case may be, to the Seller of the Purchase
Price by wire transfer of immediately available funds to an account or accounts
designated by the Seller in a written notice delivered to the Buyer not later
than two (2) business days prior to the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Seller. The Seller
hereby represents and warrants to the Buyer as follows:
(a) Organization and Power. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder
and to consummate the transactions contemplated hereby.
(b) Authorization and Enforceability. The execution, delivery and
performance of this Agreement by the Seller and the consummation of the
transactions pursuant hereto have been duly and validly authorized by all
necessary corporate action on the part of the Seller. This Agreement has
been duly executed and
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delivered by the Seller and constitutes the legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance with
its terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally or by the
application of general principles of equity (regardless of whether such
equitable principles are applied in a proceeding at law or in equity).
(c) No Conflict. Subject to making the filings and obtaining the
approvals identified in the next paragraph, the execution and delivery of
this Agreement by the Seller do not, and the performance by the Seller of
its obligations hereunder and the consummation by the Seller of the
transactions pursuant hereto will not, (i) conflict with or violate the
certificate of incorporation or by-laws of the Seller, (ii) conflict with
or violate any law, statute, rule, regulation, order, judgment, writ,
injunction or decree applicable to the Seller, or (iii) result in any
violation or breach of, or constitute a default under, any agreement,
contract or other instrument to which the Seller is a party.
(d) Consents and Approvals. The execution and delivery of this
Agreement by the Seller do not, and the performance by the Seller of its
obligations hereunder and the consummation by the Seller of the
transactions pursuant hereto will not, require the Seller to obtain any
consent, approval, authorization or permit of, or to make any filing with
or notification to, any Governmental Entity or other Person except as
required by the HSR Act, the Securities Act, the Exchange Act and Blue Sky
Laws.
(e) Litigation. There is no action, suit, claim or proceeding
pending or, to the knowledge of the Seller, threatened against the Seller
or any of its subsidiaries by or before any court or other Governmental
Entity which seeks to enjoin or prohibit the performance by the Seller of
its obligations hereunder or the consummation by the Seller of any of the
transactions pursuant hereto.
(f) Title to Securities. (i) The Shares have been duly authorized
and, when issued in accordance with this Agreement, will be validly issued,
fully paid and nonassessable and subject to no preemptive rights. Upon
issuance of the Shares to the Buyer or its affiliate as aforesaid, the
Buyer or such affiliate (as the case may be) will acquire good and
marketable title to the Shares, free and clear of any liens and
encumbrances.
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(ii) The Warrants have been duly authorized and, when issued in
accordance with this Agreement, will be validly issued. Upon issuance
of the Warrants to the Buyer or its affiliate as aforesaid, the Buyer
or such affiliate (as the case may be) will acquire good and marketable
title to the Warrants, free and clear of any liens and encumbrances.
At all times following the Closing during which any Warrants are
outstanding and exercisable, the Seller will reserve and keep available
out of its authorized Common Stock, solely for issuance and delivery
upon exercise of Warrants, at least the number of shares of Common
Stock issuable upon exercise of all then outstanding Warrants. The
shares of Common Stock that are issued upon exercise of Warrants will,
when issued in accordance with the terms thereof, be duly authorized,
validly issued, fully paid, nonassessable, subject to no preemptive
rights, and free and clear of any liens or encumbrances.
(g) Use of Proceeds. The Purchase Price will be used solely to pay a
portion of the Cash Consideration and other fees and expenses related to
the Merger.
(h) Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
issuance and sale of Securities pursuant hereto based upon arrangements
made by or on behalf of the Seller.
(i) Full Disclosure. No representation or warranty by the Seller
contained in this Agreement or in the Registration Statement on Form S-3
(File No. 333-13161), as amended, of the Seller contains any untrue
statement of a material fact by the Seller or omits to state a material
fact required to be stated therein or necessary to make the statements
contained therein by the Seller, in light of the circumstances under which
it was made, not false or misleading.
Section 2.2 Representations and Warranties of the Buyer. The Buyer
hereby represents and warrants to the Seller as follows:
(a) Organization and Power. The Buyer is a common law trust duly
organized, validly existing and in good standing under the laws of the
State of New York, and has all requisite power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby.
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(b) Authorization and Enforceability. The execution, delivery and
performance of this Agreement by the Buyer and the consummation of the
transactions pursuant hereto have been duly and validly authorized by all
necessary action on the part of the Buyer. This Agreement has been duly
executed and delivered by the Buyer and constitutes the legal, valid and
binding obligation of the Buyer, enforceable against the Buyer in
accordance with its terms, except as such enforceability may be limited by
any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally or by
the application of general principles of equity (regardless of whether such
equitable principles are applied in a proceeding at law or in equity).
(c) No Conflict. Subject to making the filings and obtaining the
approvals identified in the next paragraph, the execution and delivery of
this Agreement by the Buyer do not, and the performance by the Buyer of its
obligations hereunder and the consummation by the Buyer or its affiliate of
the transactions pursuant hereto will not, (i) conflict with or violate the
trust instrument or other organization documents of the Buyer or any such
affiliate, (ii) conflict with or violate any law, statute, rule,
regulation, order, judgment, writ, injunction or decree applicable to the
Buyer or any such affiliate, or (iii) result in any violation or breach of,
or constitute a default under, any agreement, contract or other instrument
to which the Buyer or any such affiliate is a party.
(d) Consents and Approvals. The execution and delivery of this
Agreement by the Buyer do not, and the performance by the Buyer of its
obligations hereunder and the consummation by the Buyer or its affiliate of
the transactions pursuant hereto will not, require the Buyer or any such
affiliate to obtain any consent, approval, authorization or permit of, or
to make any filing with or notification to, any Governmental Entity or
other Person except as required by the HSR Act, the Securities Act, the
Exchange Act and Blue Sky Laws.
(e) Litigation. There is no action, suit, claim or proceeding
pending or, to the knowledge of the Buyer, threatened against the Buyer or
any of its subsidiaries by or before any court or other Governmental Entity
which seeks to enjoin or prohibit the performance by the Buyer of its
obligations hereunder or the consummation by the Buyer or its affiliate of
any of the transactions pursuant hereto.
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(f) Investment Intent. The Securities are being acquired by the Buyer
or an affiliate thereof for the account of the Buyer or such affiliate, as
the case may be, without a present view to the distribution or resale
thereof or of any interest therein (it being understood that the Buyer or
any such affiliate shall have the right to sell or otherwise dispose of any
such Securities or any Common Stock deliverable upon exercise of the
Warrants, pursuant to registration or an exemption therefrom under the
Securities Act and Blue Sky Laws).
(g) Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
purchase of Securities pursuant hereto based upon arrangements made by or
on behalf of the Buyer or any affiliate thereof.
ARTICLE III
COVENANTS
Section 3.1 Further Assurances. Each of the parties hereto shall use
all commercially reasonable good faith efforts to take, or cause to be taken,
all actions, and do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations (including, without limitation,
under the HSR Act, the Securities Act, the Exchange Act and Blue Sky Laws), and
consult with and fully cooperate with and provide reasonable assistance to each
other party hereto and their respective Representatives in order, to consummate
and make effective the transactions contemplated hereby as promptly as
practicable hereafter.
Section 3.2 Expenses. The Seller shall bear all expenses incurred by
the parties hereto in connection with this Agreement or any of the transactions
contemplated hereby.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions. The obligation of the Seller to issue and
sell the Securities to the Buyer or an affiliate thereof designated by the
Buyer, and the obligation of the Buyer to purchase (or to cause an affiliate
thereof to purchase) the Securities hereunder, shall be subject to the
satisfaction at or prior to the Closing of the following conditions, either or
both of which
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may be waived, in whole or in part, to the extent permitted by applicable law:
(a) any waiting period (and any extension thereof) under the HSR Act
applicable to the issuance and sale of the Securities shall have expired or
been terminated; and
(b) the Closing under the Merger Agreement shall have occurred.
Section 4.2 Additional Buyer Conditions. The obligation of the Buyer
to purchase, or to cause an affiliate to purchase, the Securities hereunder
shall also be subject to the following conditions, any or all of which may be
waived, in whole or in part, to the extent permitted by applicable law:
(a) each of the representations and warranties of the Seller
contained in this Agreement shall be true and correct as of the Closing
Date as though made on and as of the Closing Date (except where the failure
to be so true and correct would not, individually or in the aggregate, have
a Parent Material Adverse Effect), and the Buyer and any such affiliate
shall have received a certificate executed by an executive officer of the
Seller to such effect;
(b) the Buyer or any such affiliate shall have received an opinion or
opinions, in form and substance reasonably satisfactory to the Buyer or
such affiliate, dated the Closing Date, from the General Counsel of the
Seller or Dewey Ballantine, special counsel to the Seller, to the effect
that:
(i) the Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has
all requisite corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby.
(ii) the execution, delivery and performance of this Agreement by
the Seller and the consummation of the transactions pursuant hereto
have been duly and validly authorized by all necessary corporate action
on the part of the Seller; this Agreement has been duly executed and
delivered by the Seller and constitutes the legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance
with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the
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enforcement of creditors' rights generally or by the application of
general principles of equity (regardless of whether such equitable
principles are applied in a proceeding at law or in equity);
(iii) the Shares have been duly authorized and, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable and, to the knowledge of such counsel, subject to no
preemptive rights;
(iv) the Warrants have been duly authorized and, when issued in
accordance with this Agreement, will be validly issued; and the shares
of Common Stock that are issued upon exercise of the Warrants will,
when issued in accordance with the terms of the Warrants, be validly
issued, fully paid and nonassessable and, to the knowledge of such
counsel, subject to no preemptive rights; and
(v) assuming the accuracy of the representations and warranties
of the Buyer set forth in Section 2.2(f) hereof, the issuance, sale and
delivery of the Securities by the Seller are exempt from registration
under the Securities Act; and
(c) the Seller shall have entered into the Registration Rights
Agreement (or another agreement, in form and substance reasonably
satisfactory to the Buyer, providing for the Shares and any shares of
Common Stock issuable upon exercise of the Warrants to be covered by the
existing registration rights of the Buyer under the "Existing Agreement"
referred to in the form of Registration Rights Agreement attached as
Exhibit B to the Merger Agreement).
Section 4.3 Additional Seller Condition. The obligation of the
Seller to issue and sell the Securities hereunder shall also be subject to the
condition that each of the representations and warranties of the Buyer contained
in this Agreement shall be true and correct as of the Closing Date as though
made on and as of the Closing Date (except where the failure to be so true and
correct would not, individually or in the aggregate, have a material adverse
effect on the ability of the Buyer to perform its obligations hereunder or the
ability of the Buyer or any affiliate thereof to consummate the transactions
pursuant hereto), and the Seller shall have received a certificate executed by a
trustee of the Buyer to such effect.
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ARTICLE V
MISCELLANEOUS
Section 5.1 Notices. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed to have been duly
given when delivered by hand or when mailed by registered or certified mail,
postage prepaid, or when given by facsimile transmission, as follows:
(a) If to the Seller:
Doubletree Corporation
410 North 44th Street
Suite 700
Phoenix, Arizona 85008
Telecopy No.: (602) 220-6602
Attention: Chief Financial Officer
(b) If to the Buyer:
General Electric Investment Corporation
3003 Summer Street
P.O. Box 7900
Stamford, Connecticut 06905
Telecopy No.: (203) 326-4179
Attention: David W. Wiederecht
or to such other person as either party hereto shall designate by written
notice to the other in the manner provided in this Section 5.1.
Section 5.2 Limited Liability. Any monetary obligation or liability
of the Buyer under this Agreement shall be enforced solely against the assets of
the Buyer and not against the Trustees of the Buyer or General Electric Company
or any affiliate thereof.
Section 5.3 Entire Agreement. This Agreement (including the
documents specifically referred to herein) constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and understandings between the parties with
respect thereto.
Section 5.4 Amendments. This Agreement may only be amended or
modified in an instrument executed by both parties hereto. This Agreement may
not be assigned, in whole or in part, by either party hereto without the prior
written consent of the other party hereto.
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Section 5.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the conflict of law principles thereof.
Section 5.6 Counterparts. This Agreement may be executed by the
parties in two counterparts, each of which when so executed shall be an original
and all of which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first written above.
DOUBLETREE CORPORATION
By:
-------------------------
Name:
Title:
TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
By:
-------------------------
Name:
Title: Trustee
12
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EXHIBIT 10.5
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION UNDER SUCH ACT AND THE RULES AND REGULATIONS THEREUNDER.
Void after 5:00 P.M. __________(1) Warrants to Purchase
(unless previously terminated under Common Stock
the circumstances described herein) Dated: _____________(2)
WARRANT CERTIFICATE REPRESENTING
WARRANTS TO PURCHASE COMMON STOCK OF
DOUBLETREE CORPORATION
FOR VALUE RECEIVED, Doubletree Corporation, a Delaware corporation (the
"Company"), hereby certifies that, _________________ ("Holder"), the holder of
these Warrants (the "Warrants", and each right to purchase a share of Common
Stock, a "Warrant") is entitled, subject to the terms set forth below, at any
time on or after ______________,(3) or from time to time thereafter, but not
later than _______________,(4) to purchase from the Company __________(5) fully
paid and nonassessable shares of Common Stock, par value $.01 per share ("Common
Stock"), of the Company. These Warrants and all rights hereunder, to the extent
such rights shall not have
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(1) Insert fifth anniversary of date of original issuance.
(2) Insert date of original issuance.
(3) Insert date of original issuance.
(4) Insert fifth anniversary of original date of issuance.
(5) Insert 10% of the number of Shares issued and sold at the Closing.
<PAGE> 2
been exercised, shall terminate and become null and void at 5:00 p.m., New
York time, on ___________.(6)
These Warrants shall be subject to the terms set forth in the
Securities Purchase Agreement dated as of October 31, 1996 by and between the
Company and the Trustees of General Electric Pension Trust, pursuant to which
these Warrants are being issued, and to the following terms and conditions:
SECTION 1. EXERCISE OF WARRANTS; EXERCISE PRICE; ADJUSTMENTS RELATIVE
TO EXERCISE OF WARRANTS
1A. Exercise of Warrants. (a) Subject to the conditions of this
Section 1, the holder of any Warrant at the holder's option may exercise such
holder's rights under all or any part of the Warrants to purchase Common Stock
(the "Warrant Shares") at a price equal to $_______(7) (the "Exercise Price") at
any time on or after the date hereof. The Warrant Shares and the Exercise Price
are subject to certain adjustments as set forth in this Section 1 and the terms
Warrant Shares and Exercise Price as used herein shall as of any time be deemed
to include all such adjustments to be given effect as of such time in accordance
with the terms hereof.
1B. Stock Dividends. In case at any time the Company shall
declare a dividend or make any other distribution upon any class or series of
stock of the Company payable in shares of Common Stock or any stock or
securities convertible into or exchangeable for Common Stock (such convertible
or exchangeable stock or securities being herein called "Convertible
Securities"), the Exercise Price in effect on the record date for such dividend
or distribution shall be proportionately reduced. In case the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or other distribution payable in shares of Common
Stock or in Convertible Securities, then such record date shall be deemed to be
the date of the issue of the shares of Common Stock deemed to have been issued
as a result of the declaration of such dividend or the making of such other
distribution, as the case may be, unless such dividend or other distribution is
to be measured by the market price of the Common Stock in effect on the date
such dividend or other distribution is made, in which case such date shall be
deemed to be the date of the issue of the shares of Common Stock deemed to have
been so issued. For
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(6) Insert fifth anniversary of the date of original issuance.
(7) Insert final Elected Price.
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purposes of such adjustment, the number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company.
1C. Subdivision or Combination of Stock. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased.
1D. Changes in Common Stock. If any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with another corporation, or sale, transfer or other disposition
of all or substantially all of its properties to another corporation, shall be
effected, then, as a condition of such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition, lawful and adequate
provision shall be made whereby each holder of Warrants shall thereafter have
the right to purchase and receive upon the basis and upon the terms and
conditions herein specified and in lieu of the shares of the Common Stock of the
Company immediately theretofore issuable upon exercise of the Warrants, such
shares of stock, securities or properties, if any, as may be issuable or payable
with respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common Stock immediately theretofore
issuable upon exercise of the Warrants had such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition not
taken place, and in any such case appropriate provisions shall be made with
respect to the rights and interests of each holder of Warrants to the end that
the provisions hereof (including without limitation provisions for adjustment of
the Exercise Price) shall thereafter be applicable, as nearly equivalent as may
be practicable in relation to any shares of stock, securities or properties
thereafter deliverable upon the exercise thereof. The Company shall not effect
any such consolidation, merger, sale, transfer or other disposition, unless
prior to or simultaneously with the consummation thereof the successor
corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing or otherwise acquiring such properties
shall assume, by written instrument executed and mailed or delivered to the
holders of Warrants at the last address of such holders appearing on the books
of the Company, the obligation to deliver to such holders such shares of stock,
securities or properties as, in accordance with the foregoing provisions, such
holders may be entitled to acquire. The above provisions of this subparagraph
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shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, transfers, or other dispositions.
1E. Other Adjustments. In case (i) the Company shall issue or
sell any shares of its Common Stock for a consideration per share less than the
fair market value thereof at the time of such issue or sale, or issue or grant
any rights to subscribe for or to purchase, or any options for the purchase of,
Common Stock or Convertible Securities at an exercise price per share of Common
Stock less than the fair market value thereof on the date of such issue or
grant, or issue or sell any Convertible Securities having a conversion or
exchange price per share of Common Stock less than the fair market value thereof
on the date of such issue or sale, or (ii) any other corporate event or
transaction of the Company, outside the ordinary course of business consistent
with past practice, not specified or contemplated by this Section 1 occurs which
equitably requires an anti-dilutive adjustment to the Warrants represented
hereby, then the Board of Directors of the Company shall make such appropriate
adjustments to the Warrants as it may determine in its reasonable business
judgment.
1F. Notice of Adjustment. Upon any adjustment of the Exercise
Price, then and in each such case the Company shall promptly deliver to the
Holder a certificate of the chief financial officer of the Company setting forth
the Exercise Price resulting from such adjustment and the increase or decrease,
if any, in the number of shares of Common Stock issuable upon Exercise of the
Warrant or Warrants held by each holder of Warrants, and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
1G. Prohibition of Certain Actions. The Company will not (i)
authorize or issue, or agree to authorize or issue, any shares of its capital
stock of any class preferred as to dividends or as to the distribution of assets
upon voluntary or involuntary liquidation, dissolution or winding-up of the
Company unless the rights of the holders thereof shall be limited to a fixed sum
or percentage of par value in respect of participation in dividends and in the
distribution of such assets or (ii) take any action which would result in any
adjustment of the Exercise Price if the total number of shares of Common Stock
issuable after such action upon exercise of all of the Warrants would exceed the
total number of shares of Common Stock then authorized by the Company's
Certificate of Incorporation.
1H. Stock to be Reserved. The Company will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon the exercise of
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Warrants as herein provided, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants, and the Company
will maintain at all times all other rights and privileges sufficient to enable
it to fulfill all its obligations hereunder. The Company covenants that all
shares of Common Stock which shall be so issuable shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, free from preemptive
or similar rights on the part of the holders of any shares of capital stock or
securities of the Company, and free from all Liens and charges with respect to
the issue thereof; and without limiting the generality of the foregoing, the
Company covenants that it will from time to time take all such action as may be
required to assure that the par value, if any, per share of the Common Stock is
at all times equal to or less than the then effective Exercise Price. The
Company will take all such action as may be necessary to assure that such
shares of Common Stock may be so issued without violation by the Company of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Common Stock may be listed.
1I. Registration and Listing of Common Stock. If any shares of
Common Stock required to be reserved for purposes of exercise of Warrants
hereunder require registration with or approval of any governmental authority
under any Federal or state law (other than the Securities Act) before such
shares may be issued upon exercise, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered or approved, as the case may be. Shares of Common Stock issuable
upon exercise of the Warrants shall be registered by the Company under the
Securities Act or similar statute then in effect if required by paragraph 11 and
subject to the conditions stated in such paragraph. If and so long as the
Common Stock is listed on any national securities exchange, the Company will, at
its expense, obtain promptly and maintain the approval for listing on each such
exchange upon official notice of issuance, of shares of Common Stock issuable
upon exercise of the then outstanding Warrants and maintain the listing of such
shares after their issuance; and the Company will also list on such national
securities exchange, will register under the Securities Exchange Act of 1933, as
amended (the "Exchange Act"), and will maintain such listing of, any other
securities that at any time are issuable upon exercise of the Warrants, if and
at the time that any securities of the same class shall be listed on such
national securities exchange by the Company or shall require registration under
the Exchange Act.
1J. Closing of Books. The Company will at no time close its
transfer books against the transfer of any Warrant or of any shares of Common
Stock issued or issuable upon the
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exercise of any Warrant in any manner which interferes with the timely exercise
of such Warrant.
1K. No Rights or Liabilities as Shareholders. No Warrant shall
entitle any holder thereof to any of the rights of a shareholder of the Company.
No provision of this Warrant, in the absence of the actual exercise of such
Warrant or any part thereof by the holder thereof into Common Stock issuable
upon such exercise, shall give rise to any liability on the part of such holder
as a shareholder of the Company, whether such liability shall be asserted by the
Company or by creditors of the Company.
SECTION 2. METHOD OF EXERCISE OF WARRANTS
The Warrants may be exercised by the surrender of this Certificate,
with the Form of Subscription attached hereto duly executed by the holder, to
the Company at its principal office, accompanied by payment of the Exercise
Price for the number of shares of Common Stock specified. The Warrants may be
exercised for less than the full number of shares of Common Stock called for
hereby by surrender of this Certificate in the manner and at the place provided
above, accompanied by payment for the number of shares of Common Stock being
purchased. If the Warrants should be exercised in part only, the Company shall,
upon surrender of this Warrant Certificate for cancellation, execute and deliver
a new Warrant Certificate evidencing the right of the holder to purchase the
balance of the shares purchasable hereunder. Upon receipt by the Company of
this Warrant Certificate at the office of the Company, in proper form for
exercise, accompanied by the full Exercise Price in cash or certified or bank
cashier's check, the holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such Common Stock shall not then be actually delivered to the
holder.
As soon as practicable after the exercise of these Warrants in whole or
in part and, in any event, within ten days thereafter, the Company at its
expense will cause to be issued in the name of and delivered to the holder a
certificate or certificates for the number of fully paid and nonassessable
shares of Common Stock (and any new Warrants) to which the holder shall be
entitled upon such exercise. Each certificate for shares of Common Stock so
delivered shall be in such denominations as may be requested by the holder and
shall be registered in the name of the holder or such other name as the holder
may designate.
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SECTION 3. PAYMENT OF TAXES
The issuance of certificates for shares of Common Stock upon exercise
of the Warrants shall be made without charge to the holders of the Warrants
exercised for any issuance tax in respect thereto; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder of the Warrant or Warrants exercised.
SECTION 4. MUTILATED OR MISSING WARRANT CERTIFICATES
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant Certificate, and
(in the case of loss, theft or destruction) of reasonably satisfactory
indemnification and upon surrender and cancellation of this Warrant Certificate,
if mutilated, the Company will execute and deliver a new Warrant Certificate of
like tenor and date.
A-7
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, as of the day and year first above written.
DOUBLETREE CORPORATION
By:
-------------------------------
Name:
Title:
A-8
<PAGE> 9
FORM OF SUBSCRIPTION
DATE: _____________ 19___
TO: DOUBLETREE CORPORATION
The Undersigned, the holder of the within Warrants, hereby irrevocably
elects to exercise all or part of the purchase right represented by such
Warrants for, and to purchase thereunder, _______________ shares of Common
Stock of DOUBLETREE CORPORATION (the "Company") and herewith makes payment of
$___________ to the Company, evidenced by delivery of_________________, and
requests that the certificate of such shares be issued in the name of, and be
delivered to ______ _________, whose address is ______________________________.
----------------------------
(Name of Holder)
----------------------------
(Authorized Signatory)
----------------------------
(Address)
<PAGE> 1
EXHIBIT 10.6
================================================================================
CREDIT AGREEMENT
among
DOUBLETREE CORPORATION,
VARIOUS BANKS,
MORGAN STANLEY SENIOR FUNDING, INC.,
as SYNDICATION AGENT and as ARRANGER,
and
THE BANK OF NOVA SCOTIA,
as ADMINISTRATIVE AGENT
__________________________________
Dated as of November __, 1996
__________________________________
================================================================================
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TABLE OF CONTENTS
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SECTION 1. Amount and Terms of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 The Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Minimum Amount of Each Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.03 Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.04 Disbursement of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.05 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.06 Conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.07 Pro Rata Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.08 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.09 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.10 Increased Costs, Illegality, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.11 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.12 Change of Lending Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.13 Replacement of Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.01 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.02 Maximum Letter of Credit Outstandings; Final Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.03 Letter of Credit Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.04 Letter of Credit Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.05 Agreement to Repay Letter of Credit Drawings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.06 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3. Commitment Commission; Fees; Reductions of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.01 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.02 Voluntary Termination of Unutilized Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.03 Mandatory Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4. Prepayments; Payments; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.01 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.02 Mandatory Repayments and Commitment Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.03 Method and Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.04 Net Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 5. Conditions Precedent to Initial Credit Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.01 Execution of Agreement; Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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5.02 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.03 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.04 Corporate Documents; Proceedings; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.05 Employee Benefit Plans; Shareholders' Agreements; Management Agreements; Collective Bargaining
Agreements; Existing Indebtedness Agreements; Tax Sharing Agreements; Joint Venture Agreements;
Property Management Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.06 Equity Financing; Equity Rollover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.07 Consummation of Acquisition; Cash on Hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.08 Refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.09 Adverse Change, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.11 Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.12 Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.13 Subsidiaries Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.14 Mortgages; Title Insurance; Survey; etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.15 Projections; Pro Forma Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.16 Solvency Opinion; Insurance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.17 Fees, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6. Conditions Precedent to All Credit Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.01 No Default; Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.02 Notice of Borrowing; Letter of Credit Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 7. Representations, Warranties and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.01 Corporate and Other Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.02 Corporate and Other Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.03 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.04 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc. . . . . . . . . . . . 51
7.06 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.07 True and Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.08 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.09 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.10 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.11 The Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.12 Representations and Warranties in Acquisition Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.13 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.14 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.15 Subsidiaries and Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
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7.16 Compliance with Statutes, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.17 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.18 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.19 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.20 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.21 Patents, Licenses, Franchises and Formulas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.22 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.23 Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 8. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.01 Information Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.02 Books, Records and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.03 Maintenance of Property; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.04 Corporate Franchises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.05 Compliance with Statutes, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.06 Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.07 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
8.08 End of Fiscal Years; Fiscal Quarters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.09 Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.10 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.11 Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.12 Additional Security; Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.13 Foreign Subsidiaries Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.14 Joint Venture Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.15 Maintenance of Corporate Separateness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 9. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.01 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.02 Consolidation, Merger, Purchase or Sale of Assets, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 75
9.03 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
9.04 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
9.05 Advances, Investments and Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
9.06 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
9.07 Capital Expenditures; Permitted Hotel Acquisitions; Permitted Hotel Investments . . . . . . . . . . . . . . 84
9.08 Consolidated Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
9.09 Consolidated Interest Coverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
9.10 Maximum Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
9.11 Minimum Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
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9.12 Limitation on Voluntary Payments and Modifications of Indebtedness; Modifications of Certificate of
Incorporation, By-Laws and Certain Other Agreements; etc. . . . . . . . . . . . . . . . . . . . . . . 89
9.13 Limitation on Certain Restrictions on Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
9.14 Limitation on Issuance of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
9.15 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
9.16 Limitation on Creation of Subsidiaries and Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 10. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
10.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
10.02 Representations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
10.03 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
10.04 Default Under Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
10.05 Bankruptcy, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
10.06 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
10.07 Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
10.08 Subsidiaries Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
10.09 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
10.10 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
10.11 Certain Master Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
SECTION 11. Definitions and Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
11.01 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
SECTION 12. The Administrative Agent and the Syndication Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
12.01 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
12.02 Nature of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
12.03 Lack of Reliance on the Administrative Agent and the Syndication Agent . . . . . . . . . . . . . . . . . . 133
12.04 Certain Rights of the Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
12.05 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
12.06 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
12.07 The Administrative Agent and the Syndication Agent in their Individual Capacity . . . . . . . . . . . . . . 134
12.08 Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
12.09 Resignation by the Administrative Agent and the Syndication Agent . . . . . . . . . . . . . . . . . . . . . 135
SECTION 13. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
13.01 Payment of Expenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
13.02 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
</TABLE>
(iv)
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<TABLE>
<CAPTION>
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<S> <C> <C>
13.03 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
13.04 Benefit of Agreement; Assignments; Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
13.05 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
13.06 Payments Pro Rata . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
13.07 Calculations; Computations; Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . 141
13.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
13.10 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
13.11 Headings Descriptive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
13.12 Amendment or Waiver; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
13.13 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
13.14 Domicile of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
13.15 Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
13.16 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
13.17 Limitation on Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
</TABLE>
SCHEDULE I Commitments
SCHEDULE II Bank Addresses
SCHEDULE III Real Property
SCHEDULE IV Indebtedness to be Refinanced
SCHEDULE V Capitalization
SCHEDULE VI Subsidiaries and Joint Ventures
SCHEDULE VII Existing Indebtedness
SCHEDULE VIII Insurance
SCHEDULE IX Existing Liens
SCHEDULE X Existing Investments
SCHEDULE XI Additional Capital Expenditures
SCHEDULE XII Base Case EBITDA
SCHEDULE XIII Designated Hotel Properties
SCHEDULE XIV ERISA
SCHEDULE XV Subsidiary Restrictions
SCHEDULE XVI Existing Doubletree Investments
SCHEDULE XVII Existing Red Lion Investments
EXHIBIT A Notice of Borrowing
EXHIBIT B-1 Tranche A Term Note
EXHIBIT B-2 Tranche B Term Note
(v)
<PAGE> 7
EXHIBIT B-3 Revolving Note
EXHIBIT B-4 Swingline Note
EXHIBIT C Letter of Credit Request
EXHIBIT D Section 4.04(b)(ii) Certificate
EXHIBIT E-1 Opinion of Dewey Ballantine, counsel to the Credit
Parties
EXHIBIT E-2 Opinion of Wolf, Block, Schorr and Solis-Cohen,
counsel to the Credit Parties
EXHIBIT F Officers' Certificate
EXHIBIT G Pledge Agreement
EXHIBIT H Security Agreement
EXHIBIT I Subsidiaries Guaranty
EXHIBIT J Solvency Certificate
EXHIBIT K Assignment and Assumption Agreement
EXHIBIT L Intercompany Note
(vi)
<PAGE> 8
CREDIT AGREEMENT, dated as of November __, 1996, among
DOUBLETREE CORPORATION, a Delaware corporation (the "Borrower"), the Banks
party hereto from time to time, MORGAN STANLEY SENIOR FUNDING, INC., as
Syndication Agent and as Arranger, and THE BANK OF NOVA SCOTIA, as
Administrative Agent (all capitalized terms used herein and defined in Section
11 are used herein as therein defined).
W I T N E S S E T H :
WHEREAS, subject to and upon the terms and conditions set
forth herein, the Banks are willing to make available to the Borrower the
respective credit facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
1.01 The Commitments. (a) Subject to and upon the terms and
conditions set forth herein, each Bank with a Tranche A Term Loan Commitment
severally agrees to make a term loan or term loans (each a "Tranche A Term
Loan" and, collectively, the "Tranche A Term Loans") to the Borrower, which
Tranche A Term Loans (i) only may be incurred by the Borrower (x) on the
Initial Borrowing Date and (y) on the Second Term Loan Borrowing Date, (ii)
shall, at the option of the Borrower, be incurred and maintained as, and/or
converted into, Base Rate Loans or Eurodollar Loans, provided that (A) except
as otherwise specifically provided in Section 1.10(b), all Tranche A Term Loans
comprising the same Borrowing shall at all times be of the same Type and (B) no
more than three Borrowings of Tranche A Term Loans maintained as Eurodollar
Loans may be incurred prior to the earlier of (1) the 90th day after the
Initial Borrowing Date or, if an Interest Period relating to any then
outstanding Tranche A Term Loans beginning before such 90th day extends
thereafter, the last day of such Interest Period, and (2) that date (the
"Syndication Date") upon which the Agents shall have determined in their sole
discretion (and shall have notified the Borrower) that the primary syndication
(and resultant addition of institutions as Banks pursuant to Section 13.04(b))
has been completed (each of which Borrowings of Eurodollar Loans may only have
an Interest Period of one month, and the first of which Borrowings may only be
made on a single date on or after the Initial Borrowing Date and on or prior to
the sixth Business Day following the Initial Borrowing Date, and the second and
third of which Borrowings may only be made on the last day of
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<PAGE> 9
the immediately preceding Interest Period) and (iii) shall be made by each such
Bank on any Term Loan Borrowing Date in that aggregate principal amount which
equals the Tranche A Term Loan Commitment of such Bank on such Term Loan
Borrowing Date (before giving effect to any reductions thereto on such date
pursuant to Section 3.03(b)(i) or (ii) but after giving effect to any
reductions thereto on or prior to such date pursuant to Section 3.03(b)(iii));
provided, however, that until all Indebtedness to be Refinanced has been repaid
in full, the Borrower will not be permitted to incur Tranche A Term Loans if,
after giving effect to the incurrence thereof and the application of the
proceeds therefrom, the remaining Total Tranche A Term Loan Commitment would be
less than the aggregate outstanding principal amount of the remaining
Indebtedness to be Refinanced. Once repaid, Tranche A Term Loans incurred
hereunder may not be reborrowed.
(b) Subject to and upon the terms and conditions set forth
herein, each Bank with a Tranche B Term Loan Commitment severally agrees to
make, on the Initial Borrowing Date, a term loan or term loans (each a "Tranche
B Term Loan" and, collectively, the "Tranche B Term Loans") to the Borrower,
which Tranche B Term Loans (i) shall, at the option of the Borrower, be
incurred and maintained as, and/or converted into, Base Rate Loans or
Eurodollar Loans, provided that (A) except as otherwise specifically provided
in Section 1.10(b), all Tranche B Term Loans comprising the same Borrowing
shall at all times be of the same Type and (B) no more than three Borrowings of
Tranche B Term Loans maintained as Eurodollar Loans may be incurred prior to
the earlier of (1) the 90th day after the Initial Borrowing Date or, if an
Interest Period relating to any then outstanding Tranche B Term Loans beginning
before such 90th day extends thereafter, the last day of such Interest Period,
and (2) the Syndication Date (each of which Borrowings of Eurodollar Loans may
only have an Interest Period of one month, and the first of which Borrowings
may only be made on the same day as the first day of the first Interest Period
of the Tranche A Term Loans that are maintained as Eurodollar Loans, and the
second and third of which Borrowings may only be made on the last day of the
immediately preceding Interest Period) and (ii) shall be made by each such Bank
in that aggregate principal amount which equals the Tranche B Term Loan
Commitment of such Bank on the Initial Borrowing Date (before giving effect to
the termination thereof on such date pursuant to Section 3.03(c)(i) but after
giving effect to any reductions thereto on or prior to such date pursuant to
Section 3.03(c)(ii)). Once repaid, Tranche B Term Loans incurred hereunder may
not be reborrowed.
(c) Subject to and upon the terms and conditions set forth
herein, each Bank with a Revolving Loan Commitment severally agrees, at any
time and from time to time on and after the Initial Borrowing Date and prior to
the Revolving Loan Maturity Date, to make a revolving loan or revolving loans
(each a "Revolving Loan" and, collectively, the "Revolving Loans") to the
Borrower, which Revolving Loans (i) shall, at the option of the Borrower, be
incurred and maintained as, and/or converted into, Base Rate Loans or
Eurodollar Loans, provided that (A) except as otherwise specifically provided
in Section 1.10(b),
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<PAGE> 10
all Revolving Loans comprising the same Borrowing shall at all times be of the
same Type and (B) no more than three Borrowings of Revolving Loans maintained
as Eurodollar Loans may be incurred prior to the earlier of (1) the 90th day
after the Initial Borrowing Date or, if an Interest Period relating to any then
outstanding Revolving Loans beginning before such 90th day extends thereafter,
the last day of such Interest Period, and (2) the Syndication Date (each of
which Borrowings of Eurodollar Loans may only have an Interest Period of one
month, and the first of which Borrowings may only be made on the same day as
the first day of the first Interest Period of the Tranche A Term Loans that are
maintained as Eurodollar Loans, and the second and third of which Borrowings
may only be made on the last day of the immediately preceding Interest Period),
(ii) may be repaid and reborrowed in accordance with the provisions hereof,
(iii) shall not exceed for any such Bank at any time outstanding that aggregate
principal amount which, when added to the product of (x) such Bank's Adjusted
RL Percentage and (y) the sum of (I) the aggregate amount of all Letter of
Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) at such time and (II) the aggregate principal
amount of all Swingline Loans (exclusive of Swingline Loans which are repaid
with the proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) then outstanding, equals the Revolving Loan
Commitment of such Bank at such time and (iv) shall not exceed for all Banks at
any time outstanding that aggregate principal amount which, when added to (I)
the amount of all Letter of Credit Outstandings (exclusive of Unpaid Drawings
which are repaid with the proceeds of, and simultaneously with the incurrence
of, the respective incurrence of Revolving Loans) at such time and (II) the
aggregate principal amount of all Swingline Loans (exclusive of Swingline Loans
which are repaid with the proceeds of, and simultaneously with the incurrence
of, the respective incurrence of Revolving Loans) then outstanding, equals the
Total Revolving Loan Commitment at such time.
(d) Subject to and upon the terms and conditions set forth
herein, the Swingline Bank agrees to make, at any time and from time to time on
and after the Initial Borrowing Date and prior to the Swingline Expiry Date, a
revolving loan or revolving loans (each a "Swingline Loan" and, collectively,
the "Swingline Loans") to the Borrower, which Swingline Loans (i) shall be made
and maintained as Base Rate Loans, (ii) may be repaid and reborrowed in
accordance with the provisions hereof, (iii) shall not exceed in aggregate
principal amount at any time outstanding, when combined with the aggregate
principal amount of all Revolving Loans made by Non-Defaulting Banks then
outstanding and the Letter of Credit Outstandings at such time, an amount equal
to the Adjusted Total Revolving Loan Commitment at such time (after giving
effect to any reductions to the Adjusted Total Revolving Loan Commitment on
such date), and (iv) shall not exceed in aggregate principal amount at any time
outstanding the Maximum Swingline Amount. Notwithstanding anything to the
contrary contained in this Section 1.01(d), the Swingline Bank shall not make
any Swingline Loan after it has received written notice from the Borrower or
the Required Banks stating that a Default or an Event of Default exists and is
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<PAGE> 11
continuing until such time as the Swingline Bank shall have received written
notice (i) of rescission of all such notices from the party or parties
originally delivering such notice, (ii) of the waiver of such Default or Event
of Default by the Required Banks or (iii) that the Agents in good faith believe
that such Default or Event of Default has ceased to exist.
(e) On any Business Day, the Swingline Bank may, in its sole
discretion, give notice to the Banks that its outstanding Swingline Loans shall
be funded with one or more Borrowings of Revolving Loans (provided that such
notice shall be deemed to have been automatically given upon the occurrence of
a Default or an Event of Default under Section 10.05 or upon the exercise of
any of the remedies provided in the last paragraph of Section 10), in which
case one or more Borrowings of Revolving Loans constituting Base Rate Loans
(each such Borrowing, a "Mandatory Borrowing") shall be made on the immediately
succeeding Business Day by all Banks with a Revolving Loan Commitment (without
giving effect to any reductions thereto pursuant to the last paragraph of
Section 10) pro rata based on each such Bank's Adjusted RL Percentage
(determined before giving effect to any termination of the Revolving Loan
Commitments pursuant to the last paragraph of Section 10) and the proceeds
thereof shall be applied directly by the Swingline Bank to repay the Swingline
Bank for such outstanding Swingline Loans. Each such Bank hereby irrevocably
agrees to make Revolving Loans upon one Business Day's notice pursuant to each
Mandatory Borrowing in the amount and in the manner specified in the preceding
sentence and on the date specified in writing by the Swingline Bank
notwithstanding (i) the amount of the Mandatory Borrowing may not comply with
the Minimum Borrowing Amount otherwise required hereunder, (ii) whether any
conditions specified in Section 6 are then satisfied, (iii) whether a Default
or an Event of Default then exists, (iv) the date of such Mandatory Borrowing
and (v) the amount of the Total Revolving Loan Commitment or the Adjusted Total
Revolving Loan Commitment at such time. In the event that any Mandatory
Borrowing cannot for any reason be made on the date otherwise required above
(including, without limitation, as a result of the commencement of a proceeding
under the Bankruptcy Code with respect to the Borrower), then each such Bank
hereby agrees that it shall forthwith purchase (as of the date the Mandatory
Borrowing would otherwise have occurred, but adjusted for any payments received
from the Borrower on or after such date and prior to such purchase) from the
Swingline Bank such participations in the outstanding Swingline Loans as shall
be necessary to cause such Banks to share in such Swingline Loans ratably based
upon their respective Adjusted RL Percentages (determined before giving effect
to any termination of the Revolving Loan Commitments pursuant to the last
paragraph of Section 10), provided that (x) all interest payable on the
Swingline Loans shall be for the account of the Swingline Bank until the date
as of which the respective participation is required to be purchased and, to
the extent attributable to the purchased participation, shall be payable to the
participant from and after such date and (y) at the time any purchase of
participations pursuant to this sentence is actually made, the purchasing Bank
shall be required to pay the Swingline Bank interest on the principal amount of
participation purchased for each day from and including the day upon which the
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<PAGE> 12
Mandatory Borrowing would otherwise have occurred to but excluding the date of
payment for such participation, at the overnight Federal Funds Rate for the
first three days and at the rate otherwise applicable to Revolving Loans
maintained as Base Rate Loans hereunder for each day thereafter.
1.02 Minimum Amount of Each Borrowing. The aggregate
principal amount of each Borrowing of Loans under a respective Tranche shall
not be less than the Minimum Borrowing Amount for such Tranche. More than one
Borrowing may occur on the same date, but at no time shall there be outstanding
more than sixteen Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrower desires
to incur Loans hereunder (excluding Swingline Loans and Revolving Loans
incurred pursuant to a Mandatory Borrowing), the Borrower shall give the
Administrative Agent at its Notice Office at least one Business Day's prior
notice of each Base Rate Loan and at least three Business Days' prior notice of
each Eurodollar Loan to be incurred hereunder, provided that any such notice
shall be deemed to have been given on a certain day only if given before 1:00
P.M. (New York time) on such day. Each such notice (each a "Notice of
Borrowing"), except as otherwise expressly provided in Section 1.10, shall be
irrevocable and shall be given by the Borrower in writing, or by telephone
promptly confirmed in writing, in the form of Exhibit A, appropriately
completed to specify the aggregate principal amount of the Loans to be incurred
pursuant to such Borrowing, the date of such Borrowing (which shall be a
Business Day), whether the Loans being incurred pursuant to such Borrowing
shall constitute Tranche A Term Loans, Tranche B Term Loans or Revolving Loans
and whether the Loans being incurred pursuant to such Borrowing are to be
initially maintained as Base Rate Loans or Eurodollar Loans and, if Eurodollar
Loans, the initial Interest Period to be applicable thereto. The
Administrative Agent shall promptly give each Bank which is required to make
Loans of the Tranche specified in the respective Notice of Borrowing, notice of
such proposed Borrowing, of such Bank's proportionate share thereof and of the
other matters required by the immediately preceding sentence to be specified in
the Notice of Borrowing.
(b)(i) Whenever the Borrower desires to incur Swingline Loans
hereunder, the Borrower shall give the Swingline Bank no later than 2:00 P.M.
(New York time) on the date that a Swingline Loan is to be incurred, written
notice or telephonic notice promptly confirmed in writing of each Swingline
Loan to be incurred hereunder. Each such notice shall be irrevocable and
specify in each case (A) the date of Borrowing (which shall be a Business Day)
and (B) the aggregate principal amount of the Swingline Loans to be incurred
pursuant to such Borrowing.
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<PAGE> 13
(ii) Mandatory Borrowings shall be made upon the notice
specified in Section 1.01(e), with the Borrower irrevocably agreeing, by its
incurrence of any Swingline Loan, to the making of the Mandatory Borrowings as
set forth in Section 1.01(e).
(c) Without in any way limiting the obligation of the
Borrower to confirm in writing any telephonic notice of any Borrowing or
prepayment of Loans, the Administrative Agent or the Swingline Bank, as the
case may be, may act without liability upon the basis of telephonic notice of
such Borrowing or prepayment, believed by the Administrative Agent or the
Swingline Bank, as the case may be, in good faith to be from the Chief
Executive Officer, the President, the Chief Financial Officer, the Treasurer,
any Assistant Treasurer or the Controller of the Borrower, or from any other
authorized person of the Borrower designated in writing by the Borrower to the
Administrative Agent as being authorized to give such notices, prior to receipt
of written confirmation. In each such case, the Borrower hereby waives the
right to dispute the Administrative Agent's or the Swingline Bank's record of
the terms of such telephonic notice of such Borrowing or prepayment of Loans
(absent manifest error).
1.04 Disbursement of Funds. No later than 1:00 P.M. (New
York time) on the date specified in each Notice of Borrowing (or (x) in the
case of Swingline Loans, no later than 3:00 P.M. (New York time) on the date
specified pursuant to Section 1.03(b)(i) or (y) in the case of Mandatory
Borrowings, no later than 1:00 P.M. (New York time) on the date specified in
Section 1.01(e)), each Bank with a Commitment of the respective Tranche will
make available its pro rata portion (determined in accordance with Section
1.07) of each such Borrowing requested to be made on such date (or, in the case
of Swingline Loans, the Swingline Bank will make available the full amount
thereof). All such amounts will be made available in Dollars and in
immediately available funds at the Payment Office of the Administrative Agent,
and the Administrative Agent will make available to the Borrower at the Payment
Office the aggregate of the amounts so made available by the Banks (other than
in respect of Mandatory Borrowings). Unless the Administrative Agent shall
have been notified by any Bank prior to the date of Borrowing that such Bank
does not intend to make available to the Administrative Agent such Bank's
portion of any Borrowing to be made on such date, the Administrative Agent may
assume that such Bank has made such amount available to the Administrative
Agent on such date of Borrowing and the Administrative Agent may (but shall not
be obligated to), in reliance upon such assumption, make available to the
Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Administrative Agent by such Bank, the Administrative
Agent shall be entitled to recover such corresponding amount on demand from
such Bank. If such Bank does not pay such corresponding amount forthwith upon
the Administrative Agent's demand therefor, the Administrative Agent shall
promptly notify the Borrower and the Borrower shall immediately pay such
corresponding amount to the Administrative Agent. The Administrative Agent
shall also be entitled to recover on demand from such Bank or the Borrower, as
the case may be, interest on such corresponding
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<PAGE> 14
amount in respect of each day from the date such corresponding amount was made
available by the Administrative Agent to the Borrower until the date such
corresponding amount is recovered by the Administrative Agent, at a rate per
annum equal to (i) if recovered from such Bank, at the customary rate set by
the Administrative Agent for the correction of errors among banks for each day
during the period consisting of the first three Business Days following such
date of availability and thereafter at the Base Rate as in effect from time to
time and (ii) if recovered from the Borrower, the rate of interest applicable
to the respective Borrowing, as determined pursuant to Section 1.08. Nothing
in this Section 1.04 shall be deemed to relieve any Bank from its obligation to
make Loans hereunder or to prejudice any rights which the Borrower may have
against any Bank as a result of any failure by such Bank to make Loans
hereunder.
1.05 Notes. (a) The Borrower's obligation to pay the
principal of, and interest on, the Loans made by each Bank shall be evidenced
(i) if Tranche A Term Loans, by a promissory note duly executed and delivered
by the Borrower substantially in the form of Exhibit B- 1, with blanks
appropriately completed in conformity herewith (each a "Tranche A Term Note"
and, collectively, the "Tranche A Term Notes"), (ii) if Tranche B Term Loans,
by a promissory note duly executed and delivered by the Borrower substantially
in the form of Exhibit B-2, with blanks appropriately completed in conformity
herewith (each a "Tranche B Term Note" and, collectively, the "Tranche B Term
Notes"), (iii) if Revolving Loans, by a promissory note duly executed and
delivered by the Borrower substantially in the form of Exhibit B-3, with blanks
appropriately completed in conformity herewith (each a "Revolving Note" and,
collectively, the "Revolving Notes") and (iv) if Swingline Loans, by a
promissory note duly executed and delivered by the Borrower substantially in
the form of Exhibit B-4, with blanks appropriately completed in conformity
herewith (the "Swingline Note").
(b) The Tranche A Term Note issued to each Bank that has a
Tranche A Term Loan Commitment or outstanding Tranche A Term Loans shall (i) be
executed by the Borrower, (ii) be payable to such Bank or its registered
assigns and be dated the Initial Borrowing Date (or, if issued after the
Initial Borrowing Date, be dated the date of the issuance thereof), (iii) be in
a stated principal amount equal to the Tranche A Term Loan Commitment of such
Bank on the Initial Borrowing Date (before giving effect to the making of any
Tranche A Term Loans on such date by such Bank) (or, if issued after the
Initial Borrowing Date, be in a stated principal amount equal to any
outstanding Tranche A Term Loan Commitment of such Bank at such time plus the
outstanding principal amount of any Tranche A Term Loans of such Bank at such
time) and be payable in the outstanding principal amount of Tranche A Term
Loans evidenced thereby, (iv) mature on the Tranche A Term Loan Maturity Date,
(v) bear interest as provided in the appropriate clause of Section 1.08 in
respect of the Base Rate Loans and Eurodollar Loans, as the case may be,
evidenced thereby, (vi) be subject to voluntary prepayment as provided in
Section 4.01, and
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<PAGE> 15
mandatory repayment as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(c) The Tranche B Term Note issued to each Bank that has a
Tranche B Term Loan Commitment or outstanding Tranche B Term Loans shall (i) be
executed by the Borrower, (ii) be payable to such Bank or its registered
assigns and be dated the Initial Borrowing Date (or, if issued after the
Initial Borrowing Date, be dated the date of the issuance thereof), (iii) be in
a stated principal amount equal to the Tranche B Term Loans made by such Bank
and be payable in the outstanding principal amount of Tranche B Term Loans
evidenced thereby, (iv) mature on the Tranche B Term Loan Maturity Date, (v)
bear interest as provided in the appropriate clause of Section 1.08 in respect
of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced
thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01,
and mandatory repayment as provided in Section 4.02 and (vii) be entitled to
the benefits of this Agreement and the other Credit Documents.
(d) The Revolving Note issued to each Bank that has a
Revolving Loan Commitment or outstanding Revolving Loans shall (i) be executed
by the Borrower, (ii) be payable to such Bank or its registered assigns and be
dated the Initial Borrowing Date (or, if issued after the Initial Borrowing
Date, be dated the date of the issuance thereof), (iii) be in a stated
principal amount equal to the Revolving Loan Commitment of such Bank (or, if
issued after the termination thereof, be in a stated principal amount equal to
the outstanding Revolving Loans of such Bank at such time) and be payable in
the outstanding principal amount of the Revolving Loans evidenced thereby, (iv)
mature on the Revolving Loan Maturity Date, (v) bear interest as provided in
the appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary prepayment as provided in Section 4.01, and mandatory repayment as
provided in Section 4.02 and (vii) be entitled to the benefits of this
Agreement and the other Credit Documents.
(e) The Swingline Note issued to the Swingline Bank shall (i)
be executed by the Borrower, (ii) be payable to the Swingline Bank or its
registered assigns and be dated the Initial Borrowing Date, (iii) be in a
stated principal amount equal to the Maximum Swingline Amount and be payable in
the outstanding principal amount of the Swingline Loans evidenced thereby from
time to time, (iv) mature on the Swingline Expiry Date, (v) bear interest as
provided in the appropriate clause of Section 1.08 in respect of the Base Rate
Loans evidenced thereby, (vi) be subject to voluntary prepayment as provided in
Section 4.01, and mandatory repayment as provided in Section 4.02 and (vii) be
entitled to the benefits of this Agreement and the other Credit Documents.
(f) Each Bank will note on its internal records the amount of
each Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the
outstanding principal amount of Loans evi-
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<PAGE> 16
denced thereby. Failure to make any such notation or any error in such
notation shall not affect (i.e., will not increase or decrease) the Borrower's
obligations in respect of such Loans.
1.06 Conversions. The Borrower shall have the option to
convert, on any Business Day occurring after the Initial Borrowing Date, all or
a portion equal to at least the Minimum Borrowing Amount of the outstanding
principal amount of Loans (other than Swingline Loans, which may not be
converted pursuant to this Section 1.06) made pursuant to one or more
Borrowings (so long as of the same Tranche) of one or more Types of Loans into
a Borrowing (of the same Tranche) of another Type of Loan, provided that, (i)
except as otherwise provided in Section 1.10(b), Eurodollar Loans may be
converted into Base Rate Loans only on the last day of an Interest Period
applicable to the Loans being converted and no such partial conversion of
Eurodollar Loans shall reduce the outstanding principal amount of such
Eurodollar Loans made pursuant to a single Borrowing to less than the Minimum
Borrowing Amount applicable thereto, (ii) Base Rate Loans may only be converted
into Eurodollar Loans if no Default or Event of Default is in existence on the
date of the conversion, (iii) unless the Agents otherwise shall have determined
that the Syndication Date has occurred, prior to the 90th day after the Initial
Borrowing Date, conversions of Base Rate Loans into Eurodollar Loans may only
be made if the conversion is effective on the first day of the first, second or
third Interest Period referred to in clause (B) of the proviso of each of
Sections 1.01(a)(ii), 1.01(b)(i) and 1.01(c)(i) and so long as such conversion
does not result in a greater number of Borrowings of Eurodollar Loans prior to
the 90th day after the Initial Borrowing Date than are permitted under Sections
1.01(a), 1.01(b) and 1.01(c) and (iv) no conversion pursuant to this Section
1.06 shall result in a greater number of Borrowings of Eurodollar Loans than is
permitted under Section 1.02. Each such conversion shall be effected by the
Borrower by giving the Administrative Agent at its Notice Office prior to 1:00
P.M. (New York time) at least three Business Days' prior notice (each a "Notice
of Conversion") specifying the Loans to be so converted, the Borrowing or
Borrowings pursuant to which such Loans were made and, if to be converted into
Eurodollar Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall give each Bank prompt notice of any such proposed
conversion affecting any of its Loans. Upon any such conversion the proceeds
thereof will be deemed to be applied directly on the day of such conversion to
prepay the outstanding principal amount of the Loans being converted.
1.07 Pro Rata Borrowings. All Borrowings of Tranche A Term
Loans, Tranche B Term Loans and Revolving Loans under this Agreement shall be
incurred from the Banks pro rata on the basis of their Tranche A Term Loan
Commitments, Tranche B Term Loan Commitments or Revolving Loan Commitments, as
the case may be, provided, that all Borrowings of Revolving Loans made pursuant
to a Mandatory Borrowing shall be incurred from the Banks with Revolving Loan
Commitments pro rata on the basis of their Adjusted RL Percentages. It is
understood that no Bank shall be responsible for any default
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<PAGE> 17
by any other Bank of its obligation to make Loans hereunder and that each Bank
shall be obligated to make the Loans provided to be made by it hereunder,
regardless of the failure of any other Bank to make its Loans hereunder.
1.08 Interest. (a) The Borrower agrees to pay interest in
respect of the unpaid principal amount of each Base Rate Loan from the date the
proceeds thereof are made available to the Borrower until the earlier of (i)
the maturity thereof (whether by acceleration or otherwise) and (ii) the
conversion of such Base Rate Loan into a Eurodollar Loan pursuant to Section
1.06, at a rate per annum which shall be equal to the sum of the Applicable
Margin plus the Base Rate in effect from time to time.
(b) The Borrower agrees to pay interest in respect of the
unpaid principal amount of each Eurodollar Loan from the date the proceeds
thereof are made available to the Borrower until the earlier of (i) the
maturity thereof (whether by acceleration or otherwise) and (ii) the conversion
of such Eurodollar Loan into a Base Rate Loan pursuant to Section 1.06, 1.09 or
1.10, as applicable, at a rate per annum which shall, during each Interest
Period applicable thereto, be equal to the sum of the Applicable Margin plus
the Eurodollar Rate for such Interest Period.
(c) Overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan and any other overdue amount payable
hereunder shall, in each case, bear interest at a rate per annum equal to 2%
per annum in excess of the rate otherwise applicable to Base Rate Loans of the
respective Tranche of Loans from time to time with such interest to be payable
on demand.
(d) Accrued (and theretofore unpaid) interest shall be
payable (i) in respect of each Base Rate Loan, quarterly in arrears on each
Quarterly Payment Date, (ii) in respect of each Eurodollar Loan, on the last
day of each Interest Period applicable thereto and, in the case of an Interest
Period in excess of three months, on each date occurring at three month
intervals after the first day of such Interest Period and (iii) in respect of
each Loan, on any repayment or prepayment (on the amount repaid or prepaid), at
maturity (whether by acceleration or otherwise) and, after such maturity, on
demand.
(e) Upon each Interest Determination Date, the Administrative
Agent shall determine the Eurodollar Rate for each Interest Period applicable
to Eurodollar Loans and shall promptly notify the Borrower and the Banks
thereof. Each such determination shall, absent manifest error, be final and
conclusive and binding on all parties hereto.
1.09 Interest Periods. At the time it gives any Notice of
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, any Eurodollar Loan (in the case of the initial Interest Period
applicable thereto) or on the third Business Day prior to the expiration of an
Interest Period applicable to such Eurodollar Loan (in the case
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<PAGE> 18
of any subsequent Interest Period), the Borrower shall have the right to elect,
by giving the Administrative Agent notice thereof, the interest period (each an
"Interest Period") applicable to such Eurodollar Loan, which Interest Period
shall, at the option of the Borrower (but otherwise subject to the limitation
set forth in clause (B) of the proviso in each of Sections 1.01(a)(ii),
1.01(b)(i) and 1.01(c)(i)), be a one, two, three or six-month period or, if
available to all Banks with Loans of the respective Tranche at such time, a
nine or twelve-month period, provided that:
(i) all Eurodollar Loans comprising a Borrowing shall at
all times have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan
shall commence on the date of Borrowing of such Eurodollar Loan
(including the date of any conversion thereto from a Loan of a
different Type) and each Interest Period occurring thereafter in
respect of such Eurodollar Loan shall commence on the day on which the
next preceding Interest Period applicable thereto expires;
(iii) if any Interest Period for a Eurodollar Loan begins
on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period, such Interest
Period shall end on the last Business Day of such calendar month;
(iv) if any Interest Period for a Eurodollar Loan would
otherwise expire on a day which is not a Business Day, such Interest
Period shall expire on the next succeeding Business Day; provided,
however, that if any Interest Period for a Eurodollar Loan would
otherwise expire on a day which is not a Business Day but is a day of
the month after which no further Business Day occurs in such month,
such Interest Period shall expire on the next preceding Business Day;
(v) no Interest Period may be selected at any time when a
Default or an Event of Default is then in existence;
(vi) no Interest Period in respect of any Borrowing of any
Tranche of Loans shall be selected which extends beyond the respective
Maturity Date for such Tranche of Loans; and
(vii) no Interest Period in respect of any Borrowing of
Tranche A Term Loans or Tranche B Term Loans, as the case may be,
shall be selected which extends beyond any date upon which a mandatory
repayment of such Tranche of Term Loans will be required to be made
under Section 4.02(b) or (c), as the case may be, if the aggregate
principal amount of Tranche A Term Loans or Tranche B Term Loans, as
the case may be, which have Interest Periods which will expire after
such
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<PAGE> 19
date will be in excess of the aggregate principal amount of Tranche A
Term Loans or Tranche B Term Loans, as the case may be, then
outstanding less the aggregate amount of such required repayment.
If upon the expiration of any Interest Period applicable to a
Borrowing of Eurodollar Loans, the Borrower has failed to elect, or is not
permitted to elect, a new Interest Period to be applicable to such Eurodollar
Loans as provided above, the Borrower shall be deemed to have elected to
convert such Eurodollar Loans into Base Rate Loans effective as of the
expiration date of such current Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event
that any Bank shall have determined (which determination shall, absent manifest
error, be final and conclusive and binding upon all parties hereto but, with
respect to clause (i) below, may be made only by the Administrative Agent):
(i) on any Interest Determination Date that, by reason of
any changes arising after the date of this Agreement affecting the
interbank Eurodollar market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in
the definition of Eurodollar Rate; or
(ii) at any time, that such Bank shall incur increased
costs or reductions in the amounts received or receivable hereunder
with respect to any Eurodollar Loan because of (x) any change since
the date of this Agreement in any applicable law or governmental rule,
regulation, order, guideline or request (whether or not having the
force of law) or in the interpretation or administration thereof and
including the introduction of any new law or governmental rule,
regulation, order, guideline or request, such as, for example, but not
limited to: (A) a change in the basis of taxation of payment to any
Bank of the principal of or interest on the Notes or any other amounts
payable hereunder (except for changes in the rate of tax on, or
determined by reference to, the net income or profits of such Bank
pursuant to the laws of the jurisdiction in which it is organized or
in which its principal office or applicable lending office is located
or any subdivision thereof or therein) or (B) a change in official
reserve requirements, but, in all events, excluding reserves required
under Regulation D to the extent included in the computation of the
Eurodollar Rate and/or (y) other circumstances since the date of this
Agreement affecting the New York interbank Eurodollar market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has been made (x) unlawful by any law or governmental
rule, regulation or order, (y) impossible by compliance by any Bank in
good faith with any governmental request (whether or not having force
of law) or (z) impracticable as a result of a
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<PAGE> 20
contingency occurring after the date of this Agreement which
materially and adversely affects the interbank Eurodollar market;
then, and in any such event, such Bank (or the Administrative Agent, in the
case of clause (i) above) shall promptly give notice (by telephone promptly
confirmed in writing) to the Borrower and, except in the case of clause (i)
above, to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other Banks).
Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no
longer be available until such time as the Administrative Agent notifies the
Borrower and the Banks that the circumstances giving rise to such notice by the
Administrative Agent no longer exist, and any Notice of Borrowing or Notice of
Conversion given by the Borrower with respect to Eurodollar Loans which have
not yet been incurred (including by way of conversion) shall be deemed
rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower
shall, subject to the provisions of Section 13.17 (to the extent applicable),
pay to such Bank, within 5 Business Days after such Bank's written request
therefor, such additional amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Bank in its sole
discretion shall determine (but without duplication of any amounts that may be
payable to such Bank under Section 1.10(c)) as shall be required to compensate
such Bank for such increased costs or reductions in amounts received or
receivable hereunder (a written notice as to the additional amounts owed to
such Bank, showing in reasonable detail the basis for the calculation thereof,
submitted to the Borrower by such Bank shall, absent manifest error, be final
and conclusive and binding on all the parties hereto) and (z) in the case of
clause (iii) above, the Borrower shall take one of the actions specified in
Section 1.10(b) as promptly as possible and, in any event, within the time
period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii) shall) either (x) if the affected Eurodollar Loan is then
being made initially or pursuant to a conversion, by giving the Administrative
Agent telephonic notice (confirmed in writing) on the same date that the
Borrower was notified by the affected Bank or the Administrative Agent pursuant
to Section 1.10(a)(ii) or (iii) or (y) if the affected Eurodollar Loan is then
outstanding, upon at least three Business Days' written notice to the
Administrative Agent, require the affected Bank to convert such Eurodollar Loan
into a Base Rate Loan, provided that, if more than one Bank is affected at any
time, then all affected Banks must be treated the same pursuant to this Section
1.10(b).
(c) If at any time after the date of this Agreement any Bank
determines that the introduction of or any change (which introduction or change
shall have occurred after the date of this Agreement) in any applicable law or
governmental rule, regulation, order, guideline, directive or request (whether
or not having the force of law) concerning capital
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<PAGE> 21
adequacy, or any change in interpretation or administration thereof by any
governmental authority, central bank or comparable agency, will have the effect
of increasing the amount of capital required or expected to be maintained by
such Bank or any corporation controlling such Bank based on the existence of
such Bank's Commitments hereunder or its obligations hereunder, then the
Borrower shall, subject to the provisions of Section 13.17 (to the extent
applicable), pay to such Bank, within 5 Business Days after its written demand
therefor, such additional amounts as shall be required to compensate such Bank
or such other corporation for the increased cost to such Bank or such other
corporation or the reduction in the rate of return to such Bank or such other
corporation as a result of such increase of capital (but without duplication of
any amounts that may be payable to such Bank under Section 1.10(a)). In
determining such additional amounts, each Bank will act reasonably and in good
faith and will use averaging and attribution methods which are reasonable,
provided that such Bank's determination of compensation owing under this
Section 1.10(c) shall, absent manifest error, be final and conclusive and
binding on all the parties hereto. Each Bank, upon determining that any
additional amounts will be payable pursuant to this Section 1.10(c), will give
prompt written notice thereof to the Borrower, which notice shall show in
reasonable detail the basis for calculation of such additional amounts.
1.11 Compensation. The Borrower shall compensate each Bank,
within 5 Business Days after its written request (which request shall set forth
in reasonable detail the basis for requesting such compensation), for all
reasonable losses, expenses and liabilities (including, without limitation, any
loss, expense or liability incurred by reason of the liquidation or
reemployment of deposits or other funds required by such Bank to fund its
Eurodollar Loans but excluding loss of anticipated profits) which such Bank may
sustain: (i) if for any reason (other than a default by such Bank or the
Administrative Agent) a Borrowing of, or conversion from or into, Eurodollar
Loans does not occur on a date specified therefor in a Notice of Borrowing or
Notice of Conversion (whether or not withdrawn by the Borrower or deemed
withdrawn pursuant to Section 1.10(a)); (ii) if any repayment (including any
repayment made pursuant to Section 4.01, 4.02 or as a result of an acceleration
of the Loans pursuant to Section 10) or conversion of any of its Eurodollar
Loans occurs on a date which is not the last day of an Interest Period with
respect thereto; (iii) if any prepayment of any of its Eurodollar Loans is not
made on any date specified in a notice of prepayment given by the Borrower; or
(iv) as a consequence of (x) any other default by the Borrower to repay its
Loans when required by the terms of this Agreement or any Note held by such
Bank or (y) any election made pursuant to Section 1.10(b).
1.12 Change of Lending Office. Each Bank agrees that on the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), Section 1.10(c), Section 2.06 or Section 4.04 with respect to such Bank,
it will, if requested by the Borrower, use reasonable efforts (subject to
overall policy considerations of such Bank) to designate another lending office
for any Loans or Letters of Credit affected by such event, provided that such
designation is made on such terms that such Bank and its lending office suffer
no
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<PAGE> 22
economic, legal or regulatory disadvantage which such Bank determines, in its
sole discretion, to be adverse in any material respect, with the object of
avoiding the consequence of the event giving rise to the operation of such
Section. Nothing in this Section 1.12 shall affect or postpone any of the
obligations of the Borrower or the right of any Bank provided in Sections 1.10,
2.06 and 4.04.
1.13 Replacement of Banks. (x) If any Bank becomes a
Defaulting Bank or otherwise defaults in its obligations to make Loans or fund
Unpaid Drawings, (y) upon the occurrence of an event giving rise to the
operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.06 or
Section 4.04 with respect to any Bank which results in such Bank charging to
the Borrower increased costs in excess of those being generally charged by the
other Banks or (z) in the case of a refusal by a Bank to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Banks as (and to the extent)
provided in Section 13.12(b), the Borrower shall have the right, if no Default
or Event of Default then exists (or, in the case of preceding clause (z), no
Default or Event of Default will exist immediately after giving effect to such
replacement), to either (1) replace such Bank (the "Replaced Bank") with one or
more other Eligible Transferees, none of whom shall constitute a Defaulting
Bank at the time of such replacement (collectively, the "Replacement Bank") and
each of whom shall be required to be reasonably acceptable to the
Administrative Agent or (2) at the option of the Borrower, replace only (a) the
Revolving Loan Commitment (and outstandings pursuant thereto) of the Replaced
Bank with an identical Revolving Loan Commitment provided by the Replacement
Bank or (b) in the case of a replacement as provided in Section 13.12(b) where
the consent of the respective Bank is required with respect to less than all
Tranches of its Loans or Commitments, the Commitments and/or outstanding Term
Loans of such Bank in respect of each Tranche where the consent of such Bank
would otherwise be individually required, with identical Commitments and/or
Term Loans of the respective Tranche provided by the Replacement Bank, provided
that (i) at the time of any replacement pursuant to this Section 1.13, the
Replacement Bank shall enter into one or more Assignment and Assumption
Agreements pursuant to Section 13.04(b) (and with all fees payable pursuant to
said Section 13.04(b) to be paid by the Replacement Bank) pursuant to which the
Replacement Bank shall acquire all of the Commitments and outstanding Loans
(or, in the case of the replacement of only (a) the Revolving Loan Commitment,
the Revolving Loan Commitment and outstanding Revolving Loans and
participations in outstanding Letters of Credit and/or (b) the outstanding Term
Loans of the respective Tranche or Tranches) of, and in each case
participations in Letters of Credit by, the Replaced Bank and, in connection
therewith, shall pay to (x) the Replaced Bank in respect thereof an amount
equal to the sum of (I) an amount equal to the principal of, and all accrued
interest on, all outstanding Loans (or of the Loans of the respective Tranche
or Tranches being replaced) of the Replaced Bank, (II) an amount equal to all
Unpaid Drawings that have been funded by (and not reimbursed to) such Replaced
Bank, together with all then unpaid interest with respect thereto at such time
and (III) an amount equal to all accrued, but thereto-
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<PAGE> 23
fore unpaid, Fees owing to the Replaced Bank (but only with respect to the
relevant Tranche, in the case of the replacement of less than all Tranches of
Loans then held by the respective Replaced Bank) pursuant to Section 3.01, (y)
except in the case of the replacement of only the outstanding Term Loans of one
or both Tranches of a Replaced Bank, each Issuing Bank an amount equal to such
Replaced Bank's Adjusted RL Percentage (for this purpose, determined as if the
adjustment described in clause (y) of the immediately succeeding sentence had
been made with respect to such Replaced Bank) of any Unpaid Drawing (which at
such time remains an Unpaid Drawing) to the extent such amount was not
theretofore funded by such Replaced Bank to such Issuing Bank and (z) except in
the case of the replacement of only the outstanding Term Loans of one or both
Tranches of a Replaced Bank, the Swingline Bank an amount equal to such
Replaced Bank's Adjusted RL Percentage of any Mandatory Borrowing to the extent
such amount was not theretofore funded by such Replaced Bank, and (ii) all
obligations of the Borrower due and owing to the Replaced Bank at such time
(other than those specifically described in clause (i) above in respect of
which the assignment purchase price has been, or is concurrently being, paid)
shall be paid in full to such Replaced Bank concurrently with such replacement.
Upon the execution of the respective Assignment and Assumption Agreement, the
payment of amounts referred to in clauses (i) and (ii) above and, if so
requested by the Replacement Bank, delivery to the Replacement Bank of the
appropriate Note or Notes executed by the Borrower, (x) the Replacement Bank
shall become a Bank hereunder and, unless the respective Replaced Bank
continues to have outstanding Term Loans or a Commitment hereunder, the
Replaced Bank shall cease to constitute a Bank hereunder, except with respect
to indemnification provisions under this Agreement (including, without
limitation, Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 13.01), which shall
survive as to such Replaced Bank and (y) except in the case of the replacement
of only outstanding Term Loans of one or both Tranches of a Replaced Bank, the
Adjusted RL Percentages of the Banks shall be automatically adjusted at such
time to give effect to such replacement (and to give effect to the replacement
of a Defaulting Bank with one or more Non-Defaulting Banks). It is understood
and agreed that replacements pursuant to this Section 1.13 shall be effected by
means of assignments which otherwise meet the applicable requirements of
Section 13.04(b).
SECTION 2. Letters of Credit.
2.01 Letters of Credit. (a) Subject to and upon the terms
and conditions set forth herein, the Borrower may request that any Issuing Bank
issue, at any time and from time to time on and after the Initial Borrowing
Date and prior to the 30th day prior to the Revolving Loan Maturity Date, (x)
for the account of the Borrower and for the benefit of any holder (or any
trustee, agent or other similar representative for any such holders) of L/C
Supportable Obligations of the Borrower or any of its Subsidiaries or Joint
Ventures, an irrevocable standby letter of credit, in a form customarily used
by such Issuing Bank or in such other form as has been approved by such Issuing
Bank (each such standby letter of credit, a "Standby Letter of Credit") in
support of such L/C Supportable
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<PAGE> 24
Obligations and (y) for the account of the Borrower and for the benefit of
sellers of goods and materials used in the ordinary course of business of the
Borrower or any of its Subsidiaries or Joint Ventures an irrevocable sight
commercial letter of credit in a form customarily used by such Issuing Bank or
in such other form as has been approved by such Issuing Bank (each such
commercial letter of credit, a "Trade Letter of Credit", and each such Trade
Letter of Credit and each Standby Letter of Credit, a "Letter of Credit") in
support of commercial transactions of the Borrower and its Subsidiaries and
Joint Ventures. All Letters of Credit shall be denominated in Dollars.
(b) Subject to and upon the terms and conditions set forth
herein, each Issuing Bank hereby agrees that it will, at any time and from time
to time on and after the Initial Borrowing Date and prior to the 30th day prior
to the Revolving Loan Maturity Date, following its receipt of the respective
Letter of Credit Request, issue for the account of the Borrower, one or more
Letters of Credit (x) in the case of Standby Letters of Credit, in support of
such L/C Supportable Obligations of the Borrower or any of its Subsidiaries or
Joint Ventures as are permitted to remain outstanding without giving rise to a
Default or an Event of Default and (y) in the case of Trade Letters of Credit,
in support of sellers of goods or materials used in the ordinary course of
business of the Borrower or any of its Subsidiaries or Joint Ventures as
referenced in Section 2.01(a), provided that the respective Issuing Bank shall
be under no obligation to issue any Letter of Credit of the types described
above if at the time of such issuance:
(i) any order, judgment or decree of any governmental
authority or arbitrator shall purport by its terms to enjoin or
restrain such Issuing Bank from issuing such Letter of Credit or any
requirement of law applicable to such Issuing Bank or any request or
directive (whether or not having the force of law) from any
governmental authority with jurisdiction over such Issuing Bank shall
prohibit, or request that such Issuing Bank refrain from, the issuance
of letters of credit generally or such Letter of Credit in particular
or shall impose upon such Issuing Bank with respect to such Letter of
Credit any restriction or reserve or capital requirement (for which
such Issuing Bank is not otherwise compensated) not in effect on the
date hereof, or any unreimbursed loss, cost or expense which was not
applicable, in effect or known to such Issuing Bank as of the date
hereof and which such Issuing Bank reasonably and in good faith deems
material to it; or
(ii) such Issuing Bank shall have received notice from the
Required Banks prior to the issuance of such Letter of Credit of the
type described in the penultimate sentence of Section 2.03(b).
2.02 Maximum Letter of Credit Outstandings; Final Maturities.
Notwithstanding anything to the contrary contained in this Agreement, (i) no
Letter of Credit shall be issued the Stated Amount of which, when added to the
Letter of Credit Outstandings (ex-
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<PAGE> 25
clusive of Unpaid Drawings which are repaid on the date of, and prior to the
issuance of, the respective Letter of Credit) at such time would exceed either
(x) $20,000,000 or (y) when added to the aggregate principal amount of all
Revolving Loans made by Non-Defaulting Banks then outstanding and the aggregate
principal amount of all Swingline Loans then outstanding, an amount equal to
the Adjusted Total Revolving Loan Commitment at such time and (ii) each Letter
of Credit shall by its terms terminate on or before (A) in the case of Standby
Letters of Credit, the earlier of (x) the date which occurs 12 months after the
date of the issuance thereof (although any such Standby Letter of Credit may be
extendable for successive periods of up to 12 months, but not beyond the third
Business Day prior to the Revolving Loan Maturity Date, on terms acceptable to
the Issuing Bank thereof) and (y) the third Business Day prior to the Revolving
Loan Maturity Date and (B) in the case of Trade Letters of Credit, the earlier
of (x) the date which occurs 360 days after the date of issuance thereof and
(y) 30 days prior to the Revolving Loan Maturity Date.
2.03 Letter of Credit Requests. (a) Whenever the Borrower
desires that a Letter of Credit be issued for its account, the Borrower shall
give the Administrative Agent and the respective Issuing Bank at least five
Business Days' (or such shorter period as is acceptable to the respective
Issuing Bank) written notice thereof. Each notice shall be in the form of
Exhibit C (each a "Letter of Credit Request"). The Administrative Agent shall
promptly transmit copies of each Letter of Credit Request to each Bank with a
Revolving Loan Commitment.
(b) The making of each Letter of Credit Request shall be
deemed to be a representation and warranty by the Borrower that such Letter of
Credit may be issued in accordance with, and will not violate the requirements
of, Section 2.02. Unless the respective Issuing Bank has received notice from
the Required Banks before it issues a Letter of Credit that one or more of the
conditions specified in Section 5 are not satisfied on the Initial Borrowing
Date or Section 6 are not then satisfied, or that the issuance of such Letter
of Credit would violate Section 2.02, then, subject to the terms and conditions
of this Agreement, such Issuing Bank shall issue the requested Letter of Credit
for the account of the Borrower in accordance with such Issuing Bank's usual
and customary practices. Upon the issuance of or amendment or modification to
a Letter of Credit, the respective Issuing Bank shall promptly notify the
Borrower and the Administrative Agent of such issuance, amendment or
modification and such notification shall be accompanied by a copy of the issued
Letter of Credit or amendment or modification.
2.04 Letter of Credit Participations. (a) Immediately upon
the issuance by the respective Issuing Bank of any Letter of Credit, such
Issuing Bank shall be deemed to have sold and transferred to each Bank with a
Revolving Loan Commitment, other than such Issuing Bank (each such Bank, in its
capacity under this Section 2.04, a "Participant"), and each such Participant
shall be deemed irrevocably and unconditionally to have
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purchased and received from such Issuing Bank, without recourse or warranty, an
undivided interest and participation, to the extent of such Participant's
Adjusted RL Percentage in such Letter of Credit, each drawing or payment made
thereunder and the obligations of the Borrower under this Agreement with
respect thereto, and any security therefor or guaranty pertaining thereto.
Upon any change in the Revolving Loan Commitments or Adjusted RL Percentages of
the Banks pursuant to Section 1.13 or 13.04, it is hereby agreed that, with
respect to all outstanding Letters of Credit and Unpaid Drawings, there shall
be an automatic adjustment to the participations pursuant to this Section 2.04
to reflect the new Adjusted RL Percentages of the assignor and assignee Bank,
as the case may be.
(b) In determining whether to pay under any Letter of Credit,
the respective Issuing Bank shall have no obligation relative to the other
Banks other than to confirm that any documents required to be delivered under
such Letter of Credit appear to have been delivered and that they appear to
substantially comply on their face with the requirements of such Letter of
Credit. Any action taken or omitted to be taken by any Issuing Bank under or
in connection with any Letter of Credit if taken or omitted in the absence of
gross negligence or willful misconduct, shall not create for such Issuing Bank
any resulting liability to the Borrower, any other Credit Party, any Bank or
any other Person.
(c) In the event that any Issuing Bank makes any payment
under any Letter of Credit and the Borrower shall not have reimbursed such
amount in full to such Issuing Bank pursuant to Section 2.05(a), such Issuing
Bank shall promptly notify the Administrative Agent, which shall promptly
notify each Participant of such failure, and each Participant shall promptly
and unconditionally pay to such Issuing Bank the amount of such Participant's
Adjusted RL Percentage of such unreimbursed payment in Dollars and in same day
funds. If the Administrative Agent so notifies, prior to 11:00 A.M. (New York
time) on any Business Day, any Participant required to fund a payment under a
Letter of Credit, such Participant shall make available to such Issuing Bank in
Dollars such Participant's Adjusted RL Percentage of the amount of such payment
on such Business Day in same day funds. If and to the extent such Participant
shall not have so made its Adjusted RL Percentage of the amount of such payment
available to such Issuing Bank, such Participant agrees to pay to such Issuing
Bank, forthwith on demand such amount, together with interest thereon, for each
day from such date until the date such amount is paid to such Issuing Bank at
the overnight Federal Funds Rate for the first three days and at the interest
rate applicable to Revolving Loans maintained as Base Rate Loans for each day
thereafter. The failure of any Participant to make available to such Issuing
Bank its Adjusted RL Percentage of any payment under any Letter of Credit shall
not relieve any other Participant of its obligation hereunder to make available
to such Issuing Bank its Adjusted RL Percentage of any Letter of Credit on the
date required, as specified above, but no Participant shall be responsible for
the failure of any other Participant to make available to such Issuing Bank
such other Participant's Adjusted RL Percentage of any such payment.
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(d) Whenever any Issuing Bank receives a payment of a
reimbursement obligation as to which it has received any payments from the
Participants pursuant to clause (c) above, such Issuing Bank shall pay to each
Participant which has paid its Adjusted RL Percentage thereof, in Dollars and
in same day funds, an amount equal to such Participant's share (based upon the
proportionate aggregate amount originally funded by such Participant to the
aggregate amount funded by all Participants) of the principal amount of such
reimbursement obligation and interest thereon accruing after the purchase of
the respective participations.
(e) Upon the request of any Participant, each Issuing Bank
shall furnish to such Participant copies of any Letter of Credit issued by it
and such other documentation as may reasonably be requested by such
Participant.
(f) The obligations of the Participants to make payments to
each Issuing Bank with respect to Letters of Credit issued by it shall be
irrevocable and not subject to any qualification or exception whatsoever and
shall be made in accordance with the terms and conditions of this Agreement
under all circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this
Agreement or any of the other Credit Documents;
(ii) the existence of any claim, setoff, defense or other
right which the Borrower or any of its Subsidiaries or Joint Ventures
may have at any time against a beneficiary named in a Letter of
Credit, any transferee of any Letter of Credit (or any Person for whom
any such transferee may be acting), the Administrative Agent, any
Participant, or any other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated herein
or any unrelated transactions (including any underlying transaction
between the Borrower or any Subsidiary or Joint Venture of the
Borrower and the beneficiary named in any such Letter of Credit);
(iii) any draft, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue
or inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
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2.05 Agreement to Repay Letter of Credit Drawings. (a) The
Borrower hereby agrees to reimburse the respective Issuing Bank, by making
payment to the Administrative Agent in immediately available funds at the
Payment Office, for any payment or disbursement made by such Issuing Bank under
any Letter of Credit issued by it (each such amount, so paid until reimbursed,
an "Unpaid Drawing"), immediately after, and in any event on the date of, such
payment or disbursement, with interest on the amount so paid or disbursed by
such Issuing Bank, to the extent not reimbursed prior to 1:00 P.M. (New York
time) on the date of such payment or disbursement, from and including the date
paid or disbursed to but excluding the date such Issuing Bank was reimbursed by
the Borrower therefor at a rate per annum which shall be the Base Rate in
effect from time to time plus the Applicable Margin for Revolving Loans
maintained as Base Rate Loans; provided, however, to the extent such amounts
are not reimbursed prior to 1:00 P.M. (New York time) on the third Business Day
following the receipt by the Borrower of notice of such payment or disbursement
or following the occurrence of a Default or an Event of Default under Section
10.05, interest shall thereafter accrue on the amounts so paid or disbursed by
such Issuing Bank (and until reimbursed by the Borrower) at a rate per annum
which shall be the Base Rate in effect from time to time plus the Applicable
Margin for Revolving Loans maintained as Base Rate Loans plus 2%, in each such
case, with interest to be payable on demand. The respective Issuing Bank shall
give the Borrower prompt written notice of each Drawing under any Letter of
Credit, provided that the failure to give any such notice shall in no way
affect, impair or diminish the Borrower's obligations hereunder.
(b) The obligations of the Borrower under this Section 2.05
to reimburse the respective Issuing Bank with respect to Unpaid Drawings
(including, in each case, interest thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the Borrower may have or have had against any Bank
(including in its capacity as issuer of the Letter of Credit or as
Participant), including, without limitation, any defense based upon the failure
of any drawing under a Letter of Credit (each a "Drawing") to conform to the
terms of the Letter of Credit or any nonapplication or misapplication by the
beneficiary of the proceeds of such Drawing; provided, however, that the
Borrower shall not be obligated to reimburse any Issuing Bank for any wrongful
payment made by such Issuing Bank under a Letter of Credit as a result of acts
or omissions constituting willful misconduct or gross negligence on the part of
such Issuing Bank.
2.06 Increased Costs. If at any time after the date of this
Agreement, the introduction of or any change in any applicable law, rule,
regulation, order, guideline or request or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Issuing Bank or
any Participant with any request or directive by any such authority (whether or
not having the force of law), shall either (i) impose, modify or make
applicable any reserve, deposit, capital adequacy or similar requirement
against letters of credit issued by any
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Issuing Bank or participated in by any Participant, or (ii) impose on any
Issuing Bank or any Participant any other conditions relating, directly or
indirectly, to this Agreement; and the result of any of the foregoing is to
increase the cost to any Issuing Bank or any Participant of issuing,
maintaining or participating in any Letter of Credit, or reduce the amount of
any sum received or receivable by any Issuing Bank or any Participant hereunder
or reduce the rate of return on its capital with respect to Letters of Credit
(except for changes in the rate of tax on, or determined by reference to, the
net income or profits of such Issuing Bank or such Participant pursuant to the
laws of the jurisdiction in which it is organized or in which its principal
office or applicable lending office is located or any subdivision thereof or
therein), then, within 5 Business Days of the delivery of the certificate
referred to below to the Borrower by such Issuing Bank or any Participant (a
copy of which certificate shall be sent by such Issuing Bank or such
Participant to the Agent), the Borrower shall, subject to the provisions of
Section 13.17 (to the extent applicable), pay to such Issuing Bank or such
Participant such additional amount or amounts as will compensate such Bank for
such increased cost or reduction in the amount receivable or reduction on the
rate of return on its capital. Any Issuing Bank or any Participant, upon
determining that any additional amounts will be payable pursuant to this
Section 2.06, will give prompt written notice thereof to the Borrower, which
notice shall include a certificate submitted to the Borrower by such Issuing
Bank or such Participant (a copy of which certificate shall be sent by such
Issuing Bank or such Participant to the Agent), setting forth in reasonable
detail the basis for the calculation of such additional amount or amounts
necessary to compensate such Issuing Bank or such Participant. In determining
such additional amounts, each Issuing Bank and each Participant will act
reasonably and in good faith, provided that the certificate required to be
delivered pursuant to this Section 2.06 shall, absent manifest error, be final
and conclusive and binding on the Borrower.
SECTION 3. Commitment Commission; Fees; Reductions of
Commitment.
3.01 Fees. (a) The Borrower agrees to pay to the
Administrative Agent for distribution to each Non-Defaulting Bank with a Term
Loan Commitment, a commitment commission (the "Term Loan Commitment
Commission") for the period from and including the Effective Date to but
excluding the date on which the Total Term Loan Commitment shall have been
terminated, computed at a rate for each day equal to the Applicable Commitment
Commission Percentage on the daily average Term Loan Commitment of such Bank.
Accrued Term Loan Commitment Commission shall be due and payable on the Initial
Borrowing Date, quarterly in arrears on each Quarterly Payment Date and on the
date on which the Total Term Loan Commitment shall have been terminated.
(b) The Borrower agrees to pay to the Administrative Agent
for distribution to each Non-Defaulting Bank with a Revolving Loan Commitment a
commitment commission (the "Revolving Loan Commitment Commission") for the
period from and including
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the Effective Date to but excluding the Revolving Loan Maturity Date (or such
earlier date as the Total Revolving Loan Commitment shall have been
terminated), computed at a rate for each day equal to the Applicable Commitment
Commission Percentage on the daily average Unutilized Revolving Loan Commitment
of such Non-Defaulting Bank. Accrued Revolving Loan Commitment Commission
shall be due and payable quarterly in arrears on each Quarterly Payment Date
and on the Revolving Loan Maturity Date or such earlier date upon which the
Total Revolving Loan Commitment is terminated.
(c) The Borrower agrees to pay to the Administrative Agent
for distribution to each Non-Defaulting Bank with a Revolving Loan Commitment
(based on each such Non-Defaulting Bank's respective Adjusted RL Percentage) a
fee in respect of each Letter of Credit issued hereunder (the "Letter of Credit
Fee"), for the period from and including the date of issuance of such Letter of
Credit to and including the date of termination or expiration of such Letter of
Credit, computed at a rate per annum equal to the Applicable Margin for
Revolving Loans maintained as Eurodollar Loans on the daily Stated Amount of
such Letter of Credit. Accrued Letter of Credit Fees shall be due and payable
quarterly in arrears on each Quarterly Payment Date and on the first day after
the termination of the Total Revolving Loan Commitment upon which no Letters of
Credit remain outstanding.
(d) The Borrower agrees to pay to each Issuing Bank, for its
own account, a facing fee in respect of each Letter of Credit issued by such
Issuing Bank (the "Facing Fee"), for the period from and including the date of
issuance of such Letter of Credit to and including the date of the termination
of such Letter of Credit, computed at a rate equal to 1/4 of 1% per annum of
the daily Stated Amount of such Letter of Credit. Accrued Facing Fees shall be
due and payable quarterly in arrears on each Quarterly Payment Date and upon
the first day after the termination of the Total Revolving Loan Commitment upon
which no Letters of Credit remain outstanding.
(e) The Borrower agrees to pay, upon each drawing under,
issuance of, or amendment to, any Letter of Credit, such amount as shall at the
time of such event be the administrative charge and the reasonable expenses
which the applicable Issuing Bank is generally imposing in connection with such
occurrence with respect to letters of credit.
(f) The Borrower agrees to pay to the Agents, for their own
account, such other fees as have been agreed to in writing by the Borrower and
the Agents.
3.02 Voluntary Termination of Unutilized Commitments. (a)
Upon at least one Business Day's prior written notice to the Administrative
Agent at its Notice Office (which notice the Administrative Agent shall
promptly transmit to each of the Banks), the Borrower shall have the right, at
any time or from time to time, without premium or penalty, to terminate the
Total Unutilized Revolving Loan Commitment, in whole or in part, in integral
multiples of $1,000,000 in the case of partial reductions to the Total
Unutilized
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Revolving Loan Commitment, provided that (i) each such reduction shall apply
proportionately to permanently reduce the Revolving Loan Commitment of each
Bank with such a Commitment and (ii) the reduction to the Total Unutilized
Revolving Loan Commitment shall in no case be in an amount which would cause
the Revolving Loan Commitment of any Bank to be reduced (as required by
preceding clause (i)) by an amount which exceeds the remainder of (x) the
Unutilized Revolving Loan Commitment of such Bank as in effect immediately
before giving effect to such reduction minus (y) such Bank's Adjusted RL
Percentage of the aggregate principal amount of Swingline Loans then
outstanding.
(b) (i) On the Initial Borrowing Date (but before giving
effect to the incurrence of any Term Loans on such date) and upon notice to the
Administrative Agent at its Notice Office (which notice the Administrative
Agent shall promptly transmit to each of the Banks), the Borrower shall have
the right, without premium or penalty, to reduce the Total Term Loan Commitment
up to an amount equal to the amount of the Retained Net Equity Proceeds from
the Equity Financing in excess of $250,000,000 so long as the Borrower utilizes
such Retained Net Equity Proceeds on the Initial Borrowing Date to make
payments owing in connection with the Transaction. The reduction to the Total
Term Loan Commitment pursuant to this Section 3.02(b)(i) shall be applied pro
rata to the Total Tranche A Term Loan Commitment (in an amount equal to the
Tranche A Term Loan Percentage of such reduction) and to the Total Tranche B
Term Loan Commitment (in an amount equal to the Tranche B Term Loan Percentage
of such reduction), provided that the first $36,000,000 of reductions pursuant
to this Section 3.02(b)(i) (less any amount by which the outstanding Tranche B
Term Loans have been repaid or the Total Tranche B Term Loan Commitment has
been reduced pursuant to the proviso of the first sentence of Section 4.02(k))
shall only be applied to reduce the Total Tranche B Term Loan Commitment. The
amount of each reduction to the Total Term Loan Commitment pursuant to this
Section 3.02(b)(i) shall be applied to reduce the then remaining Scheduled
Repayments of the respective Tranche of Term Loans pro rata based upon the then
remaining amount of each Scheduled Repayment of the respective Tranche of Term
Loans after giving effect to all prior reductions thereto, provided that the
first $36,000,000 of reductions pursuant to this Section 3.02(b)(i) (less any
amount by which the outstanding Tranche B Term Loans have been repaid or the
Total Tranche B Term Loan Commitment has been reduced pursuant to the proviso
of the first sentence of Section 4.02(k)) shall be applied only to reduce the
final six Tranche B Term Loans Scheduled Repayments pro rata based upon the
then remaining amount of each such Tranche B Term Loan Scheduled Repayment
after giving effect to all prior reductions thereto. Any reduction to the
Total Tranche A Term Loan Commitment and the Total Tranche B Term Loan
Commitment pursuant to this Section 3.02(b)(i) shall be applied proportionately
to permanently reduce the Tranche A Term Loan Commitment or the Tranche B Term
Loan Commitment, as the case may be, of each Bank with such a Commitment.
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<PAGE> 32
(ii) At any time after the Initial Borrowing Date and prior
to the termination of the Total Tranche A Term Loan Commitment and upon notice
to the Administrative Agent at its Notice Office (which notice the
Administrative Agent shall promptly transmit to each of the Banks), the
Borrower shall have the right, without premium or penalty, to terminate the
remaining Total Tranche A Term Loan Commitment in the event that the Borrower
has determined after the Initial Borrowing Date to keep the Existing Glendale
Debt outstanding and not have it be part of the Indebtedness to be Refinanced.
The amount by which the Total Tranche A Term Loan Commitment is terminated
pursuant to this Section 3.02(b)(ii) shall be applied to reduce the then
remaining Tranche A Term Loan Scheduled Repayments pro rata based upon the then
remaining amount of each such Tranche A Term Loan Scheduled Repayment. The
termination of the Total Tranche A Term Loan Commitment pursuant to this
Section 3.02(b)(ii) shall be applied to terminate the Tranche A Term Loan
Commitment of each Bank with such a Commitment.
(c) In the event of a refusal by a Bank to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Banks as (and to the extent)
provided in Section 13.12(b), the Borrower may, subject to its compliance with
the requirements of Section 13.12(b), upon five Business Days' prior written
notice to the Administrative Agent at its Notice Office (which notice the
Administrative Agent shall promptly transmit to each of the Banks) terminate
all of the Revolving Loan Commitment of such Bank, so long as all Loans,
together with accrued and unpaid interest, Fees and all other amounts, owing to
such Bank (other than amounts owing in respect of any Tranche of Loans
maintained by such Bank which are not being repaid pursuant to Section
13.12(b)) are repaid concurrently with the effectiveness of such termination
pursuant to Section 4.01(b) (at which time Schedule I shall be deemed modified
to reflect such changed amounts), and at such time, unless the respective Bank
continues to have outstanding Loans of one or more Tranches hereunder, such
Bank shall no longer constitute a "Bank" for purposes of this Agreement, except
with respect to indemnifications under this Agreement (including, without
limitation, Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 13.01), which shall
survive as to such repaid Bank.
3.03 Mandatory Reduction of Commitments. (a) The Total
Commitments (and the Tranche A Term Loan Commitment, the Tranche B Term Loan
Commitment and the Revolving Loan Commitment of each Bank) shall terminate in
their entirety on January 31, 1997 unless the Initial Borrowing Date has
occurred on or before such date.
(b) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Tranche A Term Loan Commitment (and
the Tranche A Term Loan Commitment of each Bank) shall (i) be reduced on each
Term Loan Borrowing Date (after giving effect to the making of Tranche A Term
Loans on such date), in an amount equal to the aggregate principal amount of
Tranche A Term Loans incurred on such date, (ii) terminate in its entirety (to
the extent not theretofore terminated) at 5:00 P.M. (New
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<PAGE> 33
York time) on the Tranche A Term Loan Commitment Termination Date, whether or
not any Tranche A Term Loans are incurred on such date and (iii) prior to the
termination of the Total Tranche A Term Loan Commitment, be reduced from time
to time to the extent required by Section 4.02. In the event that the Total
Tranche A Term Loan Commitment is terminated on the Tranche A Term Loan
Commitment Termination Date and no Tranche A Term Loans are incurred on such
date, the amount by which the Total Tranche A Term Loan Commitment is
terminated shall be applied to reduce the then remaining Tranche A Term Loan
Scheduled Repayments pro rata based upon the then remaining amount of each such
Tranche A Term Loan Scheduled Repayment.
(c) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Tranche B Term Loan Commitment (and
the Tranche B Term Loan Commitment of each Bank) shall (i) terminate in its
entirety on the Initial Borrowing Date (after giving effect to the making of
the Tranche B Term Loans on such date) and (ii) prior to the termination of the
Total Tranche B Term Loan Commitment, be reduced from time to time to the
extent required by Section 4.02.
(d) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Revolving Loan Commitment (and the
Revolving Loan Commitment of each Bank) shall terminate in its entirety on the
Revolving Loan Maturity Date.
(e) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, on each date after the Effective Date upon which
a mandatory repayment of Term Loans or a mandatory reduction to the Total Term
Loan Commitment pursuant to any of Sections 4.02(d) through (i), inclusive, is
required (and exceeds in amount the aggregate principal amount of Term Loans
then outstanding and the Total Term Loan Commitment was then in effect) or
would be required if Term Loans were then outstanding or the Total Term Loan
Commitment was then in effect, the Total Revolving Loan Commitment shall be
permanently reduced by the amount, if any, by which the amount required to be
applied pursuant to said Sections (determined as if an unlimited amount of Term
Loans were actually outstanding) exceeds the aggregate principal amount of Term
Loans then outstanding and the Total Term Loan Commitment then in effect.
(f) Each reduction to the Total Tranche A Term Loan
Commitment, the Total Tranche B Term Loan Commitment and the Total Revolving
Loan Commitment pursuant to this Section 3.03 (or pursuant to Section 4.02)
shall be applied proportionately to permanently reduce the Tranche A Term Loan
Commitment, the Tranche B Term Loan Commitment or the Revolving Loan
Commitment, as the case may be, of each Bank with such a Commitment.
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SECTION 4. Prepayments; Payments; Taxes.
4.01 Voluntary Prepayments. (a) The Borrower shall have the
right to prepay the Loans, without premium or penalty, in whole or in part at
any time and from time to time on the following terms and conditions: (i) the
Borrower shall give the Administrative Agent prior to 1:00 P.M. (New York time)
at its Notice Office (x) at least one Business Day's prior written notice (or
telephonic notice promptly confirmed in writing) of its intent to prepay Base
Rate Loans and (y) at least three Business Days' prior written notice (or
telephonic notice promptly confirmed in writing) of its intent to prepay
Eurodollar Loans, whether Tranche A Term Loans, Tranche B Term Loans, Revolving
Loans or Swingline Loans shall be prepaid, the amount of such prepayment and
the Types of Loans to be prepaid and, in the case of Eurodollar Loans, the
specific Borrowing or Borrowings pursuant to which made, which notice the
Administrative Agent shall promptly transmit to each of the Banks; (ii) each
prepayment shall be in an aggregate principal amount of at least $500,000 (or
$100,000 in the case of Swingline Loans), provided that if any partial
prepayment of Eurodollar Loans made pursuant to any Borrowing shall reduce the
outstanding principal amount of Eurodollar Loans made pursuant to such
Borrowing to an amount less than the Minimum Borrowing Amount applicable
thereto, then such Borrowing may not be continued as a Borrowing of Eurodollar
Loans and any election of an Interest Period with respect thereto given by the
Borrower shall have no force or effect; (iii) prepayments of Eurodollar Loans
made pursuant to this Section 4.01(a) may only be made on the last day of an
Interest Period applicable thereto except that the Borrower may make
prepayments of Eurodollar Loans on a day which is not the last day of an
Interest Period applicable to the Loans being prepaid so long as the Borrower
shall compensate each Bank for any breakage costs and any other amounts due
such Bank in accordance with Section 1.11; (iv) each prepayment in respect of
any Loans made pursuant to a Borrowing shall be applied pro rata among such
Loans; (v) except as provided below in this clause (v), each voluntary
prepayment of Term Loans pursuant to this Section 4.01(a) shall be applied pro
rata to each Tranche of Term Loans (with each Tranche of Term Loans to be
allocated its respective Term Loan Percentage of the amount to be applied), and
(a) in the case of repayments of Tranche A Term Loans, such repayments shall be
applied to reduce the then remaining Tranche A Term Loan Scheduled Repayments
pro rata based upon the then remaining amount of each Tranche A Term Loan
Scheduled Repayment after giving effect to all prior reductions thereto, and
(b) in the case of repayments of Tranche B Term Loans, such repayments shall be
applied to reduce the then remaining Tranche B Scheduled Term Loan Scheduled
Repayments pro rata based upon the then remaining amount of each Tranche B Term
Loan Scheduled Repayment after giving effect to all prior reductions thereto,
provided that (A) any voluntary prepayment of Term Loans pursuant to this
Section 4.01(a) which are made with proceeds of the Retained Excess Cash Flow
Amount or with proceeds of the Retained Net Equity Proceeds Amount may be
applied, at the Borrower's option (and upon written notice to the
Administrative Agent at the time notice of such prepayment is given by the
Borrower), to prepay only one Tranche of Term Loans, and with
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<PAGE> 35
each such prepayment to reduce the then remaining Scheduled Repayments of such
Tranche of Term Loans pro rata based upon the then remaining amount of each
such Scheduled Repayment after giving effect to all prior reductions thereto
and (B) no more than $10,000,000 (or $15,000,000 commencing on January 1, 2000)
of Term Loans may be applied in any calendar year in accordance with this
proviso; and (vi) at the Borrower's election in connection with any prepayment
of Revolving Loans pursuant to this Section 4.01(a), such prepayment shall not
be applied to any Revolving Loan of a Defaulting Bank.
(b) In the event of a refusal by a Bank to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Banks as (and to the extent)
provided in Section 13.12(b), the Borrower may, upon five Business Days' prior
written notice to the Administrative Agent at its Notice Office (which notice
the Administrative Agent shall promptly transmit to each of the Banks) repay
all Loans, together with accrued and unpaid interest, Fees, and other amounts
owing to such Bank (or owing to such Bank with respect to each Tranche which
gave rise to the need to obtain such Bank's individual consent) in accordance
with, and subject to the requirements of, said Section 13.12(b) so long as (A)
in the case of the repayment of Revolving Loans of any Bank pursuant to this
clause (b) the Revolving Loan Commitment of such Bank is terminated
concurrently with such repayment pursuant to Section 3.02(c) (at which time
Schedule I shall be deemed modified to reflect the changed Revolving Loan
Commitments), and (B) the consents, if any, required by Section 13.12(b) in
connection with the repayment pursuant to this clause (b) have been obtained.
4.02 Mandatory Repayments and Commitment Reductions. (a) (i)
On any day on which the sum of the aggregate outstanding principal amount of
the Revolving Loans made by Non-Defaulting Banks, Swingline Loans and the
Letter of Credit Outstandings exceeds the Adjusted Total Revolving Loan
Commitment as then in effect, the Borrower shall prepay on such day principal
of Swingline Loans and, after all Swingline Loans have been repaid in full,
Revolving Loans of Non-Defaulting Banks in an amount equal to such excess. If,
after giving effect to the prepayment of all outstanding Swingline Loans and
Revolving Loans of Non-Defaulting Banks, the aggregate amount of the Letter of
Credit Outstandings exceeds the Adjusted Total Revolving Loan Commitment as
then in effect, the Borrower shall pay to the Administrative Agent at the
Payment Office on such day an amount of cash or Cash Equivalents equal to the
amount of such excess (up to a maximum amount equal to the Letter of Credit
Outstandings at such time), such cash or Cash Equivalents to be held as
security for all obligations of the Borrower to the Issuing Banks and the
Non-Defaulting Banks hereunder in a cash collateral account to be established
by the Administrative Agent.
(ii) On any day on which the aggregate outstanding principal
amount of the Revolving Loans made by any Defaulting Bank exceeds the Revolving
Loan Commitment
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<PAGE> 36
of such Defaulting Bank, the Borrower shall prepay on such day principal of
Revolving Loans of such Defaulting Bank in an amount equal to such excess.
(iii) If on December 1 of each year commencing on December 1,
1997, a Clean-Down Period shall not have occurred since January 30 of such
year, the Borrower shall repay Revolving Loans and/or Swingline Loans in an
amount necessary to reduce the aggregate outstanding principal amount of
Revolving Loans and Swingline Loans to $50,000,000, which amount may not be
exceeded until the Clean-Down Period for such year has ended.
(b) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date set forth
below, the Borrower shall be required to repay that principal amount of Tranche
A Term Loans, to the extent then outstanding, as is set forth opposite such
date (each such repayment, as the same may be reduced as provided in Sections
4.01(a) and 4.02(k), a "Tranche A Term Loan Scheduled Repayment," and each such
date, a "Tranche A Term Loan Scheduled Repayment Date"):
<TABLE>
<CAPTION>
Tranche A Term Loan
Scheduled Repayment Date Amount
------------------------ ------
<S> <C>
March 31, 1997 $ 1,250,000
June 30, 1997 $ 1,250,000
September 30, 1997 $ 1,250,000
December 31, 1997 $ 1,250,000
March 31, 1998 $12,500,000
June 30, 1998 $12,500,000
September 30, 1998 $12,500,000
December 31, 1998 $12,500,000
March 31, 1999 $16,000,000
June 30, 1999 $16,000,000
September 30, 1999 $16,000,000
December 31, 1999 $16,000,000
March 31, 2000 $18,500,000
June 30, 2000 $18,500,000
September 30, 2000 $18,500,000
December 31, 2000 $18,500,000
</TABLE>
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<PAGE> 37
<TABLE>
<S> <C>
March 31, 2001 $22,250,000
June 30, 2001 $22,250,000
September 30, 2001 $22,250,000
December 31, 2001 $22,250,000
March 31, 2002 $23,500,000
June 30, 2002 $23,500,000
September 30, 2002 $23,500,000
Tranche A Term Loan Maturity Date $23,500,000
</TABLE>
(c) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date set forth
below, the Borrower shall be required to repay that principal amount of Tranche
B Term Loans, to the extent then outstanding, as is set forth opposite such
date (each such repayment, as the same may be reduced as provided in Sections
4.01(a) and 4.02(k), a "Tranche B Term Loan Scheduled Repayment," and each such
date, a "Tranche B Term Loan Scheduled Repayment Date," and the Tranche A Term
Loan Scheduled Repayments and the Tranche B Term Loan Scheduled Repayments are
collectively referred to as the "Scheduled Repayments"):
<TABLE>
<CAPTION>
Tranche B Term Loan
Scheduled Repayment Date Amount
------------------------ ------
<S> <C>
March 31, 1997 $ 500,000
June 30, 1997 $ 500,000
September 30, 1997 $ 500,000
December 31, 1997 $ 500,000
March 31, 1998 $ 500,000
June 30, 1998 $ 500,000
September 30, 1998 $ 500,000
December 31, 1998 $ 500,000
March 31, 1999 $ 500,000
June 30, 1999 $ 500,000
September 30, 1999 $ 500,000
December 31, 1999 $ 500,000
March 31, 2000 $ 500,000
June 30, 2000 $ 500,000
September 30, 2000 $ 500,000
December 31, 2000 $ 500,000
</TABLE>
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<PAGE> 38
<TABLE>
<S> <C>
March 31, 2001 $ 500,000
June 30, 2001 $ 500,000
September 30, 2001 $ 500,000
December 31, 2001 $ 500,000
March 31, 2002 $ 500,000
June 30, 2002 $ 500,000
September 30, 2002 $ 500,000
December 31, 2002 $ 500,000
March 31, 2003 $33,833,333
June 30, 2003 $33,833,333
September 30, 2003 $33,833,333
December 31, 2003 $33,833,333
March 31, 2003 $33,833,334
Tranche B Term Loan Maturity Date $33,833,334
</TABLE>
(d) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date after on or
the Effective Date upon which the Borrower or any of its Wholly-Owned
Subsidiaries or Joint Ventures receives any cash proceeds from any capital
contribution or any sale or issuance of its equity (other than (i) the first
$250,000,000 of gross cash proceeds received by the Borrower as part of the
Equity Financing, (ii) cash proceeds received from capital contributions to, or
equity investments in, any Wholly-Owned Subsidiary or Joint Venture of the
Borrower to the extent made by the Borrower, any other Subsidiary of the
Borrower or the respective joint venture partner of such Joint Venture and
(iii) cash proceeds received from sales or issuances of equity to officers or
directors of the Borrower or any of its Subsidiaries in an aggregate amount not
to exceed $1,000,000 in any fiscal year of the Borrower), an amount equal to
50% of the Net Equity Proceeds of such capital contribution or sale or issuance
shall be applied as a mandatory repayment of principal of outstanding Term
Loans (and/or, if the Total Term Loan Commitment has not yet been terminated,
as a mandatory reduction to the Total Term Loan Commitment) in accordance with
the requirements of Sections 4.02(j) and (k) (or in the case of any capital
contribution to, or any sale or issuance of equity by, any Joint Venture, an
amount equal to 50% of the Borrower's Allocable Share of such Net Equity
Proceeds shall be applied as provided above in this Section 4.02(d), but such
amount shall be applied only as, when and to the extent such Net Equity
Proceeds are distributed by such Joint Venture to the Borrower or a
Wholly-Owned Subsidiary thereof).
(e) (i) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date on or after
the Effective Date upon which the Borrower or any of its Wholly-Owned
Subsidiaries or Joint Ventures receives any cash proceeds from any incurrence
by the Borrower or any of its Wholly-Owned Subsidiaries or Joint Ventures of
Indebtedness for borrowed money (other than Indebtedness for borrowed money
permitted to be incurred pursuant to Section 9.04 as such Section is in effect
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<PAGE> 39
on the Effective Date), an amount equal to 100% of the Net Debt Proceeds of the
respective incurrence of Indebtedness shall be applied as a mandatory repayment
of principal of outstanding Term Loans (and/or, if the Total Term Loan
Commitment has not yet been terminated, as a mandatory reduction to the Total
Term Loan Commitment) in accordance with the requirements of Sections 4.02(j)
and (k) (or in the case of any incurrence of Indebtedness for borrowed money by
any Joint Venture, an amount equal to 100% of the Borrower's Allocable Share of
such Net Debt Proceeds shall be applied as provided above in this Section
4.02(e), but such amount shall be applied only as, when and to the extent such
Net Debt Proceeds are distributed by such Joint Venture to the Borrower or a
Wholly-Owned Subsidiary thereof).
(ii) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, (x) on the Initial
Borrowing Date (but before giving effect to the incurrence of any Term Loans on
such date), the Total Term Loan Commitment shall be reduced in an amount equal
to $40,000,000 in the event that the Existing Glendale Debt is to remain
outstanding after the Initial Borrowing Date and has been designated by the
Borrower as not being part of the Indebtedness to be Refinanced pursuant to
Section 5.08, with such reduction to be effected in accordance with the
requirements of Section 4.02(k) and (y) on any date after the Initial Borrowing
Date and prior to the termination of the Total Tranche A Term Loan Commitment
on which the Existing Glendale Debt is refinanced with proceeds of a loan made
by any Person (other than the Borrower, any Subsidiary thereof or any Bank
under this Agreement), the Total Tranche A Term Loan Commitment shall be
reduced in accordance with the requirements of Section 4.02(k) in an amount
equal to the principal amount of such loan.
(f) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date on or after
the Effective Date upon which the Borrower or any of its Wholly-Owned
Subsidiaries or Joint Ventures receives cash proceeds from any Asset Sale or
any Specified Red Lion Event, an amount equal to the Applicable Recapture
Percentage of the Net Sale Proceeds from the respective Asset Sale or the
Applicable Recapture Percentage of the Specified Existing Red Lion Investment
Proceeds from the respective Specified Red Lion Event shall be applied as a
mandatory repayment of principal of outstanding Term Loans (and/or, if the
Total Term Loan Commitment has not yet been terminated, as a mandatory
reduction to the Total Term Loan Commitment) in accordance with the
requirements of Sections 4.02(j) and (k) (or in the case of any Asset Sale by
any Joint Venture, an amount equal to the Applicable Recapture Percentage of
the Borrower's Allocable Share of the Net Sale Proceeds therefrom shall be
applied as provided above in this Section 4.02(f), but such amount shall be
applied only as, when and to the extent such Net Sale Proceeds are distributed
by such Joint Venture to the Borrower or a Wholly-Owned Subsidiary thereof);
provided that, so long as no Default or Event of Default then exists, up to
$75,000,000 in the aggregate over any three-year period (but no more than
$35,000,000 in any fiscal year of the Borrower) of Net Sale Proceeds
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<PAGE> 40
from Asset Sales (other than proceeds from an Asset Sale pursuant to Section
9.02(xiv), which proceeds shall be applied as provided above in this Section
4.02(f) without regard to this proviso) and of Specified Existing Red Lion
Investment Proceeds from Specified Red Lion Events may be used to purchase like
assets pursuant to Section 9.07(h) within 360 days following the date of the
respective Asset Sale or Specified Red Lion Event (and the Applicable Recapture
Percentage therefrom shall not be required to be applied on the date of receipt
of such Net Sale Proceeds or Specified Existing Red Lion Investment Proceeds
pursuant to this Section 4.02(f)) so long as (x) the Borrower delivers a
certificate to the Agents on or prior to such date stating that such Net Sale
Proceeds or Specified Existing Red Lion Investment Proceeds shall be used to
purchase like assets within 360 days following the date of such Asset Sale or
Specified Red Lion Event (which certificate shall set forth the estimates of
the proceeds to be so expended) and (y) within 180 days following the date of
such Asset Sale or Specified Red Lion Event, the Borrower or the applicable
Wholly-Owned Subsidiary or Joint Venture has entered into a binding commitment
to purchase such replacement assets, and, provided further, that if all or any
portion of such Net Sale Proceeds or Specified Existing Red Lion Investment
Proceeds are not so reinvested in like assets within such 360 day period (or
committed to be so reinvested within such 180-day period), the Applicable
Recapture Percentage of such remaining portion shall be applied on the last day
of such applicable period as a mandatory repayment of principal of outstanding
Term Loans as provided above in this Section 4.02(f) without regard to this
proviso. Notwithstanding the foregoing provisions of this Section 4.02(f), in
the case of an Asset Sale by Red Lion Properties at a time when Red Lion
Properties is subject to the minimum net worth requirement described in
Schedule XV, the Applicable Recapture Percentage of the Net Sale Proceeds from
the respective Asset Sale, to the extent not reinvested as permitted by the
first proviso of the immediately preceding sentence, shall only be required to
be applied to the Obligations to the extent that Red Lion Properties can
distribute the Applicable Recapture Percentage of such Net Sale Proceeds to the
Borrower without violating such minimum net worth covenant.
(g) In addition to any other mandatory repayments pursuant to
this Section 4.02, on each Excess Cash Payment Date, an amount equal to 50% of
the Excess Cash Flow for the relevant Excess Cash Payment Period shall be
applied as a mandatory repayment of principal of outstanding Term Loans in
accordance with the requirements of Sections 4.02(j) and (k).
(h) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, within 10 days following
each date on or after the Effective Date upon which the Borrower or any of its
Wholly-Owned Subsidiaries or Joint Ventures receives any cash proceeds from any
Recovery Event, an amount equal to 100% of the Net Insurance Proceeds of such
Recovery Event shall be applied as a mandatory repayment of principal of
outstanding Term Loans (and/or, if the Total Term Loan Commitment has not yet
been terminated, as a mandatory reduction to the Total Term Loan
-33-
<PAGE> 41
Commitment) in accordance with the requirements of Sections 4.02(j) and (k) (or
in the case of any Recovery Event by any Joint Venture, an amount equal to 100%
of the Borrower's Allocable Share of such Net Insurance Proceeds shall be
applied as provided above in this Section 4.02(h), but such amount shall be
applied only as, when and to the extent such Net Insurance Proceeds are
distributed by such Joint Venture to the Borrower or a Wholly-Owned Subsidiary
thereof); provided that, so long as no Default or Event of Default then exists,
such proceeds shall not be required to be so applied on such date to the extent
that the Borrower has delivered a certificate to the Agents on or prior to such
date stating that such proceeds shall be used or shall be contractually
committed to be used to replace or restore any properties or assets in respect
of which such proceeds were paid within one year following the date of the
receipt of such proceeds (which certificate shall set forth the estimates of
the proceeds to be so expended), and provided further, that if all or any
portion of such proceeds not required to be applied to the repayment of
outstanding Term Loans (and/or as a reduction to the Total Term Loan
Commitment) are either (A) not so used or contractually committed to be used
within one year after the date of the receipt of such proceeds or (B) if
contractually committed to be used within one year after the date of receipt of
such proceeds and not so used within three years after the date of receipt of
such proceeds (so long as the Borrower or such Wholly-Owned Subsidiary or Joint
Venture is diligently proceeding with such replacement or restoration in
accordance with the terms of the contractual arrangements applicable thereto)
then, in either such case, such remaining portion not used or contractually
committed to be used in the case of preceding clause (A) and not used in the
case of preceding clause (B) shall be applied on the date which is the first
anniversary of the date of the receipt of such proceeds in the case of clause
(A) above or the date occurring three years after the date of the receipt of
such proceeds (or such earlier date on which the Borrower or such Wholly-Owned
Subsidiary or Joint Venture is no longer diligently proceeding with such
replacement or restoration) in the case of clause (B) above as a mandatory
repayment of principal of outstanding Term Loans as provided above in this
Section 4.02(h) without regard to the preceding proviso.
(i) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date on or after
the Effective Date upon which the Borrower or any of its Wholly-Owned
Subsidiaries receives cash proceeds from any Designated Event, an amount equal
to 100% of the cash proceeds therefrom shall be applied as a mandatory
repayment of principal of outstanding Term Loans (and/or, if the Total Term
Loan Commitment has not yet been terminated, as a mandatory reduction to the
Total Term Loan Commitment) in accordance with the requirements of Section
4.02(j) and (k); provided that, so long as no Default or Event of Default then
exists, up to $25,000,000 in the aggregate of such cash proceeds in any fiscal
year of the Borrower shall not be required to be applied pursuant to this
Section 4.02(i). Notwithstanding the foregoing provisions of this Section
4.02(i), in the event that RFS or RFS Sub sells the RFS Equity at a time when
RFS and/or RFS Sub are subject to the minimum net worth requirement described
above on Schedule XV, the cash proceeds from the respective sale, to the extent
that same would
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<PAGE> 42
otherwise be required to be applied as provided above in this Section 4.02(i),
shall only be required to be so applied to the extent that RFS and/or RFS Sub
can distribute such cash proceeds to the Borrower without violating such
minimum net worth covenant.
(j) With respect to each repayment of Loans required by this
Section 4.02, the Borrower may designate the Types of Loans of the respective
Tranche which are to be repaid and, in the case of Eurodollar Loans, the
specific Borrowing or Borrowings of the respective Tranche pursuant to which
made, provided that: (i) repayments of Eurodollar Loans pursuant to this
Section 4.02 may only be made on the last day of an Interest Period applicable
thereto unless all Eurodollar Loans of the respective Tranche with Interest
Periods ending on such date of required repayment and all Base Rate Loans of
the respective Tranche have been paid in full; (ii) if any repayment of
Eurodollar Loans made pursuant to a single Borrowing shall reduce the
outstanding Eurodollar Loans made pursuant to such Borrowing to an amount less
than the Minimum Borrowing Amount applicable thereto, such Borrowing shall be
converted at the end of the then current Interest Period into a Borrowing of
Base Rate Loans; and (iii) each repayment of any Loans made pursuant to a
Borrowing shall be applied pro rata among such Loans. In the absence of a
designation by the Borrower as described in the preceding sentence, the
Administrative Agent shall, subject to the above, make such designation in its
sole discretion. Notwithstanding the foregoing provisions of this Section
4.02(j), if at any time a mandatory repayment of Loans pursuant to this Section
4.02(j) would result, after giving effect to the procedures set forth above in
this Section 4.02(j), in the Borrower incurring breakage costs under Section
1.11 as a result of Eurodollar Loans being prepaid other than on the last day
of an Interest Period applicable thereto (the "Affected Eurodollar Loans"),
then the Borrower may in its sole discretion, and upon notice to the
Administrative Agent, initially deposit a portion (up to 100%) of the amount
that otherwise would have been paid in respect of the Affected Eurodollar Loans
with the Administrative Agent (which deposit must be equal in amount to the
amount of the Affected Eurodollar Loans not immediately repaid) to be held as
security for the Obligations of the Borrower pursuant to a cash collateral
arrangement satisfactory to the Administrative Agent and the Borrower which
shall permit investments in Cash Equivalents reasonably satisfactory to the
Administrative Agent, with such cash collateral to be directly applied upon the
earlier of (x) the first occurrence (or occurrences) thereafter of the last day
of an Interest Period applicable to the relevant Affected Eurodollar Loans of
the respective Tranche or Tranches that were initially required to be repaid
(or such earlier date or dates as shall be requested by the Borrower) and (y)
the date which is 180 days after such initial deposit, to repay an aggregate
principal amount of such Loans equal to the Affected Eurodollar Loans not
initially repaid pursuant to this sentence. Notwithstanding anything to the
contrary contained in the immediately preceding sentence, all amounts deposited
as cash collateral pursuant to the immediately preceding sentence shall be held
first for the sole benefit of the Banks whose Loans would otherwise have been
immediately repaid with the amounts deposited and upon the taking of any action
by the Administrative Agent or the Banks pursuant to the remedial provisions of
Section 10, any
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<PAGE> 43
amounts held as cash collateral pursuant to this Section 4.02(j) shall first be
immediately applied to such Loans and thereafter to the other Obligations of
the Borrower.
(k) Each amount required to be applied to Term Loans (and/or
to the Total Term Loan Commitment) pursuant to Sections 4.02(d), (e) (other
than clause (ii)(y) thereof), (f), (g), (h) and (i) shall be applied pro rata
to each Tranche of Term Loans (in an amount equal to the Tranche A Term Loan
Percentage and/or the Tranche B Term Loan Percentage, as the case may be, of
such prepayment or reduction), provided that the first $36,000,000 of Net
Equity Proceeds from the Equity Financing in excess of $250,000,000 that are
required to be applied pursuant to this Section 4.02(k) (less any amount by
which the Total Tranche B Term Loan Commitment has been, or is concurrently
being, reduced pursuant to Section 3.02(b)(i)) shall be applied only to the
Tranche B Term Loans and/or the Total Tranche B Term Loan Commitment. Any
amount required to be applied to either Tranche of Term Loans pursuant to
Sections 4.02(d), (e) (other than clause (ii)(y) thereof), (f), (g), (h) and
(i) shall be applied (i) first, to repay the outstanding principal amount of
Term Loans of the respective Tranche and (ii) second, to the extent in excess
thereof, to reduce the Total Tranche A Term Loan Commitment or the Total
Tranche B Term Loan Commitment, as the case may be). The amount of each
principal repayment of Term Loans (and the amount of each reduction to the Term
Loan Commitments) made as required by said Sections 4.02(d), (e) (other than
clause (ii)(y) thereof), (f), (g), (h) and (i) shall be applied to reduce the
then remaining Scheduled Repayments of the respective Tranche of Term Loans pro
rata based upon the then remaining amount of each Scheduled Repayment of the
respective Tranche after giving effect to all prior reductions thereto,
provided that the first $36,000,000 of Net Equity Proceeds from the Equity
Financing in excess of $250,000,000 that are required to be applied pursuant to
this Section 4.02(k) (less any amount by which the Total Tranche B Term Loan
Commitment has been, or is concurrently being, reduced pursuant to Section
3.02(b)(i)) shall be applied only to reduce the final six Tranche B Term Loan
Scheduled Repayments pro rata based upon the then remaining amount of each such
Tranche B Term Loan Scheduled Repayment after giving effect to all prior
reductions thereto. Notwithstanding anything to the contrary contained above
in this Section 4.02(k), any amount required to be applied to reduce the Total
Tranche A Term Loan Commitment pursuant to clause (y) of Section 4.02(e)(ii)
shall be applied to reduce the then remaining Tranche A Term Loan Scheduled
Repayments pro rata based upon the then remaining amount of each such Tranche A
Term Loan Scheduled Repayment after giving effect to all prior reductions
thereto.
(l) Notwithstanding anything to the contrary contained in
this Agreement or in any other Credit Document, all then outstanding Loans of
any Tranche shall be repaid in full on the respective Maturity Date for such
Tranche of Loans.
(m) Notwithstanding anything to the contrary contained in
Section 4.02(k), with respect to any mandatory repayments of Tranche A Term
Loans or Tranche B Term
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<PAGE> 44
Loans required pursuant to Sections 4.02(d), (e) (other than clause (ii)(y)
thereof), (f), (g), (h) and (i), but only so long as both Tranche A Term Loans
and Tranche B Term Loans are outstanding on the date of any such mandatory
repayment, if on or prior to the date the respective mandatory repayment is
otherwise required to be made pursuant to such Sections, the Borrower has given
the Agents written notification that the Borrower has elected to give each Bank
with a Tranche A Term Loan or each Bank with a Tranche B Term Loan, as the case
may be, the right to waive such Bank's rights to receive such repayment (the
"Waivable Mandatory Repayment") (it being understood that with respect to any
particular Waivable Mandatory Repayment, the Borrower shall only be entitled to
exercise its rights pursuant to this Section 4.02(m) with respect to a single
Tranche of Term Loans), the Administrative Agent shall notify such Banks of
such receipt and the amount of the repayment required to be applied to each
such Bank's Tranche A Term Loans or Tranche B Term Loans, as the case may be.
In the event any such Bank with a Tranche A Term Loan or a Tranche B Term Loan,
as the case may be, desires to waive such Bank's right to receive any such
Waivable Mandatory Repayment in whole or in part, such Bank shall so advise the
Administrative Agent no later than 5:00 P.M. (New York time) five Business Days
after the date of such notice from the Administrative Agent which notice shall
also include the amount such Bank desires to receive. If any such Bank does
not reply to the Administrative Agent within the five Business Day period, such
Bank will be deemed to have accepted the total payment. If any such Bank does
not specify the amount that such Bank wishes to receive, such Bank will be
deemed to have accepted 100% of the total payment. In the event that any such
Bank waives such Bank's right (in whole or in part) to any such Waivable
Mandatory Repayment, the Administrative Agent shall apply 100% of the amount so
waived by such Banks (i) first, to repay the other Tranche of Term Loans in
accordance with Sections 4.02(j) and (k), (ii) second, to the extent such other
Tranche of Term Loans have been (or are concurrently being) repaid in full, any
excess amount shall be applied to repay such Tranche of Term Loans (including
the Term Loans of any Bank or Banks that have initially waived their right to
receive such repayment), and (iii) third, to the extent in excess of the amount
required to be applied pursuant to the preceding clauses (i) and (ii), to
reduce the Total Revolving Loan Commitment as provided in Section 3.03(e) (as
if no Term Loans were then outstanding). If the Borrower elects to give the
notice described above in this Section 4.02(m) with respect to the applicable
mandatory repayment, the amount of the respective Waivable Mandatory Repayment
shall be deposited with the Administrative Agent on the date the mandatory
repayment would otherwise be required pursuant to the relevant provisions of
Section 4.02(d), (e) (other than clause (ii)(y) thereof), (f), (g), (h) or (i),
as the case may be (and held by the Administrative Agent as cash collateral for
the Tranche A Term Loans or the Tranche B Term Loans, as the case may be, and,
but only to the extent Banks with Tranche A Term Loans or Tranche B Term Loans,
as the case may be, waive their right to receive their share of the Waivable
Mandatory Repayment, for the benefit of the other Tranche of Term Loans, in a
cash collateral account which shall permit the investment thereof in Cash
Equivalents reasonably satisfactory to the Administrative Agent until the
proceeds are applied to the secured
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<PAGE> 45
obligations), and the respective mandatory repayment shall not be required to
be made until the eighth Business Day occurring after the date the respective
mandatory repayment would otherwise have been required to be made pursuant to
any such Section (and with interest continuing to accrue on such Loans during
such period at the rate otherwise provided for herein with respect to such
Loans). Notwithstanding anything to the contrary contained above, if one or
more Banks waives its right to receive all or any part of any Waivable
Mandatory Repayment, but less than all the Banks holding Tranche A Term Loans
or Tranche B Term Loans, as the case may be, waive in full their right to
receive 100% of the total payment otherwise required with respect to the
Tranche A Term Loans or Tranche B Term Loans, as the case may be, then of the
amount actually applied to the repayment of Tranche A Term Loans or Tranche B
Term Loans, as the case may be, of Banks which have waived in part, but not in
full, their right to receive 100% of such repayment, such amount shall be
applied to each then outstanding Borrowing of Tranche A Term Loans or Tranche B
Term Loans, as the case may be, on a pro rata basis (so that each Bank holding
Tranche A Term Loans or Tranche B Term Loans, as the case may be, shall, after
giving effect to the application of the respective repayment, maintain the same
percentage (as determined for such Bank, but not the same percentage as the
other Banks hold and not the same percentage held by such Bank prior to
repayment) of each Borrowing of Tranche A Term Loans or Tranche B Term Loans,
as the case may be, which remains outstanding after giving effect to such
application).
4.03 Method and Place of Payment. Except as otherwise
specifically provided herein, all payments under this Agreement or under any
Note shall be made to the Administrative Agent for the account of the Bank or
Banks entitled thereto not later than 1:00 P.M. (New York time) on the date
when due and shall be made in Dollars in immediately available funds at the
Payment Office of the Administrative Agent. Whenever any payment to be made
hereunder or under any Note shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest shall be
payable at the applicable rate during such extension.
4.04 Net Payments. (a) All payments made by the Borrower
hereunder or under any Note will be made without setoff, counterclaim or other
defense. Except as provided in Section 4.04(b), all such payments will be made
free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any
political subdivision or taxing authority thereof or therein with respect to
such payments (but excluding, except as provided in the second succeeding
sentence, any tax imposed on or measured by the net income or profits of a Bank
pursuant to the laws of the jurisdiction in which it is organized or the
jurisdiction in which the principal office or applicable lending office of such
Bank is located or any subdivision thereof or therein) and all interest,
penalties or similar liabilities with respect to such non-excluded taxes,
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<PAGE> 46
levies, imposts, duties, fees, assessments or other charges (all such
non-excluded taxes, levies, imposts, duties, fees, assessments or other charges
being referred to collectively as "Taxes"). If any Taxes (other than Taxes or
other amounts deducted or withheld pursuant to the third sentence of Section
4.04(b)) are so levied or imposed, the Borrower agrees to pay the full amount
of such Taxes, and such additional amounts as may be necessary so that every
payment of all amounts due under this Agreement or under any Note, after
withholding or deduction for or on account of any such Taxes, will not be less
than the amount provided for herein or in such Note. If any amounts are
payable in respect of Taxes pursuant to the preceding sentence, the Borrower
agrees to reimburse each Bank, upon the written request of such Bank, for taxes
imposed on or measured by the net income or profits of such Bank pursuant to
the laws of the jurisdiction in which such Bank is organized or in which the
principal office or applicable lending office of such Bank is located or under
the laws of any political subdivision or taxing authority of any such
jurisdiction in which such Bank is organized or in which the principal office
or applicable lending office of such Bank is located and for any withholding of
taxes as such Bank shall determine are payable by, or withheld from, such Bank,
in respect of such amounts so paid to or on behalf of such Bank pursuant to the
preceding sentence and in respect of any amounts paid to or on behalf of such
Bank pursuant to this sentence. The Borrower will furnish to the
Administrative Agent within 45 days after the date the payment of any Taxes is
due pursuant to applicable law certified copies of tax receipts evidencing such
payment by the Borrower. The Borrower agrees to indemnify and hold harmless
each Bank, and reimburse such Bank upon its written request, for the amount of
any Taxes so levied or imposed and paid by such Bank. All amounts payable
pursuant to this Section 4.04(a) shall be subject to the provisions of Section
13.17 (to the extent applicable).
(b) Each Bank that is not a United States person (as such
term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income
tax purposes agrees to deliver to the Borrower and the Administrative Agent on
or prior to the Effective Date, or in the case of a Bank that is an assignee or
transferee of an interest under this Agreement pursuant to Section 1.13 or
13.04 (unless the respective Bank was already a Bank hereunder immediately
prior to such assignment or transfer), on the date of such assignment or
transfer to such Bank, (i) two accurate and complete original signed copies of
Internal Revenue Service Form 4224 or 1001 (or successor forms) certifying to
such Bank's entitlement to a complete exemption from United States withholding
tax with respect to payments to be made under this Agreement and under any
Note, or (ii) if the Bank is not a "bank" within the meaning of Section
881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service
Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially
in the form of Exhibit D (any such certificate, a "Section 4.04(b)(ii)
Certificate") and (y) two accurate and complete original signed copies of
Internal Revenue Service Form W-8 (or successor form) certifying to such Bank's
entitlement to a complete exemption from United States withholding tax with
respect to payments of interest to be made under this Agreement and under any
Note (the Internal Revenue Service forms
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described in preceding clauses (i) and (ii) are hereinafter referred to as the
"U.S. Internal Revenue Service Forms"). In addition, each Bank agrees that
from time to time after the Effective Date as required by applicable U.S.
Federal income tax law, when a lapse in time or change in circumstances renders
the previous certification obsolete or inaccurate in any material respect, such
Bank will deliver to the Borrower and the Administrative Agent two new accurate
and complete original signed copies of Internal Revenue Service Form 4224 or
1001, or Form W-8 and a Section 4.04(b)(ii) Certificate, as the case may be,
and such other certifications or forms as may be required by U.S. Federal
income tax law and timely requested by the Borrower in writing in order to
confirm or establish the entitlement of such Bank to a continued exemption from
or reduction in United States withholding tax with respect to payments under
this Agreement and any Note, or such Bank shall immediately notify the Borrower
and the Administrative Agent of its inability under applicable law to deliver
any such Form or Certificate, in which case such Bank shall not be required to
deliver any such Form or Certificate pursuant to this Section 4.04(b).
Notwithstanding anything to the contrary contained in Section 4.04(a), but
subject to Section 13.04(b) and the immediately succeeding sentence, (x) the
Borrower shall be entitled, to the extent it is required to do so by law, to
deduct or withhold income or similar taxes imposed by the United States (or any
political subdivision or taxing authority thereof or therein) from interest,
Fees or other amounts payable hereunder for the account of any Bank which is
not a United States person (as such term is defined in Section 7701(a)(30) of
the Code) for U.S. Federal income tax purposes to the extent that such Bank has
not provided to the Borrower U.S. Internal Revenue Service Forms and such other
certifications or forms that establish a complete exemption from such deduction
or withholding and (y) the Borrower shall not be obligated pursuant to Section
4.04(a) hereof to gross-up payments to be made to a Bank in respect of income
or similar taxes imposed by the United States (or any political subdivision or
taxing authority thereof or therein) if (I) such Bank has not provided to the
Borrower the Internal Revenue Service Forms and such other certifications or
forms as are required to be provided to the Borrower pursuant to this Section
4.04(b) or (II) in the case of a payment, other than interest, to a Bank
described in clause (ii) above, to the extent that such Forms do not establish
a complete exemption from the deduction or withholding of such taxes.
Notwithstanding anything to the contrary contained in the preceding sentence or
elsewhere in this Section 4.04 and except as set forth in Section 13.04(b), the
Borrower agrees to pay any additional amounts and to indemnify each Bank in the
manner set forth in Section 4.04(a) (without regard to the identity of the
jurisdiction requiring the deduction or withholding) in respect of any Taxes
deducted or withheld by it as described in the immediately preceding sentence
as a result of any changes after the Effective Date in any applicable law,
treaty, governmental rule, regulation, guideline or order, or in the
interpretation thereof, relating to the deducting or withholding of such Taxes.
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SECTION 5. Conditions Precedent to Initial Credit Events.
The obligation of each Bank to make Loans, and the obligation of any Issuing
Bank to issue Letters of Credit, on the Initial Borrowing Date, is subject at
the time of the making of such Loans or the issuance of such Letters of Credit
to the satisfaction of the following conditions:
5.01 Execution of Agreement; Notes. On or prior to the
Initial Borrowing Date, (i) the Effective Date shall have occurred and (ii)
there shall have been delivered to the Agents for the account of each of the
Banks the appropriate Tranche A Term Note, Tranche B Term Note and/or Revolving
Note executed by the Borrower and to the Swingline Bank, the Swingline Note
executed by the Borrower, in each case in the amount, maturity and as otherwise
provided herein.
5.02 Officer's Certificate. On the Initial Borrowing Date,
the Agents shall have received a certificate, dated the Initial Borrowing Date
and signed on behalf of the Borrower by the President or any Vice President of
the Borrower, stating that all of the conditions in Sections 5.05, 5.06, 5.07,
5.08, 5.09, 5.10 and 6.01 have been satisfied on such date.
5.03 Opinions of Counsel. On the Initial Borrowing Date, the
Agents shall have received from (i) Dewey Ballantine and Wolf, Block, Schorr
and Solis-Cohen, each counsel to the Credit Parties, opinions addressed to the
Administrative Agent, the Syndication Agent, the Collateral Administrative
Agent and each of the Banks and dated the Initial Borrowing Date, covering the
matters set forth in Exhibits E-1 and E-2, respectively, and such other matters
incident to the transactions contemplated herein as any Agent may reasonably
request and (ii) local counsel (reasonably satisfactory to the Agents),
opinions each of which (x) shall be addressed to the Administrative Agent, the
Syndication Agent, the Collateral Administrative Agent and each of the Banks
and dated the Initial Borrowing Date, (y) shall be in form and substance
reasonably satisfactory to the Agents and (z) shall cover the perfection of the
security interests granted pursuant to the Security Documents and such other
matters incident to the transactions contemplated herein as any Agent may
reasonably request.
5.04 Corporate Documents; Proceedings; etc. (a) On the
Initial Borrowing Date, the Agents shall have received a certificate from each
Credit Party, dated the Initial Borrowing Date, signed by the President or any
Vice President of such Credit Party, and attested to by the Secretary or any
Assistant Secretary of such Credit Party, in the form of Exhibit F with
appropriate insertions, together with copies of the certificate of
incorporation (or equivalent organizational document) and by-laws of such
Credit Party and the resolutions of such Credit Party referred to in such
certificate, and each such certificate of incorporation and by-laws shall be in
the form provided to the Agents prior to the Effective Date or in such other
form as is reasonably acceptable to the Agents, and the foregoing resolutions
shall be in form and substance reasonably acceptable to the Agents.
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(b) All corporate and legal proceedings and all instruments
and agreements in connection with the transactions contemplated by this
Agreement and the other Documents shall be reasonably satisfactory in form and
substance to the Agents, and the Agents shall have received all information and
copies of all documents and papers, including records of corporate proceedings,
governmental approvals, good standing certificates and (in the case of the
Borrower, Merger Sub and Red Lion) bring-down telegrams or facsimiles, if any,
which any Agent reasonably may have requested in connection therewith, such
documents and papers where appropriate to be certified by proper corporate or
governmental authorities.
5.05 Employee Benefit Plans; Shareholders' Agreements;
Management Agreements; Collective Bargaining Agreements; Existing Indebtedness
Agreements; Tax Sharing Agreements; Joint Venture Agreements; Property
Management Agreements; Material Leases. On or prior to the Initial Borrowing
Date, there shall have been made available for review by the Agents true and
correct copies of the following documents:
(i) all Plans (and for each Plan that is required to file
an annual report on Internal Revenue Service Form 5500-series, a copy
of the most recent such report (including, to the extent required, the
related financial and actuarial statements and opinions and other
supporting statements, certifications, schedules and information), and
for each Plan that is a "single-employer plan," as defined in Section
4001(a)(15) of ERISA, the most recently prepared actuarial valuation
therefor) and any other "employee benefit plans," as defined in
Section 3(3) of ERISA, and any other material agreements, plans or
arrangements, with or for the benefit of current or former employees
of the Borrower or any of its Subsidiaries or any ERISA Affiliate
(provided that the foregoing shall apply in the case of any
multiemployer plan, as defined in 4001(a)(3) of ERISA, only to the
extent that any document described therein is in the possession of the
Borrower or any Subsidiary of the Borrower or any ERISA Affiliate or
reasonably available thereto from the sponsor or trustee of any such
plan)(collectively, the "Employee Benefit Plans");
(ii) all material agreements entered into by the Borrower
or any of its Subsidiaries or any of the Existing Red Lion Joint
Ventures governing the terms and relative rights of its capital stock
and any agreements entered into by shareholders relating to any such
entity with respect to its capital stock (collectively, the
"Shareholders' Agreements");
(iii) all material agreements with members of, or with
respect to, the senior management and management of the Borrower or
any of its Subsidiaries or any of the Existing Red Lion Joint Ventures
(collectively, the "Management Agreements");
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(iv) all collective bargaining agreements applying or
relating to any employee of the Borrower or any of its Subsidiaries
(collectively, the "Collective Bargaining Agreements");
(v) all agreements evidencing or relating to Indebtedness
of the Borrower or any of its Subsidiaries or any of its Existing Red
Lion Joint Ventures which is to remain outstanding after giving effect
to the incurrence of Loans on the Initial Borrowing Date to the extent
such Indebtedness exceeds (or upon the utilization of any unused
commitments may exceed) $1,000,000 (collectively, the "Existing
Indebtedness Agreements");
(vi) all tax sharing, tax allocation and other similar
agreements entered into by the Borrower or any of its Subsidiaries or
any of its Existing Red Lion Joint Ventures (collectively, the "Tax
Sharing Agreements");
(vii) all articles of incorporation, joint venture
agreements and/or partnership agreements relating to all Joint
Ventures in existence on the Initial Borrowing Date (collectively, the
"Joint Venture Agreements");
(viii) without duplication of the Management Agreements
referred to in clause (iii) above, all material Hotel Property
property management agreements (including the Red Lion Master Property
Management Agreement) under which the Borrower or any of its
Subsidiaries is the hotel manager (collectively, the "Hotel Property
Management Agreements"); and
(ix) all material leases (including the Red Lion Master
Lease and the Doubletree Master REIT Lease) under which the Borrower
or any of its Subsidiaries lease (as lessee) any Hotel Property
(collectively, the "Material Leases");
all of which Employee Benefit Plans, Shareholders' Agreements, Management
Agreements, Collective Bargaining Agreements, Existing Indebtedness Agreements,
Tax Sharing Agreements, Joint Venture Agreements, Hotel Property Management
Agreements and Material Leases shall be in full force and effect on the Initial
Borrowing Date.
5.06 Equity Financing; Equity Rollover. (a) On or prior to
the Initial Borrowing Date, (i) the Borrower shall have received at least
$250,000,000 of gross cash proceeds from the Equity Financing and (ii) the
Borrower shall have utilized at least $250,000,000 of gross cash proceeds from
the Equity Financing to make payments owing in connection with the Transaction
prior to utilizing any proceeds of Loans for such purpose.
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(b) On or prior to the Initial Borrowing Date, (i) the Agents
shall have received true and correct copies of the Equity Financing Documents,
all of which shall be required to be in form and substance (including as to all
of the terms and conditions thereof) reasonably satisfactory to the Agents and
the Required Banks and (ii) each of the conditions precedent set forth in the
Equity Financing Documents shall have been satisfied and not waived (unless
waived with the consent of the Agents and the Required Banks).
(c) On or prior to the Initial Borrowing Date, the Borrower
shall have issued for the account of the selling shareholders of Red Lion
shares of the Borrower's common stock having an implied value of $283,000,000
(subject to adjustment as set forth in the Acquisition Agreement), and the
Agents shall have received true and correct copies of the Acquisition Agreement
and all SEC filings made in connection with the Transaction, each of which
shall be in full force and effect and shall be in form and substance reasonably
satisfactory to the Agents and the Required Banks.
5.07 Consummation of Acquisition; Cash on Hand. (a) On the
Initial Borrowing Date, (i) the Acquisition shall have been consummated in
accordance with the Acquisition Documents and all applicable laws and (ii) each
of the conditions precedent set forth in the Acquisition Documents shall have
been satisfied in all material respects, and not waived except with the
reasonable consent of the Agents and the Required Banks, to the reasonable
satisfaction of the Agents and the Required Banks, (iii) the Agents shall have
received true and complete copies of all Acquisition Documents, and with those
Acquisition Documents which were delivered to the Agents on or before September
12, 1996 to be in the form so delivered with such changes thereto or waivers
therefrom to be reasonably satisfactory to the Agents and the Required Banks,
and with all other Acquisition Documents to be in form and substance reasonably
satisfactory to the Agents and the Required Banks and (iv) the Agents shall
have received copies of the "comfort letters" referred to in Sections 6.2(f)
and 6.3(e) of the Acquisition Agreement.
(b) On the Initial Borrowing Date, the Agents shall have
received evidence satisfactory to them that the Borrower and/or Red Lion have
cash on hand, when added to the amount of the Total Term Loan Commitment, up to
$15,0000,000 of the Total Revolving Loan Commitment and the amount received (or
to be received on the Initial Borrowing Date) from the Equity Financing, that
is sufficient to consummate the Acquisition and the Refinancing and to pay the
fees and expenses incurred in connection with the Transaction.
5.08 Refinancing. On the Initial Borrowing Date and after
giving effect to the Acquisition and the Loans incurred on the Initial
Borrowing Date, neither the Borrower nor any of its Subsidiaries shall have any
Indebtedness outstanding except for (x) the Obligations and (y) the Existing
Indebtedness. Schedule IV sets forth a true and complete list of all
Indebtedness to be Refinanced, in each case showing the aggregate principal
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amount thereof and accrued interest thereon (immediately before giving effect
to the Initial Borrowing Date) and the name of the respective borrower thereof.
On the Initial Borrowing Date, all Indebtedness to be Refinanced (other than
the Existing Glendale Debt to the extent that same is to be refinanced after
the Initial Borrowing Date) shall have been repaid in full and all commitments
in respect thereof shall have been terminated and all Liens and guaranties in
connection therewith shall have been terminated (and all appropriate releases,
termination statements or other instruments of assignment with respect thereto
shall have been obtained) to the reasonable satisfaction of the Agents. The
Agents shall have received evidence, in form and substance reasonably
satisfactory to them, that the matters set forth in the immediately preceding
sentence have been satisfied as of the Initial Borrowing Date. In addition, on
or prior to the Initial Borrowing Date, the Borrower shall have informed the
Agents in writing as to whether the Borrower intends to refinance the Existing
Glendale Debt as part of the Refinancing.
5.09 Adverse Change, etc. (a) On or prior to the Initial
Borrowing Date, nothing shall have occurred (and (x) neither the Agents nor the
Banks shall have become aware of any facts or conditions not previously
disclosed to them and (y) no information previously submitted by or on behalf
of the Borrower to the Agents (including, without limitation, financial,
accounting and tax information) shall be inaccurate, incomplete or misleading)
which (in any such case) has had, or could reasonably be expected to have, a
material adverse effect on the Transaction or on the business, property,
assets, operations, liabilities or financial condition of the Borrower, Red
Lion and their respective Subsidiaries taken as a whole.
(b) All necessary governmental approvals and/or consents
(other than approvals and/or consents required to effect the transfer of liquor
licenses), all necessary shareholder and board of director approvals and/or
consents and the approval of the lenders to Red Lion Inns Operating, L.P. (or
the written acknowledgment by such lenders that such approval is not necessary
or the issuance of an opinion of counsel of the Borrower, satisfactory in form
and substance to the Agents, that no such approval is necessary), in each case
in connection with the Transaction and the other transactions contemplated by
the Documents and otherwise referred to herein or therein shall have been
obtained and remain in effect, and all applicable waiting periods with respect
thereto shall have expired without any action being taken by any competent
authority which restrains, prevents or imposes materially adverse conditions
upon, the consummation of the Transaction or the other transactions
contemplated by the Documents or otherwise referred to herein or therein.
Additionally, there shall not exist any judgment, order, injunction or other
restraint issued or filed or a hearing seeking injunctive relief or other
restraint pending or notified prohibiting or imposing materially adverse
conditions upon the Transaction or the other transactions contemplated by the
Documents.
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(c) On or prior to the Initial Borrowing Date, there shall
not have occurred and be continuing a material disruption of or a material
adverse change in financial, banking or capital markets that would have a
material adverse effect on the successful syndication of the Commitments as
determined by the Agents in their reasonable discretion. The Borrower and Red
Lion shall have fully cooperated in the Agents' syndication efforts, including,
without limitation, by promptly providing the Agents with all information
deemed necessary by the Agents to successfully complete such syndication.
5.10 Litigation. On the Initial Borrowing Date, no material
litigation by any entity (private or governmental) shall be pending or
threatened with respect to the Transaction or any Document.
5.11 Pledge Agreement. On the Initial Borrowing Date, each
Credit Party shall have duly authorized, executed and delivered the Pledge
Agreement in the form of Exhibit G (as amended, modified or supplemented from
time to time, the "Pledge Agreement") and shall have delivered to the
Collateral Administrative Agent, as Pledgee thereunder, all of the Pledged
Securities, if any, referred to therein then owned by such Credit Party, (x)
endorsed in blank in the case of promissory notes constituting Pledged
Securities and (y) together with executed and undated stock powers in the case
of capital stock constituting Pledged Securities.
5.12 Security Agreement. On the Initial Borrowing Date, each
Credit Party shall have duly authorized, executed and delivered the Security
Agreement in the form of Exhibit H (as modified, supplemented or amended from
time to time, the "Security Agreement") covering all of such Credit Party's
present and future Security Agreement Collateral, together with:
(i) proper Financing Statements (Form UCC-1 or the
equivalent) fully executed for filing under the UCC or other
appropriate filing offices of each jurisdiction as may be necessary
or, in the reasonable opinion of the Collateral Administrative Agent,
desirable to perfect the security interests purported to be created by
the Security Agreement;
(ii) certified copies of Requests for Information or
Copies (Form UCC-11), or equivalent reports, listing all effective
financing statements that name any Credit Party or any of its
Subsidiaries as debtor and that are filed in the jurisdictions
referred to in clause (i) above, together with copies of such other
financing statements that name any Credit Party or any of its
Subsidiaries as debtor (none of which shall cover the Collateral
except to the extent evidencing Permitted Liens or in respect of which
the Collateral Administrative Agent shall have received termination
statements (Form UCC-3) or such other termination statements as shall
be required by local law fully executed for filing); and
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(iii) evidence that all other actions necessary or, in the
reasonable opinion of the Collateral Administrative Agent, desirable
to perfect and protect the security interests purported to be created
by the Security Agreement have been (or within 10 days following the
Initial Borrowing Date will be) taken.
5.13 Subsidiaries Guaranty. On the Initial Borrowing Date,
each Subsidiary Guarantor shall have duly authorized, executed and delivered
the Subsidiaries Guaranty in the form of Exhibit I (as amended, modified or
supplemented from time to time, the "Subsidiaries Guaranty").
5.14 Mortgages; Title Insurance; Survey; etc. On the Initial
Borrowing Date, the Collateral Administrative Agent shall have received:
(i) fully executed counterparts of Mortgages, in form and
substance reasonably satisfactory to the Agents, which Mortgages shall
cover the Mortgaged Properties owned or leased by the Credit Parties
on the Initial Borrowing Date as designated on Schedule III, together
with evidence that counterparts of such Mortgages have been delivered
to the title insurance company insuring the Lien of such Mortgages for
recording in all places to the extent necessary or, in the reasonable
opinion of the Collateral Administrative Agent, desirable, to
effectively create a valid and enforceable first priority mortgage
lien on each such Mortgaged Property in favor of the Collateral
Administrative Agent (or such other trustee as may be required or
desired under local law) for the benefit of the Secured Creditors;
(ii) a mortgagee title insurance policy on each such
Mortgaged Property issued by a title insurer reasonably satisfactory
to the Agents (the "Mortgage Policies") in amounts satisfactory to the
Agents assuring the Collateral Administrative Agent that the Mortgages
on such Mortgaged Properties are valid and enforceable first priority
mortgage liens on the respective Mortgaged Properties, free and clear
of all defects and encumbrances except Permitted Encumbrances and such
Mortgage Policies shall otherwise be in form and substance reasonably
satisfactory to the Agents and shall include, as appropriate, an
endorsement for future advances under this Agreement and the Notes and
for any other matter that any Agent in its reasonable discretion may
reasonably request, shall not include (to the extent permissible under
applicable state law) an exception for mechanics' liens, and shall
provide for affirmative insurance and such reinsurance as any Agent in
its discretion may reasonably request;
(iii) a survey, in form and substance reasonably
satisfactory to the Agents, of each such Mortgaged Property, certified
by a licensed professional surveyor reasonably satisfactory to the
Agents;
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(iv) such landlord waivers and/or estoppel certificates as
any Agent may have reasonably required, which landlord waivers and/or
estoppel certificates shall be in form and substance reasonably
satisfactory to the Agents; and
(v) fully executed counterparts of Collateral
Assignments, in form and substance reasonably satisfactory to the
Agents, which Collateral Assignments shall be executed in respect of
those Pledged Notes issued by any Joint Venture or other Persons that
are required to be delivered pursuant to the Pledge Agreement to the
extent that such Pledged Notes are secured by all or a portion of the
assets of such Joint Venture or other Person.
5.15 Projections; Pro Forma Balance Sheet. On or prior to
the Initial Borrowing Date, the Agents shall have received copies of the
financial statements (including the pro forma financial statements) and
Projections referred to in Sections 7.05(a) and (d).
5.16 Solvency Opinion; Insurance Certificates. On the
Initial Borrowing Date, the Borrower shall have delivered to the Agents:
(i) a solvency certificate from the Chief Financial
Officer of the Borrower in the form of Exhibit J; and
(ii) certificates of insurance complying with the
requirements of Section 8.03 for the business and properties of the
Borrower and its Subsidiaries, in form and substance satisfactory to
the Agents and naming the Collateral Administrative Agent as an
additional insured and as loss payee, and stating that such insurance
shall not be cancelled without at least 30 days prior written notice
by the insurer to the Collateral Administrative Agent (or such shorter
period of time as a particular insurance company generally provides).
5.17 Fees, etc. On the Initial Borrowing Date, the Borrower
shall have paid to the Agents and each Bank all costs, fees and expenses
(including, without limitation, legal fees and expenses) payable to the Agents
and such Bank to the extent then due.
SECTION 6. Conditions Precedent to All Credit Events. The
obligation of each Bank to make Loans (including Loans made on the Initial
Borrowing Date), and the obligation of any Issuing Bank to issue any Letter of
Credit, is subject, at the time of each such Credit Event (except as
hereinafter indicated), to the satisfaction of the following conditions:
6.01 No Default; Representations and Warranties. At the time
of each such Credit Event and also after giving effect thereto (i) there shall
exist no Default or Event of Default and (ii) all representations and
warranties contained herein and in the other Credit
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Documents shall be true and correct in all material respects with the same
effect as though such representations and warranties had been made on the date
of such Credit Event (it being understood and agreed that any representation or
warranty which by its terms is made as of a specified date shall be required to
be true and correct in all material respects only as of such specified date).
6.02 Notice of Borrowing; Letter of Credit Request. (a)
Prior to the making of each Loan (other than a Swingline Loan or a Revolving
Loan made pursuant to a Mandatory Borrowing), the Administrative Agent shall
have received a Notice of Borrowing meeting the requirements of Section
1.03(a). Prior to the making of each Swingline Loan, the Swingline Bank shall
have received the notice referred to in Section 1.03(b)(i).
(b) Prior to the issuance of each Letter of Credit, the
Administrative Agent and the respective Issuing Bank shall have received a
Letter of Credit Request meeting the requirements of Section 2.03.
The acceptance of the proceeds of each Loan and the making of
each Letter of Credit Request shall constitute a representation and warranty by
the Borrower to the Agents and each of the Banks that all the conditions
specified in Section 5 (with respect to Credit Events on the Initial Borrowing
Date) and in this Section 6 (with respect to Credit Events on and after the
Initial Borrowing Date) and applicable to such Credit Event exist as of that
time. All of the Notes, certificates, legal opinions and other documents and
papers referred to in Section 5 and in this Section 6, unless otherwise
specified, shall be delivered to the Administrative Agent at the Notice Office
for the account of each of the Banks and, except for the Notes, in sufficient
counterparts or copies for each of the Banks and shall be in form and substance
reasonably satisfactory to the Agents and the Required Banks.
SECTION 7. Representations, Warranties and Agreements. In
order to induce the Banks to enter into this Agreement and to make the Loans,
and issue (or participate in) the Letters of Credit as provided herein, the
Borrower makes the following representations, warranties and agreements, in
each case after giving effect to the Transaction, all of which shall survive
the execution and delivery of this Agreement and the Notes and the making of
the Loans and issuance of the Letters of Credit, with the occurrence of each
Credit Event on or after the Initial Borrowing Date being deemed to constitute
a representation and warranty that the matters specified in this Section 7 are
true and correct in all material respects on and as of the Initial Borrowing
Date and on the date of each such Credit Event (it being understood and agreed
that any representation or warranty which by its terms is made as of a
specified date shall be required to be true and correct only as of such
specified date).
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7.01 Corporate and Other Status. Each Credit Party and each
of its Subsidiaries (i) is a duly organized and validly existing corporation or
partnership, as the case may be, in good standing under the laws of the
jurisdiction of its organization, (ii) has the corporate or partnership power
and authority to own its property and assets and to transact the business in
which it is engaged and presently proposes to engage and (iii) is duly
qualified and is authorized to do business and is in good standing in each
jurisdiction where the ownership, leasing or operation of its property or the
conduct of its business requires such qualifications except for failures to be
so qualified which, individually or in the aggregate, could not reasonably be
expected to have a material adverse effect on the business, operations,
property, assets, liabilities, condition (financial or otherwise) or prospects
of the Borrower and its Subsidiaries taken as a whole.
7.02 Corporate and Other Power and Authority. Each Credit
Party has the corporate or partnership power and authority to execute, deliver
and perform the terms and provisions of each of the Documents to which it is
party and has taken all necessary corporate or partnership action to authorize
the execution, delivery and performance by it of each of such Documents. Each
Credit Party has duly executed and delivered each of the Documents to which it
is party, and each of such Documents constitutes its legal, valid and binding
obligation enforceable in accordance with its terms, except to the extent that
the enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws generally affecting creditors'
rights and by equitable principles (regardless of whether enforcement is sought
in equity or at law).
7.03 No Violation. Neither the execution, delivery or
performance by any Credit Party of the Documents to which it is a party, nor
compliance by it with the terms and provisions thereof, (i) will contravene any
provision of any law, statute, rule or regulation or any order, writ,
injunction or decree of any court or governmental instrumentality (other than
contraventions relating to an Acquisition Document which, individually or in
the aggregate, could not reasonably be expected to have a material adverse
effect (x) on the Acquisition or the Transaction or (y) on the business,
operations, property, assets, liabilities, condition (financial or otherwise)
or prospects of the Borrower and its Subsidiaries taken as a whole), (ii) will
conflict with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien
(except pursuant to the Security Documents) upon any of the property or assets
of the Borrower or any of its Subsidiaries pursuant to the terms of any
indenture, mortgage, deed of trust, credit agreement or loan agreement, or any
other material agreement, contract or instrument, to which the Borrower or any
of its Subsidiaries is a party or by which it or any of its property or assets
is bound or to which it may be subject or (iii) will violate any provision of
the certificate of incorporation, by-laws or partnership agreement (or
equivalent organizational documents) of the Borrower or any of its Subsidiaries
(other than violations of immaterial partnership agreements existing on the
Initial Borrowing Date by reason of the Acquisition).
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7.04 Approvals. (a) No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with ((x)
other than those required to effect the transfer of liquor licenses as part of
the Acquisition and (y) except for those that have otherwise been obtained or
made on or prior to the Initial Borrowing Date and which remain in full force
and effect on the Initial Borrowing Date, or to the extent not required to be
obtained or made on or prior to the Initial Borrowing Date pursuant to the
Documents, as will be obtained or made on or prior to the required date
therefor), or exemption by, any governmental or public body or authority, or
any subdivision thereof, is required to authorize, or is required in connection
with, (i) the execution, delivery and performance of any Document or (ii) the
legality, validity, binding effect or enforceability of any such Document.
(b) All necessary shareholder and board of director approvals
and/or consents and all material third party non-governmental approvals and/or
consents, in each case in connection with the Transaction and the execution,
delivery and performance of any Document have been obtained and remain in full
force and effect on the Initial Borrowing Date.
7.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; etc. (a) The consolidated balance sheet of the
Borrower and its Subsidiaries at December 31, 1995 and September 30, 1996 and
the related consolidated statements of operations, cash flows and shareholders'
equity of the Borrower and its Subsidiaries for the fiscal year and nine-month
period ended on such date, as the case may be, copies of which have been
furnished to the Banks prior to the Initial Borrowing Date, present fairly the
financial position of the Borrower and its Subsidiaries at the date of such
balance sheets and the results of the operations of the Borrower and its
Subsidiaries for the periods covered thereby. The consolidated balance sheet
of Red Lion and its Subsidiaries at December 31, 1995 and September 30, 1996
and the related consolidated statements of income, cash flows and shareholders'
equity of Red Lion and its Subsidiaries for the fiscal year and nine- month
period ended on such date, as the case may be, copies of which have been
furnished to the Banks prior to the Initial Borrowing Date, present fairly the
financial position of Red Lion and its Subsidiaries at the date of such balance
sheets and the results of the operations of Red Lion and its Subsidiaries for
the periods covered thereby. The pro forma consolidated balance sheet of the
Borrower and its Subsidiaries (including Red Lion and its Subsidiaries) at June
30, 1996 and the pro forma income statements of the Borrower and its
Subsidiaries (including Red Lion and its Subsidiaries) for the periods ended
December 31, 1995 and June 30, 1996, copies of which have been furnished to the
Banks prior to the Initial Borrowing Date, present fairly the pro forma
financial position of the Borrower and its Subsidiaries (including Red Lion and
its Subsidiaries) at June 30, 1996 and the results of the operations of the
Borrower and its Subsidiaries (including Red Lion and its Subsidiaries) for the
periods ended December 31, 1995 and June 30, 1996 and, in the case of the pro
forma income statements, have been prepared on the assumption that the
Transaction had
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been consummated on January 1, 1995. All such financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied, subject to normal year-end audit adjustments in the case
of the nine-month financial statements referred to above. After giving effect
to the Transaction (but for this purpose assuming that the Transaction had
occurred prior to December 31, 1995), since December 31, 1995, there has been
no material adverse change in the business, operations, property, assets,
liabilities, condition (financial or otherwise) or prospects of the Borrower
and its Subsidiaries taken as a whole (it being understood and agreed, however,
that the representation and warranty made pursuant to this sentence is only
being made in connection with Credit Events that occur after the Initial
Borrowing Date).
(b) (i) On and as of the Initial Borrowing Date and after
giving effect to the Transaction and to all Indebtedness (including the Loans)
being incurred or assumed and Liens created by the Credit Parties in connection
therewith, (a) the sum of the assets, at a fair valuation, of each of the
Borrower on a stand alone basis and of the Borrower and its Subsidiaries taken
as a whole will exceed its debts; (b) each of the Borrower on a stand alone
basis and the Borrower and its Subsidiaries taken as a whole has not incurred
and does not intend to incur, and does not believe that they will incur, debts
beyond their ability to pay such debts as such debts mature; and (c) each of
the Borrower on a stand alone basis and the Borrower and its Subsidiaries taken
as a whole will have sufficient capital with which to conduct its business.
For purposes of this Section 7.05(b), "debt" means any liability on a claim,
and "claim" means (i) right to payment, whether or not such a right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured or (ii) right to
an equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured. The amount of contingent liabilities at any time shall be
computed as the amount that, in the 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.
(c) Except as fully disclosed in the financial statements
delivered pursuant to Section 7.05(a), there were as of the Initial Borrowing
Date no liabilities or obligations with respect to the Borrower or any of its
Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether or not due) which, either individually or in aggregate,
could reasonably be expected to be material to the Borrower and its
Subsidiaries taken as a whole. As of the Initial Borrowing Date, the Borrower
does not know of any basis for the assertion against it or any of its
Subsidiaries of any liability or obligation of any nature whatsoever that is
not fully disclosed in the financial statements delivered pursuant to Section
7.05(a) which, either individually or in the aggregate, could reasonably be
expected to be material to the Borrower and its Subsidiaries taken as a whole.
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(d) On and as of the Initial Borrowing Date, the Projections
delivered to the Agents and the Banks prior to the Initial Borrowing Date have
been prepared in good faith and are based on reasonable assumptions, and there
are no statements or conclusions in the Projections which are based upon or
include information known to the Borrower to be misleading in any material
respect or which fail to take into account material information known to the
Borrower regarding the matters reported therein. On the Initial Borrowing
Date, the Borrower believes that the Projections are reasonable, it being
understood that the Projections include assumptions as to future event that are
not to be viewed as facts and that actual results may differ from the projected
results and such differences may be material.
7.06 Litigation. There are no actions, suits or proceedings
pending or, to the best knowledge of the Borrower, threatened (i) with respect
to any Document or (ii) that are reasonably likely to materially and adversely
affect the business, operations, property, assets, liabilities, condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries
taken as a whole (it being understood and agreed, however, that the
representation and warranty made pursuant to this Section 7.06 is only being
made in connection with Credit Events that occur after the Initial Borrowing
Date).
7.07 True and Complete Disclosure. All factual information
(taken as a whole) furnished by any Credit Party in writing to any Agent or any
Bank (including, without limitation, all information contained in the Documents
and in the Confidential Information Memorandum) for purposes of or in
connection with this Agreement, the other Credit Documents or any transaction
contemplated herein or therein is, and all other such factual information
(taken as a whole) hereafter furnished by or on behalf of any Credit Party in
writing to any Agent or any Bank will be, true and accurate in all material
respects on the date as of which such information is dated or certified and not
incomplete by omitting to state any fact necessary to make such information
(taken as a whole) not misleading in any material respect at such time in light
of the circumstances under which such information was provided.
7.08 Use of Proceeds; Margin Regulations. (a) All proceeds
of the Term Loans will be used by the Borrower (i) to effect the Acquisition
and the Refinancing and (ii) to pay fees and expenses related to the
Transaction.
(b) (i) Up to $15,000,000 of proceeds of Revolving Loans may
be used on the Initial Borrowing Date for the purposes described in Section
7.08(a) and (ii) the proceeds of all other Revolving Loans and all Swingline
Loans will be used for the Borrower's and its Subsidiaries' general corporate
and working capital purposes.
(c) No part of any Credit Event (or the proceeds thereof)
will be used to purchase or carry any Margin Stock or to extend credit for the
purpose of purchasing or carrying any Margin Stock. Neither the making of any
Loan nor the use of the proceeds
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thereof nor the occurrence of any other Credit Event will violate or be
inconsistent with the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.
7.09 Tax Returns and Payments. Each of the Borrower and each
of its Subsidiaries has filed all federal income tax returns and all other
material tax returns, domestic and foreign, required to be filed by it and has
paid all material taxes and assessments payable by it which have become due,
except for those contested in good faith and adequately disclosed and fully
provided for on the financial statements of the Borrower and its Subsidiaries
in accordance with generally accepted accounting principles. The Borrower and
each of its Subsidiaries have at all times paid, or have provided adequate
reserves (in the good faith judgment of the management of the Borrower) for the
payment of, all federal, state and foreign income taxes applicable for all
prior fiscal years and for the current fiscal year to date. There is no
material (to the Borrower and its Subsidiaries taken as a whole) action, suit,
proceeding, investigation, audit, or claim now pending or, to the knowledge of
the Borrower threatened, by any authority regarding any taxes relating to the
Borrower or any of its Subsidiaries. As of the Initial Borrowing Date, neither
the Borrower nor any of its Subsidiaries has entered into an agreement or
waiver or been requested to enter into an agreement or waiver extending any
statute of limitations relating to the payment or collection of taxes of the
Borrower or any of its Subsidiaries, or is aware of any circumstances that
would cause the taxable years or other taxable periods of the Borrower or any
of its Subsidiaries not to be subject to the normally applicable statute of
limitations.
7.10 Compliance with ERISA. (i) Except as disclosed on
Schedule XIV, each Plan and to the knowledge of the Borrower each Multiemployer
Plan (and each related trust, insurance contract or fund) is in substantial
compliance with its terms and with all applicable laws, including, without
limitation, ERISA and the Code; except as disclosed on Schedule XIV, each Plan
and to the knowledge of the Borrower each Multiemployer Plan (and each related
trust, if any) which is intended to be qualified under Section 401(a) of the
Code has received a determination letter from the Internal Revenue Service to
the effect that it meets the requirements of Sections 401(a) and 501(a) of the
Code; no Reportable Event has occurred with respect to a Plan; to the knowledge
of the Borrower, no Multiemployer Plan is insolvent or in reorganization; no
Plan has an Unfunded Current Liability; no Plan and to the knowledge of the
Borrower no Multiemployer Plan which is subject to Section 412 of the Code or
Section 302 of ERISA has an accumulated funding deficiency, within the meaning
of such sections of the Code or ERISA, or has applied for or received a waiver
of an accumulated funding deficiency or an extension of any amortization
period, within the meaning of Section 412 of the Code or Section 303 or 304 of
ERISA; all material contributions required to be made by the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate with respect to a Plan or a
Multiemployer Plan have been timely made; neither the Borrower nor any
Subsidiary of the Borrower nor any ERISA Affiliate has incurred any material
liability (including any indirect or secondary liability) to or on
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account of a Plan pursuant to Section 409, 502(i), 502(l), 4062, 4063, 4064 or
4069 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to
incur any such material liability under any of the foregoing sections with
respect to any Plan; to the knowledge of the Borrower, no condition exists
which presents a material risk to the Borrower or any Subsidiary of the
Borrower or any ERISA Affiliate of incurring a material liability to or on
account of a Plan pursuant to the foregoing provisions of ERISA and the Code;
no proceedings have been instituted to terminate or appoint a trustee to
administer any Plan which is subject to Title IV of ERISA; no action, suit,
proceeding, hearing, audit or investigation with respect to the administration,
operation or the investment of assets of any Plan (other than routine claims
for benefits) is pending or, to the knowledge of the Borrower, threatened;
using actuarial assumptions and computation methods consistent with Part 1 of
subtitle E of Title IV of ERISA, the aggregate liabilities of the Borrower and
its Subsidiaries and its ERISA Affiliates to all Multiemployer Plans in the
event of a complete withdrawal therefrom, as of the close of the most recent
fiscal year of each such Plan ended prior to the date of this Agreement, would
not exceed $2,000,000 and with respect to fiscal years ended prior to the date
of each Credit Event would not be material; each group health plan (as defined
in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or
has covered employees or former employees of the Borrower, any Subsidiary of
the Borrower or any ERISA Affiliate has at all times been operated in
substantial compliance with the provisions of Part 6 of subtitle B of Title I
of ERISA and Section 4980B of the Code; no lien imposed under the Code or ERISA
on the assets of the Borrower or any Subsidiary of the Borrower or any ERISA
Affiliate exists or is likely to arise on account of any Plan; neither the
Borrower nor any Subsidiary of the Borrower nor any ERISA Affiliate has
incurred any material liability (including any indirect or secondary liability)
under Sections 515, 4201, 4202 or 4212 of ERISA with respect to any
Multiemployer Plan; to the knowledge of the Borrower, no condition exists which
presents a material risk to the Borrower or any Subsidiary of the Borrower or
any ERISA Affiliate of incurring a material liability to or on account of a
Multiemployer Plan pursuant to the foregoing provisions of ERISA; to the
knowledge of the Borrower, no action, suit, proceeding, hearing, audit or
investigation with respect to the administration, operation or the investment
of assets of any Multiemployer Plan (other than routine claims for benefits)
that could reasonably be expected to be material to the Borrower and its
Subsidiaries taken as a whole is pending or threatened; and the Borrower and
its Subsidiaries do not maintain or contribute to any employee welfare benefit
plan (as defined in Section 3(1) of ERISA), which provides benefits to retired
employees or other former employees (other than as required by Section 601 of
ERISA) or any Plan or Multiemployer Plan, the obligations with respect to which
could reasonably be expected to have a material adverse effect on the ability
of the Borrower and its Subsidiaries to perform their obligations under the
Credit Documents.
(ii) To the knowledge of the Borrower, each Foreign Pension
Plan has been maintained in substantial compliance with its terms and with the
requirements of any and
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all applicable laws, statutes, rules, regulations and orders and has been
maintained, where required, in good standing with applicable regulatory
authorities. All material contributions required to be made with respect to a
Foreign Pension Plan have been timely made. Neither the Borrower nor any of
its Subsidiaries has incurred any material obligation in connection with the
termination of or withdrawal from any Foreign Pension Plan. The Borrower and
its Subsidiaries do not maintain or contribute to any Foreign Pension Plan the
obligations with respect to which could reasonably be expected to have a
material adverse effect on the ability of the Borrower and its Subsidiaries to
perform their obligations under the Credit Documents.
7.11 The Security Documents. (a) The provisions of the
Security Agreement are effective to create in favor of the Collateral
Administrative Agent for the benefit of the Secured Creditors a legal, valid
and enforceable security interest in all right, title and interest of the
Credit Parties party thereto in the Security Agreement Collateral described
therein, and the Collateral Administrative Agent, for the benefit of the
Secured Creditors, has a fully perfected lien on, and security interest in, all
right, title and interest in all of the Security Agreement Collateral described
therein, subject to no other Liens other than Permitted Liens. The recordation
of the Assignment of Security Interest in U.S. Patents and Trademarks in the
form attached to the Security Agreement in the United States Patent and
Trademark Office together with filings on Form UCC-1 made pursuant to the
Security Agreement will create, as may be perfected by such filing and
recordation, a perfected security interest granted to the Collateral
Administrative Agent in the trademarks and patents covered by the Security
Agreement and the recordation of the Assignment of Security Interest in U.S.
Copyrights in the form attached to the Security Agreement with the United
States Copyright Office together with filings on Form UCC-1 made pursuant to
the Security Agreement will create, as may be perfected by such filing and
recordation, a perfected security interest granted to the Collateral
Administrative Agent in the copyrights covered by the Security Agreement.
(b) The security interests created in favor of the Collateral
Administrative Agent, as Pledgee, for the benefit of the Secured Creditors,
under the Pledge Agreement constitute first priority perfected security
interests in the Pledged Securities described in the Pledge Agreement, subject
to no security interests of any other Person. No filings or recordings are
required in order to perfect (or maintain the perfection or priority of) the
security interests created in the Pledged Securities under the Pledge
Agreement.
(c) The Mortgages create, for the obligations purported to be
secured thereby, a valid and enforceable perfected security interest in and
mortgage lien on all of the Mortgaged Properties in favor of the Collateral
Administrative Agent (or such other trustee as may be required or desired under
local law) for the benefit of the Secured Creditors, superior to and prior to
the rights of all third persons (except that the security interest and mortgage
lien created in the Mortgaged Properties may be subject to the Per-
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mitted Encumbrances related thereto) and subject to no other Liens (other than
Liens permitted under Section 9.01). Schedule III contains a true and complete
list of each parcel of Real Property owned or leased by the Borrower and its
Subsidiaries on the Initial Borrowing Date, and the type of interest therein
held by the Borrower or such Subsidiary. The Borrower and each of its
Subsidiaries have good and marketable title to all fee-owned Real Property and
valid leasehold title to all Leaseholds, in each case free and clear of all
Liens except those described in the first sentence of this subsection (c).
(d) The provisions of the Collateral Assignments are
effective to create in favor of the Collateral Administrative Agent for the
benefit of the Secured Creditors a legal, valid and enforceable security
interest in all right, title and interest of the Credit Parties party thereto
in the Collateral Assignment Collateral described therein, and the Collateral
Administrative Agent, for the benefit of the Secured Creditors, has a fully
perfected lien on, and security interest in, all right, title and interest in
all of the Collateral Assignment Collateral described therein, subject to no
other Liens other than Permitted Liens.
7.12 Representations and Warranties in Acquisition Documents.
All representations and warranties set forth in the other Documents were true
and correct in all material respects at the time as of which such
representations and warranties were (or are) made (or deemed made).
7.13 Properties. The Borrower and each of its Subsidiaries
have good and marketable title to all material properties owned by them,
including all material property reflected in the balance sheets referred to in
Section 7.05(a) and all property acquired pursuant to the Acquisition (except
as sold or otherwise disposed of since the date of such balance sheet in the
ordinary course of business or in compliance with the terms of this Agreement),
free and clear of all Liens, other than Liens permitted by Section 9.01.
7.14 Capitalization. On the Initial Borrowing Date, the
authorized capital stock of the Borrower shall consist of (i) 100,000,000
shares of common stock, $.01 par value per share and (ii) 5,000,000 shares of
preferred stock, $.01 par value per value, of which no shares of such preferred
stock are issued or outstanding. All outstanding shares of capital stock of
the Borrower have been duly and validly issued, are fully paid and
nonassessable. Except (i) as set forth on Schedule V and (ii) for options or
warrants to purchase shares of common stock of the Borrower, as of the Initial
Borrowing Date, the Borrower does not have outstanding any securities
convertible into or exchangeable for its capital stock or outstanding any
rights to subscribe for or to purchase, or any options for the purchase of, or
any agreement providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, its capital stock.
7.15 Subsidiaries and Joint Ventures. As of the Initial
Borrowing Date, the Borrower has no Subsidiaries or Joint Ventures other than
those Subsidiaries and Joint
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Ventures listed on Schedule VI. Schedule VI correctly sets forth, as of the
Initial Borrowing Date, (i) the percentage ownership (direct or indirect) of
the Borrower in each class of capital stock or other equity of each of its
Subsidiaries and Joint Ventures and also identifies the direct owner thereof
and (ii) which Joint Venture Agreements prohibit the assignment by a Credit
Party of its equity interest in the respective Joint Venture.
7.16 Compliance with Statutes, etc. Each of the Borrower and
each of its Subsidiaries is in compliance with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls), except such noncompliances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole.
7.17 Investment Company Act. Neither the Borrower nor any of
its Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
7.18 Public Utility Holding Company Act. Neither the
Borrower nor any of its Subsidiaries is a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
7.19 Environmental Matters. (a) The Borrower and each of
its Subsidiaries have complied with, and on the date of such Credit Event are
in compliance with, all applicable Environmental Laws and the requirements of
any permits issued under such Environmental Laws. There are no pending or, to
the best knowledge of the Borrower, threatened Environmental Claims against the
Borrower or any of its Subsidiaries (including any such claim arising out of
the ownership or operation by the Borrower or any of its Subsidiaries of any
Real Property no longer owned or operated by the Borrower or any of its
Subsidiaries) or any Real Property owned or operated by the Borrower or any of
its Subsidiaries. There are no facts, circumstances, conditions or occurrences
with respect to any Real Property owned or operated by the Borrower or any of
its Subsidiaries (including any Real Property formerly owned or operated by the
Borrower or any of its Subsidiaries but no longer owned or operated by the
Borrower or any of its Subsidiaries) or, to the best knowledge of the Borrower,
any property adjoining or adjacent to any such Real Property that could
reasonably be expected (i) to form the basis of an Environmental Claim against
the Borrower or any of its Subsidiaries or any Real Property owned or operated
by the Borrower or any of its Subsidiaries, or (ii) to cause any Real Property
owned or operated
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by the Borrower or any of its Subsidiaries to be subject to any restrictions on
the ownership, occupancy or transferability of such Real Property by the
Borrower or any of its Subsidiaries under any applicable Environmental Law.
(b) Hazardous Materials have not at any time been generated,
used, treated or stored on, or transported to or from, any Real Property owned
or operated by the Borrower or any of its Subsidiaries where such generation,
use, treatment or storage has violated or could reasonably be expected to
violate any Environmental Law. Hazardous Materials have not at any time been
Released on or from any Real Property owned or operated by the Borrower or any
of its Subsidiaries where such Release has violated or could reasonably be
expected to violate any applicable Environmental Law.
(c) Notwithstanding anything to the contrary in this Section
7.19, the representations made in this Section 7.19 shall not be untrue unless
the aggregate effect of all violations, claims, restrictions, failures and
noncompliances of the types described above could reasonably be expected to
have a material adverse effect on the business, operations, property, assets,
liabilities, condition (financial or otherwise) or prospects of the Borrower
and its Subsidiaries taken as a whole.
7.20 Labor Relations. Neither the Borrower nor any of its
Subsidiaries is engaged in any unfair labor practice that could reasonably be
expected to have a material adverse effect on the Borrower and its Subsidiaries
taken as a whole. There is (i) no unfair labor practice complaint pending
against the Borrower or any of its Subsidiaries or, to the best knowledge of
the Borrower, threatened against any of them, before the National Labor
Relations Board, and no grievance or arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against the Borrower or
any of its Subsidiaries or, to the best knowledge of the Borrower, threatened
against any of them, (ii) no strike, labor dispute, slowdown or stoppage
pending against the Borrower or any of its Subsidiaries or, to the best
knowledge of the Borrower, threatened against the Borrower or any of its
Subsidiaries and (iii) no union representation question exists with respect to
the employees of the Borrower or any of its Subsidiaries, except (with respect
to any matter specified in clause (i), (ii) or (iii) above, either individually
or in the aggregate) such as could not reasonably be expected to have a
material adverse effect on the business, operations, property, assets,
liabilities, condition (financial or otherwise) or prospects of the Borrower
and its Subsidiaries taken as a whole.
7.21 Patents, Licenses, Franchises and Formulas. Each of the
Borrower and each of its Subsidiaries owns all the patents, trademarks,
permits, service marks, trade names, copyrights, licenses, franchises,
proprietary information (including but not limited to rights in computer
programs and databases) and formulas, or rights with respect to the foregoing,
and has obtained assignments of all leases and other rights of whatever nature,
necessary for the present conduct of its business, without any known conflict
with the rights
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of others which, or the failure to obtain which, as the case may be, could
reasonably be expected to result in a material adverse effect on the business,
operations, property, assets, liabilities, condition (financial or otherwise)
or prospects of the Borrower and its Subsidiaries taken as a whole.
7.22 Indebtedness. Schedule VII sets forth a true and
complete list of all Indebtedness (including Contingent Obligations) of the
Borrower and its Subsidiaries as of the Initial Borrowing Date and which is to
remain outstanding after giving effect to the Transaction (excluding the Loans
and the Letters of Credit (but including the Existing Glendale Debt to the
extent that same is to be refinanced after the Initial Borrowing Date as part
of the Refinancing or is to remain outstanding without being so refinanced),
the "Existing Indebtedness"), in each case showing the aggregate principal
amount thereof and the name of the respective borrower and any Credit Party or
any of its Subsidiaries which directly or indirectly guaranteed such debt.
7.23 Transaction. At the time of consummation thereof, the
Transaction shall have been consummated in accordance with the terms of the
respective Documents and all applicable laws. At the time of consummation
thereof, all material consents and approvals of, and filings and registrations
with, and all other actions in respect of, all governmental agencies,
authorities or instrumentalities required in order to make or consummate the
Transaction to the extent then required have been obtained, given, filed or
taken and are or will be in full force and effect (or effective judicial relief
with respect thereto has been obtained). All applicable waiting periods with
respect thereto have or, prior to the time when required, will have, expired
without, in all such cases, any action being taken by any competent authority
which restrains, prevents, or imposes material adverse conditions upon the
Transaction. Additionally, there does not exist any judgment, order or
injunction prohibiting or imposing material adverse conditions upon the
Transaction, or the occurrence of any Credit Event or the performance by any
Credit Party of its obligations under the Documents to which it is party. All
actions taken by each Credit Party pursuant to or in furtherance of the
Transaction have been taken in compliance in all material respects with the
respective Documents and all applicable laws.
SECTION 8. Affirmative Covenants. The Borrower hereby
covenants and agrees that on and after the Effective Date and until the Total
Commitments and all Letters of Credit have terminated and the Loans, Notes and
Unpaid Drawings, together with interest, Fees and all other Obligations
incurred hereunder and thereunder, are paid in full:
8.01 Information Covenants. The Borrower will furnish to
each Bank:
(a) Quarterly Financial Statements. Within 50 days after the
close of the first three quarterly accounting periods in each fiscal year of
the Borrower, (i) the consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such quarterly
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accounting period and the related consolidated statements of income and
retained earnings and statement of cash flows for such quarterly accounting
period and for the elapsed portion of the fiscal year ended with the last day
of such quarterly accounting period, in each case setting forth comparative
figures for the related periods in the prior fiscal year, all of which shall be
certified by the Chief Financial Officer of the Borrower or another senior
financial officer of the Borrower, subject to normal year-end audit adjustments
and (ii) management's discussion and analysis of the important operational and
financial developments during the quarterly and year-to-date periods, it being
understood that the delivery by the Borrower of its Form 10-Q as filed with the
SEC shall satisfy the requirements of this Section 8.01(a).
(b) Annual Financial Statements. (A) Within 95 days after
the close of each fiscal year of the Borrower, (i) the consolidated balance
sheet of the Borrower and its Subsidiaries as at the end of such fiscal year
and the related consolidated statements of income and retained earnings and of
cash flows for such fiscal year setting forth comparative figures for the
preceding fiscal year and certified by KPMG Peat Marwick LLP, any other "Big
Six" independent certified public accountants or such other independent
certified public accountants of recognized national standing reasonably
acceptable to the Agents and (ii) management's discussion and analysis of the
important operational and financial developments during the respective fiscal
year, it being understood that the delivery by the Borrower of its Form 10-K as
filed with the SEC shall satisfy the requirements of this Section 8.01(b)(A).
(B) At the time of the delivery of the annual financial
statements pursuant to clause (A) above, a report of the applicable accounting
firm stating that in the course of its regular audit of the financial
statements of the Borrower and its Subsidiaries, which audit was conducted in
accordance with generally accepted auditing standards, such accounting firm
obtained no knowledge of any Default or Event of Default which has occurred and
is continuing under any of Sections 9.07 through 9.11, inclusive, or, if in the
opinion of such accounting firm such a Default or an Event of Default has
occurred and is continuing under any such Sections, a statement as to the
nature thereof.
(c) Management Letters. Promptly after the Borrower's or any
of its Subsidiaries' receipt thereof, a copy of any "management letter"
received from its certified public accountants.
(d) Budgets. No later than the 30th day of each fiscal year
of the Borrower, a budget in form satisfactory to the Agents (including
budgeted statements of income and sources and uses of cash and balance sheets)
prepared by the Borrower for each of the months of such fiscal year prepared in
detail, setting forth, with appropriate discussion, the principal assumptions
upon which such budget was based.
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(e) Officer's Certificates. At the time of the delivery of
the financial statements provided for in Sections 8.01(a) and (b), a
certificate of the Chief Financial Officer of the Borrower or another senior
financial officer of the Borrower to the effect that, to the best of such
officer's knowledge, no Default or Event of Default has occurred and is
continuing or, if any Default or Event of Default has occurred and is
continuing, specifying the nature and extent thereof, which certificate shall
(x) set forth in reasonable detail the calculations required to establish
whether the Borrower and its Subsidiaries were in compliance with the
provisions of Sections 9.08 through 9.11, inclusive, at the end of such fiscal
quarter or year, as the case may be, (y) if delivered with the financial
statements required by Section 8.01(b), set forth in reasonable detail the
calculations required to establish whether the Borrower and its Subsidiaries
were in compliance with the provisions of Sections 4.02(g) and 9.07 as at the
end of such fiscal year and the amount of (and the calculations required to
establish the amount of) Excess Cash Flow for the respective Excess Cash
Payment Period and (z) set forth the amount of the Retained Net Equity Proceeds
Amount and the Retained Excess Cash Flow Amount at the end of such fiscal
quarter or year, as the case may be.
(f) Notice of Default or Litigation. Promptly upon, and in
any event within three Business Days (or five Business Days in the case of
clause (ii) below) after, an officer of the Borrower obtains knowledge thereof,
notice of (i) the occurrence of any event which constitutes a Default or an
Event of Default and (ii) any litigation or governmental investigation or
proceeding pending (x) against the Borrower or any of its Subsidiaries which
could reasonably be expected to materially and adversely affect the business,
operations, property, assets, liabilities, condition (financial or otherwise)
or prospects of the Borrower and its Subsidiaries taken as a whole or (y) with
respect to the Transaction or any Document.
(g) Other Reports and Filings. Promptly after the filing or
delivery thereof, copies of all financial information, proxy materials and
reports, if any, which the Borrower or any of its Subsidiaries shall publicly
file with the Securities and Exchange Commission or any successor thereto (the
"SEC") or deliver to holders of its Indebtedness pursuant to the terms of the
documentation governing such Indebtedness (or any trustee, agent or other
representative therefor).
(h) Environmental Matters. Promptly upon, and in any event
within ten Business Days after, an officer of the Borrower obtains knowledge
thereof, notice of one or more of the following environmental matters, unless
such environmental matters could not, individually or when aggregated with all
other such environmental matters, be reasonably expected to materially and
adversely affect the business, operations, property, assets, liabilities,
condition (financial or otherwise) or prospects of the Borrower and its
Subsidiaries taken as a whole:
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(i) any pending or threatened Environmental Claim against
the Borrower or any of its Subsidiaries or any Real Property owned or
operated by the Borrower or any of its Subsidiaries;
(ii) any condition or occurrence on or arising from any
Real Property owned or operated by the Borrower or any of its
Subsidiaries that (a) results in noncompliance by the Borrower or any
of its Subsidiaries with any applicable Environmental Law or (b) could
reasonably be expected to form the basis of an Environmental Claim
against the Borrower or any of its Subsidiaries or any such owned or
operated Real Property;
(iii) any condition or occurrence on any Real Property owned
or operated by the Borrower or any of its Subsidiaries that could
reasonably be expected to cause such Real Property to be subject to
any restrictions on the ownership, occupancy, use or transferability
by the Borrower or any of its Subsidiaries of such Real Property under
any Environmental Law; and
(iv) the taking of any removal or remedial action in
response to the actual or alleged presence of any Hazardous Material
on any Real Property owned or operated by the Borrower or any of its
Subsidiaries as required by any Environmental Law or any governmental
or other administrative agency; provided, that in any event the
Borrower shall deliver to each Bank all notices received by the
Borrower or any of its Subsidiaries from any government or
governmental agency under, or pursuant to, CERCLA which identify the
Borrower or any of its Subsidiaries as potentially responsible parties
for remediation costs or which otherwise notify the Borrower or any of
its Subsidiaries of potential liability under CERCLA.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal or remedial
action and the Borrower's or such Subsidiary's response thereto.
(i) Certain Pro Forma Financial Information. For each Test
Period which ends on or before September 30, 1997, the consolidated
income statement of the Borrower and its Subsidiaries for such Test
Period which shall contain historical financial information for that
portion of the Test Period which occurs on and after the Initial
Borrowing Date and pro forma financial information for that portion of
the Test Period which occurs prior to the Initial Borrowing Date,
which pro forma financial information shall be calculated as if the
Transaction, the related financing thereof and the other transactions
contemplated hereby had been consummated on the first day of such Test
Period (and shall exclude any extraordinary adjustments as a result of
the Transaction), shall be calculated and presented in a manner
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consistent with the pro forma income statements referred to in Section
7.05(a) which were furnished to the Banks on or prior to the Initial
Borrowing Date, and shall be delivered at the same time as the annual
financial statements are delivered pursuant to Section 8.01(b).
(j) Other Information. From time to time, such other
information or documents (financial or otherwise) with respect to the
Borrower or any of its Subsidiaries or Joint Ventures as any Agent or
any Bank may reasonably request.
8.02 Books, Records and Inspections. The Borrower will, and
will cause each of its Subsidiaries to, keep proper books of record and
accounts in which full, true and correct entries in conformity with generally
accepted accounting principles and all requirements of law shall be made of all
dealings and transactions in relation to its business and activities. Upon
reasonable notice to the Borrower, the Borrower will, and will cause each of
its Subsidiaries to, permit officers and designated representatives of any
Agent or any Bank to visit and inspect, under guidance of officers of the
Borrower or such Subsidiary, any of the properties owned or leased by the
Borrower or such Subsidiary, and to examine the books of account of the
Borrower or such Subsidiary and discuss the affairs, finances and accounts of
the Borrower or such Subsidiary with, and be advised as to the same by, its and
their officers and independent accountants, all at such reasonable times and
intervals and to such reasonable extent as such Agent or such Bank may
reasonably request (provided that the Borrower shall have the right to take
part in any discussions with its independent accountants).
8.03 Maintenance of Property; Insurance. (a) Schedule VIII
sets forth a true and complete listing of all insurance maintained by the
Borrower and its Subsidiaries as of the Initial Borrowing Date. The Borrower
will, and will cause each of its Subsidiaries to, (i) keep all property owned
or leased by the Borrower and its Subsidiaries necessary to the business of the
Borrower and its Subsidiaries in reasonably good working order and condition,
ordinary wear and tear excepted, (ii) maintain, with financially sound and
reputable insurers, insurance on all such property in at least such amounts and
against at least such risks as is consistent and in accordance with industry
practice for companies similarly situated owning similar properties in the same
general areas in which the Borrower or any of its Subsidiaries operates, and
(iii) furnish to any Agent or any Bank, upon written request, full information
as to the insurance carried.
(b) The Borrower will, and will cause each of the other
Credit Parties to, at all times keep its property insured in favor of the
Collateral Administrative Agent, and all policies (including Mortgage Policies)
or certificates (or certified copies thereof) with respect to such insurance
(and any other insurance maintained by the Borrower and/or such other Credit
Parties) (i) shall be endorsed to the Collateral Administrative Agent's
satisfaction for the benefit of the Collateral Administrative Agent (including,
without limita-
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tion, by naming the Collateral Administrative Agent as loss payee and/or
additional insured), (ii) shall state that such insurance policies shall not be
cancelled without at least 30 days' prior written notice thereof by the
respective insurer to the Collateral Administrative Agent (or such shorter
period of time as a particular insurance company policy generally provides),
(iii) shall provide that the respective insurers irrevocably waive any and all
rights of subrogation with respect to the Collateral Administrative Agent and
the Secured Creditors, (iv) shall contain the standard non-contributing
mortgage clause endorsement in favor of the Collateral Administrative Agent
with respect to hazard liability insurance, (v) shall, except in the case of
public liability insurance, provide that any losses shall be payable
notwithstanding (A) any act or neglect of the Borrower or any such other Credit
Party, (B) the occupation or use of the properties for purposes more hazardous
than those permitted by the terms of the respective policy if such coverage is
obtainable at commercially reasonable rates and is of the kind from time to
time customarily insured against by Persons owning or using similar property
and in such amounts as are customary, (C) any foreclosure or other proceeding
relating to the insured properties or (D) any change in the title to or
ownership or possession of the insured properties and (vi) shall be deposited
with the Collateral Administrative Agent.
(c) If the Borrower or any of its Subsidiaries shall fail to
insure its property in accordance with this Section 8.03, or if the Borrower or
any of its Subsidiaries shall fail to so endorse and deposit all policies or
certificates with respect thereto, the Collateral Administrative Agent shall
have the right (but shall be under no obligation), after giving the Borrower
prior written notice, to procure such insurance and the Borrower agrees to
reimburse the Collateral Administrative Agent for all costs and expenses of
procuring such insurance.
8.04 Corporate Franchises. The Borrower will, and will cause
each of its Subsidiaries to, do or cause to be done, all things necessary to
preserve and keep in full force and effect its existence and its material
rights, franchises, licenses and patents; provided, however, that nothing in
this Section 8.04 shall prevent (i) sales of assets and other transactions by
the Borrower or any of its Subsidiaries in accordance with Section 9.02 or (ii)
the withdrawal by the Borrower or any of its Subsidiaries of its qualification
as a foreign corporation in any jurisdiction where such withdrawal could not
reasonably be expected to have a material adverse effect on the business,
operations, property, assets, liabilities, condition (financial or otherwise)
or prospects of the Borrower and its Subsidiaries taken as a whole.
8.05 Compliance with Statutes, etc. The Borrower will, and
will cause each of its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards
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and controls), except such noncompliances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole.
8.06 Compliance with Environmental Laws. (a) The Borrower
will com-ply, and will cause each of its Subsidiaries to comply, with all
Environmental Laws applicable to the ownership or use of its Real Property now
or hereafter owned or operated by the Borrower or any of its Subsidiaries
(except such noncompliance, as could not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the business,
operations, property, assets, liabilities, condition (financial or otherwise)
or prospects of the Borrower and its Subsidiaries taken as a whole), will
promptly pay or cause to be paid all costs and expenses incurred in connection
with such compliance, and will keep or cause to be kept all such Real Property
free and clear of any Liens imposed pursuant to such Environmental Laws.
Neither the Borrower nor any of its Subsidiaries will generate, use, treat,
store, release or dispose of, or permit the generation, use, treatment,
storage, release or disposal of Hazardous Materials on any Real Property now or
hereafter owned or operated by the Borrower or any of its Subsidiaries, or
transport or permit the transportation of Hazardous Materials to or from any
such Real Property, except to the extent that any such generation, use,
treatment, storage, release or disposal could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole.
(b) At the reasonable written request of the Agents or the
Required Banks, which request shall specify in reasonable detail the basis
therefor, at any time and from time to time, the Borrower will provide, at the
sole expense of the Borrower, an environmental site assessment report
concerning any Real Property owned or operated by the Borrower or any of its
Subsidiaries, prepared by an environmental consulting firm reasonably approved
by the Agents, indicating the presence or absence of Hazardous Materials and
the potential cost of any removal or remedial action in connection with such
Hazardous Materials on such Real Property, provided that in no event shall such
request be made more often than once every two years for any particular Real
Property unless either (i) the Obligations have been declared (or have become)
due and payable pursuant to Section 10 or (ii) the Banks receive notice under
Section 8.01(h) of any event for which notice is required to be delivered for
any such Real Property. If the Borrower fails to provide the same within
ninety days after such request was made, the Agents may order the same, the
cost of which shall be borne by the Borrower, and the Borrower shall grant and
hereby grants to the Agents and the Banks and their agents access to such Real
Property and specifically grants the Agents and the Banks an irrevocable
non-exclusive license, subject to the rights of tenants, to undertake such an
assessment at any reasonable time
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upon reasonable notice to the Borrower, all at the sole and reasonable expense
of the Borrower.
8.07 ERISA. As soon as possible and, in any event, within
ten (10) Business Days after the Borrower, any Subsidiary of the Borrower or
any ERISA Affiliate knows or has reason to know of the occurrence of any of the
following, the Borrower will deliver to each of the Banks a certificate of the
Chief Financial Officer of the Borrower setting forth the full details as to
such occurrence and the action, if any, that the Borrower, such Subsidiary or
such ERISA Affiliate is required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the Borrower, the
Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or the Plan
administrator with respect thereto: that a Reportable Event has occurred; that
an accumulated funding deficiency, within the meaning of Section 412 of the
Code or Section 302 of ERISA, has been incurred or an application may be or has
been made for a waiver or modification of the minimum funding standard
(including any required installment payments) or an extension of any
amortization period under Section 412 of the Code or Section 303 or 304 of
ERISA with respect to a Plan or a Multiemployer Plan; that a contribution for a
material amount required to be made with respect to a Plan, a Multiemployer
Plan or a Foreign Pension Plan has not been timely made; that a Plan or a
Multiemployer Plan has been or may be terminated under Section 4041(c) or 4042
of ERISA, reorganized, partitioned or declared insolvent under Title IV of
ERISA; that a Plan has an Unfunded Current Liability; that proceedings may be
or have been instituted to terminate or appoint a trustee to administer a Plan
or a Multiemployer Plan which is subject to Title IV of ERISA; that a
proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Multiemployer Plan; that the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate will or may incur any
material liability (including any indirect or secondary liability) to or on
account of the termination of or withdrawal from a Plan under Section 4062,
4063, 4064 or 4069 of ERISA or with respect to a Plan under Section 401(a)(29),
4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(l) of ERISA or
under Section 4980B(a) of the Code with respect to a group health plan (as
defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under
Section 4980B of the Code or with respect to a Multiemployer Plan under
Sections 4201, 4204 or 4212 of ERISA; or that the Borrower or any Subsidiary of
the Borrower may incur any material liability pursuant to any employee welfare
benefit plan (as defined in Section 3(1) of ERISA) that provides benefits to
retired employees or other former employees (other than as required by Section
601 of ERISA) or any Plan which is subject to Title IV of ERISA, any
Multiemployer Plan or any Foreign Pension Plan. Upon written request of any
Agent, the Borrower will deliver to each of the Banks a complete copy of the
annual report (on Internal Revenue Service Form 5500-series) of each Plan
(including, to the extent required, the related financial and actuarial
statements and opinions and other supporting statements, certifications,
schedules and information) required to be filed with the Internal Revenue
Service or any other material financial information the Borrower or any
Subsidiary has with
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respect to any Plan. In addition to any certificates or notices delivered to
the Banks pursuant to the first sentence hereof, copies of any material notices
pertaining to the foregoing events received by the Borrower, any Subsidiary of
the Borrower or any ERISA Affiliate with respect to any Plan, Multiemployer
Plan or Foreign Pension Plan shall be delivered to the Banks no later than ten
(10) Business Days after the date such notice has been received by the
Borrower, the Subsidiary or the ERISA Affiliate, as applicable.
8.08 End of Fiscal Years; Fiscal Quarters. The Borrower will
cause (i) each of its, and each of its Subsidiaries', fiscal years to end on
December 31, and (ii) each of its, and each of its Subsidiaries', fiscal
quarters to end on March 31, June 30, September 30 and December 31.
8.09 Performance of Obligations. The Borrower will, and will
cause each of its Subsidiaries to, perform all of its obligations under the
terms of each mortgage, indenture, security agreement, loan agreement or credit
agreement and each other material agreement, contract or instrument by which it
is bound, except such non-performances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole.
8.10 Payment of Taxes. The Borrower will pay and discharge,
and will cause each of its Subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims for sums that have become
due and payable which, if unpaid, might become a Lien not otherwise permitted
under Section 9.01(i); provided, that neither the Borrower nor any of its
Subsidiaries shall be required to pay any such tax, assessment, charge, levy or
claim which is being contested in good faith and by proper proceedings if it
has maintained adequate reserves with respect thereto in accordance with
generally accepted accounting principles.
8.11 Interest Rate Protection. No later than 90 days
following the Initial Borrowing Date, the Borrower will enter into, and shall
for 2 years thereafter maintain, Interest Rate Protection Agreements acceptable
to the Agents establishing a fixed or maximum interest rate acceptable to the
Agents for an aggregate amount equal to at least 40% of the aggregate principal
amount of all Term Loans then outstanding and the amount of the Total Tranche A
Term Loan Commitment then in effect.
8.12 Additional Security; Further Assurances. (a) The
Borrower will, and will cause each of the Subsidiary Guarantors to, grant to
the Collateral Administrative Agent security interests and mortgages in such
assets and properties (including Real Property) of the Borrower and such
Subsidiary Guarantors which are of the type required
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to be pledged or assigned pursuant to the original Security Documents and as
are not covered by such original Security Documents, and as may be requested
from time to time by the Agents or the Required Banks (collectively, the
"Additional Security Documents"). All such security interests and mortgages
shall be granted pursuant to documentation reasonably satisfactory in form and
substance to the Agents and shall constitute valid and enforceable perfected
security interests and mortgages superior to and prior to the rights of all
third Persons and subject to no other Liens except for Permitted Liens. The
Additional Security Documents or instruments related thereto shall have been
duly recorded or filed in such manner and in such places as are required by law
to establish, perfect, preserve and protect the Liens in favor of the
Collateral Administrative Agent required to be granted pursuant to the
Additional Security Documents and all taxes, fees and other charges payable in
connection therewith shall have been paid in full.
(b) The Borrower will, and will cause each of the Subsidiary
Guarantors to, at the expense of the Borrower, make, execute, endorse,
acknowledge, file and/or deliver to the Collateral Administrative Agent from
time to time such vouchers, invoices, schedules, confirmatory assignments,
conveyances, financing statements, transfer endorsements, powers of attorney,
certificates, real property surveys, reports and other assurances or
instruments and take such further steps relating to the collateral covered by
any of the Security Documents as the Collateral Administrative Agent may
reasonably require. Furthermore, the Borrower will cause to be delivered to
the Collateral Administrative Agent such opinions of counsel, title insurance
and other related documents as may be reasonably requested by the Agents to
assure itself that this Section 8.12 has been complied with.
(c) The Borrower agrees that each action required above by
this Section 8.12 shall be completed within 90 days after such action is either
requested to be taken by the Agents or the Required Banks or required to be
taken by the Borrower and the Subsidiary Guarantors pursuant to the terms of
this Section 8.12; provided that in no event will the Borrower or any
Subsidiary Guarantor be required to take any action, other than using its
reasonable efforts, to obtain consents from third parties with respect to its
compliance with this Section 8.12.
8.13 Foreign Subsidiaries Security. If following a change in
the relevant sections of the Code or the regulations, rules, rulings, notices
or other official pronouncements issued or promulgated thereunder, counsel for
the Borrower reasonably acceptable to the Agents does not within 30 days after
a request from the Agents or the Required Banks deliver evidence, in form and
substance mutually satisfactory to the Agents and the Borrower, with respect to
any Foreign Subsidiary of the Borrower which has not already had all of its
stock pledged pursuant to the Pledge Agreement that (i) a pledge of 66-2/3% or
more of the total combined voting power of all classes of capital stock of such
Foreign Subsidiary entitled to vote, (ii) the entering into by such Foreign
Subsidiary of a security agreement in substantially the form of the Security
Agreement and (iii) the entering into by
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such Foreign Subsidiary of a guaranty in substantially the form of the
Subsidiaries Guaranty, in any such case would cause the undistributed earnings
of such Foreign Subsidiary as determined for Federal income tax purposes to be
treated as a deemed dividend to such Foreign Subsidiary's United States parent
for Federal income tax purposes, then in the case of a failure to deliver the
evidence described in clause (i) above, that portion of such Foreign
Subsidiary's outstanding capital stock not theretofore pledged pursuant to the
Pledge Agreement shall be pledged to the Collateral Administrative Agent for
the benefit of the Secured Creditors pursuant to the Pledge Agreement (or
another pledge agreement in substantially similar form, if needed), and in the
case of a failure to deliver the evidence described in clause (ii) above, such
Foreign Subsidiary (to the extent that same is a Wholly-Owned Foreign
Subsidiary and would otherwise constitute a Subsidiary Guarantor) will execute
and deliver the Security Agreement (or another security agreement in
substantially similar form, if needed), granting the Collateral Administrative
Agent for the benefit of the Secured Creditors a security interest in all of
such Foreign Subsidiary's assets and securing the Obligations of the Borrower
under the Credit Documents and under any Interest Rate Protection Agreement or
Other Hedging Agreement and, in the event the Subsidiaries Guaranty shall have
been executed by such Foreign Subsidiary, the obligations of such Foreign
Subsidiary thereunder, and in the case of a failure to deliver the evidence
described in clause (iii) above, such Foreign Subsidiary (to the extent that
same is a Wholly- Owned Foreign Subsidiary and would otherwise constitute a
Subsidiary Guarantor) will execute and deliver the Subsidiaries Guaranty (or
another guaranty in substantially similar form, if needed), guaranteeing the
Obligations of the Borrower under the Credit Documents and under any Interest
Rate Protection Agreement or Other Hedging Agreement, in each case to the
extent that the entering into such Security Agreement or Subsidiaries Guaranty
is permitted by the laws of the respective foreign jurisdiction and with all
documents delivered pursuant to this Section 8.13 to be in form and substance
reasonably satisfactory to the Agents.
8.14 Joint Venture Distributions. To the extent any Joint
Venture receives any proceeds from any of the events specified in Sections
4.02(d), (e), (f) and (h) then, to the extent the Net Equity Proceeds, Net Debt
Proceeds, Net Sale Proceeds or Net Insurance Proceeds, as the case may be, from
any such event would have to be applied to repay outstanding Term Loans or
outstanding Revolving Loans (as a result of a reduction to the Total Revolving
Loan Commitment), if received by the Borrower or a Wholly-Owned Subsidiary of
the Borrower, the Borrower will use its best efforts to cause such Joint
Venture to distribute to the Borrower or a Wholly-Owned Subsidiary thereof,
concurrently with or as soon after the respective event as is practicable, the
Borrower's Allocable Share of such proceeds received by such Joint Venture,
provided that the Borrower's obligations under this Section 8.14 are subject to
(i) the ability of the Borrower or a Wholly-Owned Subsidiary thereof to control
the timing of distributions by such Joint Venture, (ii) any applicable
contractual restrictions, (iii) any fiduciary responsibility that the Borrower
or such Wholly-Owned Subsidiary may have to the other joint venture partner,
(iv) in the case of any Non-
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Subsidiary Joint Venture (other than an Existing Red Lion Joint Venture), the
right of such Non-Subsidiary Joint Venture to use such proceeds in the ordinary
course of its business (including to repay any Indebtedness of such
Non-Subsidiary Joint Venture) and (v) in the case of Net Equity Proceeds
received by any non-Wholly-Owned Subsidiary of the Borrower, the right of such
Subsidiary to use such Net Equity Proceeds for the purpose or purposes for
which such Net Equity Proceeds were initially received.
8.15 Maintenance of Corporate Separateness. The Borrower
will, and will cause each of its Subsidiaries and Unrestricted Subsidiaries to,
satisfy customary corporate formalities, including the holding of regular board
of directors' and shareholders' meetings or action by directors or shareholders
without a meeting and the maintenance of corporate offices and records.
Neither the Borrower nor any of its Subsidiaries shall make any payment to a
creditor of any Unrestricted Subsidiaries in respect of any liability of any
Unrestricted Subsidiaries, and no bank account of any Unrestricted Subsidiary
shall be commingled with any bank account of the Borrower or any of its
Subsidiaries. Any financial statements distributed to any creditors of any
Unrestricted Subsidiaries shall clearly establish or indicate the corporate
separateness of such Unrestricted Subsidiary from the Borrower and its
Subsidiaries. Finally, neither the Borrower nor any of its Subsidiaries shall
take any action, or conduct its affairs in a manner, which is likely to result
in the corporate existence of the Borrower or any of its Subsidiaries or
Unrestricted Subsidiaries being ignored, or in the assets and liabilities of
the Borrower or any of its Subsidiaries being substantively consolidated with
those of any other such Person or any Unrestricted Subsidiary in a bankruptcy,
reorganization or other insolvency proceeding.
SECTION 9. Negative Covenants. The Borrower hereby covenants
and agrees that on and after the Effective Date and until the Total Commitments
and all Letters of Credit have terminated and the Loans, Notes and Unpaid
Drawings, together with interest, Fees and all other Obligations incurred
hereunder and thereunder, are paid in full:
9.01 Liens. The Borrower will not, and will not permit any
of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon
or with respect to any property or assets (real or personal, tangible or
intangible) of the Borrower or any of its Subsidiaries, whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such
property or assets (including sales of accounts receivable with recourse to the
Borrower or any of its Subsidiaries), or assign any right to receive income or
permit the filing of any financing statement under the UCC or any other similar
notice of Lien under any similar recording or notice statute; provided that the
provisions of this Section 9.01 shall not prevent the creation, incurrence,
assumption or existence of the following (Liens described below are herein
referred to as "Permitted Liens"):
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(i) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves have been
established in accordance with generally accepted accounting
principles;
(ii) Liens in respect of property or assets of the Borrower
or any of its Subsidiaries imposed by law, which were incurred in the
ordinary course of business and do not secure Indebtedness for
borrowed money, such as carriers', warehousemen's, materialmen's and
mechanics' liens and other similar Liens arising in the ordinary
course of business, and (x) which do not in the aggregate materially
detract from the value of the Borrower's or such Subsidiary's property
or assets or materially impair the use thereof in the operation of the
business of the Borrower or such Subsidiary or (y) which are being
contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing the forfeiture or sale of the property
or assets subject to any such Lien;
(iii) Liens in existence on the Initial Borrowing Date which
are listed, and the property subject thereto described, in Schedule
IX, but only to the respective date, if any, set forth in such
Schedule IX for the removal, replacement and termination of any such
Liens, plus renewals, replacements and extensions of such Liens to the
extent set forth on Schedule IX, provided that (x) except to the
extent specifically set forth on Schedule IX, the aggregate principal
amount of the Indebtedness, if any, secured by such Liens does not
increase from that amount outstanding at the time of any such renewal,
replacement or extension and (y) any such renewal, replacement or
extension does not encumber any additional assets or properties of the
Borrower or any of its Subsidiaries;
(iv) Permitted Encumbrances;
(v) Liens created pursuant to the Security Documents;
(vi) leases or subleases granted to other Persons not
materially interfering with the conduct of the business of the
Borrower or any of its Subsidiaries;
(vii) Liens upon assets of the Borrower or any of its
Subsidiaries subject to Capitalized Lease Obligations to the extent
such Capitalized Lease Obligations are permitted by Section 9.04(iv),
provided that (x) such Liens only serve to secure the payment of
Indebtedness arising under such Capitalized Lease Obligation and (y)
the Lien encumbering the asset giving rise to the Capitalized Lease
Obligation does not encumber any other asset of the Borrower or any
Subsidiary of the Borrower;
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(viii) Liens placed upon equipment or machinery used in the
ordinary course of business of the Borrower or any of its Subsidiaries
at the time of acquisition thereof by the Borrower or any such
Subsidiary or within 90 days thereafter to secure Indebtedness
incurred to pay all or a portion of the purchase price thereof or to
secure Indebtedness incurred solely for the purpose of financing the
acquisition of any such equipment or machinery or extensions, renewals
or replacements of any of the foregoing for the same or a lesser
amount, provided that (x) the aggregate outstanding principal amount
of all Indebtedness secured by Liens permitted by this clause (viii)
shall not at any time exceed $10,000,000 and (y) in all events, the
Lien encumbering the equipment or machinery so acquired does not
encumber any other asset of the Borrower or such Subsidiary;
(ix) easements, rights-of-way, restrictions, encroachments
and other similar charges or encumbrances, and minor title
deficiencies, in each case not securing Indebtedness and not
materially interfering with the conduct of the business of the
Borrower or any of its Subsidiaries;
(x) Liens arising from precautionary UCC financing
statement filings regarding operating leases;
(xi) Liens arising out of judgments or awards in respect of
which the Borrower or any of its Subsidiaries shall in good faith be
prosecuting an appeal or proceedings for review in respect of which
there shall have been secured a subsisting stay of execution pending
such appeal or proceedings, provided that the aggregate amount of such
judgments and the aggregate amount of any cash and the fair market
value of any property subject to consensual security interests
securing such Liens does not exceed $10,000,000 at any time
outstanding;
(xii) statutory and common law landlords' liens under leases
to which the Borrower or any of its Subsidiaries is a party;
(xiii) Liens (other than Liens imposed under ERISA) incurred
in the ordinary course of business in connection with workers
compensation claims, unemployment insurance and social security
benefits and Liens securing the performance of bids, tenders, leases
and contracts in the ordinary course of business, statutory
obligations, surety bonds, performance bonds and other obligations of
a like nature incurred in the ordinary course of business (exclusive
of obligations in respect of the payment for borrowed money), provided
that the aggregate value of all cash and property encumbered by
consensual Liens permitted pursuant to this clause (xiii) shall not at
any time exceed $10,000,000;
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(xiv) Liens on property or assets acquired pursuant to a
Hotel Acquisition, or on property or assets of a Subsidiary of the
Borrower in existence at the time such Subsidiary is acquired pursuant
to a Hotel Investment, provided that (x) any Indebtedness that is
secured by such Liens is permitted to exist under Section 9.04(xiii),
(y) the aggregate amount of Indebtedness secured by such Liens, when
added to the aggregate amount of Indebtedness secured by Liens
permitted under clause (xvii) of this Section 9.01, does not exceed
$25,000,000 and (z) such Liens are not incurred in connection with, or
in contemplation or anticipation of, such Hotel Acquisition or Hotel
Investment and do not attach to any other asset of the Borrower or any
of its Subsidiaries;
(xv) Liens securing any Indebtedness incurred by a
non-Wholly-Owned Subsidiary of the Borrower to refinance any unsecured
Existing Indebtedness of such non-Wholly-Owned Subsidiary owing to the
Borrower or any Wholly-Owned Subsidiary thereof, provided that (x)
such Existing Indebtedness is permitted to be refinanced pursuant to
Section 9.04(ii) and (y) in all events, the Lien securing such
Indebtedness does not encumber any assets or property other than the
assets or property of the non-Wholly-Owned Subsidiary incurring such
Indebtedness;
(xvi) Liens securing Non-Recourse Indebtedness of Specified
Subsidiaries, provided that (x) such Non-Recourse Indebtedness is
permitted to be incurred under Section 9.04(xi) and (y) in all events,
the Lien securing such Non-Recourse Indebtedness does not encumber any
assets or property other than the assets or property of the Specified
Subsidiary incurring such Non-Recourse Indebtedness;
(xvii) Liens securing Indebtedness of Subsidiaries of the
Borrower incurred under Section 9.04(xiii), provided that (x) the
aggregate amount of Indebtedness secured by such Liens, when added to
the aggregate amount of Indebtedness secured by Liens permitted under
clause (xiv) of this Section 9.01, does not exceed $25,000,000 and (y)
in all events, the Lien securing such Indebtedness only encumbers
property or assets acquired after the Initial Borrowing Date and does
not encumber any Collateral or any assets or property other than the
assets or property of the Subsidiary incurring such Indebtedness; and
(xviii) preferences that arise solely by reason of the Borrower
or any of its Subsidiaries agreeing to contractually subordinate any
management fees payable to them as required by any lender to a hotel
property managed by the Borrower or any of its Subsidiaries.
In connection with the granting of Liens of the type described in clauses
(vii), (viii) and (xiv) of this Section 9.01 by the Borrower or any of its
Subsidiaries, the Administrative Agent and the Collateral Agent shall be
authorized to take any actions deemed appropriate
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by it in connection therewith (including, without limitation, by executing
appropriate lien releases or lien subordination agreements in favor of the
holder or holders of such Liens, in either case solely with respect to the item
or items of equipment or other assets subject to such Liens).
9.02 Consolidation, Merger, Purchase or Sale of Assets, etc.
The Borrower will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of all or any part
of its property or assets, or enter into any sale-leaseback transactions, or
purchase or otherwise acquire (in one or a series of related transactions) any
part of the property or assets (other than purchases or other acquisitions of
inventory, materials and equipment in the ordinary course of business) of any
Person (or agree to do any of the foregoing at any future time), except that:
(i) Capital Expenditures by the Borrower and its
Subsidiaries shall be permitted to the extent not in violation of
Section 9.07;
(ii) each of the Borrower and its Subsidiaries may in the
ordinary course of business sell, lease or otherwise dispose of any
equipment or materials which, in the reasonable judgment of such
Person, are obsolete or worn out;
(iii) each of the Borrower and its Subsidiaries may sell
assets (other than the capital stock of any Subsidiary Guarantor and
any Designated Hotel Property), so long as (i) no Default or Event of
Default then exists or would result therefrom, (ii) each such sale is
in an arm's-length transaction and the Borrower or the respective
Subsidiary receives at least fair market value (as determined in good
faith by the Borrower or such Subsidiary, as the case may be), (iii)
at least 75% of the total consideration received by the Borrower or
such Subsidiary is cash and is paid at the time of the closing of such
sale, (iv) the Net Sale Proceeds therefrom are applied as (and to the
extent) required by Section 4.02(f) and (v) the aggregate amount of
the proceeds received from all assets sold pursuant to this clause
(iii) shall not exceed $20,000,000 in any fiscal year of the Borrower;
(iv) each of the Borrower and its Subsidiaries may sell
the Designated Hotel Properties (other than pursuant to a sale-
leaseback transaction), so long as (i) no Default or Event of Default
then exists or would result therefrom, (ii) each such sale is in an
arms'-length transaction and the Borrower or the respective Subsidiary
receives at least fair market value (as determined in good faith by
the Borrower or such Subsidiary, as the case may be), (iii) at least
75% of the total consideration received by the Borrower or such
Subsidiary is cash and is paid at the time of the closing of such
sale, (iv) the Net Sale Proceeds therefrom are applied as (and to the
extent) required by Section 4.02(f) and (v) (I) based on calculations
made by the
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Borrower on a Pro Forma Basis after giving effect to the respective
sale, no Default or Event of Default will exist under, or would have
existed during the Test Period last reported (or required to be
reported pursuant to Section 8.01(a) or (b), as the case may be) prior
to the date of the respective sale pursuant to, the financial
covenants contained in Sections 9.08 through 9.11, inclusive and (II)
the Borrower shall have delivered to the Agents an officer's
certificate executed by the Chief Financial Officer of the Borrower,
certifying to the best of such officer's knowledge, compliance with
the requirements of this clause (v) and containing the calculations
(in reasonable detail) required by this clause (v);
(v) RFS and RFS Subsidiary may sell the RFS REIT Equity
back to the RFS REIT on terms and conditions no less favorable to RFS
than those that exist on the Initial Borrowing Date so long as the Net
Sale Proceeds therefrom are applied as (and to the extent) required by
Section 4.02(i);
(vi) each of the Borrower and its Subsidiaries may sell
all or a portion of their equity interests in the Existing Red Lion
Joint Ventures, so long as (i) no Default or Event of Default then
exists or would result therefrom, (ii) each such sale is in an
arms'-length transaction and the Borrower or the respective Subsidiary
receives at least fair market value (as determined in good faith by
the Borrower or such Subsidiary, as the case may be), (iii) at least
75% of the total consideration received by the Borrower or such
Subsidiary is cash and is paid at the time of the closing of such
sale, (iv) the Net Sale Proceeds therefrom are applied as (and to the
extent) required by Section 4.02(f) and (v) (I) based on calculations
made by the Borrower on a Pro Forma Basis after giving effect to the
respective sale, no Default or Event of Default will exist under, or
would have existed during the Test Period last reported (or required
to be reported pursuant to Section 8.01(a) or (b), as the case may be)
prior to the date of the respective sale pursuant to, the financial
covenants contained in Sections 9.08 through 9.11, inclusive and (II)
the Borrower shall have delivered to the Agents an officer's
certificate executed by the Chief Financial Officer of the Borrower,
certifying to the best of such officer's knowledge, compliance with
the requirements of this clause (v) and containing the calculations
(in reasonable detail) required by this clause (v);
(vii) each of the Borrower and its Subsidiaries may sell
Hotel Properties acquired by them after the Initial Borrowing Date
pursuant to a Hotel Acquisition (except to the extent that such Hotel
Property constitutes a newly acquired Designated Hotel Property), and
each of the Borrower and its Subsidiaries may sell all or any portion
of their equity interest in a Joint Venture acquired by them after the
Initial Borrowing Date pursuant to a Hotel Investment, in either case,
so long as (i) no Default or Event of Default then exists or would
result therefrom, (ii) each such sale is in an arm's-length
transaction and the Borrower or the respective
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Subsidiary receives at least fair market (as determined in good faith
by the Borrower or such Subsidiary, as the case may be), (iii) at
least 75% of the total consideration received by the Borrower or such
Subsidiary is cash and is paid at the time of the closing of such sale
and (iv) in the case of a sale of an equity interest in a Joint
Venture, the cash proceeds therefrom are applied as (and to the
extent) required by Section 4.02(i);
(viii) each of the Borrower and its Subsidiaries may sell
Hotel Properties as part of a Temporary Hotel Acquisition Transaction;
(ix) Investments may be made to the extent permitted by
Section 9.05;
(x) each of the Borrower and its Subsidiaries may lease
(as lessee) real or personal property (so long as any such lease does
not create a Capitalized Lease Obligation except to the extent
permitted by Section 9.04(iv));
(xi) each of the Borrower and its Subsidiaries may make
sales of inventory in the ordinary course of business;
(xii) the Transaction shall be permitted;
(xiii) Hotel Acquisitions shall be permitted to the extent
provided in Section 9.07;
(xiv) each of the Borrower and its Subsidiaries may enter
into sale-leaseback transactions with respect to owned Hotel
Properties (including the Designated Hotel Properties), so long as
each such transaction (w) is for at least 75% in cash and is paid at
the time of the closing of such transaction, (x) is at fair market
value (as determined in good faith by the Borrower or such Subsidiary,
as the case may be), (y) all of the Net Sale Proceeds therefrom are
applied as required by Section 4.02(f) and (z) no Default or Event of
Default then exists or would result therefrom;
(xv) any Subsidiary of the Borrower may merge or
consolidate with and into, or be liquidated into, or transfer any of
its assets to, the Borrower or any Subsidiary Guarantor, in each case,
so long as (i) the Borrower or the respective Subsidiary Guarantor is
the surviving corporation of any such transaction, (ii) in the case of
any such transaction involving a non-Wholly-Owned Subsidiary, the only
consideration paid to third parties in connection therewith are shares
of common stock of the Borrower and cash in an aggregate amount for
all such transactions not to exceed the amount permitted to be spent
on Hotel Investments at such time pursuant to Section 9.07 (and with
the amount of cash paid pursuant to this Section
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9.02(xv) to constitute a Hotel Investment pursuant to Section 9.07)
and (iii) in the case of any transaction between or among the Borrower
and the Subsidiary Guarantors, all Liens granted pursuant to the
Security Documents on any property or assets involved shall remain in
full force and effect (with at least the same priority as such Lien
would have had if such transfer pursuant to the clause (xv) had not
occurred);
(xvi) each of the Borrower and its Subsidiaries may grant
leases or subleases to other Persons not materially interfering with
the conduct of the business of the Borrower or any of its
Subsidiaries;
(xvii) each of the Borrower and its Subsidiaries may sell
Cash Equivalents permitted to be held by them pursuant to Section
9.05(ii) so long as each such sale is for cash and at fair market
value (as determined in good by the Borrower or such Subsidiary, as
the case may be); and
(xviii) each of the Borrower and its Subsidiaries may, in the
ordinary course of business, license, as licensor or licensee,
patents, trademarks, copyrights and know-how to or from third Persons
and to one another so long as any such license by the Borrower or any
other Credit Party in its capacity as licensor is permitted to be
assigned pursuant to the Security Agreement (to the extent that the
security interest in such patents, trademarks, copyrights and know-how
is granted thereunder) and does not otherwise prohibit the granting of
a Lien by the Borrower or any other Credit Party pursuant to the
Security Agreement in the intellectual property covered by such
license.
To the extent the Required Banks waive the provisions of this Section 9.02 with
respect to the sale of any Collateral, or any Collateral is sold as permitted
by this Section 9.02 (other than to the Borrower or a Subsidiary thereof), such
Collateral shall be sold free and clear of the Liens created by the Security
Documents, and the Administrative Agent and the Collateral Agent shall be
authorized to take any actions deemed appropriate in order to effect the
foregoing.
9.03 Dividends. The Borrower will not, and will not permit
any of its Subsidiaries to, authorize, declare or pay any Dividends with
respect to the Borrower or any of its Subsidiaries, except that:
(i) any Subsidiary of the Borrower may pay cash Dividends
to the Borrower or any Wholly-Owned Subsidiary of the Borrower;
(ii) any non-Wholly-Owned Subsidiary of the Borrower may
pay cash Dividends to its shareholders or partners generally so long
as the Borrower or its respective Subsidiary which owns the equity
interest or interests in the Subsidiary
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paying such Dividends receives at least its proportionate share
thereof (based upon either its relative holdings of equity interests
in the Subsidiary paying such Dividends and taking into account the
relative preferences, if any, of the various classes of equity
interests in such Subsidiary or the terms of any agreements applicable
thereto); and
(iii) so long as there shall exist no Default or Event of
Default (both before and after giving effect to the payment thereof),
the Borrower may repurchase outstanding shares of its common stock (or
options to purchase such common stock) following the death, disability
or termination of employment of employees of the Borrower or any of
its Subsidiaries, provided that the aggregate amount of Dividends paid
by the Borrower pursuant to this clause (iii) shall not exceed
$3,500,000 in any fiscal year of the Borrower.
9.04 Indebtedness. The Borrower will not, and will not
permit any of its Subsidiaries to, contract, create, incur, assume or suffer to
exist any Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and
the other Credit Documents;
(ii) Existing Indebtedness outstanding on the Initial
Borrowing Date and listed on Schedule VII, without giving effect to
any subsequent extension, renewal or refinancing thereof except to the
extent set forth on Schedule VII, provided that (x) except to the
extent specifically set forth on Schedule VII, the aggregate principal
amount of the Indebtedness to be extended, renewed or refinanced does
not increase from that amount outstanding at the time of any such
extension, renewal or refinancing and (y) to the extent that the
Existing Glendale Debt is to be refinanced as part of the Refinancing
after the Initial Borrowing Date, such Debt shall only be permitted to
remain outstanding through the Tranche A Term Loan Commitment
Termination Date (although the Borrower shall have the right at any
time prior to the Tranche A Term Loan Commitment Termination Date to
notify the Administrative Agent that the Existing Glendale Debt shall
no longer constitute Indebtedness to be Refinanced);
(iii) Indebtedness under Interest Rate Protection
Agreements entered into with respect to other Indebtedness permitted
under this Section 9.04;
(iv) Indebtedness of the Borrower and its Subsidiaries
evidenced by Capitalized Lease Obligations to the extent permitted
pursuant to Section 9.07, provided that in no event shall the
aggregate principal amount of Capitalized Lease Obligations permitted
by this clause (iv) exceed $10,000,000 at any time outstanding;
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(v) Indebtedness subject to Liens permitted under Section
9.01(viii);
(vi) intercompany Indebtedness to the extent permitted by
Sections 9.05(viii), (ix) and (x);
(vii) Indebtedness under Other Hedging Agreements providing
protection against fluctuations in currency values in connection with
the Borrower's or any of its Subsidiaries' ordinary course of business
operations so long as management of the Borrower or such Subsidiary,
as the case may be, has determined in good faith that the entering
into of such Other Hedging Agreements are bona fide hedging
activities;
(viii) Indebtedness of the Borrower consisting of guaranties
of Indebtedness of franchises of Candlewood, so long as (i) the
Borrower's maximum exposure on any single Candlewood property or
franchise does not exceed $2,000,000 and (ii) the Borrower's maximum
exposure under all such guaranties does not exceed $30,000,000;
(ix) Contingent Obligations of the Borrower and its
Subsidiaries to maintain the net worth of those Persons listed on
Schedule XV in accordance with the terms of the applicable agreements
with respect thereto as in effect on the Initial Borrowing Date,
provided that any payments made by the Borrower or a Subsidiary
thereof to satisfy such obligations shall count as a Hotel Investment
made pursuant to Section 9.07;
(x) unsecured subordinated Indebtedness of the Borrower
(the "New Subordinated Notes"), so long as (i) the aggregate
outstanding principal amount thereof does not exceed $150,000,000
(less any repayments of principal thereof), (ii) at least 20 Business
Days prior to the issuance thereof, the Borrower shall have delivered
to each of the Banks substantially final drafts of the documents
pursuant to which the New Subordinated Notes are to be issued and with
any changes thereto made after the initial delivery of such documents
to be delivered to the Agents and with any significant changes thereto
made after such initial delivery to be delivered to each of the Banks
at least five days prior to the issuance of such New Subordinated
Notes, (iii) the final maturity date thereof is at least 270 days
beyond the Tranche B Term Loan Maturity Date, (iv) there are no
required amortization, mandatory redemption or sinking fund provisions
or similar provisions prior to the 270th day after the Tranche B Term
Loan Maturity Date, (v) all other terms and conditions thereof
(including, without limitation, interest rates, covenants, defaults,
remedies and subordination provisions) are reasonably satisfactory to
the Agents, (vi) no Default or Event of Default then exists or would
result therefrom and (vii) (I) based on calculations made by the
Borrower on a Pro Forma Basis after giving
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effect to the respective incurrence, no Default or Event of Default
will exist under, or would have existed during the Test Period last
reported (or required to be reported pursuant to Section 8.01(a) or
(b), as the case may be) prior to the date of the respective
incurrence pursuant to, the financial covenants contained in Sections
9.08 through 9.11, inclusive, and (II) the Borrower shall have
delivered to the Agents an officer's certificate executed by the Chief
Financial Officer of the Borrower, certifying to the best of such
officer's knowledge, compliance with the requirements of this clause
(vii) and containing the calculations (in reasonable detail) required
by this clause (vii);
(xi) Non-Recourse Indebtedness of a Specified Subsidiary
incurred to finance the development or acquisition (and the related
working capital requirements) of a Hotel Property developed or
acquired after the Initial Borrowing Date, so long as (i) the
aggregate principal amount of all such Non-Recourse Indebtedness does
not exceed $100,000,000 at any time outstanding, (ii) no Default or
Event of Default then exists or would result therefrom and (iii) (I)
based on calculations made by the Borrower on a Pro Forma Basis after
giving effect to the respective incurrence, no Default or Event of
Default will exist under, or would have existed during the Test Period
last reported (or required to be reported pursuant to Section 8.01(a)
or (b), as the case may be) prior to the date of the respective
incurrence pursuant to, the financial covenants contained in Sections
9.08 through 9.11, inclusive, and (II) the Borrower shall have
delivered to the Agents an officer's certificate executed by the Chief
Financial Officer of the Borrower, certifying to the best of such
officer's knowledge, compliance with the requirements of this clause
(iii) and containing the calculations (in reasonable detail) required
by this clause (iii); ;
(xii) to the extent that the Existing Glendale Debt is
refinanced with the proceeds of Loans as part of the Refinancing,
Indebtedness of the Joint Venture that originally incurred such
Existing Glendale Debt, so long as the proceeds thereof are used to
refinance the intercompany loan made by the Borrower to such Joint
Venture to refinance the Existing Glendale Debt, provided that the
aggregate principal amount of the Indebtedness so incurred by such
Joint Venture pursuant to this clause (xii) does not exceed the amount
of the intercompany loan owing to the Borrower; and
(xiii) additional Indebtedness of the Borrower and its
Subsidiaries not to exceed $50,000,000 in aggregate principal amount
at any time outstanding, provided that no more than $25,000,000 of
such Indebtedness may be secured and then only to the extent permitted
by Sections 9.01(xiv) and (xvii).
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9.05 Advances, Investments and Loans. The Borrower will not,
and will not permit any of its Subsidiaries to, directly or indirectly, lend
money or credit or make advances to any Person, or purchase or acquire any
stock, obligations or securities of, or any other interest in, or make any
capital contribution to, any other Person, or purchase or own a futures
contract or otherwise become liable for the purchase or sale of currency or
other commodities at a future date in the nature of a futures contract, or hold
any cash or Cash Equivalents (each of the foregoing an "Investment" and,
collectively, "Investments"), except that the following shall be permitted:
(i) the Borrower and its Subsidiaries may acquire and
hold accounts receivables owing to any of them, if created or acquired
in the ordinary course of business and payable or dischargeable in
accordance with customary terms, and the Borrower and its Subsidiaries
may own Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of
delinquent obligations of, and other disputes with, customers and
suppliers arising in the ordinary course of business;
(ii) the Borrower and its Subsidiaries may acquire and
hold or invest in cash and Cash Equivalents;
(iii) the Borrower and its Subsidiaries may receive
non-cash consideration in connection with any asset sale permitted by
Sections 9.02(iii), (iv), (vi), (vii) and (xiv) but only to the extent
set forth in such Sections 9.02(iii), (iv), (vi), (vii) and (xiv);
(iv) the Borrower and its Subsidiaries may hold the
Investments held by them on the Initial Borrowing Date and described
on Schedule X, provided that any additional Investments made with
respect thereto shall be permitted only if independently justified
under the other provisions of this Section 9.05;
(v) the Borrower and its Subsidiaries may make loans and
advances in the ordinary course of business to their respective
employees so long as the aggregate principal amount thereof at any
time outstanding (determined without regard to any write-downs or
write-offs of such loans and advances) shall not exceed $2,000,000;
(vi) the Borrower may enter into Interest Protection
Agreements to the extent permitted by Section 9.04(iii);
(vii) the Borrower and its Subsidiaries may enter into
Other Hedging Agreements to the extent permitted by Section 9.04(vii);
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(viii) the Borrower and the Subsidiary Guarantors may make
intercompany loans and advances between or among one another
(collectively, "Intercompany Loans"), so long as each Intercompany
Loan shall be evidenced by an Intercompany Note that is pledged to the
Collateral Administrative Agent pursuant to the Pledge Agreement, and
the Borrower and the Subsidiary Guarantors may make cash Investments
to their Subsidiaries to the extent that such Subsidiaries are
Subsidiary Guarantors;
(ix) the Borrower and the Subsidiary Guarantors may make
intercompany loans and advances to non-Wholly-Owned Subsidiaries and
other Persons to the extent permitted by Section 9.07, so long as any
such intercompany loan or advance that is evidenced by a note shall be
pledged to the Collateral Administrative Agent pursuant to (and to the
extent required by) the Pledge Agreement;
(x) to the extent that the Existing Glendale Debt is to
be refinanced (in whole or in part) with proceeds of Loans made on or
prior to the Tranche A Term Loan Commitment Termination Date, the
Borrower may make an intercompany loan to the Joint Venture that has
incurred the Existing Glendale Debt in an amount not to exceed the
amount of such Existing Glendale Debt, so long as such intercompany
loan shall be evidenced by a note that is pledged to the Collateral
Administrative Agent pursuant to the Pledge Agreement;
(xi) RFS may contribute to a newly-formed Wholly-Owned
Subsidiary of RFS ("RFS Sub") one or more of the leasehold interests
held by RFS in the RFS REIT Leases, together with a corresponding
portion of the RFS REIT Equity held by RFS, in each case in connection
with the securitization of RFS REIT's fee interest in the hotels
leased to RFS pursuant to such RFS Leases; and
(xii) the Borrower and its Subsidiaries may make additional
Hotel Investments to the extent permitted by Section 9.07.
9.06 Transactions with Affiliates. The Borrower will not,
and will not permit any of its Subsidiaries to, enter into any transaction or
series of related transactions, whether or not in the ordinary course of
business, with any Affiliate of the Borrower or any of its Subsidiaries, other
than in the ordinary course of business and on terms and conditions
substantially as favorable to the Borrower or such Subsidiary as would
reasonably be obtained by the Borrower or such Subsidiary at that time in a
comparable arm's-length transaction with a Person other than an Affiliate,
except that the following in any event shall be permitted: (i) Dividends may
be paid to the extent provided in Section 9.03, (ii) loans may be made and
other transactions may be entered into by the Borrower and its Subsidiaries to
the extent permitted by Sections 9.02, 9.04 and 9.05, (iii) customary fees may
be paid to non-officer directors of the Borrower and (iv) Subsidiaries and
Joint
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Ventures of the Borrower may pay management and similar fees to the Borrower or
any Wholly-Owned Subsidiary of the Borrower.
9.07 Capital Expenditures; Permitted Hotel Acquisitions;
Permitted Hotel Investments. (a) The Borrower will not, and will not permit
any of its Subsidiaries to, make any Capital Expenditures, Hotel Acquisitions
or Hotel Investments, except that (x) during the period from the Effective Date
through and including December 31, 1996, the Borrower and its Subsidiaries may
make Capital Expenditures, Hotel Acquisitions and Hotel Investments in an
aggregate amount not to exceed $25,000,000 and (y) during any fiscal year set
forth below (taken as one accounting period), the Borrower and its Subsidiaries
may make Capital Expenditures, Hotel Acquisitions and Hotel Investments so long
as the aggregate amount of all such Capital Expenditures, Hotel Acquisitions
and Hotel Investments does not exceed in any fiscal year set forth below the
amount set forth opposite such fiscal year below:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
December 31, 1997 $40,000,000
December 31, 1998 $45,000,000
December 31, 1999 $50,000,000
and each fiscal year
thereafter
</TABLE>
; provided that during each fiscal year set forth in the table above, at least
3% of the aggregate gross revenues from Hotel Properties owned or leased by Red
Lion and its Wholly-Owned Subsidiaries for such fiscal year shall be used to
make maintenance Capital Expenditures pursuant to this clause (a).
(b) (i) In addition to the foregoing, in the event that the
amount of Capital Expenditures, Hotel Acquisitions and Hotel Investments
permitted to be made by the Borrower and its Subsidiaries pursuant to clause
(a) above in any fiscal year set forth in the table above (before giving effect
to any increase in such permitted expenditure amount pursuant to this clause
(b)(i) but after giving effect to any reduction in such amount as a result of
Capital Expenditures, Hotel Acquisitions and Hotel Investments made pursuant to
clause (b)(ii) below) is greater than the amount of such Capital Expenditures,
Hotel Acquisitions and Hotel Investments made by the Borrower and its
Subsidiaries during such fiscal year, such excess may be carried forward and
utilized to make Capital Expenditures, Hotel Acquisitions and Hotel Investments
in the immediately succeeding fiscal year, provided, that (x) any amount
carried forward from the immediately preceding fiscal year may not be utilized
during the current fiscal year unless and until the relevant amount for such
current fiscal year shall have been utilized in full to make Capital
Expenditures, Hotel Acquisitions and/or Hotel Investments during such current
fiscal year, (y) in no event shall the aggregate
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amount of Capital Expenditures, Hotel Acquisitions and Hotel Investments made
by the Borrower and its Subsidiaries during any fiscal year pursuant to Section
9.07(a), this clause (b)(i) and clause (b)(ii) below exceed 115% of the amount
set forth opposite such fiscal year as set forth in the table in such Section
9.07(a) (before giving effect to any reduction in such amount pursuant to
clause (b)(ii) below as a result of Capital Expenditures, Hotel Acquisitions
and Hotel Investments made pursuant to clause (b)(ii) below) and (z) no amounts
once carried forward to the next fiscal year may be carried forward to fiscal
years thereafter.
(ii) In addition to the foregoing, commencing in the
Borrower's fiscal year beginning January 1, 1997, in the event that the
Borrower and its Subsidiaries have made Capital Expenditures, Hotel
Acquisitions and Hotel Investments in any fiscal year pursuant to clauses (a)
and (b)(i) above in an amount equal to the maximum amount permitted to be made
in such fiscal year pursuant to such clauses and so long as no Default or Event
of Default then exists, the Borrower and its Subsidiaries may make Capital
Expenditures, Hotel Acquisitions and Hotel Investments in such fiscal year by
utilizing expenditure amounts permitted to be made in the immediately
succeeding fiscal year pursuant to clause (a) above, and with any Capital
Expenditures, Hotel Acquisitions and Hotel Investments made pursuant to this
clause (b)(ii) in such current fiscal year to reduce the amount of Capital
Expenditures, Hotel Acquisitions and Hotel Investments permitted to be made in
the immediately succeeding fiscal year, provided that in no event shall the
aggregate amount of Capital Expenditures, Hotel Acquisitions and Hotel
Investments made by the Borrower and its Subsidiaries during any fiscal year
pursuant to Section 9.07(a), clause (b)(i) above and this clause (b)(ii) exceed
115% of the amount set forth opposite such fiscal year as set forth in the
table in such Section 9.07(a) (before giving effect to any reduction in such
amount pursuant to the clause (b)(ii) as a result of Capital Expenditures,
Hotel Acquisitions and Hotel Investments made pursuant to this clause (b)(ii)).
(c) In addition to the foregoing, the Borrower and its
Subsidiaries may make Capital Expenditures with the amount of Net Insurance
Proceeds received by the Borrower or any of its Subsidiaries from any Recovery
Event so long as such Net Insurance Proceeds are used to replace or restore any
properties or assets in respect of which such Net Insurance Proceeds were paid
within the applicable time periods set forth in Section 4.02(h) but only to the
extent such Net Insurance Proceeds are not required to be applied pursuant to
Section 4.02(h) (or Section 3.03(e), as the case may be).
(d) In addition to the foregoing and so long as no Default or
Event of Default then exists, the Borrower and its Subsidiaries may make
Capital Expenditures, Hotel Acquisitions and Hotel Investments in an amount not
to exceed the Retained Net Equity Proceeds Amount at such time.
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(e) In addition to the foregoing, the Borrower and its
Subsidiaries may make Capital Expenditures, Hotel Acquisitions and Hotel
Investments in fiscal year 1997 as and to the extent set forth in Schedule XI.
(f) In addition to the foregoing, the Borrower and its
Subsidiaries may make Capital Expenditures, Hotel Acquisitions and Hotel
Investments in any fiscal year of the Borrower in an amount equal to the
remainder of (1) the Retained Excess Cash Flow Amount for the immediately
preceding fiscal year of the Borrower less (2) the amount of all voluntary
prepayment of Term Loans made during such current fiscal year or during the
immediately succeeding fiscal year, in either case pursuant to the proviso of
Section 4.01(a)(v) and utilizing such Retained Excess Flow Amount, provided
that (x) no Capital Expenditures, Hotel Acquisitions or Hotel Investments may
be made pursuant to this clause (f) during any fiscal year of the Borrower
unless the Borrower's EBITDA for the immediately preceding fiscal year exceeded
90% of the Borrower's Base Case EBITDA for such fiscal year and (y) in the
event that the amount of Capital Expenditures, Hotel Acquisitions and Hotel
Investments permitted to be made by the Borrower and its Subsidiaries pursuant
to this clause (f) in any fiscal year of the Borrower is greater than the
amount of such Capital Expenditures, Hotel Acquisitions and Hotel Investments
made by the Borrower and its Subsidiaries during such fiscal year, such excess
may be carried forward and utilized to make Capital Expenditures, Hotel
Acquisitions and Hotel Investments in the immediately succeeding fiscal year,
provided further, (i) that any amount carried forward from the immediately
preceding fiscal year may not be utilized during the current fiscal year unless
and until the relevant amount for such current fiscal year as set forth in the
table in Section 9.07(a) shall have been utilized in full to make Capital
Expenditures, Hotel Acquisitions and/or Hotel Investments during such current
fiscal year, and (ii) that no amounts once carried forward to the next fiscal
year may be carried forward to fiscal years thereafter.
(g) In addition to the foregoing, commencing with the
Borrower's fiscal year beginning January 1, 1998, the Borrower and its
Subsidiaries may make Capital Expenditures, Hotel Acquisitions and Hotel
Investments in an aggregate amount not to exceed $20,000,000, provided that no
more than $10,000,000 of such Capital Expenditures, Hotel Acquisitions and
Hotel Investments may be made in any fiscal year of the Borrower.
(h) In addition to the foregoing and so long as no Default or
Event of Default then exists, the Borrower and its Subsidiaries may make
Capital Expenditures, Hotel Acquisitions and Hotel Investments with the Net
Sale Proceeds received from any Asset Sale and with the Specified Existing Red
Lion Investment Proceeds from any Specified Red Lion Event so long as (i) such
Net Sale Proceeds or Specified Existing Red Lion Investment Proceeds are used
to purchase like assets within the applicable time periods set forth in Section
4.02(f), (ii) the aggregate amount of Capital Expenditures, Hotel Acquisitions
and Hotel Investments made pursuant to this Section 9.07(h) does not exceed
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that amount permitted by Section 4.02(f), (iii) such Net Sale Proceeds or
Specified Existing Red Lion Investment Proceeds are not required to be applied
pursuant to Section 4.02(f) (or Section 3.03(e), as the case may be) and (iv)
to the extent that the asset so sold constitutes Collateral, the Collateral
Administrative Agent is granted a first priority perfected security interest in
the like asset acquired at least to the same extent (and with at least the same
rights) as the Collateral Administrative Agent's security interest in the
Collateral so sold.
(i) In addition to the foregoing and as long as no Default or
Event of Default then exists, the Borrower and its Wholly-Owned Subsidiaries
may make Capital Expenditures, Hotel Acquisitions and Hotel Investments with
cash proceeds received from a Designated Event so long as such proceeds are
not required to be applied pursuant to Section 4.02(i) (or Section 3.03(e), as
the case may be).
(j) In addition to the foregoing and so long as no Default or
Event of Default then exists, the Borrower and its Subsidiaries may make
Capital Expenditures, Hotel Acquisitions and Hotel Investments with the Net
Sale Proceeds received from the sale of those Hotel Properties acquired by the
Borrower and its Subsidiaries after the Initial Borrowing Date (except to the
extent that such Hotel Property constitutes a newly acquired Designated Hotel
Property).
(k) In addition to the foregoing and so long as no Default or
Event of Default then exists, the Borrower and its Wholly-Owned Subsidiaries
may effect Hotel Acquisitions as part of a Temporary Hotel Acquisition
Transaction, provided that, to the extent the Borrower or such Wholly-owned
Subsidiary consummates a Hotel Acquisition and fails to sell the Hotel Property
as part of the Temporary Hotel Acquisition Transaction within 120 days after
the acquisition thereof or fails to sell the Hotel Property for at least the
same purchase price as originally paid by the Borrower or such Wholly-Owned
Subsidiary, such Hotel Acquisition (or such portion thereof to the extent that
the Borrower or such Wholly-Owned Subsidiary fails to receive at least the same
purchase price originally paid by the Borrower or such Wholly-Owned Subsidiary)
shall constitute a Hotel Acquisition effected under one of the other provisions
of this Section 9.07 and shall be required to be independently justified under
such other provisions.
Notwithstanding anything to the contrary contained above in this Section 9.07,
in the case of any Hotel Acquisition or Hotel Investment in which the total
consideration equals or exceeds $25,000,000 (other than a Hotel Acquisition
pursuant to Section 9.07(k)), (I) based on calculations made by the Borrower on
a Pro Forma Basis after giving effect to the respective Hotel Acquisition or
Hotel Investment, no Default or Event of Default will exist under, or would
have existed during the Test Period last reported (or required to be reported
pursuant to Section 8.01(a) or (b), as the case may be) prior to the date of
the respective Hotel Acquisition or Hotel Investment pursuant to, the financial
covenants con-
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<PAGE> 95
tained in Sections 9.08 through 9.11, inclusive and (II) the Borrower shall
have delivered to the Agents an officer's certificate executed by the Chief
Financial Officer of the Borrower, certifying to the best of such officer's
knowledge, compliance with the requirements of this paragraph and containing
the calculations (in reasonable detail) required by this paragraph. For
purposes of determining the amount of any Capital Expenditures, Hotel
Acquisitions and Hotel Investments made at any time, such amount shall include
the amount of any Indebtedness assumed by the Borrower or any of its
Subsidiaries in connection therewith.
9.08 Consolidated Fixed Charge Coverage Ratio. The Borrower
will not permit the Consolidated Fixed Charge Coverage Ratio for the Test
Period ending on June 30, 1997 and for each Test Period ending thereafter to be
less than 1.00:1:00.
9.09 Consolidated Interest Coverage Ratio. The Borrower will
not permit the Consolidated Interest Coverage Ratio for any Test Period ending
on the last day of a fiscal quarter set forth below to be less than the ratio
set forth opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Ratio
-------------- -----
<S> <C>
March 31, 1997 2.50:1.00
June 30, 1997 2.75:1.00
September 30, 1997 2.75:1.00
December 31, 1997 3.00:1.00
March 31, 1998 3.00:1.00
June 30, 1998 3.00:1.00
September 30, 1998 3.00:1.00
December 31, 1998 3.50:1.00
March 31, 1999 3.50:1.00
June 30, 1999 3.50:1.00
September 30, 1999 3.50:1.00
December 31, 1999 4.00:1.00
and thereafter
</TABLE>
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9.10 Maximum Leverage Ratio. The Borrower will not permit
the Leverage Ratio at any time during a period set forth below to be greater
than the ratio set forth opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Initial Borrowing Date through and including
December 30, 1997 4.75:1.00
December 31, 1997 through and including
December 30, 1998 4.50:1.00
December 31, 1998 through and including
December 30, 1999 4.00:1.00
December 31, 1999 through and including 3.50:1.00
December 30, 2000
December 31, 2000 and thereafter 3.00:1.00
</TABLE>
9.11 Minimum Consolidated Net Worth. The Borrower will not
permit Consolidated Net Worth at any time to be less than the Minimum
Consolidated Net Worth at such time.
9.12 Limitation on Voluntary Payments and Modifications of
Indebtedness; Modifications of Certificate of Incorporation, By- Laws and
Certain Other Agreements; etc. The Borrower will not, and will not permit any
of its Subsidiaries to, (i) make (or give any notice in respect of) any
voluntary or optional payment or prepayment on or redemption or acquisition for
value of, or make any prepayment or redemption as a result of any asset sale,
change of control or similar event of (including, in each case, without
limitation, by way of depositing with the trustee with respect thereto or any
other Person, money or securities before due for the purpose of paying when
due) any New Senior Subordinated Notes or the Existing Glendale Debt, except
that the Existing Glendale Debt may be refinanced as part of the Refinancing or
as otherwise permitted under Section 9.04, (ii) amend or modify, or permit the
amendment or modification of, any provision of the New Senior Subordinated
Notes or any New Senior Subordinated Note Documents or any provision of the
Existing Glendale Debt, except for any amendments or modifications to the
documentation for the Existing Glendale Debt which could not reasonably be
expected to be adverse to the interests of the Banks in any material respect,
(iii) amend, modify or change its certificate of incorporation (including,
without limitation, by the filing or modification of any certificate of
designation) or by-laws (or the equivalent organizational documents) or any
agreement entered into by it with respect to its capital stock (including any
Shareholders' Agreement), or enter into any new agreement with respect to its
capital stock, unless such amendment, modification, change or other action
contemplated by this clause (iii) could not reasonably be expected to be
adverse to the interests of the Banks in any material respect, (iv) amend,
modify or change any provision of any Tax Sharing Agreement or enter into
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any new tax sharing agreement, tax allocation agreement or similar agreement,
unless such amendment, modification, change or other action contemplated by
this clause (iv) cannot reasonably be expected to be adverse to the interests
of the Banks in any material respect, (v) amend, modify or change any Joint
Venture Agreement, unless such amendment, modification or change could not
reasonably be expected to be adverse to the interests of the Banks in any
material respect, (vi) amend, modify, change or terminate the Red Lion Master
Lease or the Doubletree Master REIT Lease, unless such amendment, modification
or change could not reasonably be expected to be adverse to the interests of
the Banks in any material respect or (vii) amend, modify, change or terminate
the Red Lion Master Property Management Agreement, unless such amendment,
modification or change could not reasonably be expected to be adverse to the
interests of the Banks in any material respect.
9.13 Limitation on Certain Restrictions on Subsidiaries. The
Borrower will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective
any encumbrance or restriction on the ability of any such Subsidiary to (a) pay
dividends or make any other distributions on its capital stock or any other
interest or participation in its profits owned by the Borrower or any
Subsidiary the Borrower, or pay any Indebtedness owed to the Borrower or any
Subsidiary of the Borrower, (b) make loans or advances to the Borrower or any
Subsidiary of the Borrower or (c) transfer any of its properties or assets to
the Borrower or any Subsidiary of the Borrower, except for such encumbrances or
restrictions existing under or by reason of (i) applicable law, (ii) this
Agreement and the other Credit Documents, (iii) customary provisions
restricting subletting or assignment of any lease governing a leasehold
interest of the Borrower or any Subsidiary of the Borrower, (iv) customary
provisions restricting assignment of any licensing agreement, management
agreement or franchise agreement entered into by the Borrower or any Subsidiary
of the Borrower in the ordinary course of business, (v) restrictions on the
transfer of any asset subject to a Lien permitted by this Agreement and (vi)
restrictions set forth on Schedule XV and similar net worth restriction imposed
on RFS Sub and any other Subsidiary of the type described in clause (v) of the
definition of Subsidiary Guarantor.
9.14 Limitation on Issuance of Capital Stock. (a) The
Borrower will not, and will not permit any of its Subsidiaries to, issue (i)
any preferred stock (other than Qualified Preferred Stock issued by the
Borrower) or (ii) any redeemable common stock (other than at the sole option of
the Borrower).
(b) The Borrower will not permit any of its Subsidiaries to
issue any capital stock (including by way of sales of treasury stock) or any
options or warrants to purchase, or securities convertible into, capital stock,
except (i) for transfers and replacements of then outstanding shares of capital
stock, (ii) for stock splits, stock dividends and issuances which do not
decrease the percentage ownership of the Borrower or any of its Subsidiaries in
any
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class of the capital stock of such Subsidiary, (iii) to qualify directors to
the extent required by applicable law or (iv) for issuances by newly created or
acquired Subsidiaries in accordance with the terms of this Agreement.
9.15 Business. The Borrower will not, and will not permit
any of its Subsidiaries to, engage (directly or indirectly) in any business
other than the businesses in which the Borrower and its Subsidiaries are
engaged on the Initial Borrowing Date and reasonable extensions thereof and
those reasonably related thereto.
9.16 Limitation on Creation of Subsidiaries and Joint
Ventures. (a) Notwithstanding anything to the contrary contained in this
Agreement, the Borrower will not, and will not permit any of its Subsidiaries
to, establish, create or acquire after the Initial Borrowing Date any
Subsidiary, Unrestricted Subsidiary or Joint Venture, provided that the
Borrower and its Wholly-Owned Subsidiaries shall be permitted to establish or
create (x) non-Wholly-Owned Subsidiaries, Unrestricted Subsidiaries and Joint
Ventures as provided in Section 9.16(b) and (y) Wholly-Owned Subsidiaries so
long as (i) the capital stock of such new Wholly-Owned Subsidiary that is owned
by any Credit Party is pledged pursuant to, and to the extent required by, the
Pledge Agreement and the certificates representing such stock, together with
stock powers duly executed in blank, are delivered to the Collateral Agent for
the benefit of the Secured Creditors, (ii) the partnership interests of such
new Wholly-Owned Subsidiary (to the extent that same is a partnership) are
pledged and assigned pursuant to, and to the extent required by, the Pledge
Agreement, (iii) such new Wholly-Owned Subsidiary (to the extent that same
constitutes a Subsidiary Guarantor as described in the definition) executes a
counterpart of the Subsidiaries Guaranty, the Pledge Agreement and the Security
Agreement, and (iv) such new Wholly- Owned Subsidiary (to the extent that same
constitutes a Subsidiary Guarantor as described in the definition thereof), to
the extent requested by the Agents or the Required Banks, takes all actions
required pursuant to Section 8.12. In addition, each new Subsidiary Guarantor
shall execute and deliver, or cause to be executed and delivered, all other
relevant documentation of the type described in Section 5 as such new
Subsidiary Guarantor would have had to deliver if such new Subsidiary Guarantor
were a Credit Party on the Initial Borrowing Date.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, establish, create or acquire any non-Wholly-Owned
Subsidiaries, Unrestricted Subsidiaries or Joint Ventures after the Initial
Borrowing Date, except that the Borrower or any Wholly-Owned Subsidiary of the
Borrower may establish, create or acquire non-Wholly-Owned Subsidiaries,
Unrestricted Subsidiaries and Joint Ventures to the extent that the Investment
in such Person is permitted by Section 9.07 from time to time, in each case so
long as (x) no Default or Event of Default exists at the time of the
establishment, creation or acquisition of the respective non-Wholly-Owned
Subsidiary, Unrestricted Subsidiary or Joint Venture or shall exist immediately
after giving effect thereto, (y) all Hotel Investments therein are permitted
pursuant to Section 9.07 and (z) all equity interests of such
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non-Wholly-Owned Subsidiary, Unrestricted Subsidiary or Joint Venture, to the
extent owned by any Credit Party, are pledged pursuant to, and to the extent
required by, the Pledge Agreement.
SECTION 10. Events of Default. Upon the occurrence of any of
the following specified events (each an "Event of Default"):
10.01 Payments. The Borrower shall (i) default in the
payment when due of any principal of any Loan or any Note or (ii) default, and
such default shall continue unremedied for three or more Business Days, in the
payment when due of any interest on any Loan or Note, any Unpaid Drawing or any
Fees or any other amounts owing hereunder or thereunder; or
10.02 Representations, etc. Any representation, warranty or
statement made by any Credit Party herein or in any other Credit Document or in
any certificate delivered to any Agent or any Bank pursuant hereto or thereto
shall prove to be untrue in any material respect on the date as of which made
or deemed made; or
10.03 Covenants. Any Credit Party shall (i) default in the
due performance or observance by it of any term, covenant or agreement
contained in Section 8.01(f)(i), 8.08 or 8.11 or Section 9 or (ii) default in
the due performance or observance by it of any other term, covenant or
agreement contained in this Agreement or any other Credit Document (other than
those set forth in Sections 10.01 and 10.02) and such default shall continue
unremedied for a period of 30 days after written notice thereof to the
defaulting party by any Agent or the Required Banks; or
10.04 Default Under Other Agreements. (i) The Borrower or
any of its Subsidiaries shall (x) default in any payment of any Indebtedness
(other than the Notes and/or the Austin Obligations) beyond the period of grace
or cure, if any, provided in the instrument or agreement under which such
Indebtedness was created or (y) default in the observance or performance of any
agreement or condition relating to any Indebtedness (other than the Notes
and/or the Austin Obligations) or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause (determined without regard
to whether any notice is required, but beyond the period of grace or cure, if
any, provided in the instrument or agreement under which such Indebtedness was
created), any such Indebtedness to become due prior to its stated maturity, or
(ii) any Indebtedness (other than the Notes and/or the Austin Obligations) of
the Borrower or any of its Subsidiaries shall be declared to be (or shall
become) due and payable, or required to be prepaid other than by a regularly
scheduled required prepayment, prior to the stated maturity thereof, provided
that it shall not be a Default or an
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Event of Default under this Section 10.04 unless the aggregate principal amount
of all Indebtedness as described in preceding clauses (i) and (ii) is at least
$10,000,000; or
10.05 Bankruptcy, etc. The Borrower or any of its
Subsidiaries (excluding Immaterial Subsidiaries) shall commence a voluntary
case concerning itself under Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect, or any successor thereto (the
"Bankruptcy Code"); or an involuntary case is commenced against the Borrower or
any of its Subsidiaries (excluding Immaterial Subsidiaries), and the petition
is not controverted within 15 days, or is not dismissed within 60 days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
the Borrower or any of its Subsidiaries (excluding Immaterial Subsidiaries), or
the Borrower or any of its Subsidiaries (excluding Immaterial Subsidiaries)
commences any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or similar law of any jurisdiction whether now or hereafter in effect relating
to the Borrower or any of its Subsidiaries (excluding Immaterial Subsidiaries),
or there is commenced against the Borrower or any of its Subsidiaries
(excluding Immaterial Subsidiaries) any such proceeding which remains
undismissed for a period of 60 days, or the Borrower or any of its Subsidiaries
(excluding Immaterial Subsidiaries) is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or proceeding is
entered; or the Borrower or any of its Subsidiaries (excluding Immaterial
Subsidiaries) suffers any appointment of any custodian or the like for it or
any substantial part of its property to continue undischarged or unstayed for a
period of 60 days; or the Borrower or any of its Subsidiaries (excluding
Immaterial Subsidiaries) makes a general assignment for the benefit of
creditors; or any corporate action is taken by the Borrower or any of its
Subsidiaries (excluding Immaterial Subsidiaries) for the purpose of effecting
any of the foregoing; or
10.06 ERISA. (a) Any Plan shall fail to satisfy the minimum
funding standard required for any plan year or part thereof under Section 412
of the Code or Section 302 of ERISA or a waiver of such standard or extension
of any amortization period is sought or granted under Section 412 of the Code
or Section 303 or 304 of ERISA, a Reportable Event shall have occurred, any
Plan or Multiemployer Plan which is subject to Title IV of ERISA shall have had
or is likely to have a trustee appointed to administer such Plan or
Multiemployer Plan, any Plan or Multiemployer Plan which is subject to Title IV
of ERISA is, shall have been or is likely to be terminated or to be the subject
of termination proceedings under ERISA, any Plan or Multiemployer Plan shall
have an Unfunded Current Liability, a contribution required to be made with
respect to a Plan, a Multiemployer Plan or a Foreign Pension Plan has not been
timely made, the Borrower or any Subsidiary of the Borrower or any ERISA
Affiliate has incurred or is likely to incur any liability to or on account of
a Plan or Multiemployer Plan under Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or
4975 of the Code or on account of a group health plan (as defined in Section
607(1) of ERISA or
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Section 4980B(g)(2) of the Code) under Section 4980B(a) of the Code, or the
Borrower or any Subsidiary of the Borrower has incurred or is likely to incur
liabilities pursuant to one or more employee welfare benefit plans (as defined
in Section 3(1) of ERISA) that provide benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or Plans or
Foreign Pension Plans; (b) there shall result from any such event or events the
imposition of a lien, the granting of a security interest, or a liability or a
material risk of incurring a liability; and (c) such lien, security interest or
liability, individually, and/or in the aggregate, in the opinion of the
Required Banks, has had, or could reasonably be expected to have, a material
adverse effect on the business, operations, property, assets, liabilities,
condition (financial or otherwise) or prospects of the Borrower and its
Subsidiaries taken as a whole; or
10.07 Security Documents. At any time after the execution
and delivery thereof, any of the Security Documents shall cease to be in full
force and effect, or shall cease to give the Collateral Administrative Agent
for the benefit of the Secured Creditors the Liens, rights, powers and
privileges purported to be created thereby (including, without limitation, a
perfected security interest in, and Lien on, all of the Collateral, in favor of
the Collateral Administrative Agent, superior to and prior to the rights of all
third Persons (except as permitted by Section 9.01), and subject to no other
Liens (except as permitted by Section 9.01); or
10.08 Subsidiaries Guaranty. At any time after the execution
and delivery thereof, the Subsidiaries Guaranty or any provision thereof shall
cease to be in full force or effect as to any Subsidiary Guarantor, or any
Subsidiary Guarantor or any Person acting by or on behalf of such Subsidiary
Guarantor shall deny or disaffirm such Subsidiary Guarantor's obligations under
the Subsidiaries Guaranty or any Subsidiary Guarantor shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to the Subsidiaries Guaranty; or
10.09 Judgments. One or more judgments or decrees shall be
entered against the Borrower or any Subsidiary of the Borrower (excluding any
Immaterial Subsidiary) involving in the aggregate for the Borrower and its
Subsidiaries (excluding Immaterial Subsidiaries) a liability (not paid or fully
covered by a reputable and solvent insurance company) and such judgments and
decrees either shall be final and non-appealable or shall not be vacated,
discharged or stayed or bonded pending appeal for any period of 30 consecutive
days, and the aggregate amount of all such judgments exceeds $10,000,000; or
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10.10 Change of Control. A Change of Control shall occur; or
10.11 Certain Master Leases. An Event of Default under, and
as defined in, the Red Lion Master Lease or the Doubletree Master REIT Lease
shall occur and be continuing (after giving effect to any applicable cure and
grace periods), or the Red Lion Master Lease or the Doubletree Master REIT
Lease (or any material provision thereof) shall cease to be in full force and
effect; or
10.12 The Red Lion Master Property Management Agreement. The
Red Lion Master Property Management Agreement shall terminate or any material
provision thereof shall cease to be in full force and effect or the Borrower or
any of its Subsidiaries shall default in a due performance or observance by it
of any term, covenant or condition required to be performed by it after the
expiration of any applicable cure and grace periods;
then, and in any such event, and at any time thereafter, if any Event of
Default shall then be continuing, the Administrative Agent, upon the written
request of the Required Banks, shall by written notice to the Borrower, take
any or all of the following actions, without prejudice to the rights of any
Agent, any Bank or the holder of any Note to enforce its claims against any
Credit Party (provided, that, if an Event of Default specified in Section 10.05
shall occur with respect to the Borrower, the result which would occur upon the
giving of written notice by the Administrative Agent as specified in clauses
(i) and (ii) below shall occur automatically without the giving of any such
notice): (i) declare the Total Commitments terminated, whereupon all
Commitments of each Bank shall forthwith terminate immediately and any
Commitment Commission shall forthwith become due and payable without any other
notice of any kind; (ii) declare the principal of and any accrued interest in
respect of all Loans and the Notes and all Obligations owing hereunder and
thereunder to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by each Credit Party; (iii) terminate any Letter of Credit
which may be terminated in accordance with its terms; (iv) direct the Borrower
to pay (and the Borrower agrees that upon receipt of such notice, or upon the
occurrence of an Event of Default specified in Section 10.05 with respect to
the Borrower, it will pay) to the Collateral Administrative Agent at the
Payment Office such additional amount of cash, to be held as security by the
Collateral Administrative Agent, as is equal to the aggregate Stated Amount of
all Letters of Credit issued for the account of the Borrower and then
outstanding; (v) enforce, as Collateral Administrative Agent, all of the Liens
and security interests created pursuant to the Security Documents; and (vi)
apply any cash collateral held by the Administrative Agent pursuant to Section
4.02 to the repayment of the Obligations.
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SECTION 11. Definitions and Accounting Terms.
11.01 Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Acquisition" shall mean the merger of Merger Sub with and
into Red Lion pursuant to, and in accordance with the terms of, the Acquisition
Documents and as a result of which Red Lion shall be a Wholly-Owned Subsidiary
of the Borrower.
"Acquisition Agreement" shall mean the Agreement and Plan of
Merger, dated as of September 12, 1996, by and among the Borrower, Merger Sub
and Red Lion.
"Acquisition Documents" shall mean the Acquisition Agreement
and all other agreements and documents entered into in connection with the
Acquisition.
"Additional Security Documents" shall have the meaning
provided in Section 8.12.
"Adjusted Consolidated Cash Income" for any period shall mean
Consolidated Net Income for such period plus, without duplication, the sum of
the amount of all net non-cash charges (including, without limitation,
depreciation, amortization, deferred tax expense, non-cash interest expense)
and net non-cash losses which were included in arriving at Consolidated Net
Income for such period.
"Adjusted Consolidated Working Capital" at any time shall mean
Consolidated Current Assets (but excluding therefrom all cash and Cash
Equivalents) less Consolidated Current Liabilities at such time.
"Adjusted RL Percentage" shall mean (x) at a time when no Bank
Default exists, for each Bank, such Bank's RL Percentage and (y) at a time when
a Bank Default exists, (i) for each Bank that is a Defaulting Bank, zero and
(ii) for each Bank that is a Non-Defaulting Bank, the percentage determined by
dividing such Bank's Revolving Loan Commitment at such time by the Adjusted
Total Revolving Loan Commitment at such time, it being understood that all
references herein to Revolving Loan Commitments and the Adjusted Total
Revolving Loan Commitment at a time when the Total Revolving Loan Commitment or
Adjusted Total Revolving Loan Commitment, as the case may be, has been
terminated shall be references to the Revolving Loan Commitments or Adjusted
Total Revolving Loan Commitment, as the case may be, in effect immediately
prior to such termination, provided that (A) a Bank's Adjusted RL Percentage
shall only change upon the occurrence of a Bank Default from that in effect
immediately prior to such Bank Default to the extent that after giving effect
to such Bank Default, and any repayment of Revolving
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Loans and Swingline Loans at such time pursuant to Section 4.02(a) or
otherwise, the sum of (i) the aggregate outstanding principal amount of
Revolving Loans of such Bank plus (ii) such Bank's new Adjusted RL Percentage
of the aggregate outstanding principal amount of Swingline Loans and the Letter
of Credit Outstandings, would not exceed the Revolving Loan Commitment of such
Bank at such time; (B) the changes to the Adjusted RL Percentage that would
have become effective upon the occurrence of a Bank Default but that did not
become effective as a result of the preceding clause (A) shall become effective
on the first date after the occurrence of the relevant Bank Default on which
the sum of (i) the aggregate outstanding principal amount of the Revolving
Loans of all Non-Defaulting Banks, plus (ii) the aggregate outstanding
principal amount of Swingline Loans, plus (iii) the Letter of Credit
Outstandings, is equal to or less than the Adjusted Total Revolving Loan
Commitment; and (C) if (i) a Non-Defaulting Bank's Adjusted RL Percentage is
changed pursuant to the preceding clause (B) and (ii) any repayment of such
Bank's Revolving Loans or of Unpaid Drawings or of Swingline Loans that were
made during the period commencing after the date of the relevant Bank Default
and ending on the date of such change to its Adjusted RL Percentage must be
returned to the Borrower as a preferential or similar payment in any bankruptcy
or similar proceeding of the Borrower, then the change to such Non-Defaulting
Bank's Adjusted RL Percentage effected pursuant to said clause (B) shall be
reduced to that positive change, if any, as would have been made to its
Adjusted RL Percentage if (x) such repayments had not been made and (y) the
maximum change to its Adjusted RL Percentage would have resulted in the sum of
the outstanding principal of Revolving Loans made by such Bank plus such Bank's
new Adjusted RL Percentage of the outstanding principal amount of Swingline
Loans and of Letter of Credit Outstandings equalling such Bank's Revolving Loan
Commitment at such time.
"Adjusted Total Revolving Loan Commitment" shall mean at any
time the Total Revolving Loan Commitment less the aggregate Revolving Loan
Commitments of all Defaulting Banks.
"Administrative Agent" shall mean Scotiabank, in its capacity
as Administrative Agent for the Banks hereunder, and shall include any
successor to the Administrative Agent appointed pursuant to Section 12.09.
"Affected Eurodollar Loans" shall have the meaning provided in
Section 4.02(j).
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. A Person shall be deemed to control
another Person if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such other
Person, whether through the ownership of voting securities, by contract or
otherwise.
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"Agent" shall mean and include the Administrative Agent and
the Syndication Agent.
"Agreement" shall mean this Credit Agreement, as modified,
supplemented, amended, restated (including any amendment and restatement
hereof), extended, renewed, refinanced or replaced from time to time.
"Allocable Share" shall mean, for any Person with respect to
any Joint Venture and event or circumstance under this Agreement that requires
the determination thereof, that percentage of such Joint Venture's equity
interests that are owned (directly or indirectly) by such Person.
"Applicable Commitment Commission Percentage" shall mean a
percentage per annum equal to 1/2 of 1%, provided that so long as no Default
of the type described in Section 10.01 or 10.05 shall exist, or no Event of
Default shall exist, the Applicable Commitment Commission Percentage shall be
3/8 of 1% at any time (and for so long as) the Interest Reduction Discount is
determined by clauses (C), (D), (E) or (F) of clause (i) of the definition
thereof.
"Applicable Margin" shall mean a percentage per annum equal to
(i) in the case of Tranche A Term Loans and Revolving Loans which (in either
case) are maintained as Base Rate Loans and in the case of Swingline Loans,
1.125%, less the then applicable Interest Reduction Discount, if any, (ii) in
the case of Tranche A Term Loans and Revolving Loans which are maintained as
Eurodollar Loans, 2.125%, less the then applicable Interest Reduction Discount,
if any, (iii) in the case of Tranche B Term Loans which are maintained as Base
Rate Loans, 1.500%, less the then applicable Interest Reduction Discount, if
any, and (iv) in the case of Tranche B Term Loans which are maintained as
Eurodollar Loans, 2.500%, less the then applicable Interest Reduction Discount,
if any. Notwithstanding the foregoing, (x) in the event that the Borrower
receives gross cash proceeds in excess of $350,000,000 from the Equity
Financing and 100% of the Net Equity Proceeds therefrom in excess of
$250,000,000 are applied to reduce the Total Term Loan Commitment and/or repay
outstanding Term Loans in accordance with the requirements of Sections
3.02(b)(i) and/or 4.02(d), the Applicable Margin for Tranche A Term Loans,
Revolving Loans and Swingline Loans set forth in clauses (i) and (ii) above
shall be permanently decreased by 0.125% and (y) in the event that the Borrower
issues any New Senior Subordinated Notes, the Applicable Margin for Tranche A
Term Loans, Tranche B Term Loans, Revolving Loans and Swingline Loans set forth
above shall be permanently increased by 0.125% (after giving effect to any
decrease thereof as provided in preceding clause (x)).
"Applicable Recapture Percentage" shall mean 100%, provided
that if on the date of any Asset Sale (other than an Asset Sale under Section
9.02(xiv)) or on the date of
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any Specified Red Lion Event, (x) no Default under Section 10.01 or 10.05 then
exists, or no Event of Default then exists, and (y) the Leverage Ratio for the
Test Period then most recently ended calculated on a Pro Forma Basis shall be
less than 3.00:1.00 (as evidenced (in reasonable detail) by a certificate of
the Chief Financial Officer of the Borrower submitted to the Agents on such
date), the Borrower shall be entitled to retain 50% of the Net Sale Proceeds
from such Asset Sale and 50% of the Specified Existing Red Lion Investment
Proceeds from such Specified Red Lion Event up to an aggregate (for all such
Asset Sales and Specified Red Lion Events) of $250,000,000.
"Asset Sale" shall mean any sale, transfer or other
disposition by the Borrower or any of its Wholly-Owned Subsidiaries or Joint
Ventures to any Person (including by-way-of redemption by such Person) other
than to the Borrower or a Wholly-Owned Subsidiary of the Borrower of any asset
(including, without limitation, any capital stock or other securities of, or
equity interests in, another Person) of the Borrower or any of its Wholly-Owned
Subsidiaries or Joint Ventures other than any sale, transfer or disposition
permitted by Sections 9.02(ii), (v), (vii), (viii), (xi), (xvi), (xvii) and
(xviii), provided that in no event shall a Designated Event constitute an Asset
Sale.
"Assignment and Assumption Agreement" shall mean an Assignment
and Assumption Agreement substantially in the form of Exhibit K (appropriately
completed).
"Austin Obligations" shall mean the Indebtedness outstanding
on the Initial Borrowing Date relating to, and only secured by, the Borrower's
Hotel Property in Austin, Texas, but only so long as recourse in respect of
such Indebtedness is limited solely to such Hotel Property and not to the
Borrower or any of its Subsidiaries or any of the other assets of the Borrower
or any of its Subsidiaries.
"Bank" shall mean each financial institution listed on
Schedule I, as well as any Person which becomes a "Bank" hereunder pursuant to
Section 1.13 or 13.04(b).
"Bank Default" shall mean (i) the refusal (which has not been
retracted) or the failure of a Bank to make available its portion of any
Borrowing (including any Mandatory Borrowing) or to fund its portion of any
unreimbursed payment under Section 2.04(c) or (ii) a Bank having notified in
writing the Borrower and/or the Administrative Agent that such Bank does not
intend to comply with its obligations under Section 1.01(a), 1.01(b), 1.01(c),
1.01(e) or 2, in the case of either clause (i) or (ii) as a result of any
takeover or control (including, without limitation, as a result of the
occurrence of any event of the type described in Section 10.05 with respect to
such Bank) of such Bank by any regulatory authority or agency.
"Bankruptcy Code" shall have the meaning provided in Section
10.05.
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"Base Case EBITDA" shall mean, with respect to any Test Period
set forth on Schedule XII, the number set forth opposite such Test Period on
such Schedule XII.
"Base Rate" at any time shall mean the higher of (i) 1/2 of 1%
in excess of the Federal Funds Rate and (ii) the Prime Lending Rate.
"Base Rate Loan" shall mean (i) each Swingline Loan and (ii)
each other Loan designated or deemed designated as such by the Borrower at the
time of the incurrence thereof or conversion thereto.
"Borrower" shall have the meaning provided in the first
paragraph of this Agreement.
"Borrowing" shall mean the borrowing of one Type of Loan of a
single Tranche from all the Banks having Commitments of the respective Tranche
(or from Scotiabank in the case of Swingline Loans) on a given date (or
resulting from a conversion or conversions on such date) having in the case of
Eurodollar Loans the same Interest Period, provided that Base Rate Loans
incurred pursuant to Section 1.10(b) shall be considered part of the related
Borrowing of Eurodollar Loans.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day except Saturday, Sunday and any day which
shall be in New York City, New York and Atlanta, Georgia a legal holiday or a
day on which banking institutions are authorized or required by law or other
government action to close and (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Loans, any day which is a Business Day described in clause (i) above
and which is also a day for trading by and between banks in the New York
interbank Eurodollar market.
"Calculation Period" shall mean the period of four consecutive
fiscal quarters of the Borrower last ended before the date of the respective
Hotel Acquisition, Hotel Investment, Asset Sale, Redesignation Event and/or
incurrence of New Senior Subordinated Notes or Non- Recourse Indebtedness which
requires calculations to be made on a Pro Forma Basis.
"Candlewood" shall mean Candlewood Hotel Company, L.L.C.
"Capital Expenditures" shall mean, with respect to any Person,
all expenditures by such Person which should be capitalized in accordance with
generally accepted accounting principles and, without duplication, the amount
of Capitalized Lease Obligations incurred by such Person.
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"Capitalized Lease Obligations" of any Person shall mean all
rental obligations which, under generally accepted accounting principles, are
or will be required to be capitalized on the books of such Person, in each case
taken at the amount thereof accounted for as indebtedness in accordance with
such principles.
"Cash Equivalents" shall mean, as to any Person, (i)
securities issued or directly and fully guaranteed or insured by the United
States or any agency or instrumentality thereof (provided that the full faith
and credit of the United States is pledged in support thereof) having
maturities of not more than one year from the date of acquisition, (ii) Dollar
denominated time deposits and certificates of deposit of any commercial bank
having, or which is the principal banking subsidiary of a bank holding company
having, a long-term unsecured debt rating of at least "A" or the equivalent
thereof from Standard & Poor's Ratings Services or "A2" or the equivalent
thereof from Moody's Investors Service, Inc. with maturities of not more than
one year from the date of acquisition by such Person, (iii) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clause (i) above entered into with any bank meeting
the qualifications specified in clause (ii) above, (iv) commercial paper issued
by any Person incorporated in the United States rated at least A-1 or the
equivalent thereof by Standard & Poor's Ratings Services or at least P-1 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case maturing
not more than 270 days after the date of acquisition by such Person and (v)
investments in money market funds substantially all of whose assets are
comprised of securities of the types described in clauses (i) through (iv)
above.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time
to time, 42 U.S.C. Section 9601 et seq.
"Change of Control" shall mean (i) any Person or "group"
(within the meaning of Rules 13d-3 or 13d-5 under the Securities Exchange Act
(as in effect on the Effective Date)), other than the Permitted Holders, shall
(A) have acquired beneficial ownership of 25% or more on a fully diluted basis
of the voting and/or economic interest in the Borrower's capital stock or (B)
have obtained the power (whether or not exercised) to elect a majority of the
Borrowers' directors or (ii) the Board of Directors of the Borrower shall cease
to consist of a majority of Continuing Directors.
"Clean-Down Period" shall mean a period of 30 consecutive days
during which no more than $50,000,000 in aggregate principal amount of the sum
of Revolving Loans and Swingline Loans is outstanding at any time during such
period.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to the Code are to the Code, as in effect at
the date of this Agreement and any
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subsequent provisions of the Code, amendatory thereof, supplemental thereto or
substituted therefor.
"Collateral" shall mean all property (whether real or
personal) with respect to which any security interests have been granted (or
purport to be granted) pursuant to any Security Document, including, without
limitation, all Pledge Agreement Collateral, all Security Agreement Collateral,
the Mortgaged Properties, all Collateral Assignment Collateral and all cash and
Cash Equivalents delivered as collateral pursuant to Section 4.02 or 10.
"Collateral Administrative Agent" shall mean the
Administrative Agent acting as collateral administrative agent for the Secured
Creditors pursuant to the Security Documents.
"Collateral Assignment" shall mean each Collateral Assignment
of Mortgage and other Loan Documents pursuant to which any Credit Party shall
have granted to the Collateral Administrative Agent a security interest in the
Collateral Assignment Collateral described therein.
"Collateral Assignment Collateral" shall mean all of the
applicable Credit Party's right, title and interest in and to the "Pledged Loan
Documents" as defined in the respective Collateral Assignment.
"Collective Bargaining Agreements" shall have the meaning
provided in Section 5.05.
"Commitment" shall mean any of the commitments of any Bank,
i.e., whether the Tranche A Term Loan Commitment, the Tranche B Term Loan
Commitment or the Revolving Loan Commitment.
"Commitment Commission" shall mean the Revolving Loan
Commitment Commission and the Term Loan Commitment Commission.
"Confidential Information Memorandum" shall mean the
Confidential Information Memorandum, dated October 1996, prepared by the Agents
and distributed to the Banks prior to the Initial Borrowing Date.
"Consolidated Current Assets" shall mean, at any time, the
consolidated current assets of the Borrower and its Subsidiaries at such time.
"Consolidated Current Liabilities" shall mean, at any time,
the consolidated current liabilities of the Borrower and its Subsidiaries at
such time, but excluding the cur-
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rent portion of and accrued but unpaid interest on any Indebtedness under this
Agreement and any other long-term Indebtedness which would otherwise be
included therein.
"Consolidated EBIT" shall mean, for any period, Consolidated
Net Income before Consolidated Interest Expense and before provision for taxes
for such period and without giving effect (x) to any extraordinary gains or
losses, (y) to any gains or losses from sales of assets other than from (i)
sales of inventory sold in the ordinary course of business and (ii) sales or
liquidations of equity interests in Joint Ventures in the ordinary course of
business (provided that no more than $5,000,000 shall be included in
Consolidated EBIT for any Test Period in connection with such sales or
liquidations referred to in this clause (ii)) and (z) to any expenses related
to or incurred by the Borrower in connection with the Transaction.
"Consolidated EBITDA" shall mean, for any period, Consolidated
EBIT for such period, adjusted by adding thereto the amount of all amortization
and depreciation expense of the Borrower and its Subsidiaries that were
deducted in arriving at Consolidated EBIT for such period, it being understood
and agreed, however, that for purposes of determining compliance with Sections
9.09 and 9.10 and for purposes of calculating the Interest Reduction Discount,
Consolidated EBITDA for the Borrower's fiscal quarter ended on (i) March 31,
1996 shall be $28,163,000, (ii) June 30, 1996 shall be $42,687,000, (iii)
September 30, 1996 shall be $__________ and (iv) December 31, 1996 shall be
based on the financial statements delivered pursuant to Section 8.01(i).
"Consolidated Fixed Charge Coverage Ratio" shall mean, for any
period the ratio of (x) Consolidated EBITDA for such period less the amount of
all Capital Expenditures, Hotel Acquisitions and Hotel Investments made by the
Borrower and its Subsidiaries during such period pursuant to Sections 9.07(a),
(b) and (g) to (y) Consolidated Fixed Charges for such period.
"Consolidated Fixed Charges" for any period shall mean the
sum, without duplication, of (i) Consolidated Interest Expense for such period,
(ii) the amount of all cash payments made by the Borrower and its Subsidiaries
in respect of taxes or tax liabilities during such period (net of any cash
refunds actually received during such period), and (iii) the scheduled
principal amount of all amortization payments made (or required to be made and
not made) on all Indebtedness (including, without limitation, the principal
component of all Capitalized Lease Obligations) of the Borrower and its
Subsidiaries for such period plus the amount of all voluntary repayments of
such Indebtedness during such period to the extent that any such repayment
reduced the amount of such scheduled amortization payment.
"Consolidated Indebtedness" shall mean, at any time, the
principal amount of all Indebtedness of the Borrower and its Subsidiaries at
such time determined on a con-
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solidated basis to the extent that such Indebtedness would be accounted for as
debt in accordance with generally accepted accounting principles plus, without
duplication, (i) the maximum amount available to be drawn under all letters of
credit (including any Letters of Credit) issued for the account of the Borrower
and its Subsidiaries and all unpaid drawings (including any Unpaid Drawings) in
respect of such letters of credit, (ii) the principal amount of all bonds
issued by the Borrower and its Subsidiaries in connection with workers'
compensation obligations, lease obligations and similar obligations, (iii) all
Indebtedness set forth on Schedule VII designated as being part of Consolidated
Indebtedness and (iv) the amount of all Contingent Obligations of the Borrower
and its Subsidiaries determined on a consolidated basis in respect of
Indebtedness of other Persons of the type described above in this definition.
"Consolidated Interest Coverage Ratio" shall mean, for any
period the ratio of (x) Consolidated EBITDA for such period to (y) (i) in the
case of the Test Period ending on March 31, 1997, Consolidated Interest Expense
for such Test Period multiplied by 4, (ii) in the case of the Test Period
ending on June 30, 1997, Consolidated Interest Expense for such Test Period
multiplied by 2, (iii) in the case of the Test Period ending September 30,
1997, Consolidated Interest Expense for such Test Period multiplied by a
fraction the numerator of which is 4 and the denominator of which is 3 and (iv)
in the case of each Test Period ending thereafter, Consolidated Interest
Expense for the Test Period then most recently ended (in each case taken as one
accounting period).
"Consolidated Interest Expense" shall mean, for any period,
the total consolidated interest expense of the Borrower and its Subsidiaries
for such period (calculated without regard to any limitations on the payment
thereof) plus, without duplication, that portion of Capitalized Lease
Obligations of the Borrower and its Subsidiaries representing the interest
factor for such period; provided that the amortization of deferred financing
costs with respect to this Agreement or the Indebtedness incurred hereunder
shall be excluded from Consolidated Interest Expense to the extent same would
otherwise have been included therein.
"Consolidated Joint Venture" shall mean any Joint Venture in
which the Borrower, either directly or through one or more Wholly-Owned
Subsidiaries has a 50% equity interest and whose debt is included, in
accordance with generally accepted accounting principles, on the consolidated
balance sheet of the Borrower (whether or not directly assumed or guaranteed by
the Borrower of any of its other Subsidiaries).
"Consolidated Net Income" shall mean, for any Person and
period, the net income (or loss) of such Person and its Subsidiaries for such
period, determined on a consolidated basis (after deduction for minority
interests), provided that (i) in determining Consolidated Net Income of the
Borrower, the net income (or loss) of any other Person which is not a
Subsidiary of the Borrower (including any Unrestricted Subsidiary) or is
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accounted for by the Borrower by the equity method of accounting shall be
included only to the extent of the payment of dividends or distributions by
such other Person to the Borrower or a Subsidiary thereof during such period
and (ii) the net income (or loss) of any other Person acquired by such
specified Person or a Subsidiary of such Person in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded.
"Consolidated Net Worth" shall mean on any date of
determination thereof the consolidated net worth of the Borrower and its
Subsidiaries determined as of such date of determination.
"Contingent Obligation" shall mean, as to any Person, any
obligation of such Person as a result of such Person being a general partner of
the other Person, unless the underlying obligation is expressly made
non-recourse as to such general partner, and any obligation of such Person
guaranteeing or intended to guarantee any Indebtedness, leases, dividends or
other obligations ("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment
of such primary obligation or (iv) otherwise to assure or hold harmless the
holder of such primary obligation against loss in respect thereof; provided,
however, that the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such
Person is required to perform thereunder) as determined by such Person in good
faith.
"Continuing Directors" shall mean the directors of the
Borrower on the Initial Borrowing Date, the two directors of the Borrower
selected by KKR within sixty days following the Initial Borrowing Date and each
other director, if such other director's nomination for election to the Board
of Directors of the Borrower is recommended by a majority of the then
Continuing Directors or is recommended by a committee of the Board of Directors
a majority of which is composed of the then Continuing Directors.
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"Credit Documents" shall mean this Agreement and, after the
execution and delivery thereof pursuant to the terms of this Agreement, each
Note, the Subsidiaries Guaranty and each Security Document.
"Credit Event" shall mean the making of any Loan or the
issuance of any Letter of Credit.
"Credit Party" shall mean the Borrower and each Subsidiary
Guarantor.
"Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a
Bank Default is in effect.
"Designated Event" shall mean the receipt of cash proceeds by
the Borrower or any of its Wholly-Owned Subsidiaries from (i) any termination
payment or liquidated damages under, or in connection with, the termination of
any lease, management contract or franchise agreement, (ii) any sale or
liquidation by the Borrower or a Wholly-Owned Subsidiary thereof of any
Existing Doubletree Investment, (iii) any sale or liquidation by the Borrower
or a Wholly-Owned Subsidiary thereof of any Hotel Investment made after the
Initial Borrowing Date, (iv) any principal repayment of any loan or advance
made to the Borrower or a Wholly-Owned Subsidiary thereof by any Joint Venture
or other Person (other than the Borrower or a Subsidiary Guarantor) (except for
regularly occurring repayments made in the ordinary course of business and
except to the extent that same constitutes a Specified Red Lion Event), or (v)
any redemptions, distributions or dividends made by a Joint Venture to the
Borrower or a Wholly-Owned Subsidiary thereof (other than regularly occurring
distributions or dividends made in the ordinary course of business);
"Designated Hotel Properties" shall mean the Hotel Properties
owned by the Borrower and its Wholly-Owned Subsidiaries as set forth on
Schedule XII, and any replacement Hotel Properties purchased by the Borrower
and its Wholly-Owned Subsidiaries with the Net Sale Proceeds from any sale of
one or more of the Hotel Properties set forth on such Schedule XIII and/or from
the sale of one or more of such replacement Hotel Properties.
"Determination Date" shall have the meaning provided in the
definition of "Pro Forma Basis."
"Dividend" with respect to any Person shall mean that such
Person has declared or paid a dividend or returned any equity capital to its
stockholders or partners or authorized or made any other distribution, payment
or delivery of property (other than com-
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mon stock of such Person) or cash to its stockholders or partners as such, or
redeemed, retired, purchased or otherwise acquired, directly or indirectly, for
a consideration any shares of any class of its capital stock or any partnership
interests outstanding on or after the Initial Borrowing Date (or any options or
warrants issued by such Person with respect to its capital stock), or set aside
any funds for any of the foregoing purposes, or shall have permitted any of its
Subsidiaries to purchase or otherwise acquire for a consideration any shares of
any class of the capital stock or any partnership interests of such Person
outstanding on or after the Initial Borrowing Date (or any options or warrants
issued by such Person with respect to its capital stock). Without limiting the
foregoing, "Dividends" with respect to any Person shall also include all
payments made or required to be made by such Person with respect to any stock
appreciation rights, plans, equity incentive or achievement plans or any
similar plans or setting aside of any funds for the foregoing purposes.
"Documents" shall mean the Credit Documents, the Equity
Financing Documents, the Acquisition Documents and the Refinancing Documents.
"Dollars" and the sign "$" shall each mean freely transferable
lawful money of the United States.
"Domestic Subsidiary" shall mean each Subsidiary of the
Borrower incorporated or organized in the United States or any State or
territory thereof.
"Doubletree Master REIT Lease" shall mean the Consolidated
Lease Amendment, dated as of February 27, 1996, between RFS Partnership, L.P.,
as lessor, and RFS, Inc., as lessee.
"Drawing" shall have the meaning provided in Section 2.05(b).
"Effective Date" shall have the meaning provided in Section
13.10.
"Eligible Transferee" shall mean and include a commercial
bank, financial institution or other "accredited investor" (as defined in
Regulation D of the Securities Act).
"Employee Benefit Plans" shall have the meaning provided in
Section 5.05.
"End Date" shall mean, for any Margin Reduction Period, the
last day of such Margin Reduction Period.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, notices of noncompliance or violation, investigations or
proceedings relating in any way to any Environmental Law or any permit issued,
or any approval given, under any such Environ-
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mental Law (hereafter, "Claims"), including, without limitation, (a) any and
all Claims by governmental or regulatory authorities for enforcement, cleanup,
removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law, and (b) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief in connection with alleged injury or threat of injury to
health, safety or the environment due to the presence of Hazardous Materials.
"Environmental Law" shall mean any Federal, state, foreign or
local statute, law, rule, regulation, ordinance, code, guideline, written
policy and rule of common law now or hereafter in effect and in each case as
amended, and any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent decree or judgment, relating to
the environment, employee health and safety or Hazardous Materials, including,
without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33
U.S.C. Section 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the
Safe Drinking Water Act, 42 U.S.C. Section 3803 et seq.; the Oil Pollution Act
of 1990, 33 U.S.C. Section 2701 et seq.; the Emergency Planning and the
Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the
Hazardous Material Transportation Act, 49 U.S.C. Section 1801 et seq. and the
Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq.; and any
state and local or foreign counterparts or equivalents, in each case as amended
from time to time.
"Equity Financing" shall mean, collectively, (i) the Public
Equity Offering and (ii) the Private Equity Offering.
"Equity Financing Documents" shall mean each of the documents
and other agreements entered into in connection with the Equity Financing.
"Equity Rollover" shall mean the issuance by the Borrower of
shares of its common stock for the account of the selling shareholders of Red
Lion as part of the Acquisition.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) which together with the Borrower or a Subsidiary of the
Borrower would be deemed to be a "single employer" within the meaning of
Section 414(b), (c), (m) or (o) of the Code.
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"Eurodollar Loan" shall mean each Loan designated as such by
the Borrower at the time of the incurrence thereof or conversion thereto.
"Eurodollar Rate" shall mean (a) the arithmetic average
(rounded upward to the nearest 1/100th of 1%) of the offered quotation to
first-class banks in the New York interbank Eurodollar market determined by
each Reference Bank for Dollar deposits of amounts in immediately available
funds comparable to the outstanding principal amount of the Eurodollar Loan of
such Reference Bank with maturities comparable to the Interest Period
applicable to such Eurodollar Loan commencing two Business Days thereafter as
of 11:00 A.M. (New York time) on the date which is two Business Days prior to
the commencement of such Interest Period, divided (and rounded upward to the
nearest 1/16 of 1%) by (b) a percentage equal to 100% minus the then stated
maximum rate of all reserve requirements (including, without limitation, any
marginal, emergency, supplemental, special or other reserves required by
applicable law) applicable to any member bank of the Federal Reserve System in
respect of Eurocurrency funding or liabilities as defined in Regulation D (or
any successor category of liabilities under Regulation D); provided that if one
or more of the Reference Banks fail to provide the Administrative Agent with
its aforesaid rate, then the Eurodollar Rate shall be determined based on the
rate or rates provided to the Administrative Agent by the other Reference Bank
or Reference Banks.
"Event of Default" shall have the meaning provided in Section
10.
"Excess Cash Flow" shall mean, for any period, the remainder
of (i) Adjusted Consolidated Cash Income for such period minus (ii) the sum of
(a) the amount of all Capital Expenditures, Hotel Acquisitions and Hotel
Investments made by the Borrower and its Subsidiaries pursuant to Sections
9.07(a), (b), (e) and (g) during such period, (b) the aggregate principal
amount of permanent principal payments of Indebtedness for borrowed money of
the Borrower and its Subsidiaries (other than repayments pursuant to which any
other Indebtedness is being refinanced with proceeds of Indebtedness, equity or
asset sales, and repayments of Loans, provided that repayments of Loans shall
be deducted in determining Excess Cash Flow if such repayments were (x)
required as a result of a Scheduled Repayment under Section 4.02(b) or (c) or
(y) made as a voluntary prepayment (other than a voluntary prepayment made
pursuant to the proviso in Section 4.01(a)(v)) (but in the case of a voluntary
prepayment of Revolving Loans or Swingline Loans, only to the extent
accompanied by a voluntary reduction to the Total Revolving Loan Commitment))
during such period and (c) any amount by which Adjusted Consolidated Cash
Income was increased during such period as a result of the portion of any
Designated Event that required a repayment pursuant to Section 4.02(i).
"Excess Cash Payment Date" shall mean the date occurring 100
days after the last day of each fiscal year of the Borrower (beginning with its
fiscal year ending December 31, 1997).
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"Excess Cash Payment Period" shall mean, with respect to the
repayment required on each Excess Cash Payment Date, the immediately preceding
fiscal year of the Borrower.
"Existing Doubletree Investments" shall mean those Investments
of the Borrower and its Subsidiaries (other than Red Lion and its Subsidiaries)
existing on the Initial Borrowing Date and set forth on Schedule XVI.
"Existing Glendale Debt" shall mean the $40,000,000 in
aggregate principal amount of loans that remain outstanding to the Borrower's
Joint Venture in Glendale, California on the Initial Borrowing Date.
"Existing Indebtedness" shall have the meaning provided in
Section 7.22.
"Existing Indebtedness Agreements" shall have the meaning
provided in Section 5.05.
"Existing Red Lion Investments" shall mean those Investments
of Red Lion and its Subsidiaries existing on the Initial Borrowing Date and set
forth on Schedule XVII.
"Existing Red Lion Joint Ventures" shall mean the eight Red
Lion Joint Ventures designated as such on Schedule VI.
"Facing Fee" shall have the meaning provided in Section
3.01(d).
"Federal Funds Rate" shall mean for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day
(or, if such day is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day on
such transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to or referred
to in Section 3.01.
"Foreign Pension Plan" shall mean any plan, fund (including,
without limitation, any superannuation fund) or other similar program
established or maintained outside the United States of America by the Borrower
or any one or more of its Subsidiaries primarily for the benefit of employees
of the Borrower or such Subsidiaries residing outside the United States of
America, which plan, fund or other similar program provides, or results in,
retirement income, a deferral of income in contemplation of
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retirement or payments to be made upon termination of employment, and which
plan is not subject to ERISA or the Code.
"Foreign Subsidiary" shall mean each Subsidiary of the
Borrower other than a Domestic Subsidiary.
"Hazardous Materials" shall mean (a) any petroleum or
petroleum products, radioactive materials, asbestos in any form that is
friable, urea formaldehyde foam insulation, transformers or other equipment
that contain dielectric fluid containing levels of polychlorinated biphenyls,
and radon gas; (b) any chemicals, materials or substances defined as or
included in the definition of "hazardous substances," "hazardous waste,"
"hazardous materials," "extremely hazardous substances," "restricted hazardous
waste," "toxic substances," "toxic pollutants," "contaminants," or
"pollutants," or words of similar import, under any applicable Environmental
Law; and (c) any other chemical, material or substance, the Release of which is
prohibited, limited or regulated by any governmental authority.
"Hotel Acquisition" shall mean an acquisition of a fee or
leasehold interest in a Hotel Property.
"Hotel Investment" shall mean an Investment by means of (i)
the acquisition of all or portion of the equity interest of a Person that
directly or indirectly owns, leases, manages or franchises one or more hotel or
motel properties or is otherwise engaged in the hotel or hospitality business,
(ii) the making of a loan, capital contribution or other advance or investment
in, to or for the benefit of a Subsidiary, an Unrestricted Subsidiary or a
Joint Venture of the Borrower that owns, leases, manages or franchises one or
more Hotel Properties, (iii) the making of an Investment in any Person in
consideration for the obtaining or retaining by Borrower or a Subsidiary of the
Borrower of the right to manage, lease or franchise one or more hotel or motel
properties, or in the reasonable expectation that such Investment will
materially enhance the ability of the Borrower or a Subsidiary of the Borrower
to obtain or to retain the right to manage, lease or franchise one or more
hotel or motel properties, (iv) the acquisition by the Borrower or a Subsidiary
of the Borrower of one or more existing management agreements, leases or
licensing or franchise rights with respect to a hotel or motel property or
properties, (v) any cash consideration paid by the Borrower or a Subsidiary
thereof to any Person (other than to the Borrower or a Wholly-Owned Subsidiary
thereof) in connection with any transaction permitted under Section 9.02(xv),
(vi) any drawing under a letter of credit (including any Letter of Credit)
issued for the account of the Borrower or any Subsidiary thereof and for the
benefit of any Person other than the Borrower or a Wholly-Owned Subsidiary
thereof or (vii) the payment by the Borrower or a Subsidiary thereof in respect
of any Contingent Obligation incurred by the Borrower or such Subsidiary for
the benefit of any Person not a Subsidiary Guarantor.
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"Hotel Property" shall mean each hotel or motel owned or
leased by the Borrower or any of its Subsidiaries or Joint Ventures (including
the furniture, fixtures and equipment thereon).
"Hotel Property Management Agreements" shall have the meaning
provided in Section 5.05.
"Immaterial Subsidiary" shall mean any Subsidiary of the
Borrower which (x) accounted for less than $2,500,000 of Consolidated EBITDA of
the Borrower for the Test Period then last ended and which, if aggregated with
all other Subsidiaries of the Borrower with respect to which an event described
under Section 10.05 or 10.09 has occurred and is continuing, would have
accounted for less than $2,500,000 of Consolidated EBITDA of the Borrower for
the Test Period then last ended and (y) would not constitute a "significant
subsidiary" as defined in Regulation S-X under the Securities Act and the
Securities Exchange Act and which, if aggregated with all other Subsidiaries of
the Borrower with respect to which an event described under Section 10.05 or
10.09 has occurred and is continuing, would not constitute a "significant
subsidiary" as defined in the Securities Act and the Securities Exchange Act.
"Inactive Subsidiary" shall mean any Wholly-Owned Subsidiary
of the Borrower that does not conduct any business activities.
"Indebtedness" shall mean, as to any Person, without
duplication, (i) all indebtedness (including principal, interest, fees and
charges) of such Person for borrowed money or for the deferred purchase price
of property or services, (ii) the maximum amount available to be drawn under
all letters of credit issued for the account of such Person and all unpaid
drawings in respect of such letters of credit, (iii) all Indebtedness of the
types described in clause (i), (ii), (iv), (v), (vi) or (vii) of this
definition secured by any Lien on any property owned by such Person, whether or
not such Indebtedness has been assumed by such Person (provided, that, if the
Person has not assumed or otherwise become liable in respect of such
Indebtedness, such Indebtedness shall be deemed to be in an amount equal to the
fair market value of the property to which such Lien relates as determined in
good faith by such Person), (iv) the aggregate amount required to be
capitalized under leases under which such Person is the lessee, (v) all
obligations of such person to pay a specified purchase price for goods or
services, whether or not delivered or accepted, i.e., take-or-pay and similar
obligations, (vi) all Contingent Obligations of such Person and (vii) all
obligations under any Interest Rate Protection Agreement, any Other Hedging
Agreement or under any similar type of agreement. Notwithstanding the
foregoing, Indebtedness shall not include trade payables and accrued expenses
incurred by any Person in accordance with customary practices and in the
ordinary course of business of such Person.
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"Indebtedness to be Refinanced" shall mean all Indebtedness
set forth on Schedule IV which is to be repaid in full as part of the
Refinancing.
"Initial Borrowing Date" shall mean the date occurring on or
after the Effective Date on which the initial Borrowing of Loans occurs.
"Intercompany Loan" shall have the meaning provided in Section
9.05(viii).
"Intercompany Note" shall mean a promissory note, in the form
of Exhibit L, evidencing Intercompany Loans.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section
1.09.
"Interest Rate Protection Agreement" shall mean any interest
rate swap agreement, interest rate cap agreement, interest collar agreement,
interest rate hedging agreement or other similar agreement or arrangement.
"Interest Reduction Discount" shall mean (i) in the case of
Tranche A Term Loan, Revolving Loans and Swingline Loans, initially zero, and
from and after any Start Date occurring after the last day of the first fiscal
quarter of the Borrower ended after the Initial Borrowing Date to and including
the corresponding End Date:
(A) 1/4 of 1% if, but only if, as of the Test Date for such
Start Date the Leverage Ratio for the Test Period ended on such Test
Date shall be less than 4.50:1.00 and none of the conditions set forth
in clauses (B), (C), (D), (E) and (F) below are satisfied;
(B) 3/8 of 1% if, but only if, as of the Test Date for such
Start Date the Leverage Ratio for the Test Period ended on such Test
Date shall be less than 4.25:1.00 and none of the conditions set forth
in clauses (C), (D), (E) and (F) below are satisfied;
(C) 1/2 of 1% if, but only if, as of the Test Date for such
Start Date the Leverage Ratio for the Test Period ended on such Test
Date shall be less than 4.00:1.00 and none of the conditions set forth
in clauses (D), (E) and (F) below are satisfied;
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(D) 5/8 of 1% if, but only if, as of the Test Date for such
Start Date the Leverage Ratio for the Test Period ended on such Test
Date shall be less than 3.75:1.00 and none of the conditions set forth
in clauses (E) and (F) below are satisfied;
(E) 3/4 of 1% if, but only if, as of the Test Date for such
Start Date the Leverage Ratio for the Test Period ended on such Test
Date shall be less than 3.50:1.00 and the condition set forth in
clause (F) below is not satisfied; or
(F) 7/8 of 1% if, but only if, as of the Test Date for such
Start Date the Leverage Ratio for the Test Period ended on such Test
Date shall be less than 3.25:1.00; and
(ii) in the case of Tranche B Term Loans, initially zero, and from and after
any Start Date occurring after the last day of the first fiscal quarter of the
Borrower ended after the Initial Borrowing Date to and including the
corresponding End Date:
(A) 1/4 of 1% if, but only if, as of the Test Date for such
Start Date the Leverage Ratio for the Test Period ended on such Test
Date shall be less than 4.50:1.00.
Notwithstanding anything to the contrary above in this definition, (i) for the
period from the Initial Borrowing Date to but not including the first Start
Date after the Initial Borrowing Date, the Interest Reduction Discount shall be
____ of 1% and (ii) the Interest Reduction Discount for all Loans shall be
reduced to zero at all times when a Default of the type described in Section
10.01 or 10.05 shall exist, or any Event of Default shall exist.
"Investments" shall have the meaning provided in Section 9.05.
"Issuing Bank" shall mean Scotiabank and any other Bank which at
the request of the Borrower and with the consent of the Agents (which consent
shall not be unreasonably withheld) agrees, in such Bank's sole discretion, to
become an Issuing Bank for the purpose of issuing Letters of Credit pursuant to
Section 2. The sole Issuing Bank on the Initial Borrowing Date is Scotiabank.
"Joint Venture" shall mean any Person in which the Borrower or
any Subsidiary of the Borrower owns, directly or indirectly, more than .1% but
less than 100% of the voting or equity interests or in which the Borrower or a
Subsidiary of the Borrower has general partnership liability.
"Joint Venture Agreements" shall have the meaning provided in
Section 5.05.
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"KKR" shall mean Kohlberg Kravis Roberts & Co., L.P., a Delaware
limited partnership.
"Leaseholds" of any Person shall mean all the right, title and
interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.
"L/C Supportable Obligations" shall mean (i) obligations of the
Borrower or any of its Subsidiaries or Joint Ventures with respect to workers
compensation, surety bonds and other similar statutory obligations and (ii)
such other obligations of the Borrower or any of its Subsidiaries or Joint
Ventures as are otherwise permitted to exist pursuant to (or otherwise not
restricted by) the terms of this Agreement.
"Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Letter of Credit Fee" shall have the meaning provided in Section
3.01(c).
"Letter of Credit Outstandings" shall mean, at any time, the sum
of (i) the aggregate Stated Amount of all outstanding Letters of Credit and
(ii) the amount of all Unpaid Drawings.
"Letter of Credit Request" shall have the meaning provided in
Section 2.03(a).
"Leverage Ratio" shall mean, at any time, the ratio of (x)
Consolidated Indebtedness at such time to (y) Consolidated EBITDA for the then
most recently ended Test Period.
"Lien" shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
preference, priority or other security agreement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing or similar statement or notice filed under
the UCC or any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Liquor License Subsidiary" shall mean any Wholly-Owned
Subsidiary of the Borrower the only business of which is to hold one or more
liquor licenses for hotels owned or leased by the Borrower and/or any of its
Subsidiaries.
"Loan" shall mean each Tranche A Term Loan, each Tranche B Term
Loan, each Revolving Loan and each Swingline Loan.
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"Majority Banks" of any Tranche shall mean those Non-Defaulting
Banks which would constitute the Required Banks under, and as defined in, this
Agreement if all outstanding Obligations of the other Tranches under this
Agreement were repaid in full and all Commitments with respect thereto were
terminated.
"Management Agreements" shall have the meaning provided in
Section 5.05.
"Mandatory Borrowing" shall have the meaning provided in Section
1.01(e).
"Margin Reduction Period" shall mean each period which shall
commence on a date on which the financial statements are delivered pursuant to
Section 8.01(a) or (b), as the case may be, and which shall end on the earlier
of (i) the date of actual delivery of the next financial statements pursuant to
Section 8.01(a) or (b), as the case may be, and (ii) the latest date on which
the next financial statements are required to be delivered to Section 8.01(a)
or (b), as the case may be, provided that the first Margin Reduction Period
shall commence no earlier than the date of delivery of the first set of
financial statements pursuant to Section 8.01(b) after the Initial Borrowing
Date.
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Leases" shall have the meaning provided in Section
5.05.
"Maturity Date" shall mean, with respect to any Tranche of Loans,
the Tranche A Term Loan Maturity Date, the Tranche B Term Loan Maturity Date,
the Revolving Loan Maturity Date or the Swingline Expiry Date, as the case may
be.
"Maximum Swingline Amount" shall mean $10,000,000.
"Merger Sub" shall mean RLH Acquisition Corp., a Delaware
corporation and a Wholly-Owned Subsidiary of the Borrower.
"Minimum Borrowing Amount" shall mean (i) for Term Loans,
$5,000,000, (ii) for Revolving Loans, $2,500,000 and (iii) for Swingline Loans,
$250,000.
"Minimum Consolidated Net Worth" shall mean, at any time, the sum
of (i) $680,000,000 plus (ii) 50% of Consolidated Net Income of the Borrower,
if positive, for each fiscal year of the Borrower (commencing with the fiscal
year ending December 31, 1997), it being understood that any increase to
Minimum Consolidated Net Worth shall be effective as of the last day of each
fiscal year of the Borrower.
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"Mortgage" shall mean each mortgage, deed to secure debt or deed
of trust pursuant to which any Credit Party shall have granted to the
Collateral Agent a mortgage lien on such Credit Party's Mortgaged Property.
"Mortgage Policy" shall have the meaning provided in Section
5.14.
"Mortgaged Property" shall mean each Real Property owned or
leased by any Credit Party and designated as a Mortgaged Property on Schedule
III or pursuant to Section 8.12.
"MSSF" shall mean Morgan Stanley Senior Funding, Inc., in its
individual capacity.
"Multiemployer Plan" shall mean a plan as defined in Section
4001(a)(3) of ERISA with respect to which the Borrower, any Subsidiary of the
Borrower or any ERISA Affiliate has an obligation to contribute to or any
liability.
"Net Debt Proceeds" shall mean, with respect to any incurrence of
Indebtedness for borrowed money, the cash proceeds (net of underwriting
discounts and commissions and other reasonable costs associated therewith)
received by the respective Person from the respective incurrence of such
Indebtedness for borrowed money.
"Net Equity Proceeds" shall mean, with respect to each issuance
or sale of any equity by any Person or any capital contribution to such Person,
the cash proceeds (net of underwriting discounts and commissions and other
reasonable costs associated therewith) received by such Person from the
respective sale of issuance of its equity or from the respective capital
contribution.
"Net Insurance Proceeds" shall mean, with respect to any Recovery
Event, the cash proceeds (net of reasonable costs and taxes incurred in
connection with such Recovery Event) received by the respective Person in
connection with the respective Recovery Event.
"Net Sale Proceeds" shall mean, for any Asset Sale, the gross
cash proceeds (including any cash received by way of deferred payment pursuant
to a promissory note, receivable or otherwise, but only as and when received)
received from such sale of assets, net of the reasonable costs of such sale
(including fees and commissions, payments of unassumed liabilities relating to
the assets sold and required payments of any Indebtedness (other than
Indebtedness secured pursuant to the Security Documents or any Indebtedness
owed to the Borrower or a Subsidiary thereof) which is secured by the
respective assets which were sold), and the incremental taxes paid or payable
as a result of such Asset Sale.
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"New Subordinated Note Documents" shall mean the New Subordinated
Notes, any indenture or purchase agreement related thereto and each of the
other documents entered into in connection therewith.
"New Subordinated Notes" shall have the meaning provided in
Section 9.04(x).
"Non-Defaulting Bank" shall mean and include each Bank other than
a Defaulting Bank.
"Non-Recourse Indebtedness" shall mean, with respect to any
Specified Subsidiary, Indebtedness incurred by such Specified Subsidiary which
is (i) secured only by the Hotel Property being developed or acquired by such
Specified Subsidiary, including any fixtures, furniture and equipment related
thereto and (ii) is non-recourse to the Borrower and its other Subsidiaries and
in which neither the Borrower nor any of its other Subsidiaries have provided
any credit support.
"Non-Subsidiary Joint Venture" shall mean any Joint Venture of
the Borrower that is not also a Subsidiary of the Borrower.
"Note" shall mean each Tranche A Term Note, each Tranche B Term
Note, each Revolving Note and the Swingline Note.
"Notice of Borrowing" shall have the meaning provided in Section
1.03(a).
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Administrative Agent
located at 600 Peachtree Street, N.E., Suite 2700, Atlanta, Georgia 30308,
Attention: ____________, or such other office as the Administrative Agent may
hereafter designate in writing as such to the other parties hereto.
"Obligations" shall mean all amounts owing to any Agent, the
Collateral Administrative Agent or any Bank pursuant to the terms of this
Agreement or any other Credit Document.
"Other Creditor" shall have the meaning provided in the Security
Documents.
"Other Hedging Agreement" shall mean any foreign exchange
contracts, currency swap agreements, commodity agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency values.
"Participant" shall have the meaning provided in Section 2.04(a).
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"Payment Office" shall mean the office of the Administrative
Agent located at 600 Peachtree Street, N.E., Suite 2700, Atlanta, Georgia
30308, or such other office as the Administrative Agent may hereafter designate
in writing as such to the other parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Encumbrance" shall mean, with respect to any Mortgaged
Property, such exceptions to title as are set forth in the title insurance
policy or title commitment delivered with respect thereto, all of which
exceptions must be reasonably acceptable to the Agents in their reasonable
discretion.
"Permitted Holders" shall mean GE Investment Management
Incorporated and its Affiliates and KKR, its general partners and/or its
Affiliates.
"Permitted Liens" shall have the meaning provided in Section
9.01.
"Person" shall mean any individual, partnership, joint venture,
firm, corporation, association, limited liability company, trust or other
enterprise or any government or political subdivision or any agency, department
or instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2) of
ERISA, other than a multiemployer plan as defined in Section 4001(a)(3) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower or a Subsidiary of the Borrower or an
ERISA Affiliate or with respect to which any such entity has liability.
"Pledge Agreement" shall have the meaning provided in Section
5.11.
"Pledge Agreement Collateral" shall mean all "Collateral" as
defined in the Pledge Agreement.
"Pledged Notes" shall have the meaning provided in the Pledge
Agreement.
"Pledged Securities" shall mean all "Pledged Securities" as
defined in the Pledge Agreement.
"Prime Lending Rate" shall mean the rate which the Administrative
Agent announces from time to time as its prime lending rate, the Prime Lending
Rate to change when and as such prime lending rate changes. The Prime Lending
Rate is a reference rate and does not necessarily represent the lowest or best
rate actually charged to any customer.
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The Administrative Agent may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate.
"Private Equity Offering" shall mean the issuance by the Borrower
of shares of its common stock to General Electric Pension Trust or an affiliate
thereof pursuant to the respective Equity Financing Documents.
"Pro Forma Basis" shall mean, with respect to any Hotel
Acquisition, Hotel Investment, Asset Sale, Redesignation Event or incurrence of
Indebtedness, the calculation of the consolidated results of the Borrower and
its Subsidiaries otherwise determined in accordance with this Agreement as if
the respective Hotel Acquisition, Hotel Investment, Asset Sale, Redesignation
Event or Indebtedness (and all other Indebtedness incurred or Hotel
Acquisitions, Hotel Investments, Redesignation Event and/or Asset Sales
effected during the respective Calculation Period or thereafter and on or prior
to the date of determination) (each such date, a "Determination Date") had been
effected on the first day of the respective Calculation Period; provided that
all such calculations shall be made on a basis consistent with the requirements
of Regulation S-X under the Securities Act and the Exchange Act and shall take
into account the following assumptions:
(i) interest expense attributable to interest on any
Indebtedness (whether existing or being incurred) bearing a floating
interest rate shall be computed as if the rate in effect on the date
of computation (taking into account any Interest Rate Protection
Agreement applicable to such Indebtedness if such Interest Rate
Protection Agreement has a remaining term in excess of 12 months) had
been the applicable rate for the entire period; and
(ii) pro forma effect shall be given to all Asset Sales,
Redesignation Events, Hotel Acquisitions and Hotel Investments (by
excluding or including, as the case may be, the historical financial
results for the respective Hotel Properties) that occur during such
Calculation Period or thereafter and on or prior to the Determination
Date (including any Indebtedness assumed or acquired in connection
therewith) as if they had occurred on the first day of such
Calculation Period.
"Projections" shall mean the projections prepared by the
Borrower and set forth in the Confidential Information Memorandum.
"Public Equity Offering" shall mean the issuance by the
Borrower of shares of its common stock through a registered public offering
pursuant to the respective Equity Financing Documents (including as a result of
the exercise by the respective underwriters of their over-allotment option).
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"Qualified Preferred Stock" shall mean any preferred stock of
the Borrower, the express terms of which shall provide that Dividends thereon
shall not be required to be paid in cash at any time that such cash payment
would be prohibited by the terms of this Agreement (and any refinancings,
replacements or extensions hereof) and in either case which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (including an event which
would constitute a Change of Control), cannot mature (excluding any maturity as
the result of an optional redemption by the issuer thereof) and is not
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, and
is not redeemable, or required to be repurchased (including, without
limitation, upon the occurrence of an event which would constitute a Change of
Control), in whole or in part, on or prior to the first anniversary of the
Tranche B Term Loan Maturity Date.
"Quarterly Payment Date" shall mean each March 31, June 30,
September 30 and December 31 occurring after the Initial Borrowing Date.
"RCRA" shall mean the Resource Conservation and Recovery Act,
as the same may be amended from time to time, 42 U.S.C. Section 6901 et seq.
"Real Property" of any Person shall mean all the right, title
and interest of such Person in and to land, improvements and fixtures,
including Leaseholds.
"Recovery Event" shall mean the receipt by the Borrower or any
of its Subsidiaries or Joint Ventures of any cash insurance proceeds or
condemnation awards payable (i) by reason of theft, loss, physical destruction,
damage, taking or any other similar event with respect to any property or
assets of the Borrower or any of its Subsidiaries or Joint Ventures and (ii)
under any policy of insurance required to be maintained under Section 8.03.
"Redesignation Event" shall mean the designation by the
Borrower of a Specified Subsidiary as an Unrestricted Subsidiary in accordance
with the definition of Unrestricted Subsidiary and so long as (i) the Borrower
gives the Agents prior written notice thereof, (ii) no Default or Event of
Default then exists or would result therefrom, (iii) all transactions between
the Specified Subsidiary to be so designated and its Affiliates remaining in
effect are permitted pursuant to Section 9.06, (iv) any Investment made by the
Borrower or any Subsidiary thereof to such Specified Subsidiary shall
thereafter be considered as having been a Hotel Investment (to the extent not
previously included as a Hotel Investment) made on the day such Specified
Subsidiary is designated an Unrestricted Subsidiary in the amount of the
greater of (x) the fair market value (as determined by the Board of Directors
of the Borrower in good faith) of the equity interests of such Specified
Subsidiary held by the Borrower and its Subsidiaries on such date, and (y) the
amount of the Investments made by the Borrower and any of its Subsidiaries in
such Specified Subsidi-
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ary and (v) (I) based on calculations made by the Borrower on a Pro Forma Basis
after giving effect to the respective designation, no Default or Event of
Default will exist under, or would have existed during the Test Period last
reported (or required to be reported pursuant to Section 8.01(a) or (b), as the
case may be) prior to the date of the respective designation pursuant to, the
financial covenants contained in Sections 9.08 through 9.11, inclusive, and
(II) the Borrower shall have delivered to the Agents an officer's certificate
executed by the Chief Financial Officer of the Borrower, certifying to the best
of such officer's knowledge, compliance with the requirements of this clause
(v) and containing the calculations (in reasonable detail) required by this
clause (v).
"Red Lion" shall mean Red Lion Hotels, Inc., a Delaware
corporation.
"Red Lion Master Lease" shall mean the Lease, dated as of
August 1, 1995, between RLH Partnership, L.P., as landlord, and Red Lion, as
tenant.
"Red Lion Master Property Management Agreement" shall mean the
Management Agreement, dated April 6, 1987, between Red Lion Inns Operating L.P.
and RL Acquisition Company.
"Red Lion Properties" shall mean Red Lion Properties, Inc., a
Delaware corporation.
"Reference Banks" shall mean Scotiabank, Bankers Trust Company
and Societe Generale.
"Refinancing" shall mean the repayment in full of, and the
termination of all commitments in respect of, the Indebtedness to be
Refinanced.
"Refinancing Documents" shall mean all of the documents and
agreements entered into in connection with the Refinancing.
"Register" shall have the meaning provided in Section 13.15.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.
"Regulation G" shall mean Regulation G of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
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"Regulation T" shall mean Regulation T of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
"Release" shall mean the disposing, discharging, injecting,
spilling, pumping, leaking, leaching, dumping, emitting, escaping, emptying,
pouring or migrating, into or upon any land or water or air, or otherwise
entering into the environment.
"Replaced Bank" shall have the meaning provided in Section
1.13.
"Replacement Bank" shall have the meaning provided in Section
1.13.
"Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA
other than those events as to which the 30-day notice period is waived under
subsection .13, .14, .16, .18, .19 or .20 of PBGC Regulation Section 4043.
"Required Banks" shall mean Non-Defaulting Banks the sum of
whose outstanding Term Loans (and, if prior to the termination thereof, Term
Loan Commitments) and Revolving Loan Commitments (or after the termination
thereof, outstanding Revolving Loans and Adjusted RL Percentage of Swingline
Loans and Letter of Credit Outstandings) represent an amount greater than 50%
of the sum of all outstanding Term Loans (and, if prior to the termination
thereof, the Term Loan Commitments) of Non-Defaulting Banks and the Adjusted
Total Revolving Loan Commitment (or after the termination thereof, the sum of
the then total outstanding Revolving Loans of Non-Defaulting Banks, and the
aggregate Adjusted RL Percentages of all Non-Defaulting Banks of the total
outstanding Swingline Loans and Letter of Credit Outstandings at such time).
"Retained Excess Cash Flow Amount" shall mean, for each Excess
Cash Payment Period, an amount equal to 50% of Excess Cash Flow for such Excess
Cash Payment Period less the amount of all Capital Expenditures, Hotel
Acquisitions and Hotel Investments previously made pursuant to Section 9.07(f).
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"Retained Net Equity Proceeds" shall mean the 50% of all Net
Equity Proceeds not required to be applied pursuant to Section 4.02(d).
"Retained Net Equity Proceeds Amount" shall mean, at any time,
an amount equal to 50% of all Net Equity Proceeds theretofore received (other
than the first $250,000,000 of Net Equity Proceeds received from the Equity
Fiancning) less (i) the amount of all voluntary prepayments previously made
pursuant to the proviso of Section 4.01(a)(v) utilizing the Retained Net Equity
Proceeds Amount, (ii) the amount of all Retained Net Equity Proceeds from the
Equity Financing used to make payments owing in connection with the Transaction
and (iii) the amount of all Capital Expenditures, Hotel Acquisitions and Hotel
Investments previously made pursuant to Section 9.07(d).
"Returns" shall have the meaning provided in Section 7.09.
"Revolving Loan" shall have the meaning provided in Section
1.01(c).
"Revolving Loan Commitment" shall mean, for each Bank, the
amount set forth opposite such Bank's name in Schedule I directly below the
column entitled "Revolving Loan Commitment," as same may be (x) reduced from
time to time pursuant to Sections 3.02, 3.03 and/or 10 or (y) adjusted from
time to time as a result of assignments to or from such Bank pursuant to
Section 1.13 or 13.04(b).
"Revolving Loan Commitment Commission" shall have the meaning
provided in Section 3.01(b).
"Revolving Loan Maturity Date" shall mean November 15, 2002.
"Revolving Note" shall have the meaning provided in Section
1.05(a).
"RFS" shall mean RFS, Inc., a Tennessee corporation.
"RFS REIT" shall mean RFS Hotel Investors, Inc., a Tennessee
corporation.
"RFS REIT Equity" shall mean the 973,684 shares of convertible
preferred stock in the RFS REIT and the limited partnereship (less than 1%) in
RFS Partnership, L.P., in each case owned by RFS on the Initial Borrowing Date.
"RFS REIT Leases" shall mean the master lease arrangement
pursuant to which RFS leases, as tenant, 49 hotels for RFS REIT, as landlord.
"RFS Sub" shall have the meaning provided in Section 9.05(xi).
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"RL Percentage" of any Bank at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Revolving Loan
Commitment of such Bank at such time and the denominator of which is the Total
Revolving Loan Commitment at such time, provided that if the RL Percentage of
any Bank is to be determined after the Total Revolving Loan Commitment has been
terminated, then the RL Percentages of the Banks shall be determined
immediately prior (and without giving effect) to such termination.
"Scheduled Repayments" shall have the meaning provided in
Section 4.02(c).
"Scotiabank" shall mean The Bank of Nova Scotia, in its
individual capacity.
"SEC" shall have the meaning provided in Section 8.01(g).
"Second Term Loan Borrowing Date" shall mean a single date
occurring after the Initial Borrowing Date and on or prior to the Tranche A
Term Loan Commitment Termination Date on which Tranche A Term Loans are
incurred to refinance the outstanding Existing Glendale Debt to the extent that
same constitutes Indebtedness to be Refinanced.
"Section 4.04(b)(ii) Certificate" shall have the meaning
provided in Section 4.04(b)(ii).
"Secured Creditors" shall have the meaning assigned that term
in the respective Security Documents.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Securities Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"Security Agreement" shall have the meaning provided in
Section 5.12.
"Security Agreement Collateral" shall mean all "Collateral" as
defined in the Security Agreement.
"Security Document" shall mean and include each of the
Security Agreement, the Pledge Agreement and each Mortgage and, after the
execution and delivery thereof, each Additional Security Document.
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"Shareholders' Agreements" shall have the meaning provided in
Section 5.05.
"Specified Existing Red Lion Investment Proceeds" shall mean
cash proceeds received by the Borrower or a Subsidiary thereof from a Specified
Red Lion Event.
"Specified Red Lion Event" shall mean (i) any sale or
liquidation of an Existing Red Lion Investment, (ii) any principal repayment of
any loan or advance in respect of an Existing Red Lion Investment (except for
regularly occurring repayments made in the ordinary course of business), (iii)
any redemption, distribution or dividend made in respect of an Existing Red
Lion Investment (other than any regularly occurring distribution or dividend
made in the ordinary course of business) or (iv) any repayment of principal of
any loan or advance made to the Borrower or a Subsidiary thereof by the Joint
Venture holding the Existing Glendale Debt to the extent that the proceeds in
the original loan or advance were used to refinance the Existing Glendale Debt
and were made with proceeds of Loans.
"Specified Subsidiary" shall mean any Subsidiary of the
Borrower created after the Initial Borrowing Date, so long as such Subsidiary
has no assets other than the Hotel Property to be developed and/or acquired by
such Subsidiary with Non-Recourse Indebtedness incurred pursuant to Section
9.04(xi).
"Standby Letter of Credit" shall have the meaning provided in
Section 2.01(a).
"Start Date" shall mean, with respect to any Margin Reduction
Period, the first day of such Margin Reduction Period.
"Stated Amount" of each Letter of Credit shall, at any time,
mean the maximum amount available to be drawn thereunder (in each case
determined without regard to whether any conditions to drawing could then be
met).
"Subsidiary" shall mean, as to any Person, (i) any corporation
more than 50% of whose stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such Person and/or
one or more Subsidiaries of such Person, (ii) any partnership, association,
joint venture or other entity in which such Person and/or one or more
Subsidiaries of such Person has more than a 50% equity interest at the time and
(iii) any Consolidated Joint Venture. Notwithstanding the foregoing (x) (and
except for purposes of the definition of Unrestricted Subsidiary contained
herein), an Unrestricted Subsidiary shall be deemed not to be a Subsidiary of
the Borrower or any of its other Subsidiaries for purposes of this
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Agreement and (y) Arlington Hotel Corp. shall not be considered a Subsidiary of
the Borrower for purposes of this Agreement so long as neither the Borrower nor
any of its Subsidiaries own directly (and not by pledge), in the aggregate,
more than 30% of the total equity interest in Arlington Hotel Corp. and at
least 70% of the voting rights in Arlington Hotel Corp. reside with the
existing lender to Arlington Hotel Corp. or an assignee of such lender.
"Subsidiary Guarantor" shall mean each Wholly-Owned Domestic
Subsidiary of the Borrower and, to the extent required by Section 8.13, each
Wholly-Owned Foreign Subsidiary of the Borrower, in either case other than (i)
any Liquor License Subsidiary, (ii) any Inactive Subsidiary, (iii) any
Specified Subsidiary that has incurred Non-Recourse Indebtedness, (iv) any
Wholly-Owned Subsidiary designated as not being a Subsidiary Guarantor on
Schedule VI so long as such Wholly-Owned Subsidiary does not have any
additional material assets other than those assets held by it on the Initial
Borrowing Date, (v) any Wholly-Owned Subsidiary of the Borrower established
after the Initial Borrowing Date for the sole purpose of holding a joint
venture interest in a Joint Venture to the extent that (and for so long as)
such Wholly-Owned Subsidiary is contractually required to maintain a minimum
net worth and (vi) Red Lion Properties, RFS and RFS Sub.
"Subsidiaries Guaranty" shall have the meaning provided in
Section 5.13.
"Supermajority Banks" of any Tranche shall mean those
Non-Defaulting Banks which would constitute the Required Banks under, and as
defined in, this Agreement if (x) all outstanding Obligations of the other
Tranches under this Agreement were repaid in full and all Commitments with
respect thereto were terminated and (y) the percentage "50%" contained therein
were changed to "66-2/3%."
"Swingline Bank" shall mean Scotiabank.
"Swingline Expiry Date" shall mean the date which is five
Business Days prior to the Revolving Loan Maturity Date.
"Swingline Loan" shall have the meaning provided in Section
1.01(d).
"Swingline Note" shall have the meaning provided in Section
1.05(a).
"Syndication Agent" shall mean MSSF, in its capacity as
Syndication Agent and Arranger for the Banks hereunder.
"Syndication Date" shall have the meaning provided in Section
1.01(a).
"Tax Sharing Agreements" shall have the meaning provided in
Section 5.05.
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"Taxes" shall have the meaning provided in Section 4.04(a).
"Temporary Hotel Acquisition Transaction" shall mean the
acquisition by the Borrower or a Wholly-Owned Subsidiary thereof of a Hotel
Property with the intention of selling such Hotel Property to a third Person
(other than to the Borrower or a Subsidiary thereof) within 120 days following
the date of such acquisition, so long as (i) at the time of such acquisition,
the Borrower delivers a certificate to the Agents stating that the Borrower or
such Wholly-Owned Subsidiary is entering into a Temporary Hotel Acquisition
Transaction and setting forth in such certificate all material information
relating thereto (including the purchase price of such Hotel Property) and (ii)
the sale to such third Person occurs within 120 days of the initial acquisition
of such Hotel Property and for a purchase price at least equal to the original
purchase price paid by the Borrower or the respective Wholly-Owned Subsidiary
for such Hotel Property.
"Term Loan" shall mean each Tranche A Term Loan and each
Tranche B Term Loan.
"Term Loan Borrowing Date" shall mean the Initial Borrowing
Date and the Second Term Loan Borrowing Date.
"Term Loan Commitment" shall mean each Tranche A Term Loan
Commitment and each Tranche B Term Loan Commitment, with the Term Loan
Commitment of any Bank at any time to equal the sum of its Tranche A Term Loan
Commitment and Tranche B Term Loan Commitment as then in effect.
"Term Loan Commitment Commission" shall have the meaning
provided in Section 3.01(a).
"Term Loan Percentage" shall mean the Tranche A Term Loan
Percentage or the Tranche B Term Loan Percentage, as applicable.
"Test Date" shall mean, with respect to any Start Date, the
last day of the most recent fiscal quarter or year, as the case may be, of the
Borrower ended immediately prior to such Start Date.
"Test Period" shall mean (i) for purposes of calculating
Consolidated EBITDA under Sections 9.09 and 9.10 and under the definition of
Interest Reduction Discount, the period of four consecutive fiscal quarters of
the Borrower then last ended (in each case taken as one accounting period, and
(ii) for all other purposes of this Agreement, (x) for any determination made
on and prior to December 30, 1997, the period from January 1, 1997 to the last
day of the fiscal quarter of the Borrower the last ended (in each case taken as
one accounting period) and (y) for any determination made thereafter, the
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period of four consecutive fiscal quarters of the Borrower then last ended (in
each case taken as one accounting period).
"Total Commitments" shall mean, at any time, the sum of the
Commitments of each of the Banks.
"Total Revolving Loan Commitment" shall mean, at any time, the
sum of the Revolving Loan Commitments of each of the Banks.
"Total Term Loan Commitment" shall mean, at any time, the sum
of the Total Tranche A Term Loan Commitment and the Total Tranche B Term Loan
Commitment.
"Total Tranche A Term Loan Commitment" shall mean, at any
time, the sum of the Tranche A Term Loan Commitments of each of the Banks.
"Total Tranche B Term Loan Commitment" shall mean, at any
time, the sum of the Tranche B Term Loan Commitments of each of the Banks.
"Total Unutilized Revolving Loan Commitment" shall mean, at
any time, an amount equal to the remainder of (x) the Total Revolving Loan
Commitment then in effect, less (y) the sum of the aggregate principal amount
of Revolving Loans and Swingline Loans then outstanding plus the then aggregate
amount of Letter of Credit Outstandings.
"Trade Letter of Credit" shall have the meaning provided in
Section 2.01(a).
"Tranche" shall mean the respective facility and commitments
utilized in making Loans hereunder, with there being four separate Tranches,
i.e., Tranche A Term Loans, Tranche B Term Loans, Revolving Loans and Swingline
Loans.
"Tranche A Term Loan" shall have the meaning provided in
Section 1.01(a).
"Tranche A Term Loan Commitment" shall mean, for each Bank,
the amount set forth opposite such Bank's name in Schedule I directly below the
column entitled "Tranche A Term Loan Commitment," as same may be (x) reduced
from time to time pursuant to Sections 3.02, 3.03, 4.02 and/or 10 or (y)
adjusted from time to time as a result of assignments to or from such Bank
pursuant to Section 1.13 or 13.04(b).
"Tranche A Term Loan Commitment Termination Date" shall mean
the earlier of (x) March 17, 1997 and (y) the Second Term Loan Borrowing Date.
"Tranche A Term Loan Maturity Date" shall mean November 15,
2002.
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"Tranche A Term Loan Percentage" shall mean, at any time, a
fraction (expressed as a percentage) the numerator of which is equal to the sum
of the aggregate principal amount of all Tranche A Term Loans outstanding at
such time plus the Total Tranche A Term Loan Commitment at such time and the
denominator of which is equal to the sum of the aggregate principal amount of
all Term Loans outstanding at such time plus the Total Term Loan Commitment at
such time.
"Tranche A Term Loan Scheduled Repayment" shall have the
meaning provided in Section 4.02(b).
"Tranche A Term Loan Scheduled Repayment Date" shall have the
meaning provided in Section 4.02(b).
"Tranche A Term Note" shall have the meaning provided in
Section 1.05(a).
"Tranche B Term Loan" shall have the meaning provided in
Section 1.01(b).
"Tranche B Term Loan Commitment" shall mean, for each Bank,
the amount set forth opposite such Bank's name in Schedule I directly below the
column entitled "Tranche B Term Loan Commitment," as same may be (x) reduced
from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y) adjusted
from time to time as a result of assignments to or from such Bank pursuant to
Section 1.13 or 13.04(b).
"Tranche B Term Loan Maturity Date" shall mean May 15, 2004.
"Tranche B Term Loan Percentage" shall mean, at any time, a
fraction (expressed as a percentage) the numerator of which is equal to the
aggregate principal amount of all B Term Loans outstanding at such time (or
prior to the Initial Borrowing Date, the Total Tranche B Term Loan Commitment
at such time) and the denominator of which is equal to the sum of the aggregate
principal amount of all Term Loans outstanding at such time plus the Total Term
Loan Commitment at such time.
"Tranche B Term Loan Scheduled Repayment" shall have the
meaning provided in Section 4.02(c).
"Tranche B Term Loan Scheduled Repayment Date" shall have the
meaning provided in Section 4.02(c).
"Tranche B Term Note" shall have the meaning provided in
Section 1.05(a).
"Transaction" shall mean, collectively, (i) the Acquisition,
(ii) the Equity Financing, (iii) the Equity Rollover, (iv) the incurrence of
Loans on the Initial Borrowing
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Date, (v) the Refinancing and (vi) the payment of fees and expenses owing in
connection with the foregoing.
"Type" shall mean the type of Loan determined with regard to
the interest option applicable thereto, i.e., whether a Base Rate Loan or a
Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to
time in effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan shall mean the
amount, $5,000,000 or greater, by which the actuarial present value of the
accumulated plan benefits under the Plan as of the close of its most recent
plan year exceeds the fair market value of the assets allocable thereto, each
determined in accordance with Statement of Financial Accounting Standards No.
87, based upon the actuarial assumptions used by the Plan's actuary in the most
recent annual valuation of the Plan.
"United States" and "U.S." shall each mean the United States
of America.
"Unpaid Drawing" shall have the meaning provided for in
Section 2.05(a).
"Unutilized Revolving Loan Commitment" with respect to any
Bank, at any time, shall mean such Bank's Revolving Loan Commitment at such
time less the sum of (i) the aggregate outstanding principal amount of
Revolving Loans made by such Bank and (ii) such Bank's Adjusted RL Percentage
of the Letter of Credit Outstandings.
"Unrestricted Subsidiary" shall mean any Subsidiary of the
Borrower that is acquired or created after the Initial Borrowing Date and is
designated by the Borrower at the time of the acquisition or creation thereof
as an Unrestricted Subsidiary hereunder by written notice to the Agents and
shall include any Subsidiary of such Unrestricted Subsidiary; provided that the
Borrower shall only be permitted to designate a Subsidiary as an Unrestricted
Subsidiary so long as (i) no Default or Event of Default then exists or would
result therefrom, (ii) such Unrestricted Subsidiary shall be capitalized (to
the extent capitalized by the Borrower or any of its Subsidiaries) through cash
Hotel Investments as permitted by, and in compliance with, Section 9.07, (iii)
such Unrestricted Subsidiary does not own any capital stock of or other equity
interests in, or have any Lien on any property of, the Borrower or any
Subsidiary of the Borrower other than a Subsidiary of the Unrestricted
Subsidiary and (iv) any Indebtedness of such Unrestricted Subsidiary is
expressly made non-recourse to the Borrower or any of its other Subsidiaries.
Notwithstanding the foregoing, the Borrower may designate any Specified
Subsidiary that has incurred Non-Recourse Indebtedness as an Unrestricted
Subsidiary so long as (x) clauses (iii) and (iv) of the proviso in the
preceding sentence are satisfied with respect to
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such Specified Subsidiary and (y) the conditions in the definition of
Redesignation Event are satisfied.
"U.S. Internal Revenue Service Forms" shall have the meaning
provided in Section 4.04(b).
"Waivable Mandatory Repayment" shall have the meaning provided
in Section 4.02(m).
"Wholly-Owned Domestic Subsidiary" shall mean, as to any
Person, any Wholly-Owned Subsidiary of such Person which is a Domestic
Subsidiary.
"Wholly-Owned Foreign Subsidiary" shall mean, as to any
Person, any Wholly-Owned Subsidiary of such Person which is a Foreign
Subsidiary.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i)
any corporation 100% of whose capital stock (other than director's qualifying
shares) is at the time owned by such Person and/or one or more Wholly-Owned
Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Wholly-Owned
Subsidiaries of such Person has a 100% equity interest at such time.
SECTION 12. The Administrative Agent and the Syndication
Agent.
12.01 Appointment. The Banks hereby designate Scotiabank as
Administrative Agent (for purposes of this Section 12, the term "Administrative
Agent" also shall include Scotiabank in its capacity as Collateral
Administrative Agent pursuant to the Security Documents) to act as specified
herein and in the other Credit Documents. The Banks hereby designate MSSF as
Syndication Agent (for purposes of this Section 12, the term "Syndication
Agent" also shall include MSSF in its capacity as Arranger) to act as specified
herein and in the other Credit Documents. Each Bank hereby irrevocably
authorizes, and each holder of any Note by the acceptance of such Note shall be
deemed irrevocably to authorize, the Administrative Agent and the Syndication
Agent to take such action on its behalf under the provisions of this Agreement,
the other Credit Documents and any other instruments and agreements referred to
herein or therein and to exercise such powers and to perform such duties
hereunder and thereunder as are specifically delegated to or required of the
Administrative Agent and the Syndication Agent by the terms hereof and thereof
and such other powers as are reasonably incidental thereto. The Administrative
Agent and the Syndication Agent may perform any of their duties hereunder by or
through its respective officers, directors, agents, employees or affiliates.
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12.02 Nature of Duties. Neither the Administrative Agent nor
the Syndication Agent in their capacity as such shall have any duties or
responsibilities except those expressly set forth in this Agreement and in the
other Credit Documents. Neither the Administrative Agent, the Syndication
Agent in their capacity as such nor any of their respective officers,
directors, agents, employees or affiliates shall be liable for any action taken
or omitted by it or them hereunder or under any other Credit Document or in
connection herewith or therewith, unless caused by its or their gross
negligence or willful misconduct. The duties of the Administrative Agent and
the Syndication Agent shall be mechanical and administrative in nature; neither
the Administrative Agent nor the Syndication Agent shall have by reason of this
Agreement or any other Credit Document a fiduciary relationship in respect of
any Bank or the holder of any Note; and nothing in this Agreement or any other
Credit Document, expressed or implied, is intended to or shall be so construed
as to impose upon the Administrative Agent or the Syndication Agent any
obligations in respect of this Agreement or any other Credit Document except as
expressly set forth herein or therein.
12.03 Lack of Reliance on the Administrative Agent and the
Syndication Agent. Independently and without reliance upon the Administrative
Agent or the Syndication Agent, each Bank and the holder of each Note, to the
extent it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the
Borrower and its Subsidiaries and Joint Ventures in connection with the making
and the continuance of the Loans and the taking or not taking of any action in
connection herewith and (ii) its own appraisal of the creditworthiness of the
Borrower and its Subsidiaries and Joint Ventures and, except as expressly
provided in this Agreement, neither the Administrative Agent nor the
Syndication Agent shall have any duty or responsibility, either initially or on
a continuing basis, to provide any Bank or the holder of any Note with any
credit or other information with respect thereto, whether coming into its
possession before the making of the Loans or at any time or times thereafter.
Neither the Administrative Agent nor the Syndication Agent shall be responsible
to any Bank or the holder of any Note for any recitals, statements,
information, representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith or for the
execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, priority or sufficiency of this Agreement or any other Credit
Document or the financial condition of the Borrower or any of its Subsidiaries
or Joint Ventures or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any other Credit Document, or the financial condition of the
Borrower or any of its Subsidiaries or Joint Ventures or the existence or
possible existence of any Default or Event of Default.
12.04 Certain Rights of the Agents. If any Agent shall
request instructions from the Required Banks with respect to any act or action
(including failure to act) in connection with this Agreement or any other
Credit Document, such Agent shall be entitled
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to refrain from such act or taking such action unless and until such Agent
shall have received instructions from the Required Banks; and such Agent shall
not incur liability to any Person by reason of so refraining. Without limiting
the foregoing, no Bank or the holder of any Note shall have any right of action
whatsoever against any Agent as a result of such Agent acting or refraining
from acting hereunder or under any other Credit Document in accordance with the
instructions of the Required Banks.
12.05 Reliance. The Administrative Agent and the Syndication
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any note, writing, resolution, notice, statement, certificate, telex, teletype
or telecopier message, cablegram, radiogram, order or other document or
telephone message signed, sent or made by any Person that the Administrative
Agent or the Syndication Agent believed to be the proper Person, and, with
respect to all legal matters pertaining to this Agreement and any other Credit
Document and its duties hereunder and thereunder, upon advice of counsel
selected by the Administrative Agent or the Syndication Agent, as the case may
be.
12.06 Indemnification. To the extent the Administrative
Agent or the Syndication Agent is not reimbursed and indemnified by the
Borrower or any of its Subsidiaries, the Banks will reimburse and indemnify the
Administrative Agent and the Syndication Agent, in proportion to their
respective "percentages" as used in determining the Required Banks, for and
against any and all liabilities, obligations, losses, damages, penalties,
claims, actions, judgments, costs, expenses or disbursements of whatsoever kind
or nature which may be imposed on, asserted against or incurred by the
Administrative Agent or the Syndication Agent in performing its respective
duties hereunder or under any other Credit Document, in any way relating to or
arising out of this Agreement or any other Credit Document; provided that no
Bank shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Administrative Agent's or the Syndication Agent's gross
negligence or willful misconduct.
12.07 The Administrative Agent and the Syndication Agent in
their Individual Capacity. With respect to its obligation to make Loans, or
issue or participate in Letters of Credit, under this Agreement, the
Administrative Agent and the Syndication Agent shall have the rights and powers
specified herein for a "Bank" and may exercise the same rights and powers as
though it were not performing the duties specified herein; and the term
"Banks," "Required Banks," "Majority Banks," "Supermajority Banks," "holders of
Notes" or any similar terms shall, unless the context clearly otherwise
indicates, include the Administrative Agent and the Syndication Agent in their
individual capacity. The Administrative Agent and the Syndication Agent and
their affiliates may accept deposits from, lend money to, and generally engage
in any kind of banking, investment banking, trust or other business with, or
provide debt financing, equity capital or other services (including financial
advisory services) to, any Credit Party or any Affiliate of any Credit
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Party (or any Person engaged in a similar business with any Credit Party or any
Affiliate thereof) as if they were not performing the duties specified herein,
and may accept fees and other consideration from any Credit Party or any
Affiliate of any Credit Party for services in connection with this Agreement
and otherwise without having to account for the same to the Banks.
12.08 Holders. Any Agent may deem and treat the payee of any
Note as the owner thereof for all purposes hereof unless and until a written
notice of the assignment, transfer or endorsement thereof, as the case may be,
shall have been filed with the Administrative Agent. Any request, authority or
consent of any Person who, at the time of making such request or giving such
authority or consent, is the holder of any Note shall be conclusive and binding
on any subsequent holder, transferee, assignee or indorsee, as the case may be,
of such Note or of any Note or Notes issued in exchange therefor.
12.09 Resignation by the Administrative Agent and the
Syndication Agent. (a) The Administrative Agent and/or the Syndication Agent
may resign from the performance of all their respective functions and duties
hereunder and/or under the other Credit Documents at any time by giving 15
Business Days' prior written notice to the Banks and the Borrower (provided
that no such notice shall be required to be given to the Borrower if a Default
or an Event of Default of the type described in Section 10.05 exists with
respect to the Borrower). Such resignation, in the case of the Administrative
Agent, shall take effect upon the appointment of a successor Administrative
Agent pursuant to clauses (b) and (c) below or as otherwise provided below, and
such resignation, in the case of the Syndication Agent, shall take effect
immediately.
(b) Upon any such notice of resignation by the Administrative
Agent, the Required Banks shall appoint a successor Administrative Agent
hereunder or thereunder who shall be a commercial bank or trust company
reasonably acceptable to the Borrower (it being understood and agreed that any
Non-Defaulting Bank is deemed to be acceptable to the Borrower).
(c) If a successor Administrative Agent shall not have been
so appointed within such 15 Business Day period, the Administrative Agent with
the consent of the Borrower (which consent shall not be unreasonably withheld
or delayed), shall then appoint a successor Administrative Agent who shall
serve as Administrative Agent hereunder or thereunder until such time, if any,
as the Required Banks appoint a successor Administrative Agent as provided
above.
(d) If no successor Administrative Agent has been appointed
pursuant to clause (b) or (c) above by the 60th day after the date such notice
of resignation was given by the Administrative Agent, Administrative Agent's
resignation shall become effective and the Required Banks shall thereafter
perform all the duties of the Administrative Agent
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hereunder and/or under any other Credit Document until such time, if any, as
the Required Banks appoint a successor Administrative Agent as provided above.
SECTION 13. Miscellaneous.
13.01 Payment of Expenses, etc. The Borrower shall: (i)
whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Agents (including, without
limitation, the reasonable fees and disbursements of White & Case and of the
Agents's local counsel and consultants) in connection with the preparation,
execution and delivery of this Agreement and the other Credit Documents and the
documents and instruments referred to herein and therein and any amendment,
waiver or consent relating hereto or thereto, of the Agents in connection with
its syndication efforts with respect to this Agreement and of the Agents and,
after the occurrence of an Event of Default, each of the Banks in connection
with the enforcement of this Agreement and the other Credit Documents and the
documents and instruments referred to herein and therein (including, without
limitation, the reasonable fees and disbursements of counsel for the Agents
and, after the occurrence of an Event of Default, for each of the Banks); (ii)
pay and hold each of the Banks harmless from and against any and all present
and future stamp, excise and other similar documentary taxes with respect to
the foregoing matters and save each of the Banks harmless from and against any
and all liabilities with respect to or resulting from any delay or omission
(other than to the extent attributable to such Bank) to pay such taxes; and
(iii) indemnify each Agent and each Bank, and each of their respective
officers, directors, employees, representatives and agents from and hold each
of them harmless against any and all liabilities, obligations (including
removal or remedial actions), losses, damages, penalties, claims, actions,
judgments, suits, costs, expenses and disbursements (including reasonable
attorneys' and consultants' fees and disbursements) incurred by, imposed on or
assessed against any of them as a result of, or arising out of, or in any way
related to, or by reason of, (a) any investigation, litigation or other
proceeding (whether or not any Agent or any Bank is a party thereto) related to
the entering into and/or performance of this Agreement or any other Credit
Document or the use of any Letter of Credit or the proceeds of any Loans
hereunder or the consummation of the Transaction or any other transactions
contemplated herein or in any other Credit Document or the exercise of any of
their rights or remedies provided herein or in the other Credit Documents, or
(b) the actual or alleged presence of Hazardous Materials in the air, surface
water or groundwater or on the surface or subsurface of any Real Property owned
or at any time operated by the Borrower or any of its Subsidiaries or Joint
Ventures, the generation, storage, transportation, handling or disposal of
Hazardous Materials at any location, whether or not owned or operated by the
Borrower or any of its Subsidiaries or Joint Ventures, the non-compliance of
any Real Property with foreign, federal, state and local laws, regulations, and
ordinances (including applicable permits thereunder) applicable to any Real
Property, or any Environmental Claim asserted against the Borrower, any of its
Subsidiaries or Joint Ventures or any Real Property owned or at any time
operated by the
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Borrower or any of its Subsidiaries or Joint Ventures, including, in each case,
without limitation, the reasonable fees and disbursements of counsel and other
consultants incurred in connection with any such investigation, litigation or
other proceeding (but excluding any losses, liabilities, claims, damages or
expenses to the extent incurred by reason of the gross negligence or willful
misconduct of the Person to be indemnified). To the extent that the
undertaking to indemnify, pay or hold harmless any Agent or any Bank set forth
in the preceding sentence may be unenforceable because it is violative of any
law or public policy, the Borrower shall make the maximum contribution to the
payment and satisfaction of each of the indemnified liabilities which is
permissible under applicable law.
13.02 Right of Setoff. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence of an Event of Default, each
Bank is hereby authorized (to the extent not prohibited by applicable law) at
any time or from time to time, without presentment, demand, protest or other
notice of any kind to the Borrower or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and apply any and
all deposits (general or special) and any other Indebtedness at any time held
or owing by such Bank (including, without limitation, by branches and agencies
of such Bank wherever located) to or for the credit or the account of any
Credit Party against and on account of the Obligations and liabilities of the
Credit Parties to such Bank under this Agreement or under any of the other
Credit Documents, including, without limitation, all interests in Obligations
purchased by such Bank pursuant to Section 13.06(b), and all other claims of
any nature or description arising out of or connected with this Agreement or
any other Credit Document, irrespective of whether or not such Bank shall have
made any demand hereunder and although said Obligations, liabilities or claims,
or any of them, shall be contingent or unmatured. Notwithstanding anything to
the contrary contained in this Section 13.02, no Bank shall exercise any such
right of set-off without the prior consent of the Agents or the Required Banks
so long as the Obligations shall be secured by any Real Property located in the
State of California, it being understood and agreed, however, that this
sentence is for the sole benefit of the Banks and (notwithstanding anything to
the contrary contained in Section 13.12) may be amended, modified or waived in
any respect by the Required Banks without the requirement of prior notice to or
consent by any Credit Party and does not constitute a waiver of any right
against any Credit Party or against any Collateral.
13.03 Notices. Except as otherwise expressly provided
herein, all notices and other communications provided for hereunder shall be in
writing (including telegraphic, telex, telecopier or cable communication) and
mailed, telegraphed, telexed, telecopied, cabled or delivered: if to any
Credit Party, at the address specified opposite its signature below or in the
other relevant Credit Documents; if to any Bank, at its address specified on
Schedule II; if to the Syndication Agent, at the address specified on Schedule
II; and if to the Administrative Agent, at its Notice Office; or, as to any
Credit Party or any Agent, at such other address as shall be designated by such
party in a written notice to the other
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parties hereto and, as to each Bank, at such other address as shall be
designated by such Bank in a written notice to the Borrower and the
Administrative Agent. All such notices and communications shall, when mailed,
telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be
effective when deposited in the mails, delivered to the telegraph company,
cable company or overnight courier, as the case may be, or sent by telex or
telecopier, except that notices and communications to any Agent or any Credit
Party shall not be effective until received by such Agent or such Credit Party.
13.04 Benefit of Agreement; Assignments; Participations. (a)
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto;
provided, however, the Borrower may not assign or transfer any of its rights,
obligations or interest hereunder without the prior written consent of the
Banks and, provided further, that, although any Bank may transfer, assign or
grant participations in its rights hereunder, such Bank shall remain a "Bank"
for all purposes hereunder (and may not transfer or assign all or any portion
of its Commitments hereunder except as provided in Sections 1.13 and 13.04(b))
and the transferee, assignee or participant, as the case may be, shall not
constitute a "Bank" hereunder and, provided further, that no Bank shall
transfer or grant any participation under which the participant shall have
rights to approve any amendment to or waiver of this Agreement or any other
Credit Document except to the extent such amendment or waiver would (i) extend
the final scheduled maturity of any Loan, Note or Letter of Credit (unless such
Letter of Credit is not extended beyond the Revolving Loan Maturity Date) in
which such participant is participating, or reduce the rate or extend the time
of payment of interest or Fees thereon (except in connection with a waiver of
applicability of any post-default increase in interest rates) or reduce the
principal amount thereof, or increase the amount of the participant's
participation over the amount thereof then in effect (it being understood that
a waiver of any Default or Event of Default or of a mandatory reduction in the
Total Commitment, shall not constitute a change in the terms of such
participation, and that an increase in any Commitment or Loan shall be
permitted without the consent of any participant if the participant's
participation is not increased as a result thereof), (ii) consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement or (iii) release all or substantially all of the
Collateral under all of the Security Documents (except as expressly provided in
the Credit Documents) supporting the Loans hereunder in which such participant
is participating. In the case of any such participation, the participant shall
not have any rights under this Agreement or any of the other Credit Documents
(the participant's rights against such Bank in respect of such participation to
be those set forth in the agreement executed by such Bank in favor of the
participant relating thereto) and all amounts payable by the Borrower hereunder
shall be determined as if such Bank had not sold such participation.
(b) Notwithstanding the foregoing, any Bank (or any Bank
together with one or more other Banks) may (x) assign all or a portion of its
Commitments and related
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outstanding Obligations hereunder to its parent company and/or any affiliate of
such Bank which is at least 50% owned by such Bank or its parent company or to
one or more Banks or (y) assign all, or if less than all, a portion equal to at
least $5,000,000 in the aggregate for the assigning Bank or assigning Banks, of
such Commitments and related outstanding Obligations hereunder to one or more
Eligible Transferees, each of which assignees shall become a party to this
Agreement as a Bank by execution of an Assignment and Assumption Agreement,
provided that, (i) at such time Schedule I shall be deemed modified to reflect
the Commitments (or outstanding Term Loans, as the case may be) of such new
Bank and of the existing Banks, (ii) upon the surrender of the relevant Notes
by the assigning Bank (or, upon such assigning Bank's indemnifying the Borrower
for any lost Note pursuant to a customary indemnification agreement) new Notes
will be issued, at the Borrower's expense, to such new Bank and to the
assigning Bank upon the request of such new Bank or assigning Bank, such new
Notes to be in conformity with the requirements of Section 1.05 (with
appropriate modifications) to the extent needed to reflect the revised
Commitments (or outstanding Term Loans, as the case may be), (iii) the consent
of each Agent shall be required in connection with any assignment to an
Eligible Transferee pursuant to clause (y) above (which consent shall not be
unreasonably withheld or delayed), (iv) so long as no Default or Event of
Default exists, the consent of the Borrower shall be required in connection
with any assignment to an Eligible Transferee pursuant to clause (y) above
(which consent shall not be unreasonably withheld or delayed), (v) the
Administrative Agent shall receive at the time of each such assignment, from
the assigning or assignee Bank, the payment of a non-refundable assignment fee
of $3,500 and (vi) no such transfer or assignment will be effective until
recorded by the Administrative Agent on the Register pursuant to Section 13.15.
To the extent of any assignment pursuant to this Section 13.04(b), the
assigning Bank shall be relieved of its obligations hereunder with respect to
its assigned Commitments. At the time of each assignment pursuant to this
Section 13.04(b) to a Person which is not already a Bank hereunder and which is
not a United States person (as such term is defined in Section 7701(a)(30) of
the Code) for Federal income tax purposes, the respective assignee Bank shall,
to the extent legally entitled to do so, provide to the Borrower the
appropriate Internal Revenue Service Forms (and, if applicable, a Section
4.04(b) (ii) Certificate) described in Section 4.04(b). To the extent that an
assignment of all or any portion of a Bank's Commitments and related
outstanding Obligations pursuant to Section 1.13 or this Section 13.04(b)
would, at the time of such assignment, result in increased costs under Section
1.10, 2.06 or 4.04 from those being charged by the respective assigning Bank
prior to such assignment, then the Borrower shall not be obligated to pay such
increased costs (although the Borrower, in accordance with and pursuant to the
other provisions of this Agreement, shall be obligated to pay any other
increased costs of the type described above resulting from changes after the
date of the respective assignment).
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(c) Nothing in this Agreement shall prevent or prohibit any
Bank from pledging its Loans and Notes hereunder to a Federal Reserve Bank in
support of borrowings made by such Bank from such Federal Reserve Bank.
13.05 No Waiver; Remedies Cumulative. No failure or delay on
the part of the Administrative Agent, the Syndication Agent, the Collateral
Agent or any Bank in exercising any right, power or privilege hereunder or
under any other Credit Document and no course of dealing between the Borrower
or any other Credit Party and the Administrative Agent, the Syndication Agent,
the Collateral Agent or any Bank shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege hereunder or
under any other Credit Document preclude any other or further exercise thereof
or the exercise of any other right, power or privilege hereunder or thereunder.
The rights, powers and remedies herein or in any other Credit Document
expressly provided are cumulative and not exclusive of any rights, powers or
remedies which the Administrative Agent, the Syndication Agent, the Collateral
Agent or any Bank would otherwise have. No notice to or demand on any Credit
Party in any case shall entitle any Credit Party to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the
rights of the Administrative Agent, the Syndication Agent, the Collateral Agent
or any Bank to any other or further action in any circumstances without notice
or demand.
13.06 Payments Pro Rata. (a) Except as otherwise provided
in this Agreement, the Administrative Agent agrees that promptly after its
receipt of each payment from or on behalf of the Borrower in respect of any
Obligations hereunder, it shall distribute such payment to the Banks (other
than any Bank that has consented in writing to waive its pro rata share of any
such payment) pro rata based upon their respective shares, if any, of the
Obligations with respect to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security,
by the exercise of the right of setoff or banker's lien, by counterclaim or
cross action, by the enforcement of any right under the Credit Documents, or
otherwise), which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings, Commitment Commission or Letter of Credit Fees,
of a sum which with respect to the related sum or sums received by other Banks
is in a greater proportion than the total of such Obligation then owed and due
to such Bank bears to the total of such Obligation then owed and due to all of
the Banks immediately prior to such receipt, then such Bank receiving such
excess payment shall purchase for cash without recourse or warranty from the
other Banks an interest in the Obligations of the respective Credit Party to
such Banks in such amount as shall result in a proportional participation by
all the Banks in such amount; provided that if all or any portion of such
excess amount is thereafter recovered from such Bank, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
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(c) Notwithstanding anything to the contrary contained
herein, the provisions of the preceding Sections 13.06(a) and (b) shall be
subject to the express provisions of this Agreement which require, or permit,
differing payments to be made to Non-Defaulting Banks as opposed to Defaulting
Banks.
13.07 Calculations; Computations; Accounting Terms. (a) The
financial statements to be furnished to the Banks pursuant hereto shall be made
and prepared in accordance with generally accepted accounting principles in the
United States consistently applied throughout the periods involved (except as
set forth in the notes thereto or as otherwise disclosed in writing by the
Borrower to the Banks); provided that, (i) except as otherwise specifically
provided herein, all computations of Excess Cash Flow and Interest Reduction
Discount, and all computations and all definitions used in determining
compliance with Sections 9.08 through 9.11, inclusive, shall utilize accounting
principles and policies in conformity with those used to prepare the historical
financial statements of the Borrower delivered to the Banks pursuant to Section
7.05(a), but adjusted for periods after the Initial Borrowing Date to give
effect to purchase accounting adjustments required under generally accepted
accounting principles in the United States as a result of the Acquisition (and
the valuation of the assets being acquired pursuant to the Acquisition as a
result thereof), (ii) notwithstanding anything to the contrary contained in
preceding clause (i), for each Test Period which ends on or prior to September
30, 1997, the calculation of Consolidated EBITDA will be based on, and in
accordance with, the relevant pro forma income statements delivered pursuant to
Section 8.01(i) and (iii) so long as recourse in respect of the Austin
Obligations is limited solely to the Borrower's Hotel Property in Austin,
Texas, for purposes of the computations described in preceding clause (i),the
Austin Obligations shall be treated as if same did not exist and as if there
were no interest expense applicable thereto.
(b) All computations of interest in respect of Eurodollar
Loans, and all computation of Commitment Commission and other Fees hereunder,
shall be made on the basis of a year of 360 days for the actual number of days
(including the first day but excluding the last day (except that in the case of
Letter of Credit Fees, the last day shall be included) occurring in the period
for which such interest, Commitment Commission or Fees are payable. All
computations of interest in respect of Base Rate Loans hereunder shall be made
on the basis of a year of 365/366 days for the actual number of days (including
the first day but excluding the last day) occurring in the period for which
such interest is payable.
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE;
WAIVER OF JURY TRIAL. (A) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL,
EXCEPT AS OTHERWISE PROVIDED IN THE MORTGAGES, BE CONSTRUED IN ACCORDANCE WITH
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AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT
OR ANY OTHER CREDIT DOCUMENT, THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. THE BORROWER HEREBY FURTHER IRREVOCABLY
WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER THE
BORROWER, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION PROCEEDING WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENTS BROUGHT IN ANY OF THE
AFOREMENTIONED COURTS, THAT SUCH COURTS LACK PERSONAL JURISDICTION OVER THE
BORROWER. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS
OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
THE BORROWER AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH
SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. THE BORROWER HEREBY
IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING
COMMENCED HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS
WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT
OF ANY AGENT, ANY BANK OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST THE BORROWER IN ANY OTHER JURISDICTION.
(B) THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE
AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (A) ABOVE AND HEREBY FURTHER IRREVOCABLY, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
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<PAGE> 150
(C) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
13.09 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. A set of counterparts executed by all the parties hereto shall be
lodged with the Borrower and the Administrative Agent.
13.10 Effectiveness. This Agreement shall become effective
on the date (the "Effective Date") on which the Borrower, the Administrative
Agent, the Syndication Agent and each of the Banks shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered the same to the Administrative Agent at its Notice Office or, in the
case of the Banks, shall have given to the Administrative Agent telephonic
(confirmed in writing), written or telex notice (actually received) at such
office that the same has been signed and mailed to it. The Administrative
Agent will give the Borrower and each Bank prompt written notice of the
occurrence of the Effective Date.
13.11 Headings Descriptive. The headings of the several
sections and subsections of this Agreement are inserted for convenience only
and shall not in any way affect the meaning or construction of any provision of
this Agreement.
13.12 Amendment or Waiver; etc. (a) Neither this Agreement
nor any other Credit Document nor any terms hereof or thereof may be changed,
waived, discharged or terminated unless such change, waiver, discharge or
termination is in writing signed by the respective Credit Parties party thereto
and the Required Banks, provided that no such change, waiver, discharge or
termination shall, without the consent of each Bank (other than a Defaulting
Bank) (with Obligations being directly affected in the case of following clause
(i)), (i) extend the final scheduled maturity of any Loan or Note or extend the
stated expiration date of any Letter of Credit beyond the Revolving Loan
Maturity Date, or reduce the rate or extend the time of payment of interest or
Fees thereon, or reduce the principal amount thereof (except to the extent
repaid in cash) (it being understood that any amendment or modification to the
financial definitions in this Agreement or to Section 13.07(a) shall not
constitute a reduction in the rate of interest or any Fees for purposes of this
clause (i)), (ii) release all or substantially all of the Collateral (except as
expressly provided in the Credit Documents) under all the Security Documents,
(iii) amend, modify or waive any provision of this Section 13.12, (iv) reduce
the percentage specified in the definition of Required Banks (it being
understood that, with the consent of the Required Banks, additional extensions
of credit pursuant to this Agreement may be included in the determina-
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<PAGE> 151
tion of the Required Banks on substantially the same basis as the extensions of
Term Loans and Revolving Loan Commitments are included on the Effective Date)
or (v) consent to the assignment or transfer by the Borrower of any of its
rights and obligations under this Agreement; provided further, that no such
change, waiver, discharge or termination shall (t) increase the Commitments of
any Bank over the amount thereof then in effect without the consent of such
Bank (it being understood that waivers or modifications of conditions
precedent, covenants, Defaults or Events of Default or of a mandatory reduction
in the Total Commitments shall not constitute an increase of the Commitment of
any Bank, and that an increase in the available portion of any Commitment of
any Bank shall not constitute an increase of the Commitment of such Bank), (u)
without the consent of each Issuing Bank, amend, modify or waive any provision
of Section 2 or alter its rights or obligations with respect to Letters of
Credit, (v) without the consent of each Agent, amend, modify or waive any
provision of Section 12 or any other provision as same relates to the rights or
obligations of the Agents, (x) without the consent of the Collateral Agent,
amend, modify or waive any provision relating to the rights or obligations of
the Collateral Agent, (y) without the consent of the Majority Banks of each
Tranche which is being allocated a lesser prepayment, repayment or commitment
reduction as a result of the actions described below (or without the consent of
the Majority Banks of each Tranche in the case of an amendment to the
definition of Majority Banks), amend the definition of Majority Banks (it being
understood that, with the consent of the Required Banks, additional extensions
of credit pursuant to this Agreement may be included in the determination of
the Majority Banks on substantially the same basis as the extensions of Term
Loans and Revolving Loan Commitments are included on the Effective Date) or
alter the required application of any prepayments or repayments (or commitment
reductions), as between the various Tranches, pursuant to Section 4.01(a) or
4.02 (excluding Sections 4.02(b) and (c)) (although the Required Banks may
waive, in whole or in part, any such prepayment, repayment or commitment
reduction, so long as the application, as amongst the various Tranches, of any
such prepayment, repayment or commitment reduction which is still required to
be made is not altered) or (z) without the consent of the Supermajority Banks
of the respective Tranche, reduce the amount of, or extend the date of, any
Tranche A Term Loan Scheduled Repayment or Tranche B Term Loan Scheduled
Repayment, as the case may be, or without the consent of the Supermajority
Banks of each Tranche, amend the definition of Supermajority Banks (it being
understood that, with the consent of the Required Banks, additional extensions
of credit pursuant to this Agreement may be included in the determination of
the Supermajority Banks on substantially the same basis as the extensions of
Term Loans and Revolving Loan Commitments are included on the Effective Date).
(b) If, in connection with any proposed change, waiver,
discharge or termination to any of the provisions of this Agreement as
contemplated by clauses (i) through (v), inclusive, of the first proviso to
Section 13.12(a), the consent of the Required Banks is obtained but the consent
of one or more of such other Banks whose consent is required is not obtained,
then the Borrower shall have the right, so long as all non-consenting Banks
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<PAGE> 152
whose individual consent is required are treated as described in either clauses
(A) or (B) below, to either (A) replace each such non- consenting Bank or Banks
(or, at the option of the Borrower if the respective Bank's consent is required
with respect to less than all Tranches of Loans (or related Commitments), to
replace only the respective Tranche or Tranches of Commitments and/or Loans of
the respective non- consenting Bank which gave rise to the need to obtain such
Bank's individual consent) with one or more Replacement Banks pursuant to
Section 1.13 so long as at the time of such replacement, each such Replacement
Bank consents to the proposed change, waiver, discharge or termination or (B)
terminate such non-consenting Bank's Commitments (if such Bank's consent is
required as a result of its Commitments) and/or repay each Tranche of
outstanding Term Loans of such Bank which gave rise to the need to obtain such
Bank's consent, in accordance with Sections 3.02(c) and/or 4.01(b), provided
that, unless the Commitments that are terminated, and Loans repaid, pursuant to
preceding clause (B) are immediately replaced in full at such time through the
addition of new Banks or the increase of the Commitments and/or outstanding
Loans of existing Banks (who in each case must specifically consent thereto),
then in the case of any action pursuant to preceding clause (B) the Required
Banks (determined after giving effect to the proposed action) shall
specifically consent thereto, provided further, that in any event the Borrower
shall not have the right to replace a Bank, terminate its Commitments or repay
its Loans solely as a result of the exercise of such Bank's rights (and the
withholding of any required consent by such Bank) pursuant to the second
proviso to Section 13.12(a).
13.13 Survival. All indemnities set forth herein including,
without limitation, in Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 13.01 shall
survive the execution, delivery and termination of this Agreement and the Notes
and the making and repayment of the Obligations.
13.14 Domicile of Loans. Each Bank may transfer and carry
its Loans at, to or for the account of any office, Subsidiary or Affiliate of
such Bank. Notwithstanding anything to the contrary contained herein, to the
extent that a transfer of Loans pursuant to this Section 13.14 would, at the
time of such transfer, result in increased costs under Section 1.10, 1.11, 2.06
or 4.04 from those being charged by the respective Bank prior to such transfer,
then the Borrower shall not be obligated to pay such increased costs (although
the Borrower shall be obligated to pay any other increased costs of the type
described above resulting from changes after the date of the respective
transfer).
13.15 Register. The Borrower hereby designates the
Administrative Agent to serve as the Borrower's agent, solely for purposes of
this Section 13.15, to maintain a register (the "Register") on which it will
record the Commitments from time to time of each of the Banks, the Loans made
by each of the Banks and each repayment in respect of the principal amount of
the Loans of each Bank. Failure to make any such recordation, or any error in
such recordation shall not affect the Borrower's obligations in respect of such
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<PAGE> 153
Loans. With respect to any Bank, the transfer of the Commitments of such Bank
and the rights to the principal of, and interest on, any Loan made pursuant to
such Commitments shall not be effective until such transfer is recorded on the
Register maintained by the Administrative Agent with respect to ownership of
such Commitments and Loans and prior to such recordation all amounts owing to
the transferor with respect to such Commitments and Loans shall remain owing to
the transferor. The registration of assignment or transfer of all or part of
any Commitments and Loans shall be recorded by the Administrative Agent on the
Register only upon the acceptance by the Administrative Agent of a properly
executed and delivered Assignment and Assumption Agreement pursuant to Section
13.04(b). Coincident with the delivery of such an Assignment and Assumption
Agreement to the Administrative Agent for acceptance and registration of
assignment or transfer of all or part of a Loan, or as soon thereafter as
practicable, the assigning or transferor Bank shall surrender the Note
evidencing such Loan, and thereupon one or more new Notes in the same aggregate
principal amount shall be issued to the assigning or transferor Bank and/or the
new Bank. The Borrower agrees to indemnify the Administrative Agent from and
against any and all losses, claims, damages and liabilities of whatsoever
nature which may be imposed on, asserted against or incurred by the Agent in
performing its duties under this Section 13.15.
13.16 Confidentiality. (a) Subject to the provisions of
clause (b) of this Section 13.16, each Bank agrees that it will use its
reasonable best efforts not to disclose without the prior consent of the
Borrower (other than to its employees, auditors, advisors or counsel or to
another Bank if the Bank or such Bank's holding or parent company in its sole
discretion determines that any such party should have access to such
information, provided such Persons shall be subject to the provisions of this
Section 13.16 to the same extent as such Bank) any information with respect to
the Borrower or any of its Subsidiaries or Joint Ventures which is now or in
the future furnished pursuant to this Agreement or any other Credit Document
and which is designated by the Borrower to the Banks in writing as
confidential, provided that any Bank may disclose any such information (a) as
has become generally available to the public other than by virtue of a breach
of this Section 13.16(a) by the respective Bank, (b) as may be required or
reasonably appropriate in any report, statement or testimony submitted to any
municipal, state or Federal regulatory body having or claiming to have
jurisdiction over such Bank or to the Federal Reserve Board or the Federal
Deposit Insurance Corporation or similar organizations (whether in the United
States or elsewhere) or their successors, (c) as may be required or reasonably
appropriate in respect to any summons or subpoena or in connection with any
litigation, (d) in order to comply with any law, order, regulation or ruling
applicable to such Bank, (e) to the Agents or the Collateral Agent and (f) to
any prospective or actual transferee or participant in connection with any
contemplated transfer or participation of any of the Notes or Commitments or
any interest therein by such Bank, provided that such prospective transferee
agrees to be bound by the confidentiality provisions contained in this Section
13.16.
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<PAGE> 154
(b) The Borrower hereby acknowledges and agrees that each
Bank may share with any of its affiliates any information related to the
Borrower or any of its Subsidiaries or Joint Ventures (including, without
limitation, any nonpublic customer information regarding the creditworthiness
of the Borrower and its Subsidiaries and Joint Ventures, provided such Persons
shall be subject to the provisions of this Section 13.16 to the same extent as
such Bank).
13.17 Limitation on Increased Costs. Notwithstanding
anything to the contrary contained in Section 1.10, 1.11, 2.06 or 4.04, unless
a Bank gives notice to the Borrower that it is obligated to pay an amount under
any such Section within 180 days after the later of (x) the date such Bank
incurs the respective increased costs, Taxes, loss, expense or liability, or
reduction in amounts received or receivable or reduction in return on capital
or (y) the date such Bank has actual knowledge of its incurrence of the
respective increased costs, Taxes, loss, expense or liability, or reductions in
amounts received or receivable or reduction in return on capital, then such
Bank shall only be entitled to be compensated for such amount by the Borrower
pursuant to said Section 1.10, 1.11, 2.06 or 4.04, as the case may be, to the
extent the costs, Taxes, loss, expense or liability, or reduction in amounts
received or receivable or reduction in return on capital are incurred or
suffered on or after the date which occurs 180 days prior to such Bank giving
notice to the Borrower that it is obligated to pay the respective amounts
pursuant to said Section 1.10, 1.11, 2.06 or 4.04, as the case may be. This
Section 13.17 shall have no applicability to any Section of this Agreement or
any other Credit Document other than said Sections 1.10, 1.11, 2.06 and 4.04.
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<PAGE> 155
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Address:
- -------
410 North 44th Street DOUBLETREE CORPORATION
Suite 700
Phoenix, Arizona 85008
Telephone No.: (602) 220-6666
Telecopier No.: (602) 220-6753 By
---------------------------------
Attention: Chief Financial Officer Title:
MORGAN STANLEY SENIOR FUNDING,
INC., Individually and as
Syndication Agent
and Arranger
By
---------------------------------
Title:
THE BANK OF NOVA SCOTIA,
Individually and as
Administrative Agent
By
---------------------------------
Title:
CIBC, INC.,
Individually and as a Managing
Agent
By
---------------------------------
Title:
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<PAGE> 156
CREDIT LYONNAIS NEW YORK BRANCH,
Individually and as a Managing
Agent and as Collateral Agent
By_________________________________
Title:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, Individually and as a
Managing Agent
By_________________________________
Title:
SOCIETE GENERALE, Individually and
as a Managing Agent
By_________________________________
Title:
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<PAGE> 157
ALLIED IRISH
By:
--------------------------------
Title
ALLSTATE
By:
--------------------------------
Title
APPALOOSA MANAGEMENT
By:
--------------------------------
Title
BANK OF BOSTON
By:
--------------------------------
Title
BANKERS TRUST COMPANY
By:
--------------------------------
Title
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<PAGE> 158
BANQUE NATIONALE DE PARIS
By:
--------------------------------
Title
THE BANK OF HAWAII
By:
--------------------------------
Title
THE BANK OF NEW YORK
By:
--------------------------------
Title
CHANCELLOR CAPITAL MANAGEMENT, INC.
By:
--------------------------------
Title
CHL HIGH YIELD
By:
--------------------------------
Title
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<PAGE> 159
CHANG HWA COMMERCIAL BANK
By:
--------------------------------
Title
CITIBANK, N.A.
By:
--------------------------------
Title
DEAN WITTER
By:
--------------------------------
Title
DONALDSON LUFKIN & JENRETTE
By:
--------------------------------
Title
DRESDNER BANK AG, NEW YORK BRANCH
By:
--------------------------------
Title
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<PAGE> 160
EATON VANCE
By:
--------------------------------
Title
FIRST HAWAIIAN
By:
--------------------------------
Title
THE FUJI BANK LIMITED
By:
--------------------------------
Title
GIROCREDIT BANK AG DER SPARKASSEN
By:
--------------------------------
Title
HARCH CAPITAL MANAGEMENT
By:
--------------------------------
Title
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<PAGE> 161
HIBERNIA
By:
--------------------------------
Title
INDUSTRIAL BANK OF JAPAN, LIMITED
By:
--------------------------------
Title
IMPERIAL BANK
By:
--------------------------------
Title
INDOSUEZ CAPITAL FUNDING II, LIMITED
By:
------------------------------
Title
ING CAPITAL ADVISERS
By:
------------------------------
Title
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<PAGE> 162
KEY BANK OF WASHINGTON
By:
------------------------------
Title
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.
By:
------------------------------
Title
MASSACHUSETTS MUTUAL LIFE INSRANCE
COMPANY
By:
------------------------------
Title
MELLON BANK
By:
------------------------------
Title
MERRILL LYNCH
By:
------------------------------
Title
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<PAGE> 163
MIDLAND
By:
------------------------------
Title
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:
------------------------------
Title
MITSUI LEASING (U.S.A.) INC.
By:
------------------------------
Title
NATIONSBANK, N.A.
By:
--------------------------------
Title
THE NIPPON CREDIT BANK, LTD., LOS
ANGELES AGENCY
By:
--------------------------------
Title
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<PAGE> 164
NORTHERN LIFE INSURANCE
By:
--------------------------------
Title
OAK HILL SECURITIES
By:
--------------------------------
Title
ORIX USA CORPORATION
By:
--------------------------------
Title
PILGRIM PRIME RATE TRUST
By:
--------------------------------
Title
PPM AMERICA, INC.
By:
--------------------------------
Title
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<PAGE> 165
PROTECTIVE ASSET
MANAGEMENT, L.L.C.
By:
--------------------------------
Title
THE ROYAL BANK OF SCOTLAND PLC
By:
--------------------------------
Title
THE SAKURA BANK, LIMITED
By:
--------------------------------
Title
SANWA BUSINESS CREDIT CORPORATION
By:
--------------------------------
Title
SOUTHERN PACIFIC THRIFT & LOAN
ASSOCIATION
By:
--------------------------------
Title
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<PAGE> 166
THE SUMITOMO BANK, LIMITED
By:
--------------------------------
Title
SUN AMERICA
By:
--------------------------------
Title
TCW ASSET MANAGEMENT
By:
--------------------------------
Title
TOYO TRUST & BANKING
By:
--------------------------------
Title
THE TRAVELERS INSURANCE COMPANY
By:
--------------------------------
Title
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<PAGE> 167
WELLS FARGO BANK, N.A.
By:
--------------------------------
Title
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<PAGE> 168
SCHEDULE I
COMMITMENTS
<TABLE>
<CAPTION>
Tranche A Tranche B
Term Loan Term Loan Revolving Loan
Bank Commitment Commitment Commitment
- ---- ---------- ---------- --------------
<S> <C> <C> <C>
Morgan Stanley
Senior Funding, Inc.
The Bank of Nova Scotia
Allied Irish
AllState
Appaloosa Management
Bank of Boston
Bankers Trust Company
The Bank of Hawaii
The Bank of New York
</TABLE>
<PAGE> 169
SCHEDULE I
Page 162
<TABLE>
<CAPTION>
Tranche A Tranche B
Term Loan Term Loan Revolving Loan
Bank Commitment Commitment Commitment
- ---- ---------- ---------- --------------
<S> <C> <C> <C>
Chancellor Capital Management, Inc.
CHL High Yield
Chang Hwa Commercial Bank
CIBC Inc.
Citibank, N.A.
Credit Lyonnais New York Branch
Dresdner Bank AG, New York Branch
Eaton Vance
First Union National Bank of North Carolina
GiroCredit Bank Ag Der Sparkassen
Harch Capital Management
</TABLE>
<PAGE> 170
SCHEDULE I
Page 163
<TABLE>
<CAPTION>
Tranche A Tranche B
Term Loan Term Loan Revolving Loan
Bank Commitment Commitment Commitment
- ---- ---------- ---------- --------------
<S> <C> <C> <C>
Industrial Bank of Japan, Limited
Imperial Bank
ING Capital Advisers
Key Bank of Washington
The Long-Term Credit Bank of Japan, LTD.
Massachusetts Mutual Life Insrance Company
Mellon Bank
Merrill Lynch
The Mitsubishi Trust and Banking Corporation
Mitsui Leasing (U.S.A.) Inc.
NationsBank, N.A.
</TABLE>
<PAGE> 171
SCHEDULE I
Page 164
<TABLE>
<CAPTION>
Tranche A Tranche B
Term Loan Term Loan Revolving Loan
Bank Commitment Commitment Commitment
- ---- ---------- ---------- --------------
<S> <C> <C> <C>
The Nippon Credit Bank, Ltd. Los Angeles Agency
Northern Life Insurance
Oak Hill Securities
Orix USA Corporation
Pilgrim Prime Rate Trust
PPM America, Inc.
Protective Asset Management, L.L.C.
The Royal Bank of Scotland plc
Societe Generale
Southern Pacific Thrift & Loan Association
The Sumitomo Bank, Limited
</TABLE>
<PAGE> 172
SCHEDULE I
Page 165
<TABLE>
<CAPTION>
Tranche A Tranche B
Term Loan Term Loan Revolving Loan
Bank Commitment Commitment Commitment
- ---- ---------- ---------- --------------
<S> <C> <C> <C>
The Travelers Insurance Company
Wells Fargo Bank, N.A.
Dean Witter
Indosuez Capital Funding II, Limited
TCW Asset Management
Toyo Trust & Banking
The Sakura Bank, Limited
Banque Nationale de Paris
Sun America
The Fuji Bank Limited
Sanwa Business Credit Corporation
</TABLE>
<PAGE> 173
SCHEDULE I
Page 166
<TABLE>
<CAPTION>
Tranche A Tranche B
Term Loan Term Loan Revolving Loan
Bank Commitment Commitment Commitment
- ---- ---------- ---------- --------------
<S> <C> <C> <C>
First Hawaiian
Midland
Hibernia
Donaldson Lufkin & Jenrette
______________ ______________ ______________
TOTAL: $376,000,000 $215,000,000 $100,000,000
</TABLE>
<PAGE> 174
SCHEDULE II
BANK ADDRESSES
<TABLE>
<S> <C>
Allied Irish 405 Park Avenue
New York, NY 10022
Attn: Bill Murray
Tel: (212) 339-8021
AllState 3075 Sanders Road, Suite G3A
Northbrook, IL 60062-7127
Attn: Chris Guergen
Tel: (847) 402-3095
Appaloosa Management 51 John F. Kennedy Parkway
Short Hill, NJ 07078
Attn: James Bolin
Tel: (201) 376-5400
Bank of Boston 100 Federal Street
Boston, MA 02110
Attn: Timothy Barns
Tel: (617) 434-7976
Bankers Trust Company One Bankers Trust Plaza
New York, NY 10006
Attn: Peter Nolan
Tel: (212) 775-2272
The Bank of Hawaii 1850 North Central Avenue, Suite 400
Phoenix, AZ 85004
Attn: Joseph Donaldson
Tel: (602) 257-2432
The Bank of New York 10990 Wilshire Boulevard, Suite 1125
Los Angeles, CA 90024
Attn: Bruce Miller
Tel: (310) 996-5650
Banque Nationale de Paris 725 South Figueroa, 20th FL
Los Angeles, CA 90017
Attn: Margaret Mudd
Tel: (213) 688-6423
</TABLE>
<PAGE> 175
<TABLE>
<S> <C>
Chancellor Capital Management, Inc. 1166 Avenue of Americas, 27th Floor
New York, NY 10036
Attn: Greg Smith
Tel: (212) 278-9404
CHL High Yield 380 Madison Avenue
New York, NY 10017
Attn: Jim Ferguson
Tel: (212) 622-3070
Chang Hwa Commercial Bank One World Trade Center
Suite 3211, 32nd Floor
New York, NY
Attn: Teddy Mou
Tel: (212) 390-7040
CIBC Inc. 350 South Grand Avenue, Suite 2800
Los Angeles, CA 90071
Attn: Paul Chakmak
Tel: (213) 617-6226
Citibank, N.A. 399 Park Avenue
New York, NY 10017
Attn: Ken Ostmann
Tel: (212) 559-0378
Credit Lyonnais New York Branch 1901 Avenue of Americas
New York, NY 10019-6022
Attn: Jo Asciolla
Tel: (212) 261-7834
Dean Witter 2 World Trade Center
New York, NY 10048
Attn: Ralph Scolari
Tel: (212) 892-2403
Donaldson Lufkin & Jenrette 277 Park Avenue, 9th FL
New York, N.Y. 10172
Attn: Steve Hickey
Tel: (212) 892-2403
Dresdner Bank AG, New York Branch 75 Wall Street
New York, NY 10005
Attn: Sid Jordan
Tel: (212) 574-0100
</TABLE>
<PAGE> 176
<TABLE>
<S> <C>
Eaton Vance 24 Federal Street
Boston, MA 02110
Attn: Scott Paige
Tel: (617) 482-8260
First Union National Bank of North Carolina One First Union Center
Charlotte, NC 28288-0737
Attn: B. Bragg Commer
Tel: (704) 374-2610
First Hawaiian 999 Bishop Street, 11th FL
Honolulu, HI 96813
Attn: Robert Wheeler
Tel: (808) 525-6367
The Fuji Bank Limited 333 South Hope Street, 39th FL
Los Angeles, CA 900071
Attn: Ching Lim
Tel: (213) 253-4179
Girocredit Bank AG Der Sparkassen Park Avenue Tower
65 East 55th Street, 29th Floor
New York, NY 10022
Attn: John Redding
Tel: (212) 909-0624
Harch Capital Management One Park Place
621 NW 53rd Street, Suite 620
Boca Raton, FL 93487
Attn: James DiDonato
Tel: (407) 995-4900
Hibernia 313 Carondelet Street, 12th FL
New Orleans, LA 70130
Attn: Troy Villafara
Tel: (504) 533-5490
Indosuez capital Funding II, Limite 1211 Avenue of Americas, 7th FL
New York, NY 10036
Attn: Andrew Marshak
Tel: (212) 278-2232
Industrial Bank of Japan, Limited 350 South Grand Avenue, Suite 1500
Los Angeles, CA 90071
Attn: Mr. Sugano
Tel: (213) 893-6436
</TABLE>
<PAGE> 177
<TABLE>
<S> <C>
Imperial Bank P.O. Box 92991
Los Angeles, CA 90090
Attn: Ray Valdama
Tel: (310) 417-5710
ING Capital Advisers 333 South Grand Avenue
Suite 400
Los Angeles, CA 90071
Attn: Mike Hatley
Tel: (213) 621-9062
Key Bank of Washington 1325 Fourth Avenue, Floor 12
Seattle, WA 98101
Attn: John Brock
Tel: (206) 684-6031
The Long-Term Credit Bank of Japan, LTD. 350 South Grand Avenue
Suite 3000
Los Angeles, CA 90071
Attn: Brian Reed
Tel: (213) 689-6350
Lyonnais 1901 Avenue of Americas
New York, N.Y. 10019-6022
Attn: Jo Asciolla
Tel: (212) 261-7834
Massachussets Mutual Life Insurance 1295 State Street, Mail Suite F457
Company Springfield, MA 01111
Attn: John Wheeler
Tel: (413) 744-6228
Mellon Bank 300 South Grand Avenue
Suite 3800
Los Angeles, CA 90071
Attn: Lawrence Ivey
Tel: (213) 680-7354
Merrill Lynch 800 Scudders Mill Road
Plainsboro, NJ 08536
Attn: Gilles Marchand
Tel: (609) 282-2000
</TABLE>
<PAGE> 178
<TABLE>
<S> <C>
Midland 140 Broadway, 5th FL
New York, NY 10005
Attn: Chris French
Tel: (212) 658-2742
The Mitsubishi Trust and Banking 520 Madison Avenue
Corporation New York, NY 10022
Attn: Patricia Loret De Moia
Tel: (212) 891-8418
Mitsui Leasing (U.S.A.) Inc. 200 Park Avenue, Suite 3214
New York, NY 10166
Attn: Jerry Parisi
Tel: (212) 883-3061
NationsBank, N.A. 444 South Flower, Suite 1500
Los Angeles, CA 90071
Attn: Scott Nichelson
Tel: (213) 236-4908
The Nippon Credit Bank, Ltd., 550 South Hope Street, Suite 2500
Los Angeles Agency Los Angeles, CA 90071
Attn: Julien Michaels
Tel: (213) 243-5720
Northern Life Insurance c/o Reliastar Investment Research
100 Washington Avenue South
Suite 800
Minneapolis, MN 55401
Attn: Jim Tobin
Tel: (612) 342-3204
Oak Hill Securities 65 East 55th Street
New York, NY 10022
Attn: Scott Krase
Tel: (212) 326-1500
Orix USA Corporation 780 Third Avenue, 18th Floor
New York, NY 10017
Attn: Hiro Miyauchi
Tel: (212) 418-8300
</TABLE>
<PAGE> 179
<TABLE>
<S> <C>
Pilgrim Prime Rate Trust Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
Attn: Howard Tiffen
Tel: (602) 417-8259
PPM America, Inc. 225 West Wacker, Suite 1200
Chicago, IL 60606
Attn: Michael Dire
Tel: (312) 634-2509
Protective Asset Management, L.L.C. 1150 Two Galleria Tower
13455 Noel Road LB #45
Dallas, TX 75240
Attn: James Dondero
Tel: (972) 233-4300
The Royal Bank of Scotland plc 88 Pine Street
Wall Street Plaza, 26th Floor
New York, NY 10005
Attn: Shona Pryor/Derek Bonnar
Tel: (212) 269-1718
The Sakura Bank, Limited 515 South Figueroa Suite 400
Los Angeles, CA 90071
Attn: Mike Ross
Tel: (213) 489-6756
SANWA BUSINESS CREDIT CORPORATION 601 South Figueroa Street
Los Angeles, CA 90017
Attn: John Meshautt
Tel: (213) 896-7285
Societe Generale 1221 Avenue of the Americas
New York, NY 10020
Attn: Catherine Scaillier-Loiseau
Tel: (212) 276-6469
Southern Pacific Thrift & Loan 12300 Wilshire Boulevard
Association Los Angeles, CA 90025
Attn: Chris Kelleher
Tel: (310) 442-3300
</TABLE>
<PAGE> 180
<TABLE>
<S> <C>
The Sumitomo Bank, Limited 777 South Figueroa Street, Suite 2600
Los Angeles, CA 90017
Attn: Mickey Jannol
Tel: (213) 955-0800
Sun America 1 SunAmerica Center
Century City
Los Angeles, CA 90067-6022
Attn: Sabur Moini
Tel: (310) 772-6078
TCW Asset Management 200 Park Avenue, Suite 220
New York, NY 10166
Attn: Justin Driscole
Tel: (212) 297-4137
Toyo Trust & Banking 444 South Flower Street, Suite 1550
Los Angeles, CA 90071
Attn: Jeffrey King
Tel: (213) 624-2424
The Travelers Insurance Company One Tower Square
Hartford, CT 06183-2030
Attn: Teresa M. Torrey
Tel: (860) 277-5952
Wells Fargo Bank, N.A. 555 Montgomery Street, 17th Floor
San Francisco, CA 94111
Attn: Shawn Flannery/Mark Myers
Tel: (415) 396-3741
</TABLE>
<PAGE> 181
SCHEDULE III
REAL PROPERTY
<PAGE> 182
SCHEDULE IV
INDEBTEDNESS TO BE REFINANCED
<PAGE> 183
SCHEDULE V
CAPITALIZATION
<PAGE> 184
SCHEDULE VI
SUBSIDIARIES AND JOINT VENTURES
<PAGE> 185
SCHEDULE VII
EXISTING INDEBTEDNESS
<PAGE> 186
SCHEDULE VIII
INSURANCE
<PAGE> 187
SCHEDULE IX
EXISTING LIENS
<PAGE> 188
SCHEDULE X
EXISTING INVESTMENTS
<PAGE> 189
SCHEDULE XI
ADDITIONAL CAPITAL EXPENDITURES
<PAGE> 190
SCHEDULE XII
BASE CASE EBITDA
<TABLE>
<CAPTION>
Test Period Ending Amount
- ------------------ ------
<S> <C>
December 31, 1997 $189,000,000
December 31, 1998 $215,000,000
December 31, 1999 $245,000,000
December 31, 2000 $279,000,000
December 31, 2001 $289,000,000
December 31, 2002 $300,000,000
December 31, 2003 $313,000,000
</TABLE>
<PAGE> 191
SCHEDULE XIII
DESIGNATED HOTEL PROPERTIES
<PAGE> 192
SCHEDULE XIV
ERISA
<PAGE> 193
SCHEDULE XV
SUBSIDIARY RESTRICTIONS
<PAGE> 194
SCHEDULE XVI
EXISTING DOUBLETREE INVESTMENTS
<PAGE> 195
SCHEDULE XVII
EXISTING RED LION INVESTMENTS
<PAGE> 196
EXHIBIT A
FORM OF NOTICE OF BORROWING
[Date]
The Bank of Nova Scotia,
as Administrative Agent
for the Banks party to the
Credit Agreement referred
to below
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
Attention:
Ladies and Gentlemen:
The undersigned, Doubletree Corporation (the "Borrower"),
refers to the Credit Agreement, dated as of November __, 1996 (as amended from
time to time, the "Credit Agreement," the terms defined therein being used
herein as therein defined), among the Borrower, certain lenders from time to
time party thereto (the "Banks"), Morgan Stanley Senior Funding, Inc., as
Syndication Agent and as Arranger and you, as Administrative Agent for such
Banks, and hereby gives you notice, irrevocably, pursuant to Section 1.03(a) of
the Credit Agreement, that the undersigned hereby requests a Borrowing under
the Credit Agreement, and in that connection sets forth below the information
relating to such Borrowing (the "Proposed Borrowing") as required by Section
1.03(a) of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is
____________.1/
(ii) The aggregate principal amount of the Proposed Borrowing
is $____________.
____________________
1/ Shall be a Business Day at least one Business Day in the case of
Base Rate Loans and three Business Days in the case of
Eurodollar Loans, in each case, after the date hereof.
<PAGE> 197
EXHIBIT A
Page 2
(iii) The Proposed Borrowing shall consist of [Tranche A Term
Loans] [Tranche B Term Loans] [Revolving Loans].
(iv) The Loans to be made pursuant to the Proposed Borrowing
shall be initially maintained as [Base Rate Loans] [Eurodollar Loans].
[(v) The initial Interest Period for the Proposed Borrowing
is _______ month(s).]2/
The undersigned hereby certifies that the following statements
are true on the date hereof, and will be true on the date of the
Proposed Borrowing:
(A) the representations and warranties contained in the
Credit Agreement and in the other Credit Documents are and will be
true and correct in all material respects, both before and after
giving effect to the Proposed Borrowing and to the application of the
proceeds thereof, as though made on such date, unless stated to relate
to a specific earlier date, in which case such representations and
warranties shall be true and correct in all material respects as of
such earlier date; and
(B) no Default or Event of Default has occurred and is
continuing, or would result from such Proposed Borrowing or from the
application of the proceeds thereof.
Very truly yours,
DOUBLETREE CORPORATION
By:_________________________
Title:
____________________
2/ To be included for a Proposed Borrowing of Eurodollar Loans.
<PAGE> 198
EXHIBIT B-1
TRANCHE A TERM NOTE
$___________________ New York, New York
[Date]
FOR VALUE RECEIVED, DOUBLETREE CORPORATION (the "Borrower"), a
Delaware corporation, hereby promises to pay to ________________
_______________ or its registered assigns (the "Bank"), in lawful money of the
United States of America in immediately available funds, at the office of The
Bank of Nova Scotia (the "Administrative Agent") located at 600 Peachtree
Street, N.E., Suite 2700, Atlanta, Georgia 30308 on the Tranche A Term Loan
Maturity Date (as defined in the Agreement referred to below) the principal sum
of _______________ DOLLARS ($____________) or, if less, the unpaid principal
amount of all Tranche A Term Loans (as defined in the Agreement) made by the
Bank pursuant to the Agreement.
The Borrower promises also to pay interest on the unpaid
principal amount hereof in like money at said office from the date hereof until
paid at the rates and at the times provided in Section 1.08 of the Agreement.
This Note is one of the Tranche A Term Notes referred to in
the Credit Agreement, dated as of November __, 1996, among the Borrower, the
lenders from time to time party thereto (including the Bank), Morgan Stanley
Senior Funding, Inc., as Syndication Agent and as Arranger, and the
Administrative Agent (as amended, modified or supplemented from time to time,
the "Agreement") and is entitled to the benefits thereof and of the other
Credit Documents (as defined in the Agreement). This Note is secured by the
Security Documents (as defined in the Agreement) and is entitled to the
benefits of the Subsidiaries Guaranty (as defined in the Agreement). This Note
is subject to voluntary prepayment and mandatory repayment prior to the Tranche
A Term Loan Maturity Date, in whole or in part, as provided in the Agreement.
In case an Event of Default (as defined in the Agreement)
shall occur and be continuing, the principal of and accrued interest on this
Note may become or be declared to be due and payable in the manner and with the
effect provided in the Agreement.
The Borrower hereby waives presentment, demand, protest or
notice of any kind in connection with this Note.
<PAGE> 199
EXHIBIT B-1
Page 2
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
DOUBLETREE CORPORATION
By:_________________________
Title:
<PAGE> 200
EXHIBIT B-2
TRANCHE B TERM NOTE
$_________________ New York, New York
[Date]
FOR VALUE RECEIVED, DOUBLETREE CORPORATION (the "Borrower"), a
Delaware corporation, hereby promises to pay to ________________
_______________ or its registered assigns (the "Bank"), in lawful money of the
United States of America in immediately available funds, at the office of The
Bank of Nova Scotia (the "Administrative Agent") located at 600 Peachtree
Street, N.E., Suite 2700, Atlanta, Georgia 30308 on the Tranche B Term Loan
Maturity Date (as defined in the Agreement referred to below) the principal sum
of ______________ DOLLARS ($______________) or, if less, the unpaid principal
amount of all Tranche B Term Loans (as defined in the Agreement) made by the
Bank pursuant to the Agreement.
The Borrower promises also to pay interest on the unpaid
principal amount hereof in like money at said office from the date hereof until
paid at the rates and at the times provided in Section 1.08 of the Agreement.
This Note is one of the Tranche B Term Notes referred to in
the Credit Agreement, dated as of November __, 1996, among the Borrower, the
lenders from time to time party thereto (including the Bank), Morgan Stanley
Senior Funding, Inc., as Syndication Agent and as Arranger, and the
Administrative Agent (as amended, modified or supplemented from time to time,
the "Agreement") and is entitled to the benefits thereof and of the other
Credit Documents (as defined in the Agreement). This Note is secured by the
Security Documents (as defined in the Agreement) and is entitled to the
benefits of the Subsidiaries Guaranty (as defined in the Agreement). This Note
is subject to voluntary prepayment and mandatory repayment prior to the Tranche
B Term Loan Maturity Date, in whole or in part, as provided in the Agreement.
In case an Event of Default (as defined in the Agreement)
shall occur and be continuing, the principal of and accrued interest on this
Note may become or be declared to be due and payable in the manner and with the
effect provided in the Agreement.
The Borrower hereby waives presentment, demand, protest or
notice of any kind in connection with this Note.
<PAGE> 201
EXHIBIT B-2
Page 2
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
DOUBLETREE CORPORATION
By:_________________________
Title:
<PAGE> 202
EXHIBIT B-3
REVOLVING NOTE
$ __________ New York, New York
[Date]
FOR VALUE RECEIVED, DOUBLETREE CORPORATION (the "Borrower"), a
Delaware corporation, hereby promises to pay to _______________ or its
registered assigns (the "Bank"), in lawful money of the United States of
America in immediately available funds, at the office of The Bank of Nova
Scotia (the "Administrative Agent") located at 600 Peachtree Street, N.E.,
Suite 2700, Atlanta, Georgia 30308 on the Revolving Loan Maturity Date (as
defined in the Agreement referred to below) the principal sum of
_____________________ DOLLARS ($___________) or, if less, the unpaid principal
amount of all Revolving Loans (as defined in the Agreement) made by the Bank
pursuant to the Agreement.
The Borrower promises also to pay interest on the unpaid
principal amount hereof in like money at said office from the date hereof until
paid at the rates and at the times provided in Section 1.08 of the Agreement.
This Note is one of the Revolving Notes referred to in the
Credit Agreement, dated as of November __, 1996, among the Borrower, the
lenders from time to time party thereto (including the Bank), Morgan Stanley
Senior Funding, Inc., as Syndication Agent and as Arranger, and the
Administrative Agent (as amended, modified or supplemented from time to time,
the "Agreement") and is entitled to the benefits thereof and of the other
Credit Documents (as defined in the Agreement). This Note is secured by the
Security Documents (as defined in the Agreement) and is entitled to the
benefits of the Subsidiaries Guaranty (as defined in the Agreement). This Note
is subject to voluntary prepayment and mandatory repayment prior to the
Revolving Loan Maturity Date, in whole or in part, as provided in the
Agreement.
In case an Event of Default (as defined in the Agreement)
shall occur and be continuing, the principal of and accrued interest on this
Note may become or be declared to be due and payable in the manner and with the
effect provided in the Agreement.
<PAGE> 203
EXHIBIT B-3
Page 2
The Borrower hereby waives presentment, demand, protest or
notice of any kind in connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
DOUBLETREE CORPORATION
By:_________________________
Title:
<PAGE> 204
EXHIBIT B-4
SWINGLINE NOTE
$5,000,000 New York, New York
[Date]
FOR VALUE RECEIVED, DOUBLETREE CORPORATION (the "Borrower"), a
Delaware corporation, hereby promises to pay to THE BANK OF NOVA SCOTIA or its
registered assigns (the "Bank"), in lawful money of the United States of
America in immediately available funds, at the office of The Bank of Nova
Scotia (the "Administrative Agent") located at 600 Peachtree Street, N.E.,
Suite 2700, Atlanta, Georgia 30308 on the Swingline Expiry Date (as defined in
the Agreement referred to below) the principal sum of FIVE MILLION DOLLARS
($5,000,000) or, if less, the unpaid principal amount of all Swingline Loans
(as defined in the Agreement) made by the Bank pursuant to the Agreement.
The Borrowers promise also to pay interest on the unpaid
principal amount hereof in like money at said office from the date hereof until
paid at the rates and at the times provided in Section 1.08 of the Agreement.
This Note is the Swingline Note referred to in the Credit
Agreement, dated as of November __, 1996, among the Borrower, the lenders from
time to time party thereto (including the Bank), Morgan Stanley Senior Funding,
Inc., as Syndication Agent and as Arranger, and the Administrative Agent (as
amended, modified or supplemented from time to time, the "Agreement") and is
entitled to the benefits thereof and of the other Credit Documents (as defined
in the Agreement). This Note is secured by the Security Documents (as defined
in the Agreement) and is entitled to the benefits of the Subsidiaries Guaranty
(as defined in the Agreement). This Note is subject to voluntary prepayment
and mandatory repayment prior to the Swingline Expiry Date, in whole or in
part, as provided in the Agreement.
In case an Event of Default (as defined in the Agreement)
shall occur and be continuing, the principal of and accrued interest on this
Note may become or be declared to be due and payable in the manner and with the
effect provided in the Agreement.
<PAGE> 205
EXHIBIT B-4
Page 2
The Borrowers hereby waive presentment, demand, protest or
notice of any kind in connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
DOUBLETREE CORPORATION
By:_________________________
Title:
<PAGE> 206
EXHIBIT C
LETTER OF CREDIT REQUEST
No. (1) Dated (2)
--- ---
The Bank of Nova Scotia,
as Administrative Agent under the
Credit Agreement (the "Credit
Agreement"), dated as of November __,
1996 among Doubletree
Corporation, the lenders from
time to time party thereto,
Morgan Stanley Senior Funding,
Inc., as Syndication Agent and as
Arrangers, and The Bank of Nova
Scotia, as Administrative Agent
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
[Name and address of applicable Issuing Bank]
Dear Sirs:
We hereby request that [name of proposed Issuing Bank], in its
individual capacity, issue a [Standby][Trade] Letter of Credit for the account
of the undersigned on (3) (the "Date of Issuance") in the aggregate stated
amount of (4) .
__________________________________
(1) Letter of Credit Request Number.
(2) Date of Letter of Credit Request.
(3) Date of Issuance which shall be at least five Business Days from the date
hereof (or such shorter period as is acceptable to the respective Issuing
Bank).
(4) Aggregate initial Stated Amount of Letter of Credit.
<PAGE> 207
EXHIBIT C
Page 2
For purposes of this Letter of Credit Request, unless
otherwise defined herein, all capitalized terms used herein which are defined
in the Credit Agreement shall have the respective meaning provided therein.
The beneficiary of the requested Letter of Credit will be
(5) , and such Letter of Credit will be in support of (6) and
will have a stated expiration date of (7) .
We hereby certify that:
(1) The representations and warranties contained in the
Credit Agreement are and will be true and correct in all material
respects, both before and after giving effect to the issuance of the
Letter of Credit requested hereby, on the Date of Issuance (it being
understood and agreed that any representation or warranty which by its
terms is made as of a specified date shall be required to be true and
correct in all material respects only as of such specified date).
(2) No Default or Event of Default has occurred and is
continuing nor, after giving effect to the issuance of the Letter of
Credit requested hereby, would such a Default or Event of Default
occur.
__________________________________
(5) Insert name and address of beneficiary.
(6) Insert description of L/C Supportable Obligation in the case of Standby
Letters of Credit and a description of the commercial transaction which is
being supported in the case of Trade Letters of Credit.
(7) Insert last date upon which drafts may be presented which may not be later
than (i) 12 months after the Date of Issuance or, if earlier, the third
Business Day prior to the Revolving Loan Maturity Date for Standby Letters of
Credit or (ii) 180 days after the Date of Issuance or, if earlier, 30 days
prior to the Revolving Loan Maturity Date in the case of Trade Letters of
Credit.
<PAGE> 208
EXHIBIT C
Page 3
Copies of all documentation with respect to the supported
transaction are attached hereto.
DOUBLETREE CORPORATION
By_____________________________
Title:
<PAGE> 209
EXHIBIT D
SECTION 4.04(b)(ii) CERTIFICATE
Reference is hereby made to the Credit Agreement, dated as
November __, 1996, among Doubletree Corporation, the lenders from time to time
party thereto, Morgan Stanley Senior Funding, Inc., as Syndication Agent and as
Arranger, and The Bank of Nova Scotia, as Administrative Agent (as amended from
time to time, the "Credit Agreement"). Pursuant to the provisions of Section
4.04(b)(ii) of the Credit Agreement, the undersigned hereby certifies that it
is not a "bank" as such term is used in Section 881(c)(3)(A) of the Internal
Revenue Code of 1986, as amended.
[NAME OF BANK]
By ____________________________
Title:
Date: _______________, ____
<PAGE> 210
EXHIBIT F
OFFICERS' CERTIFICATE
I, the undersigned, [President/Vice President] of [Name of Credit
Party], a [corporation] [partnership] organized and existing under the laws of
the State of ________ (the "Company"), do hereby certify on behalf of the
Company that:
1. This Certificate is furnished pursuant to Section ___ of the
Credit Agreement, dated as November __, 1996, among [Doubletree Corporation]
[the Company] the lenders from time to time party thereto, Morgan Stanley
Senior Funding, Inc., as Syndication Agent and as Arranger, and The Bank of
Nova Scotia, as Administrative Agent (such Credit Agreement, as in effect on
the date of this Certificate, being herein called the "Credit Agreement").
Unless otherwise defined herein, capitalized terms used in this Certificate
shall have the meanings set forth in the Credit Agreement.
2. The following named individuals are elected officers of the
Company, each holds the office of the Company set forth opposite his name and
has held such office since _________ __, 19__.(1) The signature written
opposite the name and title of each such officer is his genuine signature.
<TABLE>
<CAPTION>
Name(2) Office Signature
-------------- ----------- ------------
<S> <C> <C>
______________ ___________ _____________
______________ ___________ _____________
______________ ___________ _____________
</TABLE>
3. Attached hereto as Exhibit A is a certified copy of the
[Certificate of Incorporation] [Describe applicable Partnership Documents] of
the Company, as filed in the Office of the Secretary of State of the State of
________ on ___________, 19__, together with all amendments thereto adopted
through the date hereof.
__________________________________
(1) Insert a date prior to the time of any corporate action relating to the
Credit Documents or related documentation.
(2) Include name, office and signature of each officer who will sign
any Credit Document, including the officer who will sign the certification
at the end of this Certificate or related documentation.
<PAGE> 211
EXHIBIT F
Page 2
4. Attached hereto as Exhibit B is a true and correct copy of
the By-Laws of the Company which were duly adopted, are in full force and
effect on the date hereof, and have been in effect since _____________, 19__.
5. Attached hereto as Exhibit C is a true and correct copy of
resolutions which were duly adopted on __________, 19__ [by unanimous written
consent of the [Board of Directors of the Company] [by a meeting of the Board
of Directors of the Company at which a quorum was present and acting
throughout], [Describe appropriate Partnership actions] and said resolutions
have not been rescinded, amended or modified. Except as attached hereto as
Exhibit C, no resolutions have been adopted by the [Board of Directors]
[Describe Partnership body] of the Company which deal with the execution,
delivery or performance of any of the Documents to which the Company is party.
[6. On the date hereof, all of the applicable conditions set
forth in Sections 5.05, 5.06, 5.07, 5.08, 5.09, 5.10 and 6.01 have been
satisfied.
7. Attached hereto as Exhibit D are true and correct copies
of all Acquisition Documents and Equity Financing Documents.](3)
[6][8.] On the date hereof, the representations and
warranties contained in the Credit Agreement and in the other Credit Documents
are true and correct in all material respects with the same effect as though
such representations and warranties had been made on the date hereof, both
before and after giving effect to the incurrence of Loans on the date hereof
and the application of the proceeds thereof, unless stated to relate to a
specific earlier date, in which case such representations and warranties were
true and correct in all material respects as of such earlier date.
[7][9.] On the date hereof, no Default or Event of Default
has occurred and is continuing or would result from the Borrowing to occur on
the date hereof or from the application of the proceeds thereof.
__________________________________
(3) Insert in Officers' Certificate of the Borrower.
<PAGE> 212
EXHIBIT F
Page 3
[8][10.] There is no proceeding for the dissolution or
liquidation of the Company or threatening its existence.
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day
of __________, 1996.
[NAME OF CREDIT PARTY]
______________________________
Name:
Title:
<PAGE> 213
EXHIBIT F
Page 4
I, the undersigned, [Secretary/Assistant Secretary] of the Company, do hereby
certify on behalf of the Company that:
1. [Name of Person making above certifications] is the duly
elected and qualified [President/Vice President] of the Company and the
signature above is his genuine signature.
2. The certifications made by [name of Person making above
certifications] on behalf of the Company in Items 2, 3, 4, 5 and [8][10] above
are true and correct.
IN WITNESS WHEREOF, I have hereunto set my hand this _____ day
of _________, 1996.
[NAME OF CREDIT PARTY]
____________________________
Name:
Title:
<PAGE> 214
EXHIBIT G
PLEDGE AGREEMENT
PLEDGE AGREEMENT (as amended, modified or supplemented from
time to time, this "Agreement"), dated as of November ___, 1996, made by each
of the undersigned pledgors (each a "Pledgor" and, together with any other
entity that becomes a pledgor hereunder pursuant to Section 24 hereof, the
"Pledgors"), to THE BANK OF NOVA SCOTIA, as Collateral Administrative Agent
(the "Pledgee"), for the benefit of the Secured Creditors (as defined below).
Except as otherwise defined herein, capitalized terms used herein and defined
in the Credit Agreement (as defined below) shall be used herein as therein
defined.
W I T N E S S E T H :
WHEREAS, Doubletree Corporation (the "Borrower"), the lenders
from time to time party thereto (the "Banks"), Morgan Stanley Senior Funding,
Inc., as Syndication Agent and as Arranger (the "Syndication Agent"), and The
Bank of Nova Scotia, as Administrative Agent (together with any successor
administrative agent, the "Administrative Agent"), have entered into a Credit
Agreement, dated as of November ___, 1996 (as amended, modified or supplemented
from time to time, the "Credit Agreement"), providing for the making of Loans
and the issuance of, and participation in, Letters of Credit as contemplated
therein (the Banks, the Syndication Agent, the Administrative Agent and the
Pledgee are herein called the "Bank Creditors");
WHEREAS, the Borrower and one or more of its Subsidiaries may
at any time and from time to time enter into one or more Interest Rate
Protection Agreements or Other Hedging Agreements with one or more Banks or any
affiliate thereof (each such Bank or affiliate, even if the respective Bank
subsequently ceases to be a Bank under the Credit Agreement for any reason,
together with such Bank's or affiliate's successors and assigns, if any,
collectively, the "Other Creditors," and together with the Bank Creditors, the
"Secured Creditors");
<PAGE> 215
EXHIBIT G
Page 2
WHEREAS, pursuant to the Subsidiaries Guaranty, each
Subsidiary Guarantor has jointly and severally guaranteed to the Secured
Creditors the payment when due of all Guaranteed Obligations as described
therein;
WHEREAS, it is a condition to the making of Loans and the
issuance of Letters of Credit under the Credit Agreement that each Pledgor
shall have executed and delivered to the Pledgor this Agreement; and
WHEREAS, each Pledgor will obtain benefits from the incurrence
of Loans and the issuance of Letters of Credit under the Credit Agreement and
the entering into of Interest Rate Protection Agreements or Other Hedging
Agreements and, accordingly, each Pledgor desires to enter into this Agreement
in order to satisfy the condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the foregoing and other
benefits accruing to each Pledgor, the receipt and sufficiency of which are
hereby acknowledged, each Pledgor hereby makes the following representations
and warranties to the Pledgee for the benefit of the Secured Creditors and
hereby covenants and agrees with the Pledgee for the benefit of the Secured
Creditors as follows:
1. SECURITY FOR OBLIGATIONS. This Agreement is made by each
Pledgor for the benefit of the Secured Creditors to secure:
(i) the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of all obligations and
indebtedness (including, without limitation, indemnities, Fees and
interest thereon) of such Pledgor to the Bank Creditors, whether now
existing or hereafter incurred under, arising out of, or in connection
with the Credit Agreement and the other Credit Documents to which such
Pledgor is a party (including, in the case of the Subsidiary
Guarantors, all such obligations and indebtedness of such Subsidiary
Guarantors under the Subsidiaries Guaranty) and the due performance
and compliance by such Pledgor with all of the terms, conditions and
agreements contained in the Credit Agreement and such other Credit
Documents (all such obligations and liabilities under this clause (i),
except to the extent consisting of obligations or indebtedness with
respect to Interest Rate Protection Agreements or Other Hedging
Agreements, being herein collectively called the "Credit Document
Obligations");
<PAGE> 216
EXHIBIT G
Page 3
(ii) the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of all obligations and
liabilities owing by such Pledgor to the Other Creditors under, or
with respect to (including by reason of the Subsidiaries Guaranty),
any Interest Rate Protection Agreement or Other Hedging Agreement,
whether such Interest Rate Protection Agreement or Other Hedging
Agreement is now in existence or hereafter arising, and the due
performance and compliance by such Pledgor with all of the terms,
conditions and agreements contained therein (all such obligations and
liabilities described in this clause (ii) being herein collectively
called the "Other Obligations");
(iii) any and all sums advanced by the Pledgee in order to preserve
the Collateral (as hereinafter defined) or preserve its security
interest in the Collateral;
(iv) in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations, or liabilities of such
Pledgor referred to in clauses (i) and (ii) above, after an Event of
Default (which term to mean and include any Event of Default under,
and as defined in, the Credit Agreement or any payment default under
any Interest Rate Protection Agreement or Other Hedging Agreement)
shall have occurred and be continuing, the reasonable expenses of
retaking, holding, preparing for sale or lease, selling or otherwise
disposing of or realizing on the Collateral, or of any exercise by the
Pledgee of its rights hereunder, together with reasonable attorneys'
fees and court costs; and
(v) all amounts paid by any Secured Creditor as to which such
Secured Creditor has the right to reimbursement under Section 11 of
this Agreement.
all such obligations, liabilities, sums and expenses set forth in clauses (i)
through (v) of this Section 1 being herein collectively called the
"Obligations," it being acknowledged and agreed that the "Obligations" shall
include extensions of credit of the types described above, whether outstanding
on the date of this Agreement or extended from time to time after the date of
this Agreement.
2. DEFINITION OF STOCK, NOTES, SECURITIES, PARTNERSHIP
INTEREST, ETC. (a) As used herein, (i) the term "Stock" shall mean (x) with
respect to corporations incorporated under the laws of the United States or any
State or territory thereof (each a "Domestic Corporation"), all of the issued
and outstanding shares of capital stock, and all warrants and options to
purchase any such capital stock, of any Domestic Corporation at any time owned
by any Pledgor, provided that the term "Stock" shall not include any capital
stock to the extent that same constitutes RFS REIT Equity, and (y) with
<PAGE> 217
EXHIBIT G
Page 4
respect to corporations not Domestic Corporations (each a "Foreign
Corporation"), all of the issued and outstanding shares of capital stock, and
all warrants and options to purchase any such capital stock, at any time owned
by any Pledgor of any Foreign Corporation, provided that, except as set forth
in Section 8.13 of the Credit Agreement, no Pledgor shall be required to pledge
hereunder, and nothing herein shall be deemed to constitute a pledge hereunder
of, more than 65% of the total combined voting power of all classes of capital
stock of any Foreign Corporation entitled to vote, (ii) the term "Notes" shall
mean in the case of each Pledgor, all Intercompany Notes and all other
promissory notes or other evidences of indebtedness (other than promissory
notes that are in a principal amount of less than $1,000,000) from time to time
issued to, or held by, any such Pledgor and (iii) the term "Securities" shall
mean all of the Stock and Notes. Each Pledgor represents and warrants, that on
the date hereof, (a) the Stock held by such Pledgor consists of the number and
type of shares of the stock of the corporations as described in Annex A hereto
for such Pledgor, (b) such Stock constitutes that percentage of the issued and
outstanding capital stock of the issuing corporation as is set forth in Annex A
hereto, (c) the Notes held by such Pledgor consist of the promissory notes
described in Annex B hereto for such Pledgor, (d) such Pledgor is the holder of
record and sole beneficial owner of the Stock and the Notes held by such
Pledgor and (e) on the date hereof, such Pledgor owns no other Securities.
(b) As used herein, the term "Partnership Interest" shall
mean the entire partnership interests (whether general and/or limited
partnership interests) at any time owned by each Pledgor in any Person (each a
"Pledged Partnership"), provided that the term "Partnership Interest" shall not
include the partnership units to the extent that same constitute RFS REIT
Equity. Each Pledgor represents and warrants that, on the date hereof, (x) the
Partnership Interests held by such Pledgor constitutes that percentage of the
entire partnership interest of the respective Pledged Partnership as is set
forth on Annex C hereto for such Pledgor and (y) such Pledgor owns no other
Partnership Interests.
(c) Notwithstanding anything to the contrary contained in
clause (a) or (b) above, the terms "Stock" and "Partnership Interest" shall not
include any equity interests in a Joint Venture of any Pledgor (whether such
equity interests are in the form of partnership interests, capital stock or
otherwise) to the extent that some are not permitted to be assigned or a
security interest therein granted without the consent of the other joint
venture partner (but only to the extent that such other joint venture partner
is not a Subsidiary of a Pledgor).
(d) All Stock at any time pledged or required to be pledged
hereunder is hereinafter called the "Pledged Stock;" all Notes at any time
pledged or required to be
<PAGE> 218
EXHIBIT G
Page 5
pledged hereunder are hereinafter called the "Pledged Notes;" all Pledged Stock
and Pledged Notes together are called the "Pledged Securities;" all Partnership
Interests at any time pledged or required to be pledged hereunder are
hereinafter called the "Pledged Partnership Interests", and the Pledged
Securities and the Pledged Partnership Interests, together with all proceeds
thereof, including any securities and moneys received and at the time held by
the Pledgee hereunder, are hereinafter called the "Collateral."
3. PLEDGE OF SECURITIES, ETC.
3.1. Pledge. (a) To secure the Obligations of such Pledgor
and for the purposes set forth in Section 1 hereof, each Pledgor hereby (i)
grants to the Pledgee a security interest in all of the Collateral owned by
such Pledgor, (ii) pledges and deposits as security with the Pledgee, the
Securities owned by such Pledgor on the date hereof, and delivers to the
Pledgee certificates or instruments therefor, duly endorsed in blank by such
Pledgor in the case of Notes and accompanied by undated stock powers duly
executed in blank by such Pledgor (and accompanied by any transfer tax stamps
required in connection with the pledge of such Securities) in the case of
Stock, or such other instruments of transfer as are reasonably acceptable to
the Pledgee, (iii) assigns, transfers, hypothecates, mortgages, charges and
sets over to the Pledgee a continuing security interest in all of such
Pledgor's right, title and interest in and to such Securities (and in and to
the certificates or instruments evidencing such Securities), to be held by the
Pledgee upon the terms and conditions set forth in this Agreement and (iv)
transfers and assigns to the Pledgee such Pledgor's Partnership Interests (and
delivers any certificates or instruments evidencing such partnership interests,
duly endorsed in blank) and all of such Pledgor's right, title and interest in
each Pledged Partnership including, without limitation:
(i) all of the capital thereof and its interest in all
profits, losses, Partnership Assets (as defined below) and other
distributions to which such Pledgor shall at any time be entitled in
respect of any such Collateral;
(ii) all other payments due or to become due to such Pledgor
in respect of any such Collateral, whether under any partnership
agreement or otherwise, whether as contractual obligations, damages,
insurance proceeds or otherwise;
(iii) all of its claims, rights, powers, privileges, authority,
options, security interest, liens and remedies, if any, under any
partnership or other agreement or at law or otherwise in respect of
any such Collateral;
<PAGE> 219
EXHIBIT G
Page 6
(iv) all present and future claims, if any, of such Pledgor
against any Pledged Partnership for moneys loaned or advanced, for
services rendered or otherwise;
(v) all of such Pledgor's rights under any partnership
agreement or at law to exercise and enforce every right, power,
remedy, authority, option and privilege of such Pledgor relating to
any Partnership Interest, including any power, if any, to terminate,
cancel or modify any general or limited partnership agreement, to
execute any instruments and to take any and all other action on behalf
of and in the name of such Pledgor in respect of such Partnership
Interest and any Pledged Partnership, to make determinations, to
exercise any election (including, but not limited to, election of
remedies) or option or to give or receive any notice, consent,
amendment, waiver or approval, together with full power and authority
to demand, receive, enforce, collect, or receipt for any of the
foregoing or for any Partnership Asset, to enforce or execute any
checks, or other instruments or orders, to file any claims and to take
any action in connection with any of the foregoing;
(vi) all other property hereafter delivered in substitution
for or in addition to any of the foregoing, all certificates and
instruments representing or evidencing such other property and all
cash, securities, interest, dividends, rights and other property at
any time and from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all thereof; and
(vii) to the extent not otherwise included, all proceeds of any
or all of the foregoing.
(b) As used herein, the term "Partnership Assets" shall mean
all assets, whether tangible or intangible and whether real, personal or mixed
(including, without limitation, all partnership capital and interests in other
partnerships), at any time owned by any Pledged Partnership or represented by
any Partnership Interest.
3.2. Subsequently Acquired Securities and/or Partnership
Interests. (a) If any Pledgor shall acquire (by purchase, stock dividend or
otherwise) any additional Securities at any time or from time to time after the
date hereof, such Pledgor will promptly thereafter deposit such Securities (or
certificates or instruments representing Securities) as security with the
Pledgee and deliver to the Pledgee certificates or instruments therefor, duly
endorsed in blank in the case of such Notes, and accompanied by undated stock
powers duly executed in blank by such Pledgor (and accompanied by any transfer
tax stamps required in connection with the pledge of such Securities) in the
case of such Stock,
<PAGE> 220
EXHIBIT G
Page 7
or such other instruments of transfer as are reasonably acceptable to the
Pledgee, and will promptly thereafter deliver to the Pledgee a certificate
executed by a principal executive officer of such Pledgor describing such
Securities and certifying that the same has been duly pledged with the Pledgee
hereunder.
(b) If any Pledgor shall acquire (by purchase, distribution
or otherwise) any additional Partnership Interest at any time or from time to
time after the date hereof, and, to the extent such Partnership Interest is
certificated, forthwith deliver to the Pledgee certificates therefor,
accompanied by such instruments of transfer as are acceptable to the Pledgee,
and shall promptly thereafter deliver to the Pledgee a certificate executed by
a principal executive officer of such Pledgor describing such Partnership
Interest and certifying that the same has been duly pledged with the Pledgee
hereunder.
3.3. Uncertificated Securities and Partnership Interests.
Notwithstanding anything to the contrary contained in Sections 3.1 and 3.2
hereof, if any Securities (whether now owned or hereafter acquired) or
Partnership Interests are uncertificated securities, the relevant Pledgor shall
promptly notify the Pledgee thereof, and shall promptly take all actions
required to perfect the security interest of the Pledgee under applicable law
(including, in any event, under Sections 8-313 and 8-321 of the New York
Uniform Commercial Code, if applicable). Each Pledgor further agrees to take
such actions as the Pledgee deems necessary or reasonably desirable to effect
the foregoing and to permit the Pledgee to exercise any of its rights and
remedies hereunder, and agrees to provide an opinion of counsel reasonably
satisfactory to the Pledgee with respect to any such pledge of uncertificated
Securities promptly upon the reasonable request of the Pledgee.
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee
shall have the right, upon written notice to the Borrower (although no such
notice shall be required upon the occurrence of an Event of Default of the type
described in Section 10.05 of the Credit Agreement), to appoint one or more
sub-agents for the purpose of retaining physical possession of the Pledged
Securities or Pledged Partnership Interests, which may be held (in the
discretion of the Pledgee) in the name of the relevant Pledgor, endorsed or
assigned in blank or in favor of the Pledgee or any nominee or nominees of the
Pledgee or a sub-agent appointed by the Pledgee.
5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until
there shall have occurred and be continuing an Event of Default, each Pledgor
shall be entitled to exercise any and all (i) voting and other consensual
rights pertaining to the Pledged Securities owned by it, and to give consents,
waivers or ratifications in respect thereof, and (ii) voting, consent,
administration, management and other rights and remedies
<PAGE> 221
EXHIBIT G
Page 8
under any partnership agreement or otherwise with respect to the Pledged
Partnership Interests of such Pledgor; provided, that, in each case, no vote
shall be cast or any consent, waiver or ratification given or any action taken
or omitted to be taken which would violate or be inconsistent with any of the
terms of this Agreement, the Credit Agreement, any other Credit Document or any
Interest Rate Protection Agreement or Other Hedging Agreement (collectively,
the "Secured Debt Agreements"), or which would have the effect of impairing the
value of the Collateral or any part thereof or the position or interests of the
Pledgee or any other Secured Creditor in the Collateral. All such rights of
each Pledgor to vote and to give consents, waivers and ratifications shall
cease in case an Event of Default has occurred and is continuing, and Section 7
hereof shall become applicable.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless and until there
shall have occurred and be continuing an Event of Default, (i) all cash
dividends and distributions payable in respect of the Pledged Stock and all
payments in respect of the Pledged Notes shall be paid to the respective
Pledgor, (ii) all cash distributions and other payments in respect of the
Pledged Partnership Interests shall be paid to the respective Pledgor and (iii)
all cash payments for moneys loaned or advanced, for services rendered or
otherwise in respect of the Pledged Partnership Interests shall be paid to the
respective Pledgor (although the respective Pledgor may be required to apply
any such payments so received as described in preceding clauses (i), (ii) and
(iii) in the manner provided in the Credit Agreement). The Pledgee shall be
entitled to receive directly, and to retain as part of the Collateral:
(i) all other or additional stock or other securities or
partnership interests (other than cash) paid or distributed by way of
dividend or otherwise in respect of the Collateral;
(ii) all other or additional stock or other securities or
partnership interests paid or distributed in respect of the Collateral
by way of stock-split, spin-off, split-up, reclassification,
combination of shares or similar rearrangement;
(iii) all other property (other than cash) paid or distributed
by way of dividend or distribution in respect of the Collateral; and
(iv) all other property or additional stock or other
securities or partnership interests or property which may be paid in
respect of the Collateral by reason of any consolidation, merger,
exchange of stock, conveyance of assets, liquidation or similar
reorganization.
<PAGE> 222
EXHIBIT G
Page 9
Nothing contained in this Section 6 shall limit or restrict in any way the
Pledgee's right to receive proceeds of the Collateral in any form in accordance
with Section 3 of this Agreement. All dividends, distributions or other
payments which are received by any Pledgor contrary to the provisions of this
Section 6 and Section 7 hereof shall be received in trust for the benefit of
the Pledgee, shall be segregated from other property or funds of such Pledgor
and shall be forthwith paid over to the Pledgee as Collateral in the same form
as so received (with any necessary endorsement).
7. REMEDIES IN CASE OF DEFAULT OR EVENT OF DEFAULT. If there
shall have occurred and be continuing an Event of Default, then and in every
such case, the Pledgee shall be entitled, upon written notice to the Borrower
(although no such notice shall be required upon the occurrence of any Event of
Default of the type described in Section 10.05 of the Credit Agreement), to
exercise all of the rights, powers and remedies (whether vested in it by this
Agreement, any other Secured Debt Agreement or by law) for the protection and
enforcement of its rights in respect of the Collateral, and the Pledgee shall
be entitled to exercise all the rights and remedies of a secured party under
the Uniform Commercial Code and also shall be entitled, without limitation, to
exercise the following rights, which each Pledgor hereby agrees to be
commercially reasonable:
(a) to receive all amounts payable in respect of the
Collateral otherwise payable under Section 6 hereof to the Pledgor;
(b) to transfer all or any part of the Collateral into the
Pledgee's name or the name of its nominee or nominees;
(c) to accelerate any Pledged Note which may be accelerated
in accordance with its terms, and take any other lawful action to
collect upon any Pledged Note (including, without limitation, to make
any demand for payment thereon);
(d) to vote all or any part of the Pledged Stock or Pledged
Partnership Interests (whether or not transferred into the name of the
Pledgee) and give all consents, waivers and ratifications in respect
of the Collateral and otherwise act with respect thereto as though it
were the outright owner thereof (each Pledgor hereby irrevocably
constituting and appointing the Pledgee the proxy and attorney-in-fact
of such Pledgor, with full power of substitution to do so); and
(e) at any time and from time to time to sell, assign and
deliver, or grant options to purchase, all or any part of the
Collateral, or any interest therein, at any public or private sale,
without demand of performance, advertisement or notice of
<PAGE> 223
EXHIBIT G
Page 10
intention to sell or of the time or place of sale or adjournment
thereof or to redeem or otherwise (all of which are hereby waived by
each Pledgor), for cash, on credit or for other property, for
immediate or future delivery without any assumption of credit risk,
and for such price or prices and on such terms as the Pledgee in its
absolute discretion may determine, provided that at least 10 days'
written notice of the time and place of any such sale shall be given
to such Pledgor. The Pledgee shall not be obligated to make any such
sale of Collateral regardless of whether any such notice of sale has
theretofore been given. Each Pledgor hereby waives and releases to
the fullest extent permitted by law any right or equity of redemption
with respect to the Collateral, whether before or after sale
hereunder, and all rights, if any, of marshalling the Collateral and
any other security for the Obligations or otherwise. At any such
sale, unless prohibited by applicable law, the Pledgee on behalf of
the Secured Creditors may bid for and purchase all or any part of the
Collateral so sold free from any such right or equity of redemption.
Neither the Pledgee nor any other Secured Creditor shall be liable for
failure to collect or realize upon any or all of the Collateral or for
any delay in so doing nor shall any of them be under any obligation to
take any action whatsoever with regard thereto.
8. REMEDIES, ETC., CUMULATIVE. Each and every right, power
and remedy of the Pledgee provided for in this Agreement or any other Secured
Debt Agreement, or now or hereafter existing at law or in equity or by statute
shall be cumulative and concurrent and shall be in addition to every other such
right, power or remedy. The exercise or beginning of the exercise by the
Pledgee or any other Secured Creditor of any one or more of the rights, powers
or remedies provided for in this Agreement or any other Secured Debt Agreement
or now or hereafter existing at law or in equity or by statute or otherwise
shall not preclude the simultaneous or later exercise by the Pledgee or any
other Secured Creditor of all such other rights, powers or remedies, and no
failure or delay on the part of the Pledgee or any other Secured Creditor to
exercise any such right, power or remedy shall operate as a waiver thereof. No
notice to or demand on any Pledgor in any case shall entitle it to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of any of the rights of the Pledgee or any other Secured Creditor to any
other or further action in any circumstances without notice or demand. The
Secured Creditors agree that this Agreement may be enforced only by the action
of the Administrative Agent or the Pledgee, in each case acting upon the
instructions of the Required Banks (or, after the date on which all Credit
Document Obligations have been paid in full, the holders of at least the
majority of the outstanding Other Obligations) and that no other Secured
Creditor shall have any right individually to seek to enforce or to enforce
this Agreement or to realize upon the security to be granted hereby, it being
understood and agreed that such rights and remedies may be exercised by the
<PAGE> 224
EXHIBIT G
Page 11
Administrative Agent or the Pledgee or the holders of at least a majority of
the outstanding Other Obligations, as the case may be, for the benefit of the
Secured Creditors upon the terms of this Agreement.
9. APPLICATION OF PROCEEDS. (a) All moneys collected by the
Pledgee upon any sale or other disposition of the Collateral pursuant to the
terms of this Agreement, together with all other moneys received by the Pledgee
hereunder, shall be applied in the manner provided in the Security Agreement.
(b) It is understood and agreed that the Pledgors shall
remain jointly and severally liable to the extent of any deficiency between the
amount of the proceeds of the Collateral hereunder and the aggregate amount of
the Obligations.
10. PURCHASERS OF COLLATERAL. Upon any sale of the
Collateral by the Pledgee hereunder (whether by virtue of the power of sale
herein granted, pursuant to judicial process or otherwise), the receipt of the
Pledgee or the officer making the sale shall be a sufficient discharge to the
purchaser or purchasers of the Collateral so sold, and such purchaser or
purchasers shall not be obligated to see to the application of any part of the
purchase money paid over to the Pledgee or such officer or be answerable in any
way for the misapplication or nonapplication thereof.
11. INDEMNITY. Each Pledgor jointly and severally agrees
(i) to indemnify and hold harmless the Pledgee in such capacity and each other
Secured Creditor and their respective successors, assigns, employees, agents
and servants (individually an "Indemnitee," and collectively the "Indemnitees")
from and against any and all claims, demands, losses, judgments and liabilities
(including liabilities for penalties) of whatsoever kind or nature, and (ii) to
reimburse each Indemnitee for all costs and expenses, including reasonable
attorneys' fees, in each case growing out of or resulting from this Agreement
or the exercise by any Indemnitee of any right or remedy granted to it
hereunder or under any other Secured Debt Agreement (but excluding any claims,
demands, losses, judgments and liabilities or expenses to the extent incurred
by reason of gross negligence or willful misconduct of such Indemnitee). In no
event shall the Pledgee be liable, in the absence of gross negligence or
willful misconduct on its part, for any matter or thing in connection with this
Agreement other than to account for monies actually received by it in
accordance with the terms hereof. If and to the extent that the obligations of
any Pledgor under this Section 11 are unenforceable for any reason, such
Pledgor hereby agrees to make the maximum contribution to the payment and
satisfaction of such obligations which is permissible under applicable law.
<PAGE> 225
EXHIBIT G
Page 12
12. PLEDGEE NOT BOUND. (a) Nothing herein shall be
construed to make the Pledgee or any other Secured Creditor liable as a general
partner or limited partner of any Pledged Partnership and the Pledgee or any
other Secured Creditor by virtue of this Agreement or otherwise (except as
referred to in the following sentence) shall not have any of the duties,
obligations or liabilities of a general partner or limited partner of any
Pledged Partnership. The parties hereto expressly agree that, unless the
Pledgee shall become the absolute owner of a Pledged Partnership Interest
pursuant hereto, this Agreement shall not be construed as creating a
partnership or joint venture among the Pledgee, any other Secured Creditor
and/or any Pledgor.
(b) Except as provided in the last sentence of paragraph (a)
of this Section, the Pledgee, by accepting this Agreement, did not intend to
become a general partner or limited partner of any Pledged Partnership or
otherwise be deemed to be a co-venturer with respect to any Pledgor or any
Pledged Partnership either before or after an Event of Default shall have
occurred. The Pledgee shall have only those powers set forth herein and shall
assume none of the duties, obligations or liabilities of a general partner or
limited partner of any Pledged Partnership or of any Pledgor.
(c) The Pledgee shall not be obligated to perform or
discharge any obligation of any Pledgor as a result of the collateral
assignment hereby effected.
(d) The acceptance by the Pledgee of this Agreement, with all
the rights, powers, privileges and authority so created, shall not at any time
or in any event obligate the Pledgee to appear in or defend any action or
proceeding relating to the Collateral to which it is not a party, or to take
any action hereunder or thereunder, or to expend any money or incur any
expenses or perform or discharge any obligation, duty or liability under the
Collateral.
13. FURTHER ASSURANCES; POWER-OF-ATTORNEY. (a) Each Pledgor
agrees that it will join with the Pledgee in executing and, at such Pledgor's
own expense, file and refile under the Uniform Commercial Code or other
applicable law such financing statements, continuation statements and other
documents in such offices as the Pledgee may deem necessary and wherever
required by law in order to perfect and preserve the Pledgee's security
interest in the Collateral and hereby authorizes the Pledgee to file financing
statements and amendments thereto relative to all or any part of the Collateral
without the signature of such Pledgor where permitted by law, and agrees to do
such further acts and things and to execute and deliver to the Pledgee such
additional conveyances, assignments, agreements and instruments as the Pledgee
may reasonably require or
<PAGE> 226
EXHIBIT G
Page 13
deem necessary to carry into effect the purposes of this Agreement or to
further assure and confirm unto the Pledgee its rights, powers and remedies
hereunder.
(b) Each Pledgor hereby appoints the Pledgee such
Pledgor's attorney-in-fact, with full authority in the place and stead of such
Pledgor and in the name of such Pledgor or otherwise, to act from time to time
solely after the occurrence and during the continuance of an Event of Default
in the Pledgee's reasonable discretion to take any action and to execute any
instrument which the Pledgee may deem necessary or advisable to accomplish the
purposes of this Agreement.
14. THE PLEDGEE AS AGENT. The Pledgee will hold in
accordance with this Agreement all items of the Collateral at any time received
under this Agreement. It is expressly understood and agreed by each Secured
Creditor that by accepting the benefits of this Agreement each such Secured
Creditor acknowledges and agrees that the obligations of the Pledgee as holder
of the Collateral and interests therein and with respect to the disposition
thereof, and otherwise under this Agreement, are only those expressly set forth
in this Agreement. The Pledgee shall act hereunder on the terms and conditions
set forth herein and in Section 12 of the Credit Agreement.
15. TRANSFER BY THE PLEDGORS. No Pledgor will sell or
otherwise dispose of, grant any option with respect to, or mortgage, pledge or
otherwise encumber any of the Collateral or any interest therein (except as may
be permitted in accordance with the terms of the Credit Agreement).
16. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PLEDGORS. Each Pledgor represents, warrants and covenants that (i) it is the
legal, record and beneficial owner of all Pledged Securities and Pledged
Partnership Interests pledged by it hereunder, subject to no Lien (except the
Lien created by this Agreement and Liens permitted under Section 9.01(i)); (ii)
it has full corporate or partnership power, authority and legal right to pledge
all the Pledged Securities and Pledged Partnership Interests pledged by it
pursuant to this Agreement; (iii) this Agreement has been duly authorized,
executed and delivered by such Pledgor and constitutes a legal, valid and
binding obligation of such Pledgor enforceable in accordance with its terms
except to the extent that the enforceability hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law); (iv) except
as have been obtained by the Pledgors as of the date hereof, no consent of any
other party (including, without limitation, any stockholder, partner or
creditor of such Pledgor or any of its Subsidiaries or any Pledged Partnership)
and no consent, license,
<PAGE> 227
EXHIBIT G
Page 14
permit, approval or authorization of, exemption by, notice or report to, or
registration, filing or declaration with, any governmental authority is
required to be obtained by such Pledgor in connection with the execution,
delivery or performance of this Agreement, the validity or enforceability of
this Agreement, the perfection or enforceability of the Pledgee's security
interest in the Collateral or, except for compliance with or as may be required
by applicable securities or other laws, the exercise by the Pledgee of any of
its rights or remedies provided herein; (v) the execution, delivery and
performance of this Agreement by such Pledgor will not violate any provision of
any applicable law or regulation or of any order, judgment, writ, award or
decree of any court, arbitrator or governmental authority, domestic or foreign,
applicable to such Pledgor, or of the certificate of incorporation or by-laws
(or equivalent organizational documents) of such Pledgor or of any securities
issued by such Pledgor or any of its Subsidiaries, or of any mortgage,
indenture, lease, deed of trust, loan agreement, credit agreement or other
material contract, agreement or instrument or undertaking to which such Pledgor
or any of its Subsidiaries is a party or which purports to be binding upon such
Pledgor or any of its Subsidiaries or upon any of their respective assets and
will not result in the creation or imposition of (or the obligation to create
or impose) any lien or encumbrance on any of the assets of such Pledgor or any
of its Subsidiaries except as contemplated by this Agreement; (vi) all the
shares of Stock have been duly and validly issued, are fully paid and non-
assessable and are subject to no options to purchase or similar rights; (vii)
each of the Pledged Notes constitutes, or when executed by the obligor thereof
will constitute, the legal, valid and binding obligation of such obligor,
enforceable in accordance with its terms except to the extent that the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws generally affecting creditors'
rights and by equitable principles (regardless of whether enforcement is sought
in equity or at law); (viii) the pledge, assignment and delivery to the Pledgee
of the Securities (other than uncertificated securities) pursuant to this
Agreement creates a valid and perfected first priority Lien in the Securities,
and the proceeds thereof, subject to no other Lien or to any agreement
purporting to grant to any third party a Lien on the property or assets of the
Pledgor which would include the Securities; (ix) each such Pledged Partnership
Interest has been validly acquired and is fully paid for (to the extent
applicable) and is duly and validly pledged hereunder; (x) each general or
limited partnership agreement delivered to the Pledgee is an original signed
counterpart (or a copy thereof) of the complete and entire such partnership
agreement in effect on the date hereof; (xi) each partnership agreement is the
legal, valid and binding obligation of each Pledgor, and to each Pledgor's
knowledge, the other parties thereto, enforceable in accordance with its terms
and, together with this Agreement, contains the entire agreement between the
Pledgors relating to the subject matter thereof; (xii) no Pledgor is in default
in the material payment of any portion of any mandatory capital contribution,
if any, required to be made under any material general or limited partnership
<PAGE> 228
EXHIBIT G
Page 15
agreement to which such Pledgor is a party, and no Pledgor is in violation of
any other material provisions of any material partnership agreement to which
such Pledgor is a party, or otherwise in default or violation thereunder;
(xiii) no Pledged Partnership Interest is subject to any defense, offset or
counterclaim, nor have any of the foregoing been asserted or alleged against
such Pledgor by any Person with respect thereto; (xiv) as of the Initial
Borrowing Date, there are no certificates, instruments, documents or other
writings (other than the general or limited partnership agreements and
certificates delivered to the Collateral Administrative Agent) which evidence
any Partnership Interest of such Pledgor; (xv) the pledge and assignment of
the Pledged Partnership Interests pursuant to this Agreement, together with the
relevant filings or recordings (which filings and recordings have been or will
be made), creates a valid, perfected and continuing first priority security
interest in such Partnership Interests and the proceeds thereof, subject to no
prior lien or encumbrance or to any agreement purporting to grant to any third
party a lien or encumbrance on the property or assets of such Pledgor which
would include the Collateral; (xvi) there are no currently effective financing
statements under the UCC covering any property which is now or hereafter may be
included in the Collateral and such Pledgor will not, without the prior written
consent of the Pledgee, execute and, until the Termination Date (as hereinafter
defined), there will not ever be on file in any public office any enforceable
financing statement or statements covering any or all of the Collateral, except
financing statements filed or to be filed in favor of the Pledgee as secured
party; (xvii) each Pledgor shall give the Pledgee prompt notice of any written
claim it receives relating to the Collateral; (xviii) each Pledgor shall
deliver to the Pledgee a copy of each other demand, notice or document received
by it which may adversely affect the Pledgee's interest in the Collateral
promptly upon, but in any event within 10 days after, such Pledgor's receipt
thereof; (xix) a notice in the form set forth in Annex D attached hereto and by
this reference made a part hereof (such notice the "Partnership Notice"),
appropriately completed, notifying each Pledged Partnership of the existence of
this Agreement and a certified copy of this Agreement have been delivered by
each Pledgor to the relevant Pledged Partnership, and each such Pledgor has
received and delivered to the Collateral Administrative Agent an acknowledgment
in the form set forth in Annex E attached hereto (such acknowledgement, the
"Partnership Acknowledgement"), duly executed by the relevant Pledged
Partnership; and (xx) the chief executive office of such Pledgor is set forth
on Annex F hereto or such other office as such Pledgor may establish in
accordance with the terms of the Security Agreement. Each Pledgor covenants
and agrees that it will defend the Pledgee's right, title and security interest
in and to the Collateral against the claims and demands of all persons
whomsoever; and such Pledgor covenants and agrees that it will have like title
to and right to pledge any other property at any time hereafter pledged to the
Pledgee as Collateral hereunder and will likewise defend the right thereto and
security interest therein of the Pledgee and the other Secured Creditors.
<PAGE> 229
EXHIBIT G
Page 16
17. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of
each Pledgor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever (except the indefeasible payment in full in cash of all
Obligations), including, without limitation: (i) any renewal, extension,
amendment or modification of or addition or supplement to or deletion from any
Secured Debt Agreement or any other instrument or agreement referred to
therein, or any assignment or transfer of any thereof; (ii) any waiver,
consent, extension, indulgence or other action or inaction under or in respect
of any such agreement or instrument including, without limitation, this
Agreement; (iii) any furnishing of any additional security to the Pledgee or
its assignee or any acceptance thereof or any release of any security by the
Pledgee or its assignee; (iv) any limitation on any party's liability or
obligations under any such instrument or agreement or any invalidity or
unenforceability, in whole or in part, of any such instrument or agreement or
any term thereof; or (v) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceeding
relating to any Pledgor or any Subsidiary of any Pledgor, or any action taken
with respect to this Agreement by any trustee or receiver, or by any court, in
any such proceeding, whether or not such Pledgor shall have notice or knowledge
of any of the foregoing.
18. REGISTRATION, ETC. (a) If there shall have occurred and
be continuing an Event of Default then, and in every such case, upon receipt by
any Pledgor from the Pledgee of a written request or requests that such Pledgor
cause any registration, qualification or compliance under any Federal or state
securities law or laws to be effected with respect to all or any part of the
Pledged Stock, such Pledgor as soon as practicable and at its expense will
cause such registration to be effected (and be kept effective) and will cause
such qualification and compliance to be declared effected (and be kept
effective) as may be so requested and as would permit or facilitate the sale
and distribution of such Pledged Stock, including, without limitation,
registration under the Securities Act of 1933, as then in effect (or any
similar statute then in effect), appropriate qualifications under applicable
blue sky or other state securities laws and appropriate compliance with any
other government requirements, provided, that the Pledgee shall furnish to such
Pledgor such information regarding the Pledgee as such Pledgor may reasonably
request in writing and as shall be required in connection with any such
registration, qualification or compliance. Such Pledgor will cause the Pledgee
to be kept advised in writing as to the progress of each such registration,
qualification or compliance and as to the completion thereof, will furnish to
the Pledgee such number of prospectuses, offering circulars or other documents
incident thereto as the Pledgee from time to time may reasonably request, and
will indemnify the Pledgee, each other Secured Creditor and all others
participating in the distribution of such
<PAGE> 230
EXHIBIT G
Page 17
Pledged Stock against all claims, losses, damages and liabilities caused by any
untrue statement (or alleged untrue statement) of a material fact contained
therein (or in any related registration statement, notification or the like) or
by any omission (or alleged omission) to state therein (or in any related
registration statement, notification or the like) a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as the same may have been caused by an untrue statement or
omission based upon information furnished in writing to such Pledgor by the
Pledgee or such other Secured Creditor expressly for use therein.
(b) If at any time when the Pledgee shall determine to
exercise its right to sell all or any part of the Pledged Securities or Pledged
Partnership Interests pursuant to Section 7 hereof, and such Pledged Securities
or Pledged Partnership Interests or the part thereof to be sold shall not, for
any reason whatsoever, be effectively registered under the Securities Act of
1933, as then in effect, the Pledgee may, in its sole and absolute discretion,
sell such Pledged Securities or Pledged Partnership Interests, as the case may
be, or part thereof by private sale in such manner and under such circumstances
as the Pledgee may deem necessary or advisable in order that such sale may
legally be effected without such registration. Without limiting the generality
of the foregoing, in any such event the Pledgee, in its sole and absolute
discretion (i) may proceed to make such private sale notwithstanding that a
registration statement for the purpose of registering such Pledged Securities
or Pledged Partnership Interests or part thereof shall have been filed under
such Securities Act, (ii) may approach and negotiate with a single possible
purchaser to effect such sale, and (iii) may restrict such sale to a purchaser
who will represent and agree that such purchaser is purchasing for its own
account, for investment, and not with a view to the distribution or sale of
such Pledged Securities or Pledged Partnership Interests or part thereof. In
the event of any such sale, the Pledgee shall incur no responsibility or
liability for selling all or any part of the Pledged Securities or Pledged
Partnership Interests at a price which the Pledgee, in its sole and absolute
discretion, in good faith deems reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might be
realized if the sale were deferred until after registration as aforesaid.
19. TERMINATION; RELEASE. (a) After the Termination Date,
this Agreement and the security interest created hereby shall terminate
(provided that all indemnities set forth herein including, without limitation,
in Section 11 hereof shall survive any such termination), and the Pledgee, at
the request and expense of any Pledgor, will execute and deliver to such
Pledgor a proper instrument or instruments acknowledging the satisfaction and
termination of this Agreement, and will duly assign, transfer and deliver to
such Pledgor (without recourse and without any representation or warranty) such
of the Collateral as has not theretofore been sold or otherwise applied or
released pursuant to this
<PAGE> 231
EXHIBIT G
Page 18
Agreement, together with any moneys at the time held by the Pledgee or any of
its sub-agents hereunder. As used in this Agreement, "Termination Date" shall
mean the date upon which the Total Commitments and all Interest Rate Protection
Agreements or Other Hedging Agreements have been terminated, no Note under the
Credit Agreement is outstanding (and all Loans have been repaid in full), all
Letters of Credit have been terminated and all Obligations then owing have been
paid in full.
(b) In the event that any part of the Collateral is sold
in connection with a sale permitted by Section 9.02 of the Credit Agreement
(other than a sale to any Pledgor or any Subsidiary thereof) or is otherwise
released at the direction of the Required Banks (or all Banks if required by
Section 13.12 of the Credit Agreement) and the proceeds of such sale or sales
or from such release are applied in accordance with the provisions of Section
4.02(f) of the Credit Agreement, to the extent required to be so applied, the
Pledgee, at the request and expense of any Pledgor, will duly assign, transfer
and deliver to such Pledgor (without recourse and without any representation or
warranty) such of the Collateral (and releases therefor) as is then being (or
has been) so sold or released and has not theretofore been released pursuant to
this Agreement.
(c) At any time that a Pledgor desires that the Pledgee
assign, transfer and deliver Collateral (and releases therefor) as provided in
Section 19(a) or (b) hereof, it shall deliver to the Pledgee a certificate
signed by a principal executive officer of such Pledgor stating that the
release of the respective Collateral is permitted pursuant to such Section
19(a) or (b).
(d) If any Pledgor which is a Subsidiary of the Borrower
is released from its obligations under the Subsidiaries Guaranty, then such
Pledgor shall also be concurrently released herefrom.
(e) The Pledgee shall have no liability whatsoever to any
other Secured Creditor as the result of any release of Collateral by it in
accordance with this Section 19.
20. NOTICES, ETC. All such notices and communications
hereunder shall be sent or delivered by mail, telegraph, telex, telecopy, cable
or overnight courier service and all such notices and communications shall,
when mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight
courier, be effective when delivered to the telegraph company, cable company or
overnight courier, as the case may be, or sent by telex or telecopier and when
mailed shall be effective three Business Days following deposit in the mail
with proper postage, except that notices and communications to the Pledgee
shall
<PAGE> 232
EXHIBIT G
Page 19
not be effective until received by the Pledgee. All notices and other
communications shall be in writing and addressed as follows:
(a) if to any Pledgor, at the address set forth opposite
its signature below:
(b) if to the Pledgee, at:
The Bank of Nova Scotia
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
Attention:
(c) if to any Bank Creditor, either (x) to the
Administrative Agent, at the address of the Administrative Agent
specified in the Credit Agreement or (y) at such address as such Bank
Creditor shall have specified in the Credit Agreement;
(d) if to any Other Creditor at such address as such
Other Creditor shall have specified in writing to the Pledgors and the
Pledgee;
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
21. WAIVER; AMENDMENT. None of the terms and conditions of
this Agreement may be changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by each Pledgor directly affected
thereby and the Pledgee (with the written consent of either (x) the Required
Banks (or all of the Banks, to the extent required by Section 13.12 of the
Credit Agreement) at all times prior to the time on which all Credit Document
Obligations have been paid in full or (y) the holders of at least a majority of
the outstanding Other Obligations at all times after the time on which all
Credit Document Obligations have been paid in full); provided, that any change,
waiver, modification or variance affecting the rights and benefits of a single
Class (as defined below) of Secured Creditors (and not all Secured Creditors in
a like or similar manner) shall also require the written consent of the
Requisite Creditors (as defined below) of such affected Class. For the purpose
of this Agreement, the term "Class" shall mean each class of Secured Creditors,
i.e., whether (i) the Bank Creditors as holders of the Credit Document
Obligations or (ii) the Other Creditors as the holders of the Other
Obligations. For the purpose of this Agreement, the term "Requisite Creditors"
of any Class shall mean each of
<PAGE> 233
EXHIBIT G
Page 20
(i) with respect to the Credit Document Obligations, the Required Banks and
(ii) with respect to the Other Obligations, the holders of at least a majority
of all obligations outstanding from time to time under the Interest Rate
Protection Agreements or Other Hedging Agreements.
22. MISCELLANEOUS. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns and shall inure to
the benefit of and be enforceable by each of the parties hereto and its
successors and assigns. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAW OF THE STATE OF NEW YORK. The
headings in this Agreement are for purposes of reference only and shall not
limit or define the meaning hereof. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
shall constitute one instrument. In the event that any provision of this
Agreement shall prove to be invalid or unenforceable, such provision shall be
deemed to be severable from the other provisions of this Agreement which shall
remain binding on all parties hereto.
23. RECOURSE. This Agreement is made with full recourse
to the Pledgors and pursuant to and upon all the representations, warranties,
covenants and agreements on the part of the Pledgors contained herein and in
the other Secured Debt Agreements and otherwise in writing in connection
herewith or therewith.
24. ADDITIONAL PLEDGORS. It is understood and agreed
that any Wholly-Owned Subsidiary of the Borrower that is required to execute a
counterpart of this Agreement after the date hereof pursuant to the Credit
Agreement shall automatically become a Pledgor hereunder by executing a
counterpart hereof and delivering the same to the Pledgee.
25. MISCELLANEOUS. Notwithstanding anything to the
contrary contained herein or in the Credit Agreement, each Pledgor hereby
covenants and agrees that with respect to any Pledged Partnership Interest
pledged by it hereunder, such Pledgor will use its reasonable best efforts to
deliver to the respective Pledged Partnerships (with copies to the Pledgee) a
Partnership Notice (appropriately completed) and such Pledgor will use its
reasonable best efforts to deliver to the Pledgee a Partnership Acknowledgement
signed by the respective Pledged Partnerships, in each case within forty-five
days following the pledge of any Pledged Partnership Interests hereunder.
* * *
<PAGE> 234
EXHIBIT G
Page 21
IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused
this Agreement to be executed by their duly elected officers duly authorized as
of the date first above written.
DOUBLETREE CORPORATION
By:_________________
Title:
SAMANTHA HOTEL CORPORATION
By
------------------------
Title:
HARBOR HOTEL CORPORATION
By
-------------------------
Title:
DOUBLETREE PARTNERS
By
-------------------------
Title:
INNCO CORPORATION
By
------------------------
Title:
<PAGE> 235
EXHIBIT G
Page 22
DOUBLETREE HOTELS CORPORATION
By
------------------------
Title:
DT MANAGEMENT, INC.
By
------------------------
Title:
ARIZONA DTM PASADENA, INC.
By
------------------------
Title:
DTM BURLINGAME, INC.
By
------------------------
Title:
DTM CAMBRIDGE, INC.
By
------------------------
Title:
DTM PALM SPRING, INC.
By
------------------------
Title:
<PAGE> 236
EXHIBIT G
Page 23
DTM WALNUT CREEK, INC.
By
------------------------
Title:
DTM COCONUT GROVE, INC.
By
------------------------
Title:
DTM NASHVILLE, INC.
By
------------------------
Title:
DTM SANTA CLARA, INC.
By
------------------------
Title:
DTM VENTURA, INC.
By
------------------------
Title:
DTM ST. LOUIS, INC.
By
------------------------
Title:
<PAGE> 237
EXHIBIT G
Page 24
DTM OKLAHOMA, INC.
By
------------------------
Title:
DTM TULSA, INC.
By
------------------------
Title:
DTR LIMITED PARTNERSHIP
By
------------------------
Title:
DOUBLETREE OF PHOENIX, INC.
By
------------------------
Title:
HOSCO CORPORATION
By
------------------------
Title:
DOUBLETREE HOTEL SYSTEMS,INC.
By
------------------------
Title:
<PAGE> 238
EXHIBIT G
Page 25
COMPRIS HOTEL CORPORATION
By
------------------------
Title:
DTR RFS LESSEE, INC.
By
------------------------
Title:
DOUBLETREE, INC. OF CALIFORNIA
By
------------------------
Title:
DT REAL ESTATE, INC.
By
------------------------
Title:
TUK INNS, INC.
By
------------------------
Title:
DT INVESTMENTS, INC.
By
------------------------
Title:
<PAGE> 239
EXHIBIT G
Page 26
DTR CAMBRIDGE, INC.
By
------------------------
Title:
DTR SANTA CLARA, INC.
By
------------------------
Title:
DTR SONORAN HOLDING, INC.
By
------------------------
Title:
DTM ATLANTIC CITY, INC.
By
------------------------
Title:
DTR INDEPENDENCE, INC.
By
------------------------
Title:
DTR NORTH CANTON, INC.
By
------------------------
Title:
<PAGE> 240
EXHIBIT G
Page 27
DTR SAN ANTONIO, INC.
By
------------------------
Title:
DTR WEST MONTROSE, INC.
By
------------------------
Title:
RED LION HOTELS, INC.
By
------------------------
Title:
Accepted and Agreed to:
THE BANK OF NOVA SCOTIA,
as Collateral Administrative Agent for the Banks
By:_________________________
Title:
<PAGE> 241
ANNEX A
to
PLEDGE AGREEMENT
LIST OF STOCK
I. Doubletree Corporation
<TABLE>
<CAPTION>
Percentage of
Outstanding
Name of Issuing Certificate Type of Number of Shares of
Corporation Number Shares Shares Capital Stock
--------------- ----------- ------- ------ -------------
<S> <C> <C> <C> <C>
</TABLE>
II. Each Subsidiary Guarantor
<TABLE>
<CAPTION>
Percentage of
Outstanding
Name of Issuing Certificate Type of Number of Shares of
Corporation Number Shares Shares Capital Stock
--------------- ----------- ------- ------ -------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 242
ANNEX B
to
PLEDGE AGREEMENT
LIST OF NOTES
I. Doubletree Corporation
<TABLE>
<CAPTION>
Principal Amount Maturity Date
Obligor (if any) (if any)
- ------- -------------------- ---------------
<S> <C> <C>
</TABLE>
II. [List Each Subsidiary Guarantor Individually]
<TABLE>
<CAPTION>
Principal Amount Maturity Date
Obligor (if any) (if any)
- ------- -------------------- ---------------
<S> <C> <C>
</TABLE>
<PAGE> 243
ANNEX C
to
PLEDGE AGREEMENT
PARTNERSHIP INTERESTS
A. Doubletree Corporation
<TABLE>
<CAPTION>
Type of
Percentage Partnership
Pledged Entities Owned Interest
---------------- ---------- -----------
<S> <C> <C>
</TABLE>
[TO BE PROVIDED BY PLEDGOR]
B. [List Each Subsidiary Guarantor Individually]
<TABLE>
<CAPTION>
Type of
Percentage Partnership
Pledged Entities Owned Interest
---------------- ---------- -----------
<S> <C> <C>
</TABLE>
<PAGE> 244
ANNEX F
to
PLEDGE AGREEMENT
OFFICE LOCATIONS
A. Doubletree Corporation
<TABLE>
<CAPTION>
Office Locations County
---------------- ------
<S> <C>
</TABLE>
B. [List Each Subsidiary Guarantor Individually]
<TABLE>
<CAPTION>
Office Locations County
---------------- ------
<S> <C>
</TABLE>
<PAGE> 245
ANNEX D
to
PLEDGE AGREEMENT
FORM OF PARTNERSHIP NOTICE
[Letterhead of Pledgor]
[Date]
TO: [Name of Pledged Partnership]
Notice is hereby given that, pursuant to a Pledge Agreement (a
true and correct copy of which is attached hereto), dated as of November __,
1996 (as amended, modified or supplemented from time to time in accordance with
the terms thereof, the "Pledge Agreement"), among [NAME OF PLEDGOR] (the
"Pledgor"), the other pledgors from time to time party thereto and The Bank of
Nova Scotia (the "Pledgee"), as Collateral Administrative Agent on behalf of
the Secured Creditors described therein, the Pledgor has pledged and assigned
to the Pledgee for the benefit of the Secured Creditors, and granted to the
Pledgee for the benefit of the Secured Creditors, a continuing security
interest in, all right, title and interest of the Pledgor, whether now existing
or hereafter arising or acquired, as a [limited] [general] partner in [NAME OF
PLEDGED PARTNERSHIP] (the "Partnership"), and in, to and under the [TITLE OF
APPLICABLE PARTNERSHIP AGREEMENT] (the "Partnership Agreement"), including,
without limitation:
(i) the Pledgor's interest in all of the capital of the
Partnership and the Pledgor's interest in all profits, losses, Partnership
Assets (as defined in the Pledge Agreement) and other distributions to
which the Pledgor shall at any time be entitled in respect of such
partnership interest;
(ii) all other payments due or to become due to the Pledgor in
respect of such partnership interest, whether under the Partnership
Agreement or otherwise, whether as contractual obligations, damages,
insurance proceeds or otherwise;
(iii) all of the Pledgor's claims, rights, powers, privileges,
authority, options, security interest, liens and remedies, if any, under
the Partnership Agreement or at law or otherwise in respect of such
partnership interest;
(iv) all present and future claims, if any, of the Pledgor
against the Partnership for moneys loaned or advanced, for services
rendered or otherwise;
<PAGE> 246
ANNEX D
Page 2
(v) all of the Pledgor's rights under the Partnership Agreement
or at law to exercise and enforce every right, power, remedy, authority,
option and privilege of the Pledgor relating to the partnership interest,
including any power to terminate, cancel or modify the Partnership
Agreement, to execute any instruments and to take any and all other action
on behalf of and in the name of the Pledgor in respect of the Partnership
Interest and the Partnership, to make determinations, to exercise any
election (including, but not limited, election of remedies) or option or
to give or receive any notice, consent, amendment, waiver or approval,
together with full power and authority to demand, receive, enforce,
collect or receipt for any of the foregoing or for any Partnership Asset,
to enforce or execute any checks, or other instruments or orders, to file
any claims and to take any action in connection with any of the foregoing;
(vi) all other property hereafter delivered to the Pledgor in
substitution for or in addition to any of the foregoing, all certificates
and instruments representing or evidencing such other property and all
cash, securities, interest, dividends, rights and other property at any
time and from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all thereof; and
(vii) to the extent not otherwise included, all proceeds of any
or all of the foregoing.
Pursuant to the Pledge Agreement, the Partnership is hereby
authorized and directed to register the Pledgor's pledge to the Pledgee on
behalf of the Secured Creditors of the interest of the Pledgor on the
Partnership's books.
The Pledgor hereby requests the Partnership to indicate the
Partnership's acceptance of this Notice and consent to and confirmation of its
terms and provisions by signing a copy hereof where indicated on the attached
page and returning the same to the Pledgee on behalf of the Secured Creditors.
[NAME OF PLEDGOR]
By_________________________________
Title:
<PAGE> 247
ANNEX E
to
PLEDGE AGREEMENT
FORM OF ACKNOWLEDGMENT
[NAME OF PLEDGED PARTNERSHIP] (the "Partnership") hereby
acknowledges receipt of a copy of the assignment by [NAME OF PLEDGOR]
("Pledgor") of its interest under the [TITLE OF APPLICABLE PARTNERSHIP
AGREEMENT] (the "Partnership Agreement") pursuant to the terms of the Pledge
Agreement, dated as of ____________, 1996 (as amended, modified or supplemented
from time to time in accordance with the terms thereof, the "Pledge
Agreement"), among the Pledgor, the other pledgors from time to time party
thereto and The Bank of Nova Scotia (the "Pledgee"), or Collateral
Administrative Agent on behalf of the Secured Creditors described therein. The
undersigned hereby further confirms the registration of the Pledgor's pledge of
its interest to the Pledgee on behalf of the Secured Creditors on the
Partnership's books.
Dated: ______________ __, ____
[NAME OF PLEDGED PARTNERSHIP]
By:____________________________
Title:
<PAGE> 248
EXHIBIT H
SECURITY AGREEMENT
among
DOUBLETREE CORPORATION,
CERTAIN OF ITS SUBSIDIARIES
and
THE BANK OF NOVA SCOTIA,
as Collateral Administrative Agent
Dated as of November __, 1996
<PAGE> 249
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I SECURITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1. Grant of Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2. Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1. Necessary Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2. No Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3. Other Financing Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4. Chief Executive Office; Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5. Location of Inventory and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.6. Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7. Trade Names; Change of Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III SPECIAL PROVISIONS CONCERNING RECEIVABLES;
CONTRACT RIGHTS; INSTRUMENTS; CHATTEL PAPER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1. Additional Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2. Maintenance of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3. Direction to Account Debtors; Contracting Parties; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4. Modification of Terms; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.5. Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6. Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7. Assignors Remain Liable Under Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.8. Assignors Remain Liable Under Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.9. Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1. Additional Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2. Licenses and Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3. Infringements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.4. Preservation of Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5. Maintenance of Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.6. Future Registered Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.7. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
(i)
<PAGE> 250
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE V
SPECIAL PROVISIONS CONCERNING PATENTS,
COPYRIGHTS AND TRADE SECRETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1. Additional Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2. Licenses and Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3. Infringements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.4. Maintenance of Patents or Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5. Prosecution of Patent Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.6. Other Patents and Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.7. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.1. Protection of Collateral Administrative Agent's Security . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.2. Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.3. Financing Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VII REMEDIES UPON OCCURRENCE OF EVENT OF
DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.1. Remedies; Obtaining the Collateral Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.2. Remedies; Disposition of the Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.3. Waiver of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.4. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.5. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.6. Discontinuance of Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VIII INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.1. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.2. Indemnity Obligations Secured by Collateral; Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.2. Waiver; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.3. Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.4. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.5. Headings Descriptive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.7. Assignor's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.8. Termination; Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
(ii)
<PAGE> 251
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.9. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.13. Additional Assignors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
<TABLE>
<S> <C>
ANNEX A Schedule of Chief Executive Offices/Record Locations
ANNEX B Schedule of Inventory and Equipment Locations
ANNEX C Schedule of Trade and Fictitious Names
ANNEX D Schedule of Marks
ANNEX E Schedule of Patents
ANNEX F Schedule of Copyrights
ANNEX G Form of Assignment of Security Interest in Certain United
States Trademarks and Patents
ANNEX H Form of Assignment of Security Interest in United States Copyrights
</TABLE>
(iii)
<PAGE> 252
EXHIBIT H
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of November __, 1996, made by
each of the undersigned assignors (each an "Assignor" and, together with any
other entity that becomes an assignor hereunder pursuant to Section 10.13
hereof, the "Assignors") in favor of The Bank of Nova Scotia, as Collateral
Administrative Agent (the "Collateral Administrative Agent"), for the benefit
of the Secured Creditors (as defined below). Except as otherwise defined
herein, capitalized terms used herein and defined in the Credit Agreement (as
defined below) shall be used herein as so defined.
W I T N E S S E T H :
WHEREAS, Doubletree Corporation, the lenders party from time
to time party thereto (the "Banks"), Morgan Stanley Senior Funding, Inc., as
Syndication Agent and as Arranger (the "Syndication Agent"), and The Bank of
Nova Scotia, as Administrative Agent (together with any successor
administrative agent, the "Administrative Agent"), have entered into a Credit
Agreement, dated as of November __, 1996, providing for the making of Loans and
the issuance of, and participations in, Letters of Credit as contemplated
therein (as amended, modified or supplemented from time to time, the "Credit
Agreement") (the Banks, the Administrative Agent, the Syndication Agent and the
Collateral Administrative Agent are herein called the "Bank Creditors");
WHEREAS, the Borrower and one or more of its Subsidiaries may
at any time and from time to time enter into one or more Interest Rate
Protection Agreements or Other Hedging Agreements with one or more Banks or any
affiliate thereof (each such Bank or affiliate, even if the respective Bank
subsequently ceases to be a Bank under the Credit Agreement for any reason,
together with such Bank's or affiliate's successors and assigns, if any,
collectively, the "Other Creditors," and together with the Bank Creditors, are
herein called the "Secured Creditors");
WHEREAS, pursuant to the Subsidiaries Guaranty, each
Subsidiary Guarantor has jointly and severally guaranteed to the Secured
Creditors the payment when due of all Guaranteed Obligations as described
therein;
<PAGE> 253
EXHIBIT H
Page 2
WHEREAS, it is a condition precedent to the making of Loans
and the issuance of Letters of Credit under the Credit Agreement that each
Assignor shall have executed and delivered to the Collateral Administrative
Agent this Agreement;
WHEREAS, each Assignor will obtain benefits from the
incurrence of Loans and the issuance of Letters of Credit under the Credit
Agreement and the entering into of Interest Rate Protection Agreements as Other
Hedging Agreements and, accordingly, each Assignor desires to enter into this
Agreement in order to satisfy the condition described in the preceding
paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to
each Assignor, the receipt and sufficiency of which are hereby acknowledged,
each Assignor hereby makes the following representations and warranties to the
Collateral Administrative Agent for the benefit of the Secured Creditors and
hereby covenants and agrees with the Collateral Administrative Agent for the
benefit of the Secured Creditors as follows:
ARTICLE I
SECURITY INTERESTS
1.1. Grant of Security Interests. (a) As security for the
prompt and complete payment and performance when due of all of its Obligations,
each Assignor does hereby assign and transfer unto the Collateral
Administrative Agent, and does hereby pledge and grant to the Collateral
Administrative Agent for the benefit of the Secured Creditors, a continuing
security interest in, all of the right, title and interest of such Assignor in,
to and under all of the following, whether now existing or hereafter from time
to time acquired: (i) each and every Receivable, (ii) all Contracts, together
with all Contract Rights arising thereunder, (iii) all Inventory, (iv) all
Equipment, (v) all Marks, together with the registrations and right to all
renewals thereof, and the goodwill of the business of such Assignor symbolized
by the Marks, (vi) all Patents and Copyrights, (vii) all computer programs of
such Assignor and all intellectual property rights therein and all other
proprietary information of such Assignor, including, but not limited to, Trade
Secret Rights, (viii) all other Goods, General Intangibles, Permits, Chattel
Paper, Documents and Instruments, (ix) the Cash Collateral Account and all
monies, securities, instruments and other Cash Equivalents deposited or
required to be deposited in such Cash Collateral Account, (x) all revenues,
receipts, income, accounts, and other Receivables derived or to be derived from
the ownership or operation of any Hotel Property and related facilities located
thereon,
<PAGE> 254
EXHIBIT H
Page 3
including, without limitation of the generality of the foregoing, all room
revenues and room charges and charges for hotel services (including advance
deposits therefor) and other revenues and income derived or to be derived from
the sale or rental of hotel rooms and meeting rooms, the provision of hotel
services, the sale of food, beverages and merchandise, the rental of shops,
leasing of commercial or residential spaces, the granting of concessions
(including taxi concessions and concessions for the installation of
coin-operated machines to the extent of such Assignor's interest therein)
within or about any Hotel Property and related facilities, the rental or
operation of travel desks, the rental or operation of parking facilities and
the provision of services to guests of any Hotel Property and related
facilities located thereon and any other items of revenue, receipts or other
income, (xi) all books and records of each Assignor with respect to any and all
of the foregoing and (xii) all Proceeds and products of any and all of the
foregoing (all of each Assignor's right, title and interest in the above,
collectively, the "Collateral").
(b) Notwithstanding any thing to the contrary contained in
clause (a) above, the Collateral shall not include any asset that any Assignor
owns, as agent, for the benefit of a third party (other than a Subsidiary of
such Assignor) rather than for its own benefit.
(c) The security interest of the Collateral Administrative
Agent under this Agreement extends to all Collateral of the kind which is the
subject of this Agreement which any Assignor may acquire at any time during the
term of this Agreement.
1.2. Power of Attorney. Each Assignor hereby constitutes and
appoints the Collateral Administrative Agent its true and lawful attorney,
irrevocably, with full power after the occurrence of and during the continuance
of an Event of Default (in the name of such Assignor or otherwise) to act,
require, demand, receive, compound and give acquittance for any and all moneys
and claims for moneys due or to become due to such Assignor under or arising
out of the Collateral, to endorse any checks or other instruments or orders in
connection therewith and to file any claims or take any action or institute any
proceedings which the Collateral Administrative Agent may deem to be necessary
or advisable to protect the interests of the Secured Creditors, which
appointment as attorney is coupled with an interest.
<PAGE> 255
EXHIBIT H
Page 4
ARTICLE II
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Assignor represents, warrants and covenants, which
representations, warranties and covenants shall survive execution and delivery
of this Agreement, as follows:
2.1. Necessary Filings. All filings, registrations and
recordings necessary or appropriate to create, preserve and perfect the
security interest granted by such Assignor to the Collateral Administrative
Agent hereby in respect of the Collateral have been accomplished and the
security interest granted to the Collateral Administrative Agent pursuant to
this Agreement in and to the Collateral creates a perfected security interest
therein subject to no other Liens (other than Permitted Liens) and is entitled
to all the rights, priorities and benefits afforded by the Uniform Commercial
Code or other relevant law as enacted in any relevant jurisdiction to perfected
security interests, in each case to the extent that the Collateral consists of
the type of property in which a security interest may be perfected by filing a
financing statement under the Uniform Commercial Code as enacted in any
relevant jurisdiction or in the United States Patent and Trademark Office or in
the United States Copyright Office.
2.2. No Liens. Such Assignor is, and as to Collateral
acquired by it from time to time after the date hereof such Assignor will be,
the owner of all Collateral free from any Lien, security interest, encumbrance
or other right, title or interest of any Person (other than Permitted Liens),
and such Assignor shall defend the Collateral against all claims and demands of
all Persons at any time claiming the same or any interest therein adverse to
the Collateral Administrative Agent.
2.3. Other Financing Statements. As of the date hereof,
there is no financing statement (or similar statement or instrument of
registration under the law of any jurisdiction) covering or purporting to cover
any interest of any kind in the Collateral (other than financing statements
filed in respect of Permitted Liens), and so long as the Termination Date has
not occurred, such Assignor will not execute or authorize to be filed in any
public office any financing statement (or similar statement or instrument of
registration under the law of any jurisdiction) or statements relating to the
Collateral, except financing statements filed or to be filed in respect of and
covering the security interests granted hereby by such Assignor or in
connection with Permitted Liens.
<PAGE> 256
EXHIBIT H
Page 5
2.4. Chief Executive Office; Records. The chief executive
office of such Assignor is located at the address indicated on Annex A hereto
for such Assignor. Such Assignor will not move its chief executive office
except to such new location as such Assignor may establish in accordance with
the last sentence of this Section 2.4. The originals of all documents
evidencing all Receivables and Contract Rights of such Assignor and the only
original books of account and records of such Assignor relating thereto are,
and will continue to be, kept at such chief executive office, at one or more of
the other locations set forth on Annex A hereto or at such new locations as
such Assignor may establish in accordance with the last sentence of this
Section 2.4. All Receivables and Contract Rights of such Assignor are, and
will continue to be, maintained at, and controlled and directed (including,
without limitation, for general accounting purposes) from, the office locations
described above or such new location established in accordance with the last
sentence of this Section 2.4. No Assignor shall establish new locations for
such offices until (i) it shall have given to the Collateral Administrative
Agent not less than 15 days' prior written notice of its intention to do so,
clearly describing such new location and providing such other information in
connection therewith as the Collateral Administrative Agent may reasonably
request, (ii) with respect to such new location, it shall have taken all
action, reasonably satisfactory to the Collateral Administrative Agent, to
maintain the security interest of the Collateral Administrative Agent in the
Collateral intended to be granted hereby at all times fully perfected and in
full force and effect.
2.5. Location of Inventory and Equipment. All Inventory and
Equipment held on the date hereof by each Assignor is located at one of the
locations shown on Annex B hereto for such Assignor. Each Assignor agrees that
all Inventory and Equipment now held or subsequently acquired by it shall be
kept at (or shall be in transport to) any one of the locations shown on Annex B
hereto, or such new location as such Assignor may establish in accordance with
the last sentence of this Section 2.5. Any Assignor may establish a new
location for Inventory and Equipment only if (i) it shall have given to the
Collateral Administrative Agent not less than 15 days' prior written notice of
its intention so to do, clearly describing such new location and providing such
other information in connection therewith as the Collateral Administrative
Agent may request, (ii) with respect to such new location, it shall have taken
all action reasonably satisfactory to the Collateral Administrative Agent to
maintain the security interest of the Collateral Administrative Agent in the
Collateral intended to be granted hereby at all times fully perfected and in
full force and effect.
2.6. Recourse. This Agreement is made with full recourse to
each Assignor (including, without limitation, with full recourse to all assets
of such Assignor) and pursuant to and upon all the warranties, representations,
covenants and agreements on the part of
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such Assignor contained herein, in the other Secured Debt Agreements and
otherwise in writing in connection herewith or therewith.
2.7. Trade Names; Change of Name. No Assignor has or
operates in any jurisdiction under, or in the preceding 12 months has had or
has operated in any jurisdiction under, any trade names, fictitious names or
other names except its legal name and such other trade or fictitious names as
are listed on Annex E hereto for such Assignor. No Assignor shall change its
legal name or assume or operate in any jurisdiction under any trade, fictitious
or other name except those names listed on Annex C hereto for such Assignor and
new names established in accordance with the last sentence of this Section 2.7.
No Assignor shall assume or operate in any jurisdiction under any new trade,
fictitious or other name until (i) it shall have given to the Collateral
Administrative Agent not less than 15 days' prior written notice of its
intention so to do, clearly describing such new name and the jurisdictions in
which such new name shall be used and providing such other information in
connection therewith as the Collateral Administrative Agent may reasonably
request, (ii) with respect to such new name, it shall have taken all action
reasonably requested by the Collateral Administrative Agent to maintain the
security interest of the Collateral Administrative Agent in the Collateral
intended to be granted hereby at all times fully perfected and in full force
and effect.
ARTICLE III
SPECIAL PROVISIONS CONCERNING RECEIVABLES;
CONTRACT RIGHTS; INSTRUMENTS; CHATTEL PAPER
3.1. Additional Representations and Warranties. As of the
time when each of its Receivables arises, each Assignor shall be deemed to have
represented and warranted that such Receivable, and all records, papers and
documents relating thereto (if any) are what they purport to be, and such
Receivable will evidence true and valid obligations of the account debtor named
therein.
3.2. Maintenance of Records. Each Assignor will keep and
maintain at its own cost and expense accurate records of its Receivables and
Contracts, including, but not limited to, originals or copies of all
documentation (including each Contract) with respect thereto, records of all
payments received, all credits granted thereon, all merchandise returned and
all other dealings therewith, and such Assignor will make the same available on
such Assignor's premises to the Collateral Administrative Agent for inspection,
at such Assignor's own cost and expense, at any and all reasonable times upon
prior notice to such
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Assignor. Upon the occurrence and during the continuance of an Event of
Default and at the request of the Collateral Administrative Agent, such
Assignor shall, at its own cost and expense, deliver all tangible evidence of
its Receivables and Contract Rights (including, without limitation, all
documents evidencing the Receivables and all Contracts) and such books and
records to the Collateral Administrative Agent or to its representatives
(copies of which evidence and books and records may be retained by such
Assignor). Upon the occurrence and during the continuance of an Event of
Default and if the Collateral Administrative Agent so directs, such Assignor
shall legend, in form and manner satisfactory to the Collateral Administrative
Agent, the Receivables and the Contracts, as well as books, records and
documents (if any) of such Assignor evidencing or pertaining to such
Receivables and Contracts with an appropriate reference to the fact that such
Receivables and Contracts have been assigned to the Collateral Administrative
Agent and that the Collateral Administrative Agent has a security interest
therein.
3.3. Direction to Account Debtors; Contracting Parties; etc.
Upon the occurrence and during the continuance of an Event of Default, and if
the Collateral Administrative Agent so directs any Assignor, such Assignor
agrees (x) to cause all payments on account of the Receivables and Contracts to
be made directly to the Cash Collateral Account, (y) that the Collateral
Administrative Agent may, at its option, directly notify the obligors with
respect to any Receivables and/or under any Contracts to make payments with
respect thereto as provided in the preceding clause (x) and (z) that the
Collateral Administrative Agent may enforce collection of any such Receivables
and Contracts and may adjust, settle or compromise the amount of payment
thereof, in the same manner and to the same extent as such Assignor. Without
notice to or assent by any Assignor, the Collateral Administrative Agent may
apply any or all amounts then in, or thereafter deposited in, the Cash
Collateral Account which application shall be effected in the manner provided
in Section 7.4 of this Agreement. The costs and expenses (including reasonable
attorneys' fees) of collection, whether incurred by an Assignor or the
Collateral Administrative Agent, shall be borne by the relevant Assignor. The
Collateral Administrative Agent shall deliver a copy of each notice referred to
in the preceding clause (y) to the relevant Assignor (although no such notice
shall be required upon the occurrence of an Event of Default of the type
described in Section 10.05 of the Credit Agreement).
3.4. Modification of Terms; etc. Except in accordance with such
Assignor's ordinary course of business, no Assignor shall rescind or cancel any
indebtedness evidenced by any Receivable or under any Contract, or modify any
term thereof or make any adjustment with respect thereto, or extend or renew
the same, or compromise or settle any material dispute, claim, suit or legal
proceeding relating thereto, or sell any Receivable or Contract, or interest
therein, without the prior written consent of
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the Collateral Administrative Agent. Each Assignor will duly fulfill all
obligations on its part to be fulfilled under or in connection with the
Receivables and Contracts (except to the extent that the failure to so perform,
either individually or in the aggregate, could not reasonably be expected to
have a material adverse effect on the business, operations, property, assets,
liabilities, condition (financial or otherwise) or prospects of the Borrower
and its Subsidiaries taken as a whole) and will do nothing to impair the
security interest of the Collateral Administrative Agent in the Receivables or
Contracts.
3.5. Collection. Each Assignor shall endeavor in accordance
with reasonable business practices to cause to be collected from the account
debtor named in each of its Receivables or obligor under any Contract, as and
when due (including, without limitation, amounts which are delinquent, such
amounts to be collected in accordance with generally accepted lawful collection
procedures) any and all amounts owing under or on account of such Receivable or
Contract, and apply forthwith upon receipt thereof all such amounts as are so
collected to the outstanding balance of such Receivable or under such Contract,
except that, prior to the occurrence of an Event of Default, any Assignor may
allow in the ordinary course of business adjustments to amounts owing under its
Receivables and Contracts. The reasonable costs and expenses (including,
without limitation, reasonable attorneys' fees) of collection, whether incurred
by an Assignor or the Collateral Administrative Agent, shall be borne by the
relevant Assignor.
3.6. Instruments. If any Assignor owns or acquires any
Instruments constituting Collateral and having a face value of $1,000,000 or
greater, such Assignor will within 10 Business Days notify the Collateral
Administrative Agent thereof, and upon request by the Collateral Administrative
Agent will promptly deliver such Instrument (other than checks payable to any
Assignor and processed in the ordinary course of business) to the Collateral
Administrative Agent appropriately endorsed to the order of the Collateral
Administrative Agent as further security hereunder.
3.7. Assignors Remain Liable Under Receivables. Anything herein
to the contrary notwithstanding, the Assignors shall remain liable under each
of the Receivables to observe and perform all of the conditions and obligations
to be observed and performed by it thereunder, all in accordance with the terms
of any agreement giving rise to such Receivables. Neither the Collateral
Administrative Agent nor any other Secured Creditor shall have any obligation
or liability under any Receivable (or any agreement giving rise thereto) by
reason of or arising out of this Agreement or the receipt by the Collateral
Administrative Agent or any other Secured Creditor of any payment relating to
such Receivable pursuant hereto, nor shall the Collateral Administrative Agent
or any other Secured Creditor be obligated in any manner to perform any of the
obligations of any
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Assignor under or pursuant to any Receivable (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by them or as to the sufficiency of any
performance by any party under any Receivable (or any agreement giving rise
thereto), to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to them or to which they may be entitled at any time or times.
3.8. Assignors Remain Liable Under Contracts. Anything herein
to the contrary notwithstanding, the Assignors shall remain liable under each
of the Contracts to observe and perform all of the conditions and obligations
to be observed and performed by them thereunder, all in accordance with and
pursuant to the terms and provisions of each Contract. Neither the Collateral
Administrative Agent nor any other Secured Creditor shall have any obligation
or liability under any Contract by reason of or arising out of this Agreement
or the receipt by the Collateral Administrative Agent or any other Secured
Creditor of any payment relating to such contract pursuant hereto, nor shall
the Collateral Administrative Agent or any other Secured Creditor be obligated
in any manner to perform any of the obligations of any Assignor under or
pursuant to any Contract, to make any payment, to make any inquiry as to the
nature or the sufficiency of any performance by any party under any Contract,
to present or file any claim, to take any action to enforce any performance or
to collect the payment of any amounts which may have been assigned to them or
to which they may be entitled at any time or times.
3.9. Further Actions. Each Assignor will, at its own expense,
make, execute, endorse, acknowledge, file and/or deliver to the Collateral
Administrative Agent from time to time such vouchers, invoices, schedules,
confirmatory assignments, conveyances, financing statements, transfer
endorsements, certificates, reports and other assurances or instruments and
take such further steps relating to its Receivables, Contracts, Instruments and
other property or rights covered by the security interest hereby granted, as
the Collateral Administrative Agent may reasonably require.
ARTICLE IV
SPECIAL PROVISIONS CONCERNING TRADEMARKS
4.1. Additional Representations and Warranties. Each Assignor
represents and warrants that it is the true and lawful owner of or otherwise
has the right to use the registered Marks listed in Annex D hereto for such
Assignor and that said listed Marks include all material United States marks
and applications for United States marks registered in the United States Patent
and Trademark Office that such Assignor owns or uses in connection with its
business as of the date hereof. Each Assignor represents and warrants
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that it owns, is licensed to use or otherwise has the right to use all material
Marks that it uses. Each Assignor further warrants that it has no knowledge of
any third party claim that any aspect of such Assignor's present or
contemplated business operations infringes or will infringe any trademark,
service mark or trade name (other than such infringements which, either
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on the business, operations, property, assets,
liabilities, condition (financial or otherwise) or prospects of the Borrower
and its Subsidiaries taken as a whole). Each Assignor represents and warrants
that it is the true and lawful owner of or otherwise has the right to use all
U.S. trademark registrations and applications listed in Annex D hereto and that
said registrations are valid, subsisting, have not been cancelled and that such
Assignor is not aware of any third-party claim that any of said registrations
is invalid or unenforceable, or is not aware that there is any reason that any
of said registrations is invalid or unenforceable, or is not aware that there
is any reason that any of said material applications will not pass to
registration. Each Assignor hereby grants to the Collateral Administrative
Agent an absolute power of attorney to sign, upon the occurrence and during the
continuance of an Event of Default, any document which may be required by the
United States Patent and Trademark Office in order to effect an absolute
assignment of all right, title and interest in each Mark, and record the same.
4.2. Licenses and Assignments. Except as otherwise permitted by
the Secured Debt Agreements, each Assignor hereby agrees not to divest itself
of any right under any Mark acquired after the date hereof absent prior written
approval of the Collateral Administrative Agent.
4.3. Infringements. Each Assignor agrees, promptly upon
learning thereof, to notify the Collateral Administrative Agent in writing of
the name and address of, and to furnish such pertinent information that may be
available with respect to, any party who such Assignor believes is infringing
or diluting or otherwise violating in any material respect any of such
Assignor's rights in and to any material Mark, or with respect to any party
claiming that such Assignor's use of any material Mark violates in any material
respect any property right of that party. Each Assignor further agrees, unless
otherwise agreed by the Collateral Administrative Agent, to prosecute any
Person infringing any Mark in accordance with reasonable business practices.
4.4. Preservation of Marks. Each Assignor agrees to use its
Marks in interstate commerce during the time in which this Agreement is in
effect and to take all such other actions as are necessary to preserve such
Marks as trademarks or service marks under the laws of the United States;
provided, that no Assignor shall be obligated to preserve any such Mark in the
event such Assignor determines, in its reasonable business
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judgment, that the preservation of such Mark is no longer desirable in the
conduct of its business.
4.5. Maintenance of Registration. Each Assignor shall, at its
own expense, diligently process all documents required to maintain trademark
registrations, including but not limited to affidavits of use and applications
for renewals of registration in the United States Patent and Trademark Office
for all of its registered Marks, and shall pay all fees and disbursements in
connection therewith and shall not abandon any such filing of affidavit of use
or any such application of renewal prior to the exhaustion of all
administrative and judicial remedies without prior written consent of the
Collateral Administrative Agent; provided, that no Assignor shall be obligated
to maintain any Mark in the event that such Assignor determines, in its
reasonable business judgment, that the maintenance of such Mark is no longer
necessary or material to or desirable in the conduct of its business.
4.6. Future Registered Marks. If any Mark registration is
issued hereafter to any Assignor as a result of any application now or
hereafter pending before the United States Patent and Trademark Office, within
30 days of receipt of such certificate, such Assignor shall deliver to the
Collateral Administrative Agent a copy of such certificate, and an assignment
for security in such Mark, to the Collateral Administrative Agent and at the
expense of such Assignor, confirming the assignment for security in such Mark
to the Collateral Administrative Agent hereunder, the form of such security to
be substantially the same as the form hereof or in such other form as may be
reasonably satisfactory to the Collateral Administrative Agent.
4.7. Remedies. If an Event of Default shall occur and be
continuing, the Collateral Administrative Agent may, by written notice to the
relevant Assignor, take any or all of the following actions: (i) declare the
entire right, title and interest of such Assignor in and to each of the Marks,
together with all trademark rights and rights of protection to the same, vested
in the Collateral Administrative Agent for the benefit of the Secured
Creditors, in which event such rights, title and interest shall immediately
vest, in the Collateral Administrative Agent for the benefit of the Secured
Creditors, and the Collateral Administrative Agent shall be entitled to
exercise the power of attorney referred to in Section 4.1 hereof to execute,
cause to be acknowledged and notarized and record said absolute assignment with
the applicable agency; (ii) take and use or sell the Marks and the goodwill of
such Assignor's business symbolized by the Marks and the right to carry on the
business and use the assets of such Assignor in connection with which the Marks
have been used; and (iii) direct such Assignor to refrain, in which event such
Assignor shall refrain, from using the Marks in any manner whatsoever, directly
or indirectly, and such Assignor shall execute such further documents that the
Collateral Administrative Agent may
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reasonably request to further confirm this and to transfer ownership of the
Marks and registrations and any pending trademark application in the United
States Patent and Trademark Office to the Collateral Administrative Agent.
ARTICLE V
SPECIAL PROVISIONS CONCERNING
PATENTS, COPYRIGHTS AND TRADE SECRETS
5.1. Additional Representations and Warranties. Each Assignor
represents and warrants that it is the true and lawful owner of all rights in
(i) all United States trade secrets and proprietary information necessary to
operate the business of the Assignor (the "Trade Secret Rights"), (ii) the
Patents listed in Annex E hereto for such Assignor and that said Patents
include all the material United States patents and applications for United
States patents that such Assignor owns as of the date hereof and (iii) the
Copyrights listed in Annex F hereto for such Assignor and that said Copyrights
constitute all the material United States copyrights registered with the United
States Copyright Office and applications to United States copyrights that such
Assignor owns as of the date hereof. Each Assignor further warrants that it
has no knowledge of any third party claim that any aspect of such Assignor's
present or contemplated business operations infringes or will infringe any
patent or such Assignor has misappropriated any trade secret or proprietary
information (other than such infringements which, either individually or in the
aggregate, could not reasonably be expected to have a material adverse effect
on the business, operations, property, assets, liabilities, condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries
taken as a whole). Each Assignor hereby grants to the Collateral
Administrative Agent an absolute power of attorney to sign, upon the occurrence
and during the continuance of any Event of Default, any document which may be
required by the United States Patent and Trademark Office in order to effect an
absolute assignment of all right, title and interest in each Patent, and to
record the same.
5.2. Licenses and Assignments. Except as otherwise permitted by
the Secured Debt Agreements, each Assignor hereby agrees not to divest itself
of any right under any Patent or Copyright acquired after the date hereof
absent prior written approval of the Collateral Administrative Agent.
5.3. Infringements. Each Assignor agrees, promptly upon
learning thereof, to furnish the Collateral Administrative Agent in writing
with all pertinent information available to such Assignor with respect to any
infringement, contributing infringement or
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active inducement to infringe in any material Patent or material Copyright or
to any claim that the practice of any material Patent or use of any material
Copyright violates any property right of a third party, or with respect to any
misappropriation of any Trade Secret Right or any claim that practice of any
Trade Secret Right violates any property right of a third party. Each Assignor
further agrees, absent direction of the Collateral Administrative Agent to the
contrary, diligently to prosecute any Person infringing any Patent or Copyright
or any Person misappropriating any Trade Secret Right in accordance with such
Assignor's reasonable business judgment; provided, that any litigation in
connection with any such infringement shall be commenced, prosecuted or settled
in accordance with such Assignor's reasonable business judgment.
5.4. Maintenance of Patents or Copyright. At its own expense,
each Assignor shall make timely payment of all post-issuance fees required to
maintain in force rights under each Patent or Copyright, absent prior written
consent of the Collateral Administrative Agent.
5.5. Prosecution of Patent Applications. At its own expense,
each Assignor shall, except as otherwise permitted by the Credit Agreement,
diligently prosecute all applications for (i) United States Patents listed in
Annex E hereto and (ii) Copyrights listed on Annex F hereto, in each case for
such Assignor and shall not abandon any such application prior to exhaustion of
all administrative and judicial remedies, absent written consent of the
Collateral Administrative Agent.
5.6. Other Patents and Copyrights. Within 30 days of the
acquisition or issuance of a United States Patent, registration of a Copyright,
or acquisition of a registered copyright, or of filing of an application for a
United States Patent or Copyright, the relevant Assignor shall deliver to the
Collateral Administrative Agent a copy of said Copyright or certificate or
registration of, or application therefor, said patents, as the case may be,
with an assignment for security as to such Patent or Copyright, as the case may
be, to the Collateral Administrative Agent and at the expense of such Assignor,
confirming the assignment for security, the form of such assignment for
security to be substantially the same as the form hereof or in such other form
as may be reasonably satisfactory to the Collateral Administrative Agent.
5.7. Remedies. If an Event of Default shall occur and be
continuing, the Collateral Administrative Agent may by written notice to the
relevant Assignor, take any or all of the following actions: (i) declare the
entire right, title, and interest of such Assignor in each of the Patents and
Copyrights vested in the Collateral Administrative Agent for the benefit of the
Secured Creditors, in which event such right, title, and interest shall
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immediately vest in the Collateral Administrative Agent for the benefit of the
Secured Creditors, in which case the Collateral Administrative Agent shall be
entitled to exercise the power of attorney referred to in Section 5.1 hereof to
execute, cause to be acknowledged and notarized and to record said absolute
assignment with the applicable agency; (ii) take and practice or sell the
Patents and Copyrights; and (iii) direct such Assignor to refrain, in which
event such Assignor shall refrain, from practicing the Patents and using the
Copyrights directly or indirectly, and such Assignor shall execute such further
documents as the Collateral Administrative Agent may reasonably request further
to confirm this and to transfer ownership of the Patents and Copyrights to the
Collateral Administrative Agent for the benefit of the Secured Creditors.
ARTICLE VI
PROVISIONS CONCERNING ALL COLLATERAL
6.1. Protection of Collateral Administrative Agent's Security.
Each Assignor will do nothing to impair the rights of the Collateral
Administrative Agent in the Collateral. Each Assignor will at all times keep
its Inventory and Equipment insured in favor of the Collateral Administrative
Agent, at such Assignor's own expense to the extent and in the manner provided
in the Credit Agreement. Except to the extent otherwise permitted to be
retained by such Assignor or applied by such Assignor pursuant to the terms of
the Credit Agreement, the Collateral Administrative Agent shall, at the time
any proceeds of such insurance are distributed to the Secured Creditors, apply
such proceeds in accordance with Section 7.4 hereof. Each Assignor assumes all
liability and responsibility in connection with the Collateral acquired by it
and the liability of such Assignor to pay the Obligations shall in no way be
affected or diminished by reason of the fact that such Collateral may be lost,
destroyed, stolen, damaged or for any reason whatsoever unavailable to such
Assignor.
6.2. Further Actions. Each Assignor will, at its own expense
and upon the request of the Collateral Administrative Agent, make, execute,
endorse, acknowledge, file and/or deliver to the Collateral Administrative
Agent from time to time such lists, descriptions and designations of its
Collateral, warehouse receipts, receipts in the nature of warehouse receipts,
bills of lading, documents of title, vouchers, invoices, schedules,
confirmatory assignments, conveyances, financing statements, transfer
endorsements, certificates, reports and other assurances or instruments and
take such further steps relating to the Collateral and other property or rights
covered by the security interest hereby
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granted, which the Collateral Administrative Agent deems reasonably appropriate
or advisable to perfect, preserve or protect its security interest in the
Collateral.
6.3. Financing Statements. Each Assignor agrees to execute and
deliver to the Collateral Administrative Agent such financing statements, in
form reasonably acceptable to the Collateral Administrative Agent, as the
Collateral Administrative Agent may from time to time reasonably request or as
are necessary or desirable in the opinion of the Collateral Administrative
Agent to establish and maintain a valid, enforceable, first priority perfected
security interest in the Collateral as provided herein and the other rights and
security contemplated hereby all in accordance with the UCC as enacted in any
and all relevant jurisdictions or any other relevant law. Each Assignor will
pay any applicable filing fees, recordation taxes and related expenses relating
to its Collateral. Each Assignor hereby authorizes the Collateral
Administrative Agent to file any such financing statements without the
signature of such Assignor where permitted by law.
ARTICLE VII
REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT
7.1. Remedies; Obtaining the Collateral Upon Default. Each
Assignor agrees that, if any Event of Default shall have occurred and be
continuing, then and in every such case, the Collateral Administrative Agent,
in addition to any rights now or hereafter existing under applicable law, shall
have all rights as a secured creditor under any UCC, and such additional rights
and remedies to which a secured creditor is entitled under the laws in effect,
in all relevant jurisdictions and may:
(i) personally, or by agents or attorneys, immediately take
possession of the Collateral or any part thereof, from such Assignor or
any other Person who then has possession of any part thereof with or
without notice or process of law, and for that purpose may enter upon such
Assignor's premises where any of the Collateral is located and remove the
same and use in connection with such removal any and all services,
supplies, aids and other facilities of such Assignor;
(ii) instruct the obligor or obligors on any agreement,
instrument or other obligation (including, without limitation, the
Receivables and the Contracts) constituting the Collateral to make any
payment required by the terms of such agreement, instrument or other
obligation directly to the Collateral Administrative Agent and may
exercise any and all remedies of such Assignor in respect of such
Collateral;
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(iii) withdraw all monies, securities and instruments in the
Cash Collateral Account for application to the Obligations in accordance
with Section 7.4 hereof;
(iv) sell, assign or otherwise liquidate any or all of the
Collateral or any part thereof in accordance with Section 7.2 hereof, or
direct the relevant Assignor to sell, assign or otherwise liquidate any or
all of the Collateral or any part thereof, and, in each case, take
possession of the proceeds of any such sale or liquidation;
(v) take possession of the Collateral or any part thereof, by
directing the relevant Assignor in writing to deliver the same to the
Collateral Administrative Agent at any place or places designated by the
Collateral Administrative Agent, in which event such Assignor shall at its
own expense:
(x) forthwith cause the same to be moved to the place or
places so designated by the Collateral Administrative Agent and
there delivered to the Collateral Administrative Agent;
(y) store and keep any Collateral so delivered to the
Collateral Administrative Agent at such place or places pending
further action by the Collateral Administrative Agent as provided
in Section 7.2 hereof; and
(z) while the Collateral shall be so stored and kept,
provide such guards and maintenance services as shall be
necessary to protect the same and to preserve and maintain them
in good condition; and
(vi) license or sublicense, whether on an exclusive or
nonexclusive basis, any Marks, Patents or Copyrights included in the
Collateral for such term and on such conditions and in such manner as the
Collateral Administrative Agent shall in its sole judgment determine;
it being understood that each Assignor's obligation so to deliver the
Collateral is of the essence of this Agreement and that, accordingly, upon
application to a court of equity having jurisdiction, the Collateral
Administrative Agent shall be entitled to a decree requiring specific
performance by such Assignor of said obligation. By accepting the benefits of
this Agreement, the Secured Creditors agree that this Agreement may be enforced
only by the action of the Collateral Administrative Agent acting upon the
instructions of the Required Secured Creditors and that no other Secured
Creditor shall have any right individually to seek to enforce this Agreement or
to realize upon the security to be granted hereby, it being understood and
agreed that such rights and remedies may be
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exercised by the Collateral Administrative Agent for the benefit of the Secured
Creditors upon the terms of this Agreement and the Credit Agreement.
7.2. Remedies; Disposition of the Collateral. Any Collateral
repossessed by the Collateral Administrative Agent under or pursuant to Section
7.1 hereof and any other Collateral whether or not so repossessed by the
Collateral Administrative Agent, may be sold, assigned, leased or otherwise
disposed of under one or more contracts or as an entirety, and without the
necessity of gathering at the place of sale the property to be sold, and in
general in such manner, at such time or times, at such place or places and on
such terms as the Collateral Administrative Agent may, in compliance with any
mandatory requirements of applicable law, determine to be commercially
reasonable. Any of the Collateral may be sold, leased or otherwise disposed
of, in the condition in which the same existed when taken by the Collateral
Administrative Agent or after any overhaul or repair at the expense of the
relevant Assignor which the Collateral Administrative Agent shall determine to
be commercially reasonable. Any such disposition which shall be a private sale
or other private proceedings permitted by such requirements shall be made upon
not less than 10 days' prior written notice to the relevant Assignor specifying
the time at which such disposition is to be made and the intended sale price or
other consideration therefor, and shall be subject, for the 10 days after the
giving of such notice, to the right of the relevant Assignor or any nominee of
such Assignor to acquire the Collateral involved at a price or for such other
consideration at least equal to the intended sale price or other consideration
so specified. Any such disposition which shall be a public sale permitted by
such requirements shall be made upon not less than 10 days' prior written
notice to the relevant Assignor specifying the time and place of such sale and,
in the absence of applicable requirements of law, shall be by public auction
(which may, at the Collateral Administrative Agent's option, be subject to
reserve), after publication of notice of such auction (where required by
applicable law) not less than 10 days prior thereto. The Collateral
Administrative Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for the sale, and such sale may be
made at any time or place to which the sale may be so adjourned. To the extent
permitted by any such requirement of law, the Collateral Administrative Agent
may bid for and become the purchaser of the Collateral or any item thereof,
offered for sale in accordance with this Section without accountability to the
relevant Assignor. If, under mandatory requirements of applicable law, the
Collateral Administrative Agent shall be required to make disposition of the
Collateral within a period of time which does not permit the giving of notice
to the relevant Assignor as hereinabove specified, the Collateral
Administrative Agent need give such Assignor only such notice of disposition as
shall be reasonably practicable in view of such mandatory requirements of
applicable law. Each Assignor agrees to do or cause to be done all such other
acts and
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things as may be reasonably necessary to make such sale or sales of all or any
portion of the Collateral valid and binding and in compliance with any and all
applicable laws, regulations, orders, writs, injunctions, decrees or awards of
any and all courts, arbitrators or governmental instrumentalities, domestic or
foreign, having jurisdiction over any such sale or sales, all at such
Assignor's expense.
7.3. Waiver of Claims. Except as otherwise provided in this
Agreement. EACH ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL
ADMINISTRATIVE AGENT'S TAKING POSSESSION OR THE COLLATERAL ADMINISTRATIVE
AGENT'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY
AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES, and
each Assignor hereby further waives, to the extent permitted by law:
(i) all damages occasioned by such taking of possession except
any damages which are the direct result of the Collateral Administrative
Agent's gross negligence or willful misconduct;
(ii) all other requirements as to the time, place and terms of
sale or other requirements with respect to the enforcement of the
Collateral Administrative Agent's rights hereunder; and
(iii) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any applicable law
in order to prevent or delay the enforcement of this Agreement or the
absolute sale of the Collateral or any portion thereof, and each Assignor,
for itself and all who may claim under it, insofar as it or they now or
hereafter lawfully may, hereby waives the benefit of all such laws.
Any sale of, or the grant of options to purchase, or any other realization
upon, any Collateral shall operate to divest all right, title, interest, claim
and demand, either at law or in equity, of the relevant Assignor therein and
thereto, and shall be a perpetual bar both at law and in equity against such
Assignor and against any and all Persons claiming or attempting to claim the
Collateral so sold, optioned or realized upon, or any part thereof, from,
through and under such Assignor.
7.4. Application of Proceeds. (a) All moneys collected by the
Collateral Administrative Agent (or, to the extent the Pledge Agreement, any
Mortgage or any
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Additional Security Document require proceeds of collateral under such Security
Document to be applied in accordance with the provisions of this Agreement, the
Pledgee or Mortgagee under such other Security Document) upon any sale or other
disposition of the Collateral, together with all other moneys received by the
Collateral Administrative Agent hereunder, shall be applied as follows.
(i) first, to the payment of all amounts owing the Collateral
Administrative Agent of the type described in clauses (iii) and (iv) of
the definition of "Obligations";
(ii) second, to the extent proceeds remain after the
application pursuant to the preceding clause (i), an amount equal to the
outstanding Primary Obligations shall be paid to the Secured Creditors as
provided in Section 7.4(e) hereof, with each Secured Creditor receiving an
amount equal to such outstanding Primary Obligations or, if the proceeds
are insufficient to pay in full all such Primary Obligations, its Pro Rata
Share of the amount remaining to be distributed;
(iii) third, to the extent proceeds remain after the
application pursuant to the preceding clauses (i) and (ii), an amount
equal to the outstanding Secondary Obligations shall be paid to the
Secured Creditors as provided in Section 7.4(e) hereof, with each Secured
Creditor receiving an amount equal to its outstanding Secondary
Obligations or, if the proceeds are insufficient to pay in full all such
Secondary Obligations, its Pro Rata Share of the amount remaining to be
distributed; and
(iv) fourth, to the extent proceeds remain after the
application pursuant to the preceding clauses (i) through (iii),
inclusive, and following the termination of this Agreement pursuant to
Section 10.8(a) hereof, to the relevant Assignor or to whomever may be
lawfully entitled to receive such surplus.
(b) For purposes of this Agreement (x) "Pro Rata Share" shall
mean, when calculating a Secured Creditor's portion of any distribution or
amount, that amount (expressed as a percentage) equal to a fraction the
numerator of which is the then unpaid amount of such Secured Creditor's Primary
Obligations or Secondary Obligations, as the case may be, and the denominator
of which is the then outstanding amount of all Primary Obligations or Secondary
Obligations, as the case may be, (y) "Primary Obligations" shall mean (i) in
the case of the Credit Agreement Obligations, all principal of, and interest
on, all Loans, all Unpaid Drawings and all Fees and (ii) in the case of the
Other Obligations that are secured by this Agreement or any other Security
Document, all amounts due under such Interest Rate Protection Agreements or
Other Hedging Agreements (other than
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indemnities, fees (including, without limitation, attorneys' fees) and similar
obligations and liabilities) and (z) "Secondary Obligations" shall mean all
Obligations other than Primary Obligations.
(c) When payments to Secured Creditors are based upon their
respective Pro Rata Shares, the amounts received by such Secured Creditors
hereunder shall be applied (for purposes of making determinations under this
Section 7.4 only) (i) first, to their Primary Obligations and (ii) second, to
their Secondary Obligations. If any payment to any Secured Creditor of its Pro
Rata Share of any distribution would result in overpayment to such Secured
Creditor, such excess amount shall instead be distributed in respect of the
unpaid Primary Obligations or Secondary Obligations, as the case may be, of the
other Secured Creditors, with each Secured Creditor whose Primary Obligations
or Secondary Obligations, as the case may be, have not been paid in full to
receive an amount equal to such excess amount multiplied by a fraction the
numerator of which is the unpaid Primary Obligations or Secondary Obligations,
as the case may be, of such Secured Creditor and the denominator of which is
the unpaid Primary Obligations or Secondary Obligations, as the case may be, of
all Secured Creditors entitled to such distribution.
(d) Each of the Secured Creditors, by their acceptance of the
benefits hereof, agrees and acknowledges that if the Bank Creditors are to
receive a distribution on account of undrawn amounts with respect to Letters of
Credit issued under the Credit Agreement (which shall only occur after all
outstanding Loans and Unpaid Drawings with respect to such Letters of Credit
have been paid in full), such amounts shall be paid to the Administrative Agent
under the Credit Agreement and held by it, for the equal and ratable benefit of
the Bank Creditors, as cash security for the repayment of Obligations owing to
the Bank Creditors as such. If any amounts are held as cash security pursuant
to the immediately preceding sentence, then upon the termination of all
outstanding Letters of Credit, and after the application of all such cash
security to the repayment of all Obligations owing to the Bank Creditors after
giving effect to the termination of all such Letters of Credit, if there
remains any excess cash, such excess cash shall be returned by the
Administrative Agent to the Collateral Administrative Agent for distribution in
accordance with Section 7.4(a) hereof.
(e) All payments required to be made hereunder shall be made
(x) if to the Bank Creditors, to the Administrative Agent under the Credit
Agreement for the account of the Bank Creditors, and (y) if to the Other
Creditors, to the trustee, paying agent or other similar representative (each a
"Representative") for the Other Creditors or, in the absence of such a
Representative, directly to the Other Creditors.
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(f) For purposes of applying payments received in accordance
with this Section 7.4, the Collateral Administrative Agent shall be entitled to
rely upon (i) the Administrative Agent under the Credit Agreement and (ii) the
Representative for the Other Creditors or, in the absence of such a
Representative, upon the Other Creditors for a determination (which the
Administrative Agent, each Representative for any Other Creditors and the
Secured Creditors agree (or shall agree) to provide upon request of the
Collateral Administrative Agent) of the outstanding Primary Obligations and
Secondary Obligations owed to the Bank Creditors or the Other Creditors, as the
case may be. Unless it has actual knowledge (including by way of written
notice from a Bank Creditor or an Other Creditor) to the contrary, the
Administrative Agent and each Representative, in furnishing information
pursuant to the preceding sentence, and the Collateral Administrative Agent, in
acting hereunder, shall be entitled to assume that no Secondary Obligations are
outstanding. Unless it has actual knowledge (including by way of written
notice from an Other Creditor) to the contrary, the Collateral Administrative
Agent, in acting hereunder, shall be entitled to assume that no Interest Rate
Protection Agreements or Other Hedging Agreements are in existence.
(g) It is understood that the Assignors shall remain jointly and
severally liable to the extent of any deficiency between the amount of the
proceeds of the Collateral and the aggregate amount of the Obligations.
7.5. Remedies Cumulative. Each and every right, power and
remedy hereby specifically given to the Collateral Administrative Agent shall
be in addition to every other right, power and remedy specifically given under
this Agreement, the other Secured Debt Agreements or now or hereafter existing
at law, in equity or by statute and each and every right, power and remedy
whether specifically herein given or otherwise existing may be exercised from
time to time or simultaneously and as often and in such order as may be deemed
expedient by the Collateral Administrative Agent. All such rights, powers and
remedies shall be cumulative and the exercise or the beginning of the exercise
of one shall not be deemed a waiver of the right to exercise any other or
others. No delay or omission of the Collateral Administrative Agent in the
exercise of any such right, power or remedy and no renewal or extension of any
of the Obligations shall impair any such right, power or remedy or shall be
construed to be a waiver of any Default or Event of Default or an acquiescence
therein. No notice to or demand on any Assignor in any case shall entitle it
to any other or further notice or demand in similar or other circumstances or
constitute a waiver of any of the rights of the Collateral Administrative Agent
to any other or further action in any circumstances without notice or demand.
In the event that the Collateral Administrative Agent shall bring any suit to
enforce any of its rights hereunder and shall be entitled to judgment, then in
such suit the Collateral Administrative Agent may recover
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reasonable expenses, including reasonable attorneys' fees, and the amounts
thereof shall be included in such judgment.
7.6. Discontinuance of Proceedings. In case the Collateral
Administrative Agent shall have instituted any proceeding to enforce any right,
power or remedy under this Agreement by foreclosure, sale, entry or otherwise,
and such proceeding shall have been discontinued or abandoned for any reason or
shall have been determined adversely to the Collateral Administrative Agent,
then and in every such case the relevant Assignor, the Collateral
Administrative Agent and each holder of any of the Obligations shall be
restored to their former positions and rights hereunder with respect to the
Collateral subject to the security interest created under this Agreement, and
all rights, remedies and powers of the Collateral Administrative Agent shall
continue as if no such proceeding had been instituted.
ARTICLE VIII
INDEMNITY
8.1. Indemnity. (a) Each Assignor jointly and severally agrees
to indemnify, reimburse and hold the Collateral Administrative Agent, each
other Secured Creditor and their respective successors, permitted assigns,
employees, agents and servants (hereinafter in this Section 8.1 referred to
individually as "Indemnitee," and collectively as "Indemnitees") harmless from
any and all liabilities, obligations, damages, injuries, penalties, claims,
demands, actions, suits, judgments and any and all costs, expenses or
disbursements (including reasonable attorneys' fees and expenses) (for the
purposes of this Section 8.1 the foregoing are collectively called "expenses")
of whatsoever kind and nature imposed on, asserted against or incurred by any
of the Indemnitees in any way relating to or arising out of this Agreement, any
other Secured Debt Agreement or any other document executed in connection
herewith or therewith or in any other way connected with the administration of
the transactions contemplated hereby or thereby or the enforcement of any of
the terms of, or the preservation of any rights under any thereof, or in any
way relating to or arising out of the manufacture, ownership, ordering,
purchase, delivery, control, acceptance, lease, financing, possession,
operation, condition, sale, return or other disposition, or use of the
Collateral (including, without limitation, latent or other defects, whether or
not discoverable), the violation of the laws of any country, state or other
governmental body or unit, any tort (including, without limitation, claims
arising or imposed under the doctrine of strict liability, or for or on account
of injury to or the death of any Person (including any Indemnitee), or property
damage), or contract claim; provided that no Indemnitee shall be indemnified
pursuant to this Section 8.1(a) for losses, damages
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or liabilities to the extent caused by the gross negligence or willful
misconduct of such Indemnitee. Each Assignor agrees that upon written notice
by any Indemnitee of the assertion of such a liability, obligation, damage,
injury, penalty, claim, demand, action, suit or judgment, the relevant Assignor
shall assume full responsibility for the defense thereof. Each Indemnitee
agrees to use its best efforts to promptly notify the relevant Assignor of any
such assertion of which such Indemnitee has knowledge.
(b) Without limiting the application of Section 8.1(a) hereof,
each Assignor agrees, jointly and severally, to pay, or reimburse the
Collateral Administrative Agent for any and all reasonable fees, costs and
expenses of whatever kind or nature incurred in connection with the creation,
preservation or protection of the Collateral Administrative Agent's Liens on,
and security interest in, the Collateral, including, without limitation, all
fees and taxes in connection with the recording or filing of instruments and
documents in public offices, payment or discharge of any taxes or Liens upon or
in respect of the Collateral, premiums for insurance with respect to the
Collateral and all other fees, costs and expenses in connection with
protecting, maintaining or preserving the Collateral and the Collateral
Administrative Agent's interest therein, whether through judicial proceedings
or otherwise, or in defending or prosecuting any actions, suits or proceedings
arising out of or relating to the Collateral.
(c) Without limiting the application of Section 8.1(a) or (b)
hereof, each Assignor agrees, jointly and severally, to pay, indemnify and hold
each Indemnitee harmless from and against any loss, costs, damages and expenses
which such Indemnitee may suffer, expend or incur in consequence of or growing
out of any misrepresentation by any Assignor in this Agreement, any Interest
Rate Protection Agreement or Currency Hedging Agreement, any other Credit
Document or in any writing contemplated by or made or delivered pursuant to or
in connection with this Agreement, any Interest Rate Protection Agreement or
Currency Hedging Agreement or any other Credit Document.
(d) If and to the extent that the obligations of any Assignor
under this Section 8.1 are unenforceable for any reason, such Assignor hereby
agrees to make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
8.2. Indemnity Obligations Secured by Collateral; Survival. Any
amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of each Assignor contained in this Article VIII shall
continue in full force and effect notwithstanding the full payment of all of
the other Obligations and notwithstanding the full
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payment of all the Notes issued under the Credit Agreement, the termination of
all Interest Rate Protection Agreements or Other Hedging Agreements and the
payment of all other Obligations and notwithstanding the discharge thereof.
ARTICLE IX
DEFINITIONS
The following terms shall have the meanings herein specified.
Such definitions shall be equally applicable to the singular and plural forms
of the terms defined.
"Administrative Agent" shall have the meaning provided in the
recitals of this Agreement.
"Agreement" shall mean this Security Agreement as the same may be
modified, supplemented or amended from time to time in accordance with its
terms.
"Assignor" shall have the meaning provided in the first paragraph
of this Agreement.
"Bank Creditors" shall have the meaning provided in the recitals
of this Agreement.
"Banks" shall have the meaning provided in the recitals of this
Agreement.
"Borrower" shall have the meaning provided in the recitals of
this Agreement.
"Cash Collateral Account" shall mean a cash collateral account
maintained with, and in the sole dominion and control of, the Collateral
Administrative Agent for the benefit of the Secured Creditors.
"Chattel Paper" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Class" shall have the meaning provided in Section 10.2 of this
Agreement.
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"Collateral" shall have the meaning provided in Section 1.1(a) of
this Agreement.
"Collateral Administrative Agent" shall have the meaning provided
in the first paragraph of this Agreement.
"Contract Rights" shall mean all rights of any Assignor under
each Contract, including, without limitation, (i) any and all rights to receive
and demand payments under any or all Contracts, (ii) any and all rights to
receive and compel performance under any or all Contracts and (iii) any and all
other rights, interests and claims now existing or in the future arising in
connection with any or all Contracts.
"Contracts" shall mean all contracts, between any Assignor and
one or more additional parties (including, without limitation, each Management
Agreement, Joint Venture Agreement, partnership agreement, franchise agreement
and any Interest Rate Protection Agreements or Other Hedging Agreements), but
excluding any contract to the extent that the terms thereof prohibit (after
giving effect to any approvals or waivers) the assignment of, or granting a
security interest in, such contract (it being understood and agreed, however,
that notwithstanding the foregoing, all rights to payment for money due or to
become due pursuant to any such excluded contract shall be subject to the
security interests created by this Agreement).
"Copyrights" shall mean any United States copyright owned by any
Assignor, including any registrations of any Copyrights, in the United States
Copyright Office, as well as any application for a United States copyright
registration now or hereafter made with the United States Copyright Office by
any Assignor.
"Credit Agreement" shall have the meaning provided in the
recitals of this Agreement.
"Credit Agreement Obligations" shall have the meaning provided in
the definition of "Obligations" in this Article IX.
"Default" shall mean any event which, with notice or lapse of
time, or both, would constitute an Event of Default.
"Documents" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
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"Equipment" shall mean any "equipment," as such term is defined
in the Uniform Commercial Code as in effect on the date hereof in the State of
New York, now or hereafter owned by any Assignor and, in any event, shall
include, but shall not be limited to, all machinery, equipment, furnishings,
movable trade fixtures and vehicles now or hereafter owned by any Assignor and
any and all additions, substitutions and replacements of any of the foregoing,
wherever located, together with all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto.
"Event of Default" shall mean any Event of Default under, and as
defined in, the Credit Agreement and shall in any event, without limitation,
include any payment default on any of the Other Obligations (to the extent
secured hereby) after the expiration of any applicable grace period.
"General Intangibles" shall have the meaning provided in the
Uniform Commercial Code as in effect on the date hereof in the State of New
York and shall in any event include all of any Assignor's claims, rights,
powers, privileges, authority, options, security interests, liens and remedies
under any partnership agreement to which such Assignor is a party or with
respect to any partnership of which such Assignor is a partner.
"Goods" shall have the meaning provided in the Uniform Commercial
Code as in effect on the date hereof in the State of New York.
"Indemnitee" shall have the meaning provided in Section 8.1 of
this Agreement.
"Instrument" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Inventory" shall mean merchandise, inventory and goods, and all
additions, substitutions and replacements thereof, wherever located, together
with all goods, supplies, incidentals, packaging materials, labels, materials
and any other items used or usable in manufacturing, processing, packaging or
shipping same, in all stages of production -- from raw materials through
work-in-process to finished goods -- and all products and proceeds of whatever
sort and wherever located and any portion thereof which may be returned,
rejected, reclaimed or repossessed by the Collateral Administrative Agent from
any Assignor's customers, and shall specifically include all "inventory" as
such term is defined in the Uniform Commercial Code as in effect on the date
hereof in the State of New York, now or hereafter owned by any Assignor,
provided that the term inventory shall not include
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any liquor located in any jurisdiction to the extent that the laws of such
jurisdiction prohibit the creation of a security interest in liquor.
"Liens" shall mean any security interest, mortgage, pledge, lien,
claim, charge, encumbrance, title retention agreement, lessor's interest in a
financing lease or analogous instrument, in, of, or on any Assignor's property.
"Marks" shall mean all right, title and interest in and to any
United States trademarks, service marks and trade names now held or hereafter
acquired by any Assignor, including any registration of any trademarks and
service marks in the United States Patent and Trademark Office and any trade
dress including logos and/or designs used by any Assignor in the United States.
"Obligations" shall mean (i) the full and prompt payment when
due (whether at the stated maturity, by acceleration or otherwise) of all
obligations and indebtedness (including, without limitation, indemnities, Fees
and interest thereon) of each Assignor to the Bank Creditors, whether now
existing or hereafter incurred under, arising out of, or in connection with the
Credit Agreement and the other Credit Documents to which such Assignor is a
party (including, in the case of the Subsidiary Guarantors, all such
obligations and indebtedness of such Subsidiary Guarantors under the
Subsidiaries Guaranty) and the due performance and compliance by such Assignor
with all of the terms, conditions and agreements contained in the Credit
Agreement and such other Credit Documents (all such obligations and liabilities
under this clause (i), except to the extent consisting of obligations or
indebtedness with respect to Interest Rate Protection Agreements or Other
Hedging Agreements, being herein collectively called the "Credit Document
Obligations"); (ii) the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of all obligations and liabilities
owing by such Assignor to the Other Creditors under, or with respect to
(including by reason of the Subsidiaries Guaranty), any Interest Rate
Protection Agreement or Other Hedging Agreement, whether such Interest Rate
Protection Agreement or Other Hedging Agreement is now in existence or
hereafter arising, and the due performance and compliance by such Assignor with
all of the terms, conditions and agreements contained therein (all such
obligations and liabilities described in this clause (ii) being herein
collectively called the "Other Obligations"); (iii) any and all sums advanced
by the Assignee in order to preserve the Collateral (as hereinafter defined) or
preserve its security interest in the Collateral; (iv) in the event of any
proceeding for the collection or enforcement of any indebtedness, obligations,
or liabilities of such Assignor referred to in clauses (i) and (ii) above,
after an Event of Default (which term to mean and include any Event of Default
under, and as defined in, the Credit Agreement or any payment default under any
Interest Rate Protection Agreement
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or Other Hedging Agreement) shall have occurred and be continuing, the
reasonable expenses of retaking, holding, preparing for sale or lease, selling
or otherwise disposing of or realizing on the Collateral, or of any exercise by
the Assignee of its rights hereunder, together with reasonable attorneys' fees
and court costs; and (v) all amounts paid by any Secured Creditor as to which
such Secured Creditor has the right to reimbursement under Section 11 of this
Agreement; it being acknowledged and agreed that the "Obligations" shall
include extensions of credit of the types described above, whether outstanding
on the date of this Agreement or extended from time to time after the date of
this Agreement.
"Other Creditors" shall have the meaning provided in the recitals
of this Agreement.
"Other Obligations" shall have the meaning provided in the
definition of "Obligations" in this Article IX.
"Patents" shall mean any United States patent to which any
Assignor now or hereafter has title and any divisions or continuations thereof,
as well as any application for a United States patent now or hereafter made by
any Assignor.
"Permits" shall mean, to the extent permitted to be assigned by
the terms thereof or by applicable law, all licenses, permits, rights, orders,
variances, franchises or authorizations of or from any governmental authority
or agency in connection with the maintenance or operation of any Hotel
Property.
"Primary Obligations" shall have the meaning provided in Section
7.4(b) of this Agreement.
"Pro Rata Share" shall have the meaning provided in Section
7.4(b) of this Agreement.
"Proceeds" shall have the meaning provided in the Uniform
Commercial Code as in effect in the State of New York on the date hereof or
under other relevant law and, in any event, shall include, but not be limited
to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to the Collateral Administrative Agent or any Assignor from time to
time with respect to any of the Collateral, (ii) any and all payments (in any
form whatsoever) made or due and payable to any Assignor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental authority
(or any person acting
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under color of governmental authority) and (iii) any and all other amounts from
time to time paid or payable under or in connection with any of the Collateral.
"Receivables" shall mean any "account" as such term is defined in
the Uniform Commercial Code as in effect on the date hereof in the State of New
York, now or hereafter owned by any Assignor and, in any event, shall include,
but shall not be limited to, all of such Assignor's rights to payment for goods
sold or leased or services performed by such Assignor, whether now in existence
or arising from time to time hereafter, including, without limitation, rights
evidenced by an account, note, contract, security agreement, chattel paper, or
other evidence of indebtedness or security, together with (a) all security
pledged, assigned, hypothecated or granted to or held by such Assignor to
secure the foregoing, (b) all of any Assignor's right, title and interest in
and to any goods, the sale of which gave rise thereto, (c) all guarantees,
endorsements and indemnifications on, or of, any of the foregoing, (d) all
powers of attorney for the execution of any evidence of indebtedness or
security or other writing in connection therewith, (e) all books, records,
ledger cards, and invoices relating thereto, (f) all evidences of the filing of
financing statements and other statements and the registration of other
instruments in connection therewith and amendments thereto, notices to other
creditors or secured parties, and certificates from filing or other
registration officers, (g) all credit information, reports and memoranda
relating thereto and (h) all other writings related in any way to the
foregoing.
"Representative" shall have the meaning provided in Section
7.4(e) of this Agreement.
"Required Secured Creditors" shall mean (i) the Required Banks
(or, to the extent required by Section 13.12 of the Credit Agreement, each of
the Banks) under the Credit Agreement so long as any Credit Agreement
Obligations remain outstanding and (ii) in any situation not covered by
preceding clause (i), the holders of a majority of the outstanding principal
amount of the Other Obligations that are secured by this Agreement.
"Requisite Creditors" shall have the meaning provided in Section
10.2 of this Agreement.
"Secondary Obligations" shall have the meaning provided in
Section 7.4(b) of this Agreement.
"Secured Creditors" shall have the meaning provided in the
recitals of this Agreement.
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"Secured Debt Agreements" shall mean and include this Agreement,
the other Credit Documents and, to the extent entitled to the benefits of this
Agreement, the Interest Rate Protection Agreements and Other Hedging
Agreements.
"Termination Date" shall have the meaning provided in Section
10.8 of this Agreement.
"Trade Secret Rights" shall have the meaning provided in Section
5.1 of this Agreement.
ARTICLE X
MISCELLANEOUS
10.1. Notices. Except as otherwise specified herein, all
notices, requests, demands or other communications to or upon the respective
parties hereto shall be deemed to have been duly given or made when delivered
to the party to which such notice, request, demand or other communication is
required or permitted to be given or made under this Agreement, addressed as
follows:
(a) if to any Assignor, at it address set forth opposite its
signature below;
(b) if to the Collateral Administrative Agent, at:
The Bank of Nova Scotia
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
Attention:
Tel. No.:
Fax. No.:
(c) if to any Bank Creditor, at such address as such Bank
Creditor shall have specified in the Credit Agreement;
(d) if to any Other Creditor, at such address as such Other
Creditor shall have specified in writing to each Assignor and the
Collateral Administrative Agent;
<PAGE> 282
EXHIBIT H
Page 31
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
10.2. Waiver; Amendment. None of the terms and conditions of
this Agreement may be changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by each Assignor directly effected
thereby and the Collateral Administrative Agent (with the written consent of
the Required Secured Creditors); provided, however, that any change, waiver,
modification or variance affecting the rights and benefits of a single Class of
Secured Creditors (and not all Secured Creditors in a like or similar manner)
shall require the written consent of the Requisite Creditors of such affected
Class. For the purpose of this Agreement, the term "Class" shall mean each
class of Secured Creditors, i.e., whether (x) the Bank Creditors as holders of
the Credit Agreement Obligations or (y) if applicable, the Other Creditors as
the holders of the Other Obligations. For the purpose of this Agreement, the
term "Requisite Creditors" of any Class shall mean each of (x) with respect to
the Credit Agreement Obligations, the Required Banks and (y) with respect to
the Other Obligations that are secured by this Agreement, the holders of at
least a majority of all obligations outstanding from time to time under the
respective Interest Rate Protection Agreements or Other Hedging Agreements.
10.3. Obligations Absolute. The obligations of each Assignor
hereunder shall remain in full force and effect without regard to, and shall
not be impaired by, (a) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or the like of such
Assignor; (b) any exercise or non-exercise, or any waiver of, any right,
remedy, power or privilege under or in respect of this Agreement or any other
Secured Debt Agreement; or (c) any amendment to or modification of any Secured
Debt Agreement or any security for any of the Obligations; whether or not any
Assignor shall have notice or knowledge of any of the foregoing.
10.4. Successors and Assigns. This Agreement shall be binding
upon each Assignor and its successors and assigns (although no Assignor may
assign its rights and obligations hereunder except in accordance with the
provisions of the Secured Debt Agreements) and shall inure to the benefit of
the Collateral Administrative Agent and the Secured Creditors and their
respective successors and assigns. All agreements, statements, representations
and warranties made by each Assignor herein or in any certificate or other
instrument delivered by such Assignor or on its behalf under this Agreement
shall be considered to have been relied upon by the Secured Creditors and shall
survive the execution and delivery of this Agreement and the other Secured Debt
Agreements regardless of any investigation made by the Secured Creditors or on
their behalf.
<PAGE> 283
EXHIBIT H
Page 32
10.5. Headings Descriptive. The headings of the several
sections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
10.6. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
10.7. Assignor's Duties. It is expressly agreed, anything
herein contained to the contrary notwithstanding, that each Assignor shall
remain liable to perform all of the obligations, if any, assumed by it with
respect to the Collateral and the Collateral Administrative Agent shall not
have any obligations or liabilities with respect to any Collateral by reason of
or arising out of this Agreement, nor shall the Collateral Administrative Agent
be required or obligated in any manner to perform or fulfill any of the
obligations of each Assignor under or with respect to any Collateral.
10.8. Termination; Release. (a) After the Termination Date,
this Agreement shall terminate (provided that all indemnities set forth herein
including, without limitation, in Section 8.1 hereof shall survive such
termination) and the Collateral Administrative Agent, at the request and
expense of the respective Assignor, will promptly execute and deliver to such
Assignor a proper instrument or instruments (including Uniform Commercial Code
termination statements on form UCC-3) acknowledging the satisfaction and
termination of this Agreement, and will duly assign, transfer and deliver to
such Assignor (without recourse and without any representation or warranty)
such of the Collateral as may be in the possession of the Collateral
Administrative Agent and as has not theretofore been sold or otherwise applied
or released pursuant to this Agreement. As used in this Agreement,
"Termination Date" shall mean the date upon which the Total Commitments and, to
the extent entitled to the benefits of this Agreement, all Interest Rate
Protection Agreements or Other Hedging Agreements have been terminated, no Note
is outstanding (and all Loans have been repaid in full), all Letters of Credit
have been terminated and all Obligations then owing have been paid in full.
(b) In the event that any part of the Collateral is sold in
connection with a sale permitted by Section 9.02 of the Credit Agreement (other
than a sale to any Assignor or a Subsidiary thereof) or otherwise released at
the direction of the Required Secured Creditors and the proceeds of such sale
or sales or from such release are applied in accordance with the provisions of
the Credit Agreement, to the extent required to be so applied, such Collateral
will be sold free and clear of the Liens created by this Agreement
<PAGE> 284
EXHIBIT H
Page 33
and the Collateral Administrative Agent, at the request and expense of the
relevant Assignor, will duly assign, transfer and deliver to such Assignor
(without recourse and without any representation or warranty) such of the
Collateral as is then being (or has been) so sold or released and as may be in
the possession of the Collateral Administrative Agent and has not theretofore
been released pursuant to this Agreement.
(c) At any time that an Assignor desires that the Collateral
Administrative Agent take any action to acknowledge or give effect to any
release of Collateral pursuant to the foregoing Section 10.8(a) or (b), such
Assignor shall deliver to the Collateral Administrative Agent a certificate
signed by a principal executive officer of such Assignor stating that the
release of the respective Collateral is permitted pursuant to Section 10.8(a)
or (b).
10.9. Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. A set of counterparts executed by all the parties hereto shall be
lodged with each Assignor and the Collateral Administrative Agent.
10.10. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.11. The Collateral Administrative Agent. The Collateral
Administrative Agent will hold in accordance with this Agreement all items of
the Collateral at any time received under this Agreement. It is expressly
understood and agreed that the obligations of the Collateral Administrative
Agent as holder of the Collateral and interests therein and with respect to the
disposition thereof, and otherwise under this Agreement, are only those
expressly set forth in this Agreement and in Section 12 of the Credit
Agreement. The Collateral Administrative Agent shall act hereunder and
thereunder on the terms and conditions set forth herein and in Section 12 of
the Credit Agreement.
10.12. Benefit of Agreement. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns and shall
inure to the benefit of and be enforceable by each of the parties hereto and
its successors and assigns.
<PAGE> 285
EXHIBIT H
Page 34
10.13. Additional Assignors. It is understood and agreed that
any Wholly-Owned Subsidiary of the Borrower that is required to execute a
counterpart of this Agreement pursuant to the Credit Agreement shall
automatically become an Assignor hereunder by executing a counterpart hereof
and delivering the same to the Collateral Administrative Agent.
<PAGE> 286
EXHIBIT H
Page 35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered by their duly authorized officers as of the date
first above written.
SAMANTHA HOTEL CORPORATION
By
------------------------
Title:
HARBOR HOTEL CORPORATION
By
-------------------------
Title:
DOUBLETREE PARTNERS
By
-------------------------
Title:
INNCO CORPORATION
By
------------------------
Title:
DOUBLETREE HOTELS CORPORATION
By
------------------------
Title:
<PAGE> 287
EXHIBIT H
Page 36
DT MANAGEMENT, INC.
By
------------------------
Title:
ARIZONA DTM PASADENA, INC.
By
------------------------
Title:
DTM BURLINGAME, INC.
By
------------------------
Title:
DTM CAMBRIDGE, INC.
By
------------------------
Title:
DTM PALM SPRING, INC.
By
------------------------
Title:
DTM WALNUT CREEK, INC.
By
------------------------
Title:
<PAGE> 288
EXHIBIT H
Page 37
DTM COCONUT GROVE, INC.
By
------------------------
Title:
DTM NASHVILLE, INC.
By
------------------------
Title:
DTM SANTA CLARA, INC.
By
------------------------
Title:
DTM VENTURA, INC.
By
------------------------
Title:
DTM ST. LOUIS, INC.
By
------------------------
Title:
<PAGE> 289
EXHIBIT H
Page 38
DTM OKLAHOMA, INC.
By
------------------------
Title:
DTM TULSA, INC.
By
------------------------
Title:
DTR LIMITED PARTNERSHIP
By
------------------------
Title:
DOUBLETREE OF PHOENIX, INC.
By
------------------------
Title:
HOSCO CORPORATION
By
------------------------
Title:
DOUBLETREE HOTEL SYSTEMS, INC.
By
------------------------
Title:
<PAGE> 290
EXHIBIT H
Page 39
COMPRIS HOTEL CORPORATION
By
------------------------
Title:
DTR RFS LESSEE, INC.
By
------------------------
Title:
DOUBLETREE, INC. OF CALIFORNIA
By
------------------------
Title:
DT REAL ESTATE, INC.
By
------------------------
Title:
TUK INNS, INC.
By
------------------------
Title:
<PAGE> 291
EXHIBIT H
Page 40
DT INVESTMENTS, INC.
By
------------------------
Title:
DTR CAMBRIDGE, INC.
By
------------------------
Title:
DTR SANTA CLARA, INC.
By
------------------------
Title:
DTR SONORAN HOLDING, INC.
By
------------------------
Title:
DTM ATLANTIC CITY, INC.
By
------------------------
Title:
<PAGE> 292
EXHIBIT H
Page 41
DTR INDEPENDENCE, INC.
By
------------------------
Title:
DTR NORTH CANTON, INC.
By
------------------------
Title:
DTR SAN ANTONIO, INC.
By
------------------------
Title:
DTR WEST MONTROSE, INC.
By
------------------------
Title:
RED LION HOTELS, INC.
By
------------------------
Title:
<PAGE> 293
EXHIBIT H
Page 42
Accepted and Agreed to:
THE BANK OF NOVA SCOTIA,
as Collateral Administrative Agent for the Banks
By:_________________________
Title:
<PAGE> 294
ANNEX A
to
SECURITY
AGREEMENT
SCHEDULE OF CHIEF EXECUTIVE OFFICES
AND OTHER RECORD LOCATIONS
<PAGE> 295
ANNEX B
to
SECURITY
AGREEMENT
SCHEDULE OF INVENTORY AND EQUIPMENT LOCATIONS
Assignor Location
-------- --------
<PAGE> 296
ANNEX C
to
SECURITY
AGREEMENT
SCHEDULE OF TRADE AND FICTITIOUS NAMES
<PAGE> 297
ANNEX D
to
SECURITY
AGREEMENT
SCHEDULE OF MARKS
<PAGE> 298
ANNEX E
to
SECURITY
AGREEMENT
SCHEDULE OF PATENTS
<PAGE> 299
ANNEX F
to
SECURITY
AGREEMENT
SCHEDULE OF COPYRIGHTS
<PAGE> 300
ANNEX G
to
SECURITY
AGREEMENT
ASSIGNMENT OF SECURITY INTEREST
IN UNITED STATES TRADEMARKS AND PATENTS
FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency
of which are hereby acknowledged, [Name of Assignor], a __________
[partnership] [corporation] ("the Assignor") with principal offices at
____________________________, hereby assigns and grants to The Bank of Nova
Scotia, as Collateral Administrative Agent, with principal offices at 600
Peachtree Street, N.E., Suite 2700, Atlanta, Georgia 30308 (the "Assignee"), a
security interest in (i) all of the Assignor's right, title and interest in and
to the United States trademarks, trademark registrations and trademark
applications (the "Marks") set forth on Schedule A attached hereto, (ii) all of
the Assignor's rights, title and interest in and to the United States patents
(the "Patents") set forth on Schedule B attached hereto, in each case together
with (iii) all Proceeds (as such term is defined in the Security Agreement
referred to below) and products of the Marks and Patents, (iv) the goodwill of
the businesses with which the Marks are associated and (v) all causes of action
arising prior to or after the date hereof for infringement of any of the Marks
and Patents or unfair competition regarding the same.
THIS ASSIGNMENT is made to secure the satisfactory performance
and payment of all the Obligations of the Assignor, as such term is defined in
the Security Agreement among the Assignor, the other assignors from time to
time party thereto and
<PAGE> 301
ANNEX G
Page 2
the Assignee, dated as November __, 1996 (as amended from time to time, the
"Security Agreement"). Upon the occurrence of the Termination Date (as defined
in the Security Agreement), the Assignee shall, upon such satisfaction,
execute, acknowledge, and deliver to the Assignor an instrument in writing
releasing the security interest in the Marks and Patents acquired under this
Assignment.
This Assignment has been granted in conjunction with the
security interest granted to the Assignee under the Security Agreement. The
rights and remedies of the Assignee with respect to the security interest
granted herein are without prejudice to, and are in addition to those set forth
in the Security Agreement, all terms and provisions of which are incorporated
herein by reference. In the event that any provisions of this Assignment are
deemed to conflict with the Security Agreement, the provisions of the Security
Agreement shall govern.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the ____ day of _________, 199__.
[NAME OF ASSIGNOR],
Assignor
By_____________________________
Title:
<PAGE> 302
ANNEX G
Page 3
THE BANK OF NOVA SCOTIA,
as Collateral Administrative
Agent, Assignee
By_____________________________
Title:
<PAGE> 303
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of _________, 199_, before me personally came
________ _________________ who, being by me duly sworn, did state as follows:
that [s]he is _______________ of [Name of Assignor], that [s]he is authorized
to execute the foregoing Assignment on behalf of said [partnership]
[corporation] and that [s]he did so by authority of the [Executive Committee]
[Board of Directors] of said [partnership] [corporation].
_________________________
Notary Public
<PAGE> 304
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of _________, 199_, before me personally came
_______________________________ who, being by me duly sworn, did state as
follows: that he is __________________ of The Bank of Nova Scotia that he is
authorized to execute the foregoing Assignment on behalf of said corporation
and that he did so by authority of the Board of Directors of said corporation.
____________________________
Notary Public
<PAGE> 305
SCHEDULE A
MARK REG. NO. REG. DATE
- ---- -------- ---------
<PAGE> 306
SCHEDULE B
PATENT PATENT NO. ISSUE DATE
- ------ ---------- ----------
<PAGE> 307
ANNEX H
to
SECURITY
AGREEMENT
ASSIGNMENT OF SECURITY INTEREST
IN UNITED STATES COPYRIGHTS
WHEREAS, [Name of Assignor], a _______________ [corporation]
[partnership] (the "Assignor"), having its chief executive office at
_____________________________________________, ____________________________, is
the owner of all right, title and interest in and to the United States
copyrights and associated United States copyright registrations and
applications for registration set forth in Schedule A attached hereto;
WHEREAS, THE BANK OF NOVA SCOTIA, as Collateral Administrative
Agent, having its principal offices at 600 Peachtree Street, N.E., Suite 2700,
Atlanta, Georgia 30308 (the "Assignee"), desires to acquire a security interest
in said copyrights and copyright registrations and applications therefor; and
WHEREAS, the Assignor is willing to assign to the Assignee,
and to grant to the Assignee a security interest in and lien upon the
copyrights and copyright registrations and applications therefor described
above.
NOW, THEREFORE, for good and valuable consideration, the
receipt of which is hereby acknowledged, and subject to the terms and
conditions of the Security Agreement, dated as of November __, 1996, made by
the Assignor, the other assignors from time to time party thereto and the
Assignee (as amended from time to time, the "Security Agreement"), the Assignor
hereby assigns to the Assignee, and grants to the Assignee a security interest
in the copyrights and copyright registrations and applications therefor set
forth in Schedule A attached hereto.
This Assignment has been granted in conjunction with the
security interest granted to the Assignee under the Security Agreement. The
rights and remedies of the Assignee with respect to the security interest
granted herein are without prejudice to, and are in addition to those set forth
in the Security Agreement, all terms and provisions of which are incorporated
herein by reference. In the event that any provisions of this Assignment are
deemed to conflict with the Security Agreement, the provisions of the Security
Agreement shall govern.
<PAGE> 308
ANNEX H
Page 2
Executed at New York, New York, the __ day of _________, 199_.
[NAME OF ASSIGNOR], as Assignor
By__________________________
Name:
Title:
THE BANK OF NOVA SCOTIA, as
Collateral Administrative
Agent, Assignee
By__________________________
Name:
Title:
<PAGE> 309
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this __ day of _________, 199_, before me personally came
______________________________, who being duly sworn, did depose and say that
[s]he is ___________________ of [Name of Assignor], that [s]he is authorized
to execute the foregoing Assignment on behalf of said [partnership]
[corporation] and that [s]he did so by authority of the [Executive Committee]
[Board of Directors] of said [partnership] [corporation].
_________________________
Notary Public
<PAGE> 310
SCHEDULE A
U.S. COPYRIGHTS
REGISTRATION PUBLICATION
NUMBERS DATE COPYRIGHT TITLE
- ------------ ------------ ---------------
<PAGE> 311
EXHIBIT I
SUBSIDIARIES GUARANTY
SUBSIDIARIES GUARANTY, dated as of November __, 1996 (as
amended, modified or supplemented from time to time, this "Guaranty"), made by
each of the undersigned guarantors (each a "Guarantor," and together with any
other entity that becomes a guarantor hereunder pursuant to Section 25 hereof,
the "Guarantors"). Except as otherwise defined herein, capitalized terms used
herein and defined in the Credit Agreement (as defined below) shall be used
herein as therein defined.
W I T N E S S E T H :
WHEREAS, Doubletree Corporation (the "Borrower"), the lenders
from time to time party thereto (the "Banks"), Morgan Stanley Senior Funding,
Inc., as Syndication Agent and as Arranger (the "Syndication Agent"), and The
Bank of Nova Scotia, as Administrative Agent (together with any successor
administrative agent, the "Administrative Agent"), have entered into a Credit
Agreement, dated as of November __, 1996 (as amended, modified, or supplemented
from time to time, the "Credit Agreement"), providing for the making of Loans
and the issuance of, and participation in, Letters of Credit, as contemplated
therein (the Banks, the Syndication Agent, the Collateral Administrative Agent
and the Administrative Agent are herein called the "Bank Creditors");
WHEREAS, the Borrower or one or more of its respective
Subsidiaries may at any time and from time to time enter into one or more
Interest Rate Protection Agreements or Other Hedging Agreements with one or
more Banks or any affiliate thereof (each such Bank or affiliate, even if the
respective Bank subsequently ceases to be a Bank under the Credit Agreement for
any reason, together with such Bank's or affiliate's successors and assigns, if
any, collectively, the "Other Creditors," and together with the Bank Creditors,
the "Secured Creditors");
WHEREAS, each Guarantor is a direct or indirect Wholly-Owned
Subsidiary of the Borrower;
WHEREAS, it is a condition to the making of Loans and the
issuance of Letters of Credit under the Credit Agreement that each Guarantor
shall have executed and delivered this Guaranty; and
WHEREAS, each Guarantor will obtain benefits from the
incurrence of Loans and the issuance of Letters of Credit under the Credit
Agreement and the entering
<PAGE> 312
EXHIBIT I
Page 2
into of Interest Rate Protection Agreements or Other Hedging Agreements and,
accordingly, desires to execute this Guaranty in order to satisfy the
conditions described in the preceding paragraph;
NOW, THEREFORE, in consideration of the foregoing and other
benefits accruing to each Guarantor, the receipt and sufficiency of which are
hereby acknowledged, each Guarantor hereby makes the following representations
and warranties to the Secured Creditors and hereby covenants and agrees with
each Secured Creditor as follows:
1. Each Guarantor, jointly and severally, irrevocably,
absolutely and unconditionally guarantees: (i) to the Bank Creditors the full
and prompt payment when due (whether at the stated maturity, by acceleration or
otherwise) of (x) the principal of and interest on the Notes issued by, and the
Loans made to, the Borrower under the Credit Agreement, and all reimbursement
obligations and Unpaid Drawings with respect to Letters of Credit issued under
the Credit Agreement and (y) all other obligations (including obligations
which, but for the automatic stay under Section 362(a) of the Bankruptcy Code,
would become due), liabilities and indebtedness owing by the Borrower to the
Bank Creditors under the Credit Agreement or any other Credit Document to which
the Borrower is a party (including, without limitation, indemnities, Fees and
interest thereon), whether now existing or hereafter incurred under, arising
out of or in connection with the Credit Agreement or any such other Credit
Document and the due performance and compliance by the Borrower with all of the
terms, conditions and agreements contained in the Credit Documents (all such
principal, interest, liabilities, indebtedness and obligations being herein
collectively called the "Credit Document Obligations"); and (ii) to each Other
Creditor the full and prompt payment when due (whether at the stated maturity,
by acceleration or otherwise) of all obligations (including obligations which,
but for the automatic stay under Section 362(a) of the Bankruptcy Code, would
become due), liabilities and indebtedness owing by the Borrower or any other
Subsidiary of the Borrower under any Interest Rate Protection Agreement or
Other Hedging Agreement, whether now in existence or hereafter arising, and the
due performance and compliance by the Borrower or such Subsidiary with all of
the terms, conditions and agreements contained in the Interest Rate Protection
Agreements or Other Hedging Agreements (all such obligations, liabilities and
indebtedness being herein collectively called the "Other Obligations," and
together with the Credit Document Obligations, the "Guaranteed Obligations").
Each Guarantor understands, agrees and confirms that the Secured Creditors may
enforce this Guaranty up to the full amount of the Guaranteed Obligations
against such Guarantor without proceeding against any other Guarantor, the
Borrower, against any security for the Guaranteed Obligations, or under any
other guaranty covering all or a portion of the Guaranteed Obligations.
<PAGE> 313
EXHIBIT I
Page 3
2. Additionally, each Guarantor, jointly and severally,
unconditionally, absolutely and irrevocably, guarantees the payment of any and
all Guaranteed Obligations whether or not due or payable by the Borrower or any
Subsidiary thereof upon the occurrence in respect of the Borrower or any such
Subsidiary of any of the events specified in Section 10.05 of the Credit
Agreement, and unconditionally and irrevocably, jointly and severally, promises
to pay such Guaranteed Obligations to the Secured Creditors, or order, on
demand, in legal tender of the United States. This Guaranty shall constitute a
guaranty of payment, and not of collection.
3. The liability of each Guarantor hereunder is primary,
absolute and unconditional and is exclusive and independent of any security for
or other guaranty of the indebtedness of the Borrower or any Subsidiary thereof
whether executed by such Guarantor, any other Guarantor, any other guarantor or
by any other party, and the liability of each Guarantor hereunder shall not be
affected or impaired by any circumstance or occurrence whatsoever (other than
the indefeasible satisfaction in full in cash of the Guaranteed Obligations),
including, without limitation: (a) any direction as to application of payment
by the Borrower or any Subsidiary thereof or by any other party, (b) any other
continuing or other guaranty, undertaking or maximum liability of a guarantor
or of any other party as to the Guaranteed Obligations, (c) any payment on or
in reduction of any such other guaranty or undertaking, (d) any dissolution,
termination or increase, decrease or change in personnel by the Borrower or any
Subsidiary thereof, (e) any payment made to any Secured Creditor on the
indebtedness which any Secured Creditor repays the Borrower or any Subsidiary
thereof pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and each Guarantor waives any
right to the deferral or modification of its obligations hereunder by reason of
any such proceeding, (f) any action or inaction by the Secured Creditors as
contemplated in Section 6 hereof or (g) any invalidity, irregularity or
unenforceability of all or any part of the Guaranteed Obligations or of any
security therefor.
4. The obligations of each Guarantor hereunder are
independent of the obligations of any other Guarantor, any other guarantor, the
Borrower or any Subsidiary thereof, and a separate action or actions may be
brought and prosecuted against each Guarantor whether or not action is brought
against any other Guarantor, any other guarantor, the Borrower or any
Subsidiary thereof and whether or not any other Guarantor, any other guarantor,
the Borrower or any Subsidiary thereof be joined in any such action or actions.
Each Guarantor waives, to the fullest extent permitted by law, the benefits of
any statute of limitations affecting its liability hereunder or the enforcement
thereof. To the extent permitted by law, any payment by the Borrower or any
Subsidiary thereof or other circumstance which operates to toll any statute of
limitations as to the Borrower or any such Subsidiary shall operate to toll the
statute of limitations as to each Guarantor.
<PAGE> 314
EXHIBIT I
Page 4
5. Each Guarantor hereby waives notice of acceptance of this
Guaranty and notice of any liability to which it may apply, and waives
promptness, diligence, presentment, demand of payment, protest, notice of
dishonor or nonpayment of any such liabilities, suit or taking of other action
by the Administrative Agent, the Collateral Administrative Agent or any other
Secured Creditor against, and any other notice to, any party liable thereon
(including such Guarantor, any other Guarantor, any other guarantor, the
Borrower or any Subsidiary thereof).
6. Any Secured Creditor may at any time and from time to time
without the consent of, or notice to, any Guarantor, without incurring
responsibility to such Guarantor, without impairing or releasing the
obligations of such Guarantor hereunder, upon or without any terms or
conditions and in whole or in part:
(a) change the manner, place or terms of payment of, and/or
change or extend the time of payment of, renew or alter, any of the
Guaranteed Obligations (including any increase or decrease in the rate
of interest thereon), any security therefor, or any liability incurred
directly or indirectly in respect thereof, and the guaranty herein
made shall apply to the Guaranteed Obligations as so changed,
extended, renewed or altered;
(b) take and hold security for the payment of the Guaranteed
Obligations and sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any
of those hereunder) incurred directly or indirectly in respect thereof
or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against
the Borrower, any other Credit Party, any Subsidiary thereof or
otherwise act or refrain from acting;
(d) release or substitute any one or more endorsers,
Guarantors, other guarantors, the Borrower, any Subsidiary thereof or
other obligors;
(e) settle or compromise any of the Guaranteed Obligations,
any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or
hereof, and may subordinate the payment of all or any part thereof to
the payment of any liability (whether due or not) of the Borrower or
any Subsidiary thereof to creditors of the Borrower or such Subsidiary
other than the Secured Creditors;
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(f) apply any sums by whomsoever paid or howsoever realized
to any liability or liabilities of the Borrower or any Subsidiary
thereof to the Secured Creditors regardless of what liabilities of the
Borrower or such Subsidiary remain unpaid;
(g) consent to or waive any breach of, or any act, omission
or default under, any of the Interest Rate Protection Agreements or
Other Hedging Agreements, the Credit Documents or any of the
instruments or agreements referred to therein, or otherwise amend,
modify or supplement any of the Interest Rate Protection Agreements or
Other Hedging Agreements, the Credit Documents or any of such other
instruments or agreements;
(h) act or fail to act in any manner referred to in this
Guaranty which may deprive such Guarantor of its right to subrogation
against the Borrower or any Subsidiary thereof to recover full
indemnity for any payments made pursuant to this Guaranty; and/or
(i) take any other action which would, under otherwise
applicable principles of common law, give rise to a legal or equitable
discharge of such Guarantor from its liabilities under this Guaranty.
7. This Guaranty is a continuing one and all liabilities to
which it applies or may apply under the terms hereof shall be conclusively
presumed to have been created in reliance hereon. No failure or delay on the
part of any Secured Creditor in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein expressly specified are cumulative
and not exclusive of any rights or remedies which any Secured Creditor would
otherwise have. No notice to or demand on any Guarantor in any case shall
entitle such Guarantor to any other further notice or demand in similar or
other circumstances or constitute a waiver of the rights of any Secured
Creditor to any other or further action in any circumstances without notice or
demand. It is not necessary for any Secured Creditor to inquire into the
capacity or powers of the Borrower or any Subsidiary thereof or the officers,
directors, partners or agents acting or purporting to act on its behalf, and
any indebtedness made or created in reliance upon the professed exercise of
such powers shall be guaranteed hereunder.
8. Any indebtedness of the Borrower or any Subsidiary thereof
now or hereafter held by any Guarantor is hereby subordinated to the
indebtedness of the Borrower or such Subsidiary to the Secured Creditors, and
such indebtedness of the Borrower or such Subsidiary to any Guarantor, if the
Administrative Agent or the Collateral Administrative
<PAGE> 316
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Agent, after the occurrence and during the continuance of an Event of Default,
so requests, shall be collected, enforced and received by such Guarantor as
trustee for the Secured Creditors and be paid over to the Secured Creditors on
account of the indebtedness of the Borrower or such Subsidiary to the Secured
Creditors, but without affecting or impairing in any manner the liability of
such Guarantor under the other provisions of this Guaranty. Without limiting
the generality of the foregoing, each Guarantor hereby agrees with the Secured
Creditors that it will not exercise any right of subrogation which it may at
any time otherwise have as a result of this Guaranty (whether contractual,
under Section 509 of the Bankruptcy Code or otherwise) until all Guaranteed
Obligations have been irrevocably paid in full in cash.
9. (a) Each Guarantor waives any right (except as shall be
required by applicable law and cannot be waived) to require the Secured
Creditors to: (i) proceed against the Borrower, any Subsidiary thereof, any
other Guarantor, any other guarantor of the Guaranteed Obligations or any other
party; (ii) proceed against or exhaust any security held from the Borrower, any
Subsidiary thereof, any other Guarantor, any other guarantor of the Guaranteed
Obligations or any other party; or (iii) pursue any other remedy in the Secured
Creditors' power whatsoever. Each Guarantor waives any defense based on or
arising out of any defense of the Borrower, any Subsidiary thereof, any other
Guarantor, any other guarantor of the Guaranteed Obligations or any other party
other than payment in full of the Guaranteed Obligations, including, without
limitation, any defense based on or arising out of the disability of the
Borrower, any Subsidiary thereof, any other Guarantor, any other guarantor of
the Guaranteed Obligations or any other party, or the unenforceability of the
Guaranteed Obligations or any part thereof from any cause, or the cessation
from any cause of the liability of the Borrower or any Subsidiary thereof other
than payment in full of the Guaranteed Obligations. The Secured Creditors may,
at their election, foreclose on any security held by the Administrative Agent,
the Collateral Administrative Agent or the other Secured Creditors by one or
more judicial or nonjudicial sales, whether or not every aspect of any such
sale is commercially reasonable, or exercise any other right or remedy the
Secured Creditors may have against the Borrower or any Subsidiary thereof or
any other party, or any security, without affecting or impairing in any way the
liability of any Guarantor hereunder except to the extent the Guaranteed
Obligations have been paid in full. Each Guarantor waives any defense arising
out of any such election by the Secured Creditors, even though such election
operates to impair or extinguish any right of reimbursement or subrogation or
other right or remedy of such Guarantor against the Borrower or any Subsidiary
thereof or any other party or any security.
(b) Each Guarantor waives all presentments, demands for
performance, protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the
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existence, creation or incurring of new or additional indebtedness. Each
Guarantor assumes all responsibility for being and keeping itself informed of
the Borrower's and each of its Subsidiary's financial condition and assets, and
of all other circumstances bearing upon the risk of nonpayment of the
Guaranteed Obligations and the nature, scope and extent of the risks which such
Guarantor assumes and incurs hereunder, and agrees that the Secured Creditors
shall have no duty to advise any Guarantor of information known to them
regarding such circumstances or risks.
(c) Each Guarantor understands, is aware and hereby
acknowledges that to the extent the Guaranteed Obligations are secured by real
property located in the State of California, such Guarantor shall be liable for
the full amount of its liability hereunder notwithstanding foreclosure on such
real property by trustee sale or any other reason impairing such Guarantor's or
any Secured Creditors' right to proceed against the Borrower or any Subsidiary
thereof. Each Guarantor hereby waives, to the fullest extent permitted by law,
all rights and benefits under Section 2809 of the California Civil Code
purporting to reduce a guarantor's obligation in proportion to the principal
obligation. Each Guarantor hereby waives (to the fullest extent permitted by
applicable law) all rights and benefits under Section 580a of the California
Code of Civil Procedure purporting to limit the amount of any deficiency
judgment which might be recoverable following the occurrence of a trustee's
sale under a deed of trust and all rights and benefits under Section 580b of
the California Code of Civil Procedure stating that no deficiency may be
recovered on a real property purchase money obligation. Each Guarantor further
understands, is aware and hereby acknowledges that if the Secured Creditors
elect to nonjudicially foreclose on any real property security located in the
State of California any right of subrogation of such Guarantor against the
Secured Creditors may be impaired or extinguished and that as a result of such
impairment or extinguishment of subrogation rights, such Guarantor will have a
defense to a deficiency judgment arising out of the operation of (i) Section
580d of the California Code of Civil Procedure which states that no deficiency
may be recovered on a note secured by a deed of trust on real property in case
such real property is sold under the power of sale contained in such deed of
trust, and (ii) related principles of estoppel. To the fullest extent
permitted by law, each Guarantor waives all rights and benefits and any defense
arising out of the operation of Section 580d of the California Code of Civil
Procedure and related principles of estoppel, even though such election
operates to impair or extinguish any right of reimbursement or subrogation or
other right or remedy of such Guarantor against the Borrower or the Subsidiary
thereof or any other party or any security. In addition, each Guarantor hereby
waives, to the fullest extent permitted by applicable laws, without limiting
the generality of the foregoing or any other provision hereof, all rights and
benefits which might otherwise be available to such Guarantor under Section 726
of the California Code of Civil Procedure and all rights and benefits which
might otherwise be available to such Guarantor under California Civil Code
Sections 2809, 2810, 2815, 2819, 2821, 2839, 2845, 2848, 2849, 2850, 2899 and
3433.
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(d) Each Guarantor hereby further waives (to the fullest
extent permitted by applicable law): (i) all rights and defenses arising out
of an election of remedies by the Secured Creditors, even though that election
of remedies, such as a nonjudicial foreclosure with respect to security for a
Guaranteed Obligation, has destroyed such Guarantor's rights of subrogation and
reimbursement against the principal by the operation of Section 580d of the
California Code of Civil Procedure or otherwise; (ii) such Guarantor's rights
of subrogation and reimbursement and any other rights and defenses available to
such Guarantor by reason of the California Civil Code Sections 2787 to 2855,
inclusive, including, without limitation, (x) any defenses such Guarantor may
have to the Guaranteed Obligations by reason of an election of remedies by the
Secured Creditors and (y) any rights or defenses such Guarantor may have by
reason of protection afforded to the principal borrower with respect to the
obligation so guaranteed pursuant to the antideficiency or other laws of the
State of California limiting or discharging the borrower's indebtedness,
including, without limitation, California Code of Civil Procedure Sections
580a, 580b, 580d or 726.
10. The Secured Creditors agree that this Guaranty may be
enforced only by the action of the Administrative Agent or the Collateral
Administrative Agent, in each case acting upon the instructions of the Required
Banks (or, after the date on which all Credit Document Obligations have been
paid in full, the holders of at least a majority of the outstanding Other
Obligations) and that no other Secured Creditors shall have any right
individually to seek to enforce or to enforce this Guaranty or to realize upon
the security to be granted by the Security Documents, it being understood and
agreed that such rights and remedies may be exercised by the Administrative
Agent or the Collateral Administrative Agent or the holders of at least a
majority of the outstanding Other Obligations, as the case may be, for the
benefit of the Secured Creditors upon the terms of this Guaranty and the
Security Documents. The Secured Creditors further agree that this Guaranty may
not be enforced against any director, officer, employee, partner or stockholder
of any Guarantor (except to the extent such partner or stockholder is also a
Guarantor hereunder).
11. In order to induce the Banks to make Loans and issue or
participate in Letters of Credit pursuant to the Credit Agreement, and in order
to induce the Other Creditors to execute, deliver and perform the Interest Rate
Protection Agreements or Other Hedging Agreements, each Guarantor represents,
warrants and covenants that:
(a) Such Guarantor (i) is a duly organized and validly
existing corporation or partnership in good standing under the laws of
the jurisdiction of its organization, (ii) has the corporate or
partnership power and authority to own its property and assets and to
transact the business in which it is engaged and presently proposes to
engage and (iii) is duly qualified and is authorized to do business
and is in good
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EXHIBIT I
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standing in each jurisdiction where the conduct of its business
requires such qualification except for failures to be so qualified
which, individually or in the aggregate, could not reasonably be
expected to have a material adverse effect on the business,
operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Borrower or of the Borrower and its
Subsidiaries taken as a whole.
(b) Such Guarantor has the corporate or partnership power and
authority to execute, deliver and perform the terms and provisions of
this Guaranty and each other Document to which it is a party and has
taken all necessary corporate or partnership action to authorize the
execution, delivery and performance by it of this Guaranty and each
such other Document. Such Guarantor has duly executed and delivered
this Guaranty and each other Document to which it is a party, and this
Guaranty and each such other Document constitutes the legal, valid and
binding obligation of such Guarantor enforceable in accordance with
its terms, except to the extent that the enforceability hereof or
thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws generally affecting
creditors' rights and by equitable principles (regardless of whether
enforcement is sought in equity or at law).
(c) Neither the execution, delivery or performance by such
Guarantor of this Guaranty or any other Document to which it is a
party, nor compliance by it with the terms and provisions hereof and
thereof, will (i) contravene any provision of any applicable law,
statute, rule or regulation or any order, writ, injunction or decree
of any court or governmental instrumentality (other than
contraventions relating to an Acquisition Document which, individually
or in the aggregate, could not reasonably be expected to have a
material adverse effect (x) on the Acquisition or the Transaction or
(y) on the business, operations, property, assets, liabilities,
condition (financial or otherwise) or prospects of the Borrower and
its Subsidiaries taken as a whole), (ii) conflict with or result in
any breach of any of the terms, covenants, conditions or provisions
of, or constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any Lien (except
pursuant to the Security Documents) upon any of the property or assets
of such Guarantor or any of its Subsidiaries pursuant to the terms of
any indenture, mortgage, deed of trust, credit agreement or loan
agreement, or any other material agreement, contract or instrument to
which such Guarantor or any of its Subsidiaries is a party or by which
it or any of its property or assets is bound or to which it may be
subject or (iii) violate any provision of the certificate of
incorporation, by-laws or partnership agreement (or equivalent
organizational documents) of such Guarantor or any of its Subsidiaries
(other than violations of immaterial
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EXHIBIT I
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partnership agreements existing on the Initial Borrowing Date by
reason of the Acquisition).
(d) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with (except as
have been obtained or made), or exemption by, any governmental or
public body or authority, or any subdivision thereof, is required to
authorize, or is required for, (i) the execution, delivery and
performance of this Guaranty by such Guarantor or any other Document
to which such Guarantor is a party or (ii) the legality, validity,
binding effect or enforceability of this Guaranty or any other
Document to which such Guarantor is a party.
(e) There are no actions, suits or proceedings pending or, to
the best knowledge of such Guarantor, threatened (i) with respect to
this Guaranty or any other Document to which such Guarantor is a party
or (ii) with respect to such Guarantor that are reasonably likely to
materially and adversely affect the business, operations, property,
assets, liabilities, condition (financial or otherwise) or prospects
of the Borrower and its Subsidiaries taken as a whole.
12. Each Guarantor covenants and agrees that on and after the
Effective Date and until the termination of the Total Commitments and all
Interest Rate Protection Agreements or Other Hedging Agreements and when no
Note or Letter of Credit remains outstanding and all Guaranteed Obligations
have been paid in full, such Guarantor will comply, and will cause each of its
Subsidiaries to comply, with all of the applicable provisions, covenants and
agreements contained in Sections 8 and 9 of the Credit Agreement, and will
take, or will refrain from taking, as the case may be, all actions that are
necessary to be taken or not taken so that it is not in violation of any
provision, covenant or agreement contained in Section 8 or 9 of the Credit
Agreement, and so that no Default or Event of Default, is caused by the actions
of such Guarantor or any of its Subsidiaries.
13. The Guarantors hereby jointly and severally agree to pay
all reasonable out-of-pocket costs and expenses of each Secured Creditor in
connection with the enforcement of this Guaranty and of each Agent in
connection with any amendment, waiver or consent relating hereto (including in
each case, without limitation, the reasonable fees and disbursements of counsel
employed by each Secured Creditor).
14. This Guaranty shall be binding upon each Guarantor and
its successors and assigns and shall inure to the benefit of the Secured
Creditors and their successors and assigns.
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EXHIBIT I
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15. Neither this Guaranty nor any provision hereof may be
changed, waived, discharged or terminated except with the written consent of
each Guarantor directly affected thereby and with the written consent of either
(x) the Required Banks (or to the extent required by Section 13.12 of the
Credit Agreement, with the written consent of each Bank) at all times prior to
the time on which all Credit Document Obligations have been paid in full or (y)
the holders of at least a majority of the outstanding Other Obligations at all
times after the time on which all Credit Document Obligations have been paid in
full; provided, that any change, waiver, modification or variance affecting the
rights and benefits of a single Class (as defined below) of Secured Creditors
(and not all Secured Creditors in a like or similar manner) shall also require
the written consent of the Requisite Creditors (as defined below) of such Class
of Secured Creditors (it being understood that the addition or release of any
Guarantor hereunder shall not constitute a change, waiver, discharge or
termination affecting any Guarantor other than the Guarantor so added or
released). For the purpose of this Guaranty; the term "Class" shall mean each
class of Secured Creditors, i.e., whether (x) the Bank Creditors as holders of
the Credit Document Obligations or (y) the Other Creditors as the holders of
the Other Obligations. For the purpose of this Guaranty, the term "Requisite
Creditors" of any Class shall mean (x) with respect to the Credit Document
Obligations, the Required Banks (or to the extent required by Section 13.12 of
the Credit Agreement, each Bank) and (y) with respect to the Other Obligations,
the holders of at least a majority of all obligations outstanding from time to
time under the Interest Rate Protection or Other Hedging Agreements.
16. Each Guarantor acknowledges that an executed (or
conformed) copy of each of the Credit Documents and Interest Rate Protection
Agreements or Other Hedging Agreements has been made available to its principal
executive officers and such officers are familiar with the contents thereof.
17. In addition to any rights now or hereafter granted under
applicable law (including, without limitation, Section 151 of the New York
Debtor and Secured Creditor Law) and not by way of limitation of any such
rights, upon the occurrence and during the continuance of an Event of Default
(such term to mean and include any "Event of Default" as defined in the Credit
Agreement or any payment default under any Interest Rate Protection Agreement
or Other Hedging Agreement continuing after any applicable grace period), each
Secured Creditor is hereby authorized, at any time or from time to time,
without notice to any Guarantor or to any other Person, any such notice being
expressly waived, to set off and to appropriate and apply any and all deposits
(general or special) and any other indebtedness at any time held or owing by
such Secured Creditor to or for the credit or the account of such Guarantor,
against and on account of the obligations and liabilities of such Guarantor to
such Secured Creditor under this Guaranty, irrespective of whether or not such
Secured Creditor shall have made any demand hereunder and although said
obligations, liabilities, deposits or claims, or any of them, shall be
contingent or
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unmatured. Notwithstanding anything to the contrary contained in this Section
17, no Secured Creditor shall exercise any such right of set-off without the
prior written consent of the Agents or the Required Banks so long as the
Guaranteed Obligations shall be secured by any real property located in the
State of California, it being understood and agreed, however, that this
sentence is for the sole benefit of the Secured Creditors and may be amended,
modified or waived in any respect by the Required Banks without the requirement
of prior notice to or consent by any Credit Party and does not constitute a
waiver of any rights against any Credit Party or against any Collateral.
18. Each Guarantor hereby confirms that it is its intention
that this Guaranty not constitute a fraudulent transfer or conveyance for
purposes of the Bankruptcy Code, the Uniform Fraudulent Conveyance Act or any
similar Federal or state law. To effectuate the foregoing intention, each
Guarantor hereby irrevocably agrees that the Guaranteed Obligations guaranteed
by such Guarantor shall be limited to such amount as will, after giving effect
to such maximum amount and all other (contingent or otherwise) liabilities of
such Guarantor that are relevant under such laws, and after giving effect to
any rights to contribution pursuant to any agreement providing for an equitable
contribution among such Guarantor and the other Guarantors, result in the
Guaranteed Obligations of such Guarantor in respect of such maximum amount not
constituting a fraudulent transfer or conveyance.
19. All notices, requests, demands or other communications
pursuant hereto shall be deemed to have been duly given or made when delivered
to the Person to which such notice, request, demand or other communication is
required or permitted to be given or made under this Guaranty, addressed to
such party at (i) in the case of any Bank Creditor, as provided in the Credit
Agreement, (ii) in the case of any Guarantor, at its address set forth opposite
its signature below and (iii) in the case of any Other Creditor, at such
address as such Other Creditor shall have specified in writing to the
Guarantors; or in any case at such other address as any of the Persons listed
above may hereafter notify the others in writing.
20. If claim is ever made upon any Secured Creditor for
repayment or recovery of any amount or amounts received in payment or on
account of any of the Guaranteed Obligations and any of the aforesaid payees
repays all or part of said amount by reason of (i) any judgment, decree or
order of any court or administrative body having jurisdiction over such payee
or any of its property or (ii) any settlement or compromise of any such claim
effected by such payee with any such claimant (including the Borrower or any
Subsidiary thereof), then and in such event each Guarantor agrees that any such
judgment, decree, order, settlement or compromise shall be binding upon such
Guarantor, notwithstanding any revocation hereof or other instrument evidencing
any liability of the Borrower or any Subsidiary thereof, and such Guarantor
shall be and remain liable to the
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aforesaid payees hereunder for the amount so repaid or recovered to the same
extent as if such amount had never originally been received by any such payee.
21. (A) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE
SECURED CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Any legal
action or proceeding with respect to this Guaranty or any other Credit Document
to which any Guarantor is a party may be brought in the courts of the State of
New York or of the United States of America for the Southern District of New
York, and, by execution and delivery of this Guaranty, each Guarantor hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor
hereby further irrevocably waives any claim that any such court lacks personal
jurisdiction over such Guarantor, and agrees not to plead or claim in any legal
action or proceeding with respect to this Guaranty or any other Credit Document
to which such Guarantor is a party brought in any of the aforesaid courts that
any such court lacks personal jurisdiction over such Guarantor. Each Guarantor
further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to such Guarantor at
its address set forth opposite its signature below, such service to become
effective 30 days after such mailing. Each Guarantor hereby irrevocably waives
any objection to such service of process and further irrevocably waives and
agrees not to plead or claim in any action or proceeding commenced hereunder or
under any other Credit Document to which such Guarantor is a party that such
service of process was in any way invalid or ineffective. Nothing herein shall
affect the right of any of the Secured Creditors to serve process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against each Guarantor in any other jurisdiction.
(b) Each Guarantor hereby irrevocably waives (to the fullest
extent permitted by applicable law) any objection which it may now or hereafter
have to the laying of venue of any of the aforesaid actions or proceedings
arising out of or in connection with this Guaranty or any other Credit Document
to which such Guarantor is a party brought in the courts referred to in clause
(a) above and hereby further irrevocably waives and agrees not to plead or
claim in any such court that such action or proceeding brought in any such
court has been brought in an inconvenient forum.
(C) EACH GUARANTOR AND EACH SECURED CREDITOR (BY ITS
ACCEPTANCE OF THE BENEFITS OF THIS GUARANTY) HEREBY IRREVOCABLY WAIVES ALL
RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS GUARANTY, THE OTHER CREDIT DOCUMENTS TO WHICH SUCH
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GUARANTOR IS A PARTY OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
22. In the event that all of the capital stock of one or more
Guarantors is sold or otherwise disposed of or liquidated in compliance with
the requirements of Section 9.02 of the Credit Agreement (or such sale or other
disposition has been approved in writing by the Required Banks (or all Banks if
required by Section 13.12 of the Credit Agreement)) and the proceeds of such
sale, disposition or liquidation are applied in accordance with the provisions
of the Credit Agreement, to the extent applicable, such Guarantor shall upon
consummation of such sale or other disposition (except to the extent that such
sale or disposition is for the Borrower or another Subsidiary thereof) be
released from this Guaranty automatically and without further action and this
Guaranty shall, as to each such Guarantor or Guarantors, terminate, and have no
further force or effect (it being understood and agreed that the sale of one or
more Persons that own, directly or indirectly, all of the capital stock or
partnership interests of any Guarantor shall be deemed to be a sale of such
Guarantor for the purposes of this Section 22).
23. This Guaranty may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Guarantors and the
Administrative Agent.
24. All payments made by any Guarantor hereunder will be made
without setoff, counterclaim or other defense.
25. It is understood and agreed that any Wholly-Owned
Subsidiary of the Borrower that is required to execute a counterpart of this
Guaranty after the date hereof pursuant to the Credit Agreement shall
automatically become a Guarantor hereunder by executing a counterpart hereof
and delivering the same to the Administrative Agent.
26. At any time a payment in respect of the Guaranteed
Obligations is made under this Guaranty, the right of contribution of each
Guarantor against each other Guarantor shall be determined as provided in the
immediately following sentence, with the right of contribution of each
Guarantor to be revised and restated as of each date on which a payment (a
"Relevant Payment") is made on the Guaranteed Obligations under this Guaranty.
At any time that a Relevant Payment is made by a Guarantor that results in the
aggregate payments made by such Guarantor in respect of the Guaranteed
Obligations to and including the date of the Relevant Payment exceeding such
Guarantor's Contribution Percentage (as defined below) of the aggregate
payments made by all Guarantors in respect of the Guaranteed Obligations to and
including the date of the Relevant Payment (such
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excess, the "Aggregate Excess Amount"), each such Guarantor shall have a right
of contribution against each other Guarantor who has made payments in respect
of the Guaranteed Obligations to and including the date of the Relevant Payment
in an aggregate amount less than such other Guarantor's Contribution Percentage
of the aggregate payments made to and including the date of the Relevant
Payment by all Guarantors in respect of the Guaranteed Obligations (the
aggregate amount of such deficit, the "Aggregate Deficit Amount") in an amount
equal to (x) a fraction the numerator of which is the Aggregate Excess Amount
of such Guarantor and the denominator of which is the Aggregate Excess Amount
of all Guarantors multiplied by (y) the Aggregate Deficit Amount of such other
Guarantor. A Guarantor's right of contribution pursuant to the preceding
sentences shall arise at the time of each computation, subject to adjustment to
the time of any subsequent computation; provided, that no Guarantor may take
any action to enforce such right until the Guaranteed Obligations have been
paid in full and the Total Commitment has been terminated, it being expressly
recognized and agreed by all parties hereto that any Guarantor's right of
contribution arising pursuant to this Contribution Agreement against any other
Guarantor shall be expressly junior and subordinate to such other Guarantor's
obligations and liabilities in respect of the Guaranteed Obligations and any
other obligations owing under this Guaranty. As used in this Section 27: (i)
each Guarantor's "Contribution Percentage" shall mean the percentage obtained
by dividing (x) the Adjusted Net Worth (as defined below) of such Guarantor by
(y) the aggregate Adjusted Net Worth of all Guarantors; (ii) the "Adjusted Net
Worth" of each Guarantor shall mean the greater of (x) the Net Worth (as
defined below) of such Guarantor and (y) zero; and (iii) the "Net Worth" of
each Guarantor shall mean the amount by which the fair salable value of such
Guarantor's assets on the date of any Relevant Payment exceeds its existing
debts and other liabilities (including contingent liabilities, but without
giving effect to any Guaranteed Obligations arising under this Guaranty) on
such date. All parties hereto recognize and agree that, except for any right
of contribution arising pursuant to this Section 27, each Guarantor who makes
any payment in respect of the Guaranteed Obligations shall have no right of
contribution or subrogation against any other Guarantor in respect of such
payment. Each of the Guarantors recognizes and acknowledges that the rights to
contribution arising hereunder shall constitute an asset in favor of the party
entitled to such contribution. In this connection, each Guarantor has the
right to waive its contribution right against any Guarantor to the extent that
after giving effect to such waiver such Guarantor would remain solvent, in the
determination of the Required Banks.
* * *
<PAGE> 326
EXHIBIT I
Page 16
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to
be executed and delivered as of the date first above written.
Addresses:
GUARANTORS
----------
SAMANTHA HOTEL CORPORATION
By
------------------------
Title:
HARBOR HOTEL CORPORATION
By
-------------------------
Title:
DOUBLETREE PARTNERS
By
-------------------------
Title:
INNCO CORPORATION
By
------------------------
Title:
DOUBLETREE HOTELS CORPORATION
By
------------------------
Title:
<PAGE> 327
EXHIBIT I
Page 17
DT MANAGEMENT, INC.
By
------------------------
Title:
ARIZONA DTM PASADENA, INC.
By
------------------------
Title:
DTM BURLINGAME, INC.
By
------------------------
Title:
DTM CAMBRIDGE, INC.
By
------------------------
Title:
DTM PALM SPRING, INC.
By
------------------------
Title:
DTM WALNUT CREEK, INC.
By
------------------------
Title:
<PAGE> 328
EXHIBIT I
Page 18
DTM COCONUT GROVE, INC.
By
------------------------
Title:
DTM NASHVILLE, INC.
By
------------------------
Title:
DTM SANTA CLARA, INC.
By
------------------------
Title:
DTM VENTURA, INC.
By
------------------------
Title:
DTM ST. LOUIS, INC.
By
------------------------
Title:
DTM OKLAHOMA, INC.
By
------------------------
Title:
<PAGE> 329
EXHIBIT I
Page 19
DTM TULSA, INC.
By
------------------------
Title:
DTR LIMITED PARTNERSHIP
By
------------------------
Title:
DOUBLETREE OF PHOENIX, INC.
By
------------------------
Title:
HOSCO CORPORATION
By
------------------------
Title:
DOUBLETREE HOTEL SYSTEMS, INC.
By
------------------------
Title:
COMPRIS HOTEL CORPORATION
By
------------------------
Title:
<PAGE> 330
EXHIBIT I
Page 20
DTR RFS LESSEE, INC.
By
------------------------
Title:
DOUBLETREE, INC. OF CALIFORNIA
By
------------------------
Title:
DT REAL ESTATE, INC.
By
------------------------
Title:
TUK INNS, INC.
By
------------------------
Title:
DT INVESTMENTS, INC.
By
------------------------
Title:
DTR CAMBRIDGE, INC.
By
------------------------
Title:
<PAGE> 331
EXHIBIT I
Page 21
DTR SANTA CLARA, INC.
By
------------------------
Title:
DTR SONORAN HOLDING, INC.
By
------------------------
Title:
DTM ATLANTIC CITY, INC.
By
------------------------
Title:
DTR INDEPENDENCE, INC.
By
------------------------
Title:
DTR NORTH CANTON, INC.
By
------------------------
Title:
DTR SAN ANTONIO, INC.
By
------------------------
Title:
<PAGE> 332
EXHIBIT I
Page 22
DTR WEST MONTROSE, INC.
By
------------------------
Title:
RED LION HOTELS, INC.
By
------------------------
Title:
Accepted and Agreed to:
THE BANK OF NOVA SCOTIA,
as Collateral Administrative Agent for the Banks
By:_________________________
Title:
<PAGE> 333
EXHIBIT J
SOLVENCY CERTIFICATE
I, the undersigned, the Chief Financial Officer of Doubletree
Corporation (the "Borrower"), do hereby certify on behalf of the Borrower that:
1. This Certificate is furnished to the Agents and each of
the Banks pursuant to Section 5.16(i) of the Credit Agreement, dated as of
November __, 1996, among the Borrower, the Banks party thereto from time to
time, Morgan Stanley Senior Funding, Inc., as Syndication Agent and as
Arranger, and The Bank of Nova Scotia, as Administrative Agent (such Credit
Agreement, as in effect on the date of this Certificate, being herein called
the "Credit Agreement"). Unless otherwise defined herein, capitalized terms
used in this Certificate shall have the meanings set forth in the Credit
Agreement.
2. For purposes of this Certificate, the terms below shall
have the following definitions:
(a) "Fair Value"
The amount at which the assets, in their entirety, of the
Borrower and its Subsidiaries (on a consolidated basis) and
the Borrower (on a stand-alone basis) would change hands
between a willing buyer and a willing seller, within a
commercially reasonable period of time, each having reasonable
knowledge of the relevant facts, with neither being under any
compulsion to act.
(b) "Present Fair Salable Value"
The amount that could be obtained by an independent willing
seller from an independent willing buyer if the assets of the
Borrower and its Subsidiaries (on a consolidated basis) and
the Borrower (on a stand-alone basis) are sold with reasonable
promptness under normal selling conditions in a current
market.
<PAGE> 334
EXHIBIT J
Page 2
(c) "New Financing"
The Indebtedness incurred or to be incurred by the Borrower
and its Subsidiaries under the Credit Documents (assuming the
full utilization by the Borrower of the Revolving Loan
Commitments under the Credit Agreement) and the other
Documents and all other financings contemplated by the
Documents, in each case after giving effect to the Transaction
and the incurrence of all financings contemplated therewith.
(d) "Stated Liabilities"
The recorded liabilities (including contingent liabilities)
that would be recorded in accordance with generally accepted
accounting principles ("GAAP") of the Borrower and its
Subsidiaries (on a consolidated basis) and the Borrower (on a
stand-alone basis), in each case, at November __, 1996 after
giving effect to the Transaction, determined in accordance
with GAAP consistently applied, together with, (i) the net
change in long-term debt (including current maturities)
between December 31, 1995 and the date hereof and (ii) without
duplication, the amount of all New Financing.
(e) "Identified Contingent Liabilities"
The maximum estimated amount of liabilities reasonably likely
to result from pending litigation, asserted claims and
assessments, guaranties, uninsured risks and other contingent
liabilities of each of the Borrower and its Subsidiaries (on a
consolidated basis) and the Borrower (on a stand-alone basis)
after giving effect to the Transaction (exclusive of such
contingent liabilities to the extent reflected in Stated
Liabilities).
(f) "Will be able to pay its Stated Liabilities and Identified
Contingent Liabilities, as they mature"
For the period from the date hereof through the Tranche B Term
Loan Maturity Date, each of the Borrower and its Subsidiaries
(on a consolidated basis) and the Borrower (on a stand-alone
basis) will have sufficient assets and cash flow to pay their
respective Stated Liabilities and Identified Contingent
Liabilities as those liabilities mature or otherwise become
payable.
<PAGE> 335
EXHIBIT J
Page 3
(g) "Does not have Unreasonably Small Capital"
For the period from the date hereof through the Tranche B Term
Loan Maturity Date, each of the Borrower and its Subsidiaries
(on a consolidated basis) and the Borrower (on a stand-alone
basis), after consummation of the Transaction and all
Indebtedness (including the Loans) being incurred or assumed
and Liens created by the Borrower and its Subsidiaries
in connection therewith, is a going concern and has sufficient
capital to ensure that it will continue to be a going concern
for such period and to remain a going concern.
3. For purposes of this Certificate, I, or other officers of
the Borrower under my direction and supervision, have performed the following
procedures as of and for the periods set forth below.
(a) I have reviewed the financial statements (including the pro
forma financial statements) referred to in Section 7.05(a) of
the Credit Agreement.
(b) I have made inquiries of certain officials of the Borrower and
its Subsidiaries, who have responsibility for financial and
accounting matters regarding (i) the existence and amount of
Identified Contingent Liabilities associated with the business
of the Borrower and its Subsidiaries and (ii) whether the
unaudited pro forma consolidated financial statements referred
to in paragraph (a) above are in conformity with GAAP applied
on a basis substantially consistent with that of the audited
financial statements as at December 31, 1995.
(c) I have knowledge of and have reviewed to my satisfaction the
Credit Documents and the other Documents, and the respective
Schedules and Exhibits thereto.
(d) With respect to Identified Contingent Liabilities, I:
1. inquired of certain officials of the Borrower and its
Subsidiaries, who have responsibility for legal,
financial and accounting matters as to the existence
and estimated liability with respect to all contingent
liabilities known to them;
<PAGE> 336
EXHIBIT J
Page 4
2. confirmed with officers of the Borrower and its
Subsidiaries, that, to the best of such officers'
knowledge, (i) all appropriate items were included in
Stated Liabilities or the listing of Identified
Contingent Liabilities and that (ii) the amounts relating
thereto were the maximum estimated amount of liabilities
reasonably likely to result therefrom as of the date
hereof; and
(e) I have examined the Projections which have been delivered to the
Banks and considered the effect thereon of any changes since the
date of the preparation thereof on the results projected therein.
After such review, I hereby certify that in my opinion the
Projections are reasonable and attainable and the Projections
support the conclusions contained in paragraph 4 below.
(f) I have made inquiries of certain officers of the Borrower and its
Subsidiaries who have responsibility for financial reporting and
accounting matters regarding whether they were aware of any
events or conditions that, as of the date hereof, would cause the
Borrower and its Subsidiaries (on a consolidated basis) and the
Borrower (on a stand-alone basis), after giving effect to the
Transaction and the related financing transactions (including the
incurrence of the New Financing), to (i) have assets with a Fair
Value or Present Fair Salable Value that are less than the sum of
Stated Liabilities and Identified Contingent Liabilities; (ii)
have Unreasonably Small Capital; or (iii) not be able to pay its
Stated Liabilities and Identified Contingent Liabilities as they
mature or otherwise become payable.
4. Based on and subject to the foregoing, I hereby certify on
behalf of the Borrower that, after giving effect to the Transaction and the
related financing transactions (including the incurrence of the New Financing),
it is my informed opinion that (i) the Fair Value and Present Fair Salable
Value of the assets of each of the Borrower and its Subsidiaries (on a
consolidated basis) and the Borrower (on a stand-alone basis) exceed its Stated
Liabilities and Identified Contingent Liabilities; (ii) each of the Borrower
and its Subsidiaries (on a consolidated basis) and the Borrower (on a
stand-alone basis) does not have Unreasonably Small Capital; and (iii) each of
the Borrower and its Subsidiaries (on a consolidated basis) and the Borrower
(on a stand-alone basis) will be able to pay its Stated Liabilities and
Identified Contingent Liabilities, as they mature or otherwise become payable.
<PAGE> 337
EXHIBIT J
Page 5
IN WITNESS WHEREOF, I have hereto set my hand this ____ day of
November, 1996.
DOUBLETREE CORPORATION
By_______________________________________
Name:
Title: Chief Financial Officer
<PAGE> 338
ANNEX A
<PAGE> 339
EXHIBIT K
ASSIGNMENT AND ASSUMPTION AGREEMENT
DATE: ________ __, 19__
Reference is made to the Credit Agreement described in Item 2
of Annex I annexed hereto (as such Credit Agreement may hereafter be amended,
modified or supplemented from time to time, the "Credit Agreement"). Unless
defined in Annex I attached hereto, terms defined in the Credit Agreement are
used herein as therein defined. _____________ (the "Assignor") and
______________ (the "Assignee") hereby agree as follows:
1. The Assignor hereby sells and assigns to the Assignee
without recourse and without representation or warranty (other than as
expressly provided herein), and the Assignee hereby purchases and assumes from
the Assignor, that interest in and to all of the Assignor's rights and
obligations under the Credit Agreement as of the date hereof which represents
the percentage interest specified in Item 4 of Annex I (the "Assigned Share")
of all of the outstanding rights and obligations under the Credit Agreement
relating to the facilities listed in Item 4 of Annex I, including, without
limitation, [(x) in the case of any assignment of all or any portion of the
Total Term Loan Commitment, all rights and obligations with respect to the
Assigned Share of such Total Term Loan Commitment,]1/ (y) in the case of any
assignment of all or any portion of the Assignor's outstanding Tranche A Term
Loans and/or Tranche B Term Loans, all rights and obligations with respect to
the Assigned Share of such outstanding Tranche A Term Loans and/or Tranche B
Term Loans and (z) in the case of any assignment of all or any portion of the
Assignor's Revolving Loan Commitment, all rights and obligations with respect
to the Assigned Share of the Total Revolving Loan Commitment and all
outstanding Revolving Loans, Swingline Loans and Letters of Credit.
2. The Assignor (i) represents and warrants that 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 claims; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Credit Agreement or the other Credit Documents or the execution, legality,
____________________
1/ Delete bracketed language in Assignment and Assumption Agreements executed
after the termination of the Total Term Loan Commitment.
<PAGE> 340
EXHIBIT K
Page 2
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or the other Credit Documents or any other instrument or document
furnished pursuant thereto; and (iii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or any of its Subsidiaries or the performance or observance by the
Borrower or any of its Subsidiaries of any of their respective obligations
under the Credit Agreement or the other Credit Documents or any other
instrument or document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received a copy of
the Credit Agreement and the other Credit Documents, together with copies of
the financial statements referred to therein 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 Assumption Agreement; (ii) agrees
that it will, independently and without reliance upon any Agent, the Assignor
or any other Bank 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; (iii) appoints and authorizes the
Administrative Agent and the Syndication Agent to take such action as agents on
its behalf and to exercise such powers under the Credit Agreement and the other
Credit Documents as are delegated to the Administrative Agent and the
Syndication Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; [and] (iv) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Bank[; and (v)
attaches the forms and/or Certificate set forth in the penultimate sentence of
section 13.04(b) of the Credit Agreement.]2/
4. Following the execution of this Assignment and Assumption
Agreement by the Assignor and the Assignee, an executed original hereof
(together with all attachments) will be delivered to the Administrative Agent.
The effective date of this Assignment and Assumption Agreement shall be the
date of execution hereof by the Assignor and the Assignee, to the extent
required by the Credit Agreement, the receipt of the consent of each Agent,
receipt by the Administrative Agent of the assignment fee referred to in
Section 13.04(b) of the Credit Agreement, and the recordation by the
Administrative Agent of the assignment effected hereby in the Register, unless
otherwise specified in Item 5 of Annex I (the "Settlement Date").
5. Upon the delivery of a fully executed original hereof to
the Administrative Agent, as of the Settlement Date, (i) the Assignee shall be
a party to the
____________________
2/ If the Assignee is organized under the laws of a jurisdiction outside the
United States.
<PAGE> 341
EXHIBIT K
Page 3
Credit Agreement and, to the extent provided in this Assignment and Assumption
Agreement, have the rights and obligations of a Bank thereunder and under the
other Credit Documents and (ii) the Assignor shall, to the extent provided in
this Assignment and Assumption Agreement, relinquish its rights and be released
from its obligations under the Credit Agreement and the other Credit Documents.
6. It is agreed that upon the effectiveness hereof, the
Assignee shall be entitled to (x) all interest on the Assigned Share of the
Loans at the rates specified in Item 6 of Annex I, (y) all Commitment
Commission (if applicable) on the Assigned Share of the respective Commitments
at the rate specified in Item 7 of Annex I and (z) all Letter of Credit Fees
(if applicable) on the Assignee's participation in all Letters of Credit at the
rate specified in Item 8 of Annex I, which, in each case, accrue on and after
the Settlement Date, such interest and, if applicable, Commitment Commission
and Letter of Credit Fees, to be paid by the Administrative Agent directly to
the Assignee. It is further agreed that all payments of principal made on the
Assigned Share of the Loans which occur on and after the Settlement Date will
be paid directly by the Administrative Agent to the Assignee. Upon the
Settlement Date, the Assignee shall pay to the Assignor an amount specified by
the Assignor in writing which represents the Assigned Share of the principal
amount of the respective Loans made by the Assignor pursuant to the Credit
Agreement which are outstanding on the Settlement Date, net of any closing
costs, and which are being assigned hereunder. The Assignor and the Assignee
shall make all appropriate adjustments in payments under the Credit Agreement
for periods prior to the Settlement Date directly between themselves.
7. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE> 342
EXHIBIT K
Page 4
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Assumption Agreement to be executed by their respective officers
thereunto duly authorized, as of the date first above written, such execution
also being made on Annex I hereto.
[NAME OF ASSIGNOR],
as Assignor
By____________________________
Title:
[NAME OF ASSIGNEE],
as Assignee
By____________________________
Title:
[Acknowledged and Agreed:
MORGAN STANLEY SENIOR
FUNDING, INC., as Syndication Agent and as Arranger
By____________________________
Title:
THE BANK OF NOVA SCOTIA, as Administrative Agent
By____________________________
Title:]3/
____________________
3/ The consent of each Agent is required for assignments made as provided in
Section 13.04(b)(y) of the Audit Agreement.
<PAGE> 343
ANNEX I
ANNEX FOR ASSIGNMENT AND ASSUMPTION AGREEMENT
ANNEX I
1. The Borrower: Doubletree Corporation.
2. Name and Date of Credit Agreement:
Credit Agreement, dated as of November __, 1996, among Doubletree
Corporation, the lenders from time to time party thereto, Morgan
Stanley Senior Funding, Inc., as Syndication Agent and as Arranger,
and The Bank of Nova Scotia, as Administrative Agent.
3. Date of Assignment Agreement:
4. Amounts (as of date of item #3 above):
<TABLE>
<CAPTION>
[Total [Total [Outstanding [Outstanding
Tranche Tranche Principal Principal Revolving
A Term Loan B Term Loan of A Term of B Term Loan
Commitment] Commitment] Loans] Loans] Commitment
---------- ---------- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
a. Aggregate
Amount for
all Banks $_______ $_______ $________ $________ $_________
b. Assigned Share ________% ________% ________% ________% ________%
c. Amount of
Assigned Share $_______4/ $_______5/ $________6/ $________7/ $_________
- - - -
</TABLE>
5. Settlement Date:
__________________________________
4/ Insert for assignments made before the termination of the Total Tranche A
Term Loan Commitment.
5/ Insert for assignments made before the Initial Borrowing Date.
6/ Insert for assignments made after the Initial Borrowing Date.
7/ Insert for assignments made after the Initial Borrowing Date.
<PAGE> 344
ANNEX I
Page 2
<TABLE>
<S> <C> <C>
6. Rate of Interest
to the Assignee: As set forth in Section 1.08 of the Credit Agreement (unless otherwise
agreed to by the Assignor and the Assignee).8/
7. Term Loan Commitment
Commission to the
Assignee; As set forth in Section 3.01(a) of the Credit Agreement (unless otherwise
agreed to by the Assignor and the Assignee).9/
8. Revolving Loan
Commitment
Commission to
the Assignee: As set forth in Section 3.01(b) of the Credit Agreement; (unless
otherwise agreed to by the Assignor and the Assignee).10/
</TABLE>
__________________________________
8/ Each of the Borrowers and the Administrative Agent shall, following
recordation of such assignment by the Administrative Agent on the Register,
direct the entire amount of interest to the Assignee at the rate set forth in
Section 1.08 of the Credit Agreement, with the Assignor and Assignee effecting
any agreed upon sharing of interest through payments by the Assignee to the
Assignor.
9/ Insert "Not Applicable" in lieu of text if no portion of the Total Term
Loan Commitment is being assigned or for assignments made after the termination
of the Total Term Loan Commitment. The Borrower and the Administrative
Agent shall, following recordation of such assignment by the Administrative
Agent on the Register, direct the entire amount of the Term Loan Commitment
Commission to the Assignee at the rate set forth in Section 3.01(a) of the
Credit Agreement, with the Assignor and the Assignee effecting any agreed
upon sharing of the Term Loan Commitment Commission through payment by the
Assignee to the Assignor.
10/ Insert "Not Applicable" in lieu of text if no portion of the Total
Revolving Loan Commitment is being assigned. The Borrower and the
Administrative Agent shall, following recordation of such assignment by the
Administrative Agent on the Register, direct the entire amount of the
Revolving Loan Commitment Commission to the Assignee at the rate set forth in
Section 3.01(b) of the Credit Agreement, with the Assignor and the Assignee
effecting any agreed upon sharing of the Revolving Loan Commitment Commission
through payment by the Assignee to the Assignor.
<PAGE> 345
ANNEX I
Page 3
<TABLE>
<S> <C> <C>
9. Letter of Credit
Fee to the
Assignee: As set forth in Section 3.01(c) of the Credit Agreement
(unless otherwise agreed to by the Assignor and the Assignee).11/
10. Notice:
ASSIGNEE:
-------------------
-------------------
Attention:
Telephone:
Telecopier:
Reference:
Payment Instructions:
ASSIGNEE:
-------------------
-------------------
Attention:
Reference:
</TABLE>
__________________________________
11/ Insert "Not Applicable" in lieu of text if no portion of the Total
Revolving Loan Commitment is being assigned. The Borrower and the
Administrative Agent shall, following recordation of such assignment by the
Administrative Agent on the Register, direct the entire amount of the Letter of
Credit Fee to the Assignee at the rate set forth in Section 3.01(c) of the
Credit Agreement, with the Assignor and the Assignee effecting any agreed upon
sharing of the Letter of Credit Fee through payment by the Assignee to the
Assignor.
<PAGE> 346
ANNEX I
Page 4
Accepted and Agreed:
[NAME OF ASSIGNEE] [NAME OF ASSIGNOR]
By________________________ By__________________________
________________________ __________________________
(Print Name and Title) (Print Name and Title)
<PAGE> 347
EXHIBIT L
INTERCOMPANY NOTE
New York, New York
[Date]
FOR VALUE RECEIVED, [NAME OF PAYOR] (the "Payor"), hereby
promises to pay on demand to the order of _____________ or its assigns (the
"Payee"), in lawful money of the United States of America in immediately
available funds, at such location in the United States of America as the Payee
shall from time to time designate, the unpaid principal amount of all loans and
advances made by the Payee to the Payor.
The Payor promises also to pay interest on the unpaid
principal amount hereof in like money at said office from the date hereof until
paid at such rate per annum as shall be agreed upon from time to time by the
Payor and Payee.
Upon the commencement of any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar proceeding of any jurisdiction relating to the Payor,
the unpaid principal amount hereof shall become immediately due the payable
without presentment, demand, protest or notice of any kind in connection with
this Note.
This Note evidences certain permitted intercompany
Indebtedness referred to in the Credit Agreement, dated as of November __,
1996, among Doubletree Corporation, the lenders party thereto from time to
time, Morgan Stanley Senior Funding, Inc., as Syndication Agent and as
Arranger, and The Bank of Nova Scotia, as Administrative Agent (as amended,
modified or supplemented from time to time, the "Credit Agreement"), and is
subject to the terms thereof, and shall be pledged by the Payee pursuant to the
Pledge Agreement (as defined in the Credit Agreement). The Payor hereby
acknowledges and agrees that the Collateral Administrative Agent pursuant to
and as defined in the Pledge Agreement, as in effect from time to time, may
exercise all rights provided therein with respect to this Note.
<PAGE> 348
EXHIBIT L
Page 2
The Payee is hereby authorized to record all loans and
advances made by it to the Payor (all of which shall be evidenced by this
Note), and all repayments or prepayments thereof, in its books and records,
such books and records constituting prima facie evidence of the accuracy of the
information contained therein.
All payments under this Note shall be made without offset,
counterclaim or deduction of any kind.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAW OF THE STATE OF NEW YORK.
[NAME OF PAYOR]
By___________________________________
Title:
[NAME OF PAYEE]
By____________________________
Title:
Pay to the order of
______________________________
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITOR
The Board of Directors
Doubletree Corporation:
The audits referred to in our report dated February 27, 1996, included the
related financial statement schedule as of December 31, 1995, and for each of
the years in the three-year period ended December 31, 1995 included in the
Registration Statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the Registration Statement.
KPMG Peat Marwick LLP
Orange County, California
October 29, 1996
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-13161 of Doubletree Corporation on Form S-3 of our reports dated February
24, 1996, on Red Lion Hotels, Inc. as of and for the ten months ended December
31, 1995, and of Red Lion, a California Limited Partnership, for the seven
months ended July 31, 1995, appearing in the Prospectus, which is a part of
such Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
Deloitte & Touche LLP
Portland, Oregon
October 31, 1996
<PAGE> 1
EXHIBIT 23.3
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
dated February 7, 1995 on the financial statements of Red Lion, a California
Limited Partnership, as of and for the two years ended December 31, 1994
included in this registration statement, as amended by Amendment No. 2 thereto,
and to all references to our Firm included in this registration statement, as
amended.
Arthur Andersen LLP
Portland, Oregon
October 31, 1996
