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Exhibit 10.1
MORGAN STANLEY SENIOR FUNDING, INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
THE BANK OF NOVA SCOTIA
580 CALIFORNIA STREET
SUITE 2100
SAN FRANCISCO, CALIFORNIA 94104
September 12, 1996
Doubletree Corporation
410 North 44th Street, Suite 700
Phoenix, Arizona 85008
Attention: William L. Perocchi, Executive
Vice President and Chief
Financial Officer
re Acquisition
Financing Letter
Ladies and Gentlemen:
You have advised Morgan Stanley Senior Funding, Inc. ("Morgan
Stanley") and The Bank of Nova Scotia ("Scotiabank" and, together with Morgan
Stanley, the "Agents") that you intend to consummate a transaction pursuant to
which (i) Doubletree Corporation (the "Borrower") would acquire (the
"Acquisition"), through a newly created direct or indirect wholly-owned
subsidiary of the Borrower ("Merger
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Sub"), 100% of the equity of Red Lion Hotels, Inc. ("Red Lion") through a
merger of Merger Sub with and into Red Lion with Red Lion remaining as the
surviving corporation and (ii) the Borrower would refinance (the "Refinancing")
up to $210 million of existing net indebtedness of the Borrower and Red Lion.
We understand that the funding required to effect the
Acquisition and the Refinancing, to pay the fees and expenses incurred in
connection with the Transaction (as defined below) and to provide for the
ongoing working capital and general corporate needs of the Borrower and its
subsidiaries shall be provided solely from (i) $250 million of gross cash
proceeds received from (x) the issuance by the Borrower of its common stock
through a public and/or private offering (the "Equity Offering") and/or (y) the
issuance (either by private placement or an underwritten public sale) by the
Borrower of unsecured senior subordinated notes, including through a bridge
financing thereof (the "Senior Subordinated Notes"), it being understood that
no more than $150 millon of proceeds pursuant to this clause (i) shall be in
the form of the Senior Subordinated Notes, (ii) the issuance by the Borrower of
its common stock to the selling shareholders of Red Lion having an implied
value equal to $283 million (with such implied value subject to adjustment
based on the closing price of the shares of the Borrower as provided in the
merger agreement for the Acquisition) (the "Equity Rollover"), (iii) the
incurrence by the Borrower of the Senior Bank Financing described and defined
below and (iv) cash on hand at the Borrower and/or Red Lion. As used herein,
the term "Transaction" shall collectively refer to the Acquisition, the
Refinancing, the Equity Offering, the Equity Rollover, the issuance of the
Senior Subordinated Notes and the incurrence of the Senior Bank Financing.
We further understand that the senior secured bank financing
(the "Senior Bank Financing") will be in the form of (i) a term loan facility
(the "Tranche A Term Loan Facility") in the amount of $405 million, (ii) a
second term loan facility (the "Tranche B Term Loan Facility", and together
with the Tranche A Term Loan Facility, the "Term Loan Facilities") in the
amount of $231 million and (iii) a revolving credit facility (the "Revolving
Credit Facility", and together with the Term Loan Facilities, the "Credit
Facilities") in the amount of $100 million. A preliminary summary of terms and
conditions of the Senior Bank Financing is attached as Exhibit A to this letter
(the "Summary of Terms").
The Agents are pleased to confirm that they are willing to
commit to provide (on a several basis), subject to and upon the terms and
conditions set forth herein and in the Summary of Terms, 100% of the Senior
Bank Financing on the terms and conditions set forth herein and in the Summary
of Terms (with Morgan Stanley having a commitment of $441.6 million and
Scotiabank having a commitment of $294.4 million). It is understood that
Morgan Stanley shall act as Syndication Agent and Arranger for the Senior Bank
Financing and that Scotiabank shall act as Administrative Agent for the Senior
Bank Financing.
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The Agents reserve the right, prior to or after execution of
the definitive credit documentation for the Senior Bank Financing, to syndicate
all or part of their commitments for the Senior Bank Financing to one or more
lending institutions (the "Lenders") that will become parties to such
definitive credit documentation pursuant to a syndication to be managed by the
Agents. The Agents shall commence syndication efforts promptly after the
execution of this letter by you and you agree actively to assist the Agents in
achieving a syndication that is satisfactory to the Agents. Such syndication
will be accomplished by a variety of means, including direct contact during the
syndication between senior management and advisors of the Borrower, Red Lion
and the proposed syndicate members. To assist the Agents in their syndication
efforts, you hereby agree (a) to provide and cause your advisors to provide the
Agents and the other syndicate members upon request with all information
reasonably deemed necessary by the Agents to complete syndication, including,
but not limited to, information and evaluations prepared by you and your
advisors or on your behalf relating to the transactions contemplated hereby and
(b) to assist the Agents upon request in the preparation of an Information
Memorandum to be used in connection with the syndication of the Senior Bank
Financing and (c) to make available your senior officers and representatives
and to use your reasonable efforts to make available the senior officers and
representatives of Red Lion, in each case from time to time and to attend and
make presentations regarding the business and prospects of the Borrower and Red
Lion at a meeting or meetings of lenders or prospective lenders. You also
agree to use your best efforts to provide, at your expense, real estate
appraisals on certain fee properties to be determined by the Agents in
consultation with you.
As you are aware, the Agents have completed their due
diligence analysis and review with respect to the Transaction, the Borrower,
Red Lion and their subsidiaries and are satisfied with the results thereof.
Neither Agent shall be responsible or liable for any consequential damages
which may be alleged as a result of its failure to provide the Senior Bank
Financing.
To induce the Agents to issue this letter, you hereby agree
that all reasonable out-of-pocket fees and expenses (including the reasonable
fees and expenses of counsel and consultants) of the Agents and their
affiliates arising in connection with this letter (and their due diligence and
syndication efforts in connection herewith) and in connection with the
transactions described herein shall be for your account, whether or not the
Transaction is consummated, the Senior Bank Financing is made available or
definitive credit documents are executed. You further agree to indemnify and
hold harmless each Agent and each director, officer, employee and affiliate
thereof (each an "indemnified person") from and against any and all actions,
suits, proceedings (including any investigations or inquiries), claims, losses,
damages, liabilities or expenses of any kind or nature whatsoever which may be
incurred by or asserted against or involve any Agent or any such other
indemnified person as a result of or arising out of or in any way related to or
resulting from this letter and, upon demand,
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to pay and reimburse each Agent and each other indemnified person for any
reasonable legal or other out-of-pocket expenses incurred in connection with
investigating, defending or preparing to defend any such action, suit,
proceeding (including any inquiry or investigation) or claim (whether or not
any Agent or any such other indemnified person is a party to any action or
proceeding out of which any such expenses arise, and whether any such action,
suit or proceeding is between you and any Agent or any other indemnified person
or between any Agent or any other indemnified person and a third party or
otherwise); provided, however, that you shall not have to indemnify any
indemnified person against any loss, claim, damage, expense or liability which
resulted primarily from the gross negligence or willful misconduct of such
indemnified person. This letter is issued for your benefit only and no other
person or entity may rely hereon.
Each Agent reserves the right to employ the services of its
affiliates in providing services contemplated by this letter and to allocate,
in whole or in part, to such affiliates certain fees payable to such Agent in
such manner as such Agent and such affiliates may agree in their sole
discretion. You acknowledge that each Agent may share with any of its
affiliates, and such affiliates may share with each Agent, any information
related to the Transaction, the Borrower, Red Lion, any of their respective
subsidiaries or any of the matters contemplated hereby.
The provisions of the immediately preceding two paragraphs
shall survive any termination of this letter.
The Agents' willingness to provide the Senior Bank Financing
as set forth above will terminate on January 31, 1997, if a definitive credit
agreement evidencing the Senior Bank Financing, satisfactory in form and
substance to the Agents (the "Credit Agreement"), shall not have been entered
into prior to such date.
Except as otherwise required by law or unless each Agent has
otherwise consented, you are not authorized to show or circulate this letter to
any other person or entity (other than your legal or financial advisors in
connection with your evaluation hereof). If this letter is not accepted by you
as provided in the immediately succeeding paragraph, you are to immediately
return this letter (and any copies hereof) to the Agents.
If you are in agreement with the foregoing, please sign and
return to the Agents (including by way of facsimile transmission), c/o Morgan
Stanley, the enclosed copy of this letter, together with the related fee
letter, no later than 6:00 p.m., New York time, on September 12, 1996. This
letter may be executed in any number of counterparts, and by the different
parties hereto on separate counterparts, each of which when executed and
delivered, shall be an original, but all of which shall together constitute one
and the same instrument.
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THIS LETTER AND THE RELATED FEE LETTER SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AND ANY
RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM, ACTION, SUIT OR PROCEEDING
ARISING OUT OF OR CONTEMPLATED BY THIS LETTER AND/OR THE RELATED FEE LETTER IS
HEREBY WAIVED. YOU HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE
FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION
WITH ANY DISPUTE RELATED TO THIS LETTER AND/OR THE RELATED FEE LETTER OR ANY
MATTERS CONTEMPLATED HEREBY OR THEREBY.
Very truly yours,
MORGAN STANLEY SENIOR
FUNDING, INC.
By__________________________
Title:
THE BANK OF NOVA SCOTIA
By__________________________
Title:
Agreed to and Accepted this
___ day of September, 1996:
DOUBLETREE CORPORATION
By__________________________
Title:
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EXHIBIT A
PRELIMINARY SUMMARY OF CERTAIN TERMS AND CONDITIONS*/
I. Description of Credit Facilities Comprising the Senior Bank Financing
A. Term Loan Facilities
Tranche A Term
Loan Facility: $405,000,000 Tranche A Term Loan Facility.
Maturity: The final maturity of the Tranche A Term Loan
Facility shall be the sixth anniversary of the date
of initial borrowing under the Senior Bank
Financing (the "Closing Date"). The loans under
the Tranche A Term Loan Facility (the "Tranche A
Term Loans") shall amortize in equal quarterly
installments in aggregate annual principal amounts
as set forth below (with the final such installment
payable on the sixth anniversary of the Closing
Date):
Year Amount
---- ----------------
1 $ 5,000,000
2 $ 55,000,000
3 $ 70,000,000
4 $ 80,000,000
5 $ 95,000,000
6 $100,000,000
Tranche B Term
Loan Facility: $231,000,000 Tranche B Term Loan Facility.
Maturity: The final maturity of the Tranche B Term Loan
Facility shall be that date which is seven years
and six months from the Closing Date. Commencing
on the date which is six years and three months
from the Closing Date, the loans under the Tranche
B Term Loan Facility (the "Tranche B Term Loans",
and together with the Tranche A Term Loans, the
"Term Loans") shall
__________________________________
*/ Capitalized terms used herein and not defined herein shall have the
meanings provided in the commitment letter to which this summary is attached.
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EXHIBIT A
Page 2
amortize in six equal quarterly payments of
$36,500,000, provided that during each year prior
to that time, the Tranche B Term Loans shall
amortize in equal quarterly installments in
aggregate annual principal amounts of $2,000,000.
Use of Proceeds: The Term Loans shall only be utilized (x) to
finance, in part, the Acquisition and the
Refinancing and (y) to pay fees and expenses
incurred in connection with the Transaction.
Availability: Term Loans may only be incurred on the Closing
Date, provided that up to $85 million of the
Tranche A Term Loan Facility may be utilized on two
additional dates within three months after the
Closing Date to refinance the Santa Barbara Joint
Venture Debt and the Glendale Joint Venture Debt
(each as hereinafter defined) to the extent such
debt is to be refinanced as part of the
Refinancing. No amount of Term Loans once repaid
may be reborrowed.
B. Revolving Credit Facility
Revolving Credit
Facility: $100,000,000 Revolving Credit Facility, with a
letter of credit sub-limit to be agreed upon.
Maturity: The final maturity of the Revolving Credit Facility
shall be the sixth anniversary of the Closing Date.
Loans made pursuant to the Revolving Credit
Facility (the "Revolving Loans", and together with
the Term Loans, the "Loans") shall be repaid in
full, and all letters of credit issued thereunder
shall terminate, on the sixth anniversary of the
Closing Date.
Use of Proceeds: The Revolving Loans shall be utilized for the
Borrower's and its subsidiaries' working capital
requirements and other general corporate purposes,
provided that up to $15,000,000 of Revolving Loans
may be incurred to finance the Acquisition and the
Refinancing and to pay fees and expenses relating
to the Transaction.
Availability: Revolving Loans may be borrowed, repaid and
reborrowed on and after the Closing Date, provided
that the Revolving Credit Facility shall have an
annual clean down pursuant to which all outstanding
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EXHIBIT A
Page 3
Revolving Loans thereunder will have to be reduced
to no more than $50,000,000 for at least 30
consecutive days.
II. Terms Applicable to the Entire Senior Bank Financing
Syndication
Agent and Arranger: Morgan Stanley (the "Syndication Agent").
Administrative Agent: Scotiabank (the "Administrative Agent").
Lenders: Morgan Stanley, Scotiabank and a group of financial
institutions (collectively, the "Lenders")
acceptable to the Borrower and the Agents.
Borrower: Doubletree Corporation (the "Borrower").
Guaranty: All obligations under the Senior Bank Financing
shall be unconditionally guaranteed by all material
direct and indirect wholly-owned subsidiaries of
the Borrower (including, without limitation,
Doubletree Partners) (collectively, the
"Guarantors"), subject to customary exceptions for
transactions of this type.
Security: The obligations of the Borrower and the Guarantors
under the Senior Bank Financing shall be secured by
a first priority perfected security interest in (x)
all stock owned by the Borrower and the Guarantors
(other than the capital stock in RFS Hotels
Investors, Inc. and the partnership units in RFS
Hotels Investors, Inc.'s affiliated limited
partnership), (y) all notes owned by the Borrower
and the Guarantors (other than notes that are in a
principal amount of less than $1,000,000) and (z)
all other tangible and intangible assets of the
Borrower and the Guarantors (including real estate,
equipment, inventory, receivables, contracts
(including, but not limited to, management
contracts, but excluding any contract (including
any management contract) to the extent that the
terms thereof prohibit the assignment thereof or
the grant of a security interest therein, provided
that such security interests in any event shall
include the right to receive payments for money due
under all such excluded contracts) and intellectual
property), subject to customary exceptions for
transactions of this type. Notwithstanding
anything to the contrary contained above in this
paragraph, (i) the collateral shall not include any
asset that
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EXHIBIT A
Page 4
the Borrower or any Guarantor owns, as agent, for
the benefit of a third party as opposed for its own
benefit, (ii) the collateral shall not include any
equity interests in a joint venture (whether such
equity interests are in the form of partnership
interests, capital stock or otherwise) that are not
permitted to be assigned or a security interest
therein granted without the consent of a third
party, provided that the Borrower and each
Guarantor will assign its respective equity
interest in any joint entity to the extent that the
same is assignable or a security interest therein
permitted to be granted without the consent of any
third party and the Agents request an assignment
of, or a grant of a security interest in, same and
(iii) neither the Borrower nor any Guarantor shall
be required to obtain the consent of any third
party whose consent is required to grant a security
interest in any contract, partnership, corporate or
joint venture agreement or any lease.
Interest Rates: At the option of the Borrower, Loans may be
maintained from time to time as (x) Base Rate Loans
which shall bear interest at the Applicable Margin
in excess of the Base Rate in effect from time to
time or (y) Reserve Adjusted Eurodollar Loans which
shall bear interest at the Applicable Margin in
excess of the Eurodollar Rate (adjusted for maximum
reserves) as determined by certain reference
Lenders to be agreed upon for the respective
interest period, provided that until the earlier to
occur of (x) the 90th day following the Closing
Date and (y) that date upon which the Agents have
determined (and notify the Borrower) that the
primary syndication of the Senior Bank Financing
(and the resultant addition of institutions as
Lenders) has been completed, Reserve Adjusted
Eurodollar Loans may be incurred only if they have
a one month interest period (and with all such
Reserve Adjusted Eurodollar Loans to be subject to
the same one month interest period).
"Base Rate" shall mean the higher of (x) 1/2 of 1%
in excess of the federal funds rate and (y) the
rate that the Administrative Agent announces from
time to time as its prime commercial lending rate,
as in effect from time to time.
"Applicable Margin" shall mean with respect to (i)
Loans made pursuant to the Tranche A Term Loan
Facility and the Revolving Credit Facility, the
respective per annum percentage set forth in Table
A below and (ii) Loans made pursuant to the Tranche
B
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EXHIBIT A
Page 5
Term Loan Facility, the respective percentage per
annum set forth in Table B below; provided, at any
time that a payment default, or any event of
default, exists under the Senior Bank Financing,
the Applicable Margin for a particular Credit
Facility shall be the highest percentage set forth
in Table A or Table B below, as applicable.
A. Applicable Margin for Tranche A Term Loans/Revolving Loans
Eurodollar Base Rate
Margin Margin Leverage Ratio**
------ -------- ----------------
2.125% 1.125% At Least 4.50:1.00
1.875% 0.875% At Least 4.25:1.00 Less Than 4.50:1.00
1.750% 0.750% At Least 4.00:1.00 Less Than 4.25:1.00
1.625% 0.625% At Least 3.75:1.00 Less Than 4.00:1.00
1.500% 0.500% At Least 3.50:1.00 Less Than 3.75:1.00
1.375% 0.375% At Least 3.25:1.00 Less Than 3.50:1.00
1.250% 0.250% Less Than 3.25:1.00
B. Applicable Margin for Tranche B Term Loans
Eurodollar Base Rate Leverage
Margin Margin Ratio
------ -------- --------
2.500% 1.500% At Least 4.50:1.00
2.250% 1.250% Less Than 4.50:1.00
Notwithstanding the foregoing, (x) in the event
that the Borrower does not receive gross cash
proceeds of at least $250 million from the Equity
Offering, each Applicable Margin set forth in Table
A and Table B above shall be increased by 0.125% or
(y) in the event that the Borrower receives gross
cash proceeds in excess of $350 million from the
Equity Offering and 100% of the net cash proceeds
therefrom in excess of $250 million are used to
reduce the Term Loan Facilities, each Applicable
Margin in Table A above shall be decreased by
0.125%.
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** Leverage Ratio will be defined as Total Debt to EBITDA for the then
most recently ended 12-month period.
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EXHIBIT A
Page 6
Interest periods of 1, 2, 3 and 6 months shall be
available in the case of Reserve Adjusted
Eurodollar Loans.
The Senior Bank Financing shall include standard
protective provisions for such matters as
defaulting banks, capital adequacy, increased
costs, actual reserves, funding losses, illegality
and withholding taxes.
Interest in respect of Base Rate Loans shall be
payable quarterly in arrears on the last business
day of each quarter. Interest in respect of
Reserve Adjusted Eurodollar Loans shall be payable
in arrears at the end of the applicable interest
period and every three months in the case of
interest periods in excess of three months.
Interest will also be payable at the time of
repayment of any Loans and at maturity. All
interest calculations for Base Rate Loans shall be
based on a 365/366-day year and actual days elapsed
and all other interest calculations shall be based
on a 360-day year and actual days elapsed.
Overdue principal, interest and other amounts shall
bear interest at a rate per annum equal to the rate
which is 2% in excess of the rate otherwise
applicable to the Base Rate Loans under the
respective Credit Facility from time to time. Such
interest shall be payable on demand.
Agents/Lenders Fees: The Agents and the Lenders shall receive such fees
as have been separately agreed upon with the
Borrower.
Commitment Fees: 1/2 of 1% (or 3/8 of 1% at any time that the
Leverage Ratio is less than 4.00:1.00 and no
payment default, and no event of default, exists
under the Senior Bank Financing) per annum of the
unutilized total commitments under the Senior Bank
Financing, as in effect from time to time,
commencing on the date on which the Credit
Agreement is executed and continuing to but
excluding the date of the termination of the Senior
Bank Financing, payable in arrears quarterly and
upon the termination of the Senior Bank Financing.
All commitment fee and other fee calculations shall
be based on a 360-day year and actual days elapsed.
Letter of Credit Fees: Applicable Margin for Reserve Adjusted Eurodollar
Loans which are Revolving Loans on the aggregate
outstanding stated amounts of letters of credit
plus an additional 1/4 of 1% on the aggregate
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EXHIBIT A
Page 7
outstanding stated amounts of letters of credit to
be paid as a fronting fee to the issuing Lender.
Voluntary Commit-
ment Reductions: Voluntary reductions to the unutilized portion of
the Revolving Credit Facility may be made from time
to time by the Borrower without premium or penalty.
Voluntary Prepay-
ments: Voluntary prepayments of Loans may be made at any
time, with prior notice but without premium or
penalty, provided that voluntary prepayments of
Reserve Adjusted Eurodollar Loans made on any day
other than the last day of an interest period
applicable thereto shall be accompanied by
customary breakage costs. Voluntary prepayments of
Term Loans shall be applied ratably to the Tranche
A Term Loans and the Tranche B Term Loans and shall
be applied to reduce the remaining scheduled
amortization payments under the Tranche A Term Loan
Facility and the Tranche B Term Loan Facility on a
pro rata basis (based on the amount of each
remaining scheduled amortization payment), provided
that the Borrower shall have the right, at its
option, to apply its retained share of (i) equity
issuance proceeds and/or (ii) excess cash flow to
voluntary prepay a single tranche of Term Loans in
an amount not to exceed $10 million per year
through the third year from the Closing Date and
$15 million per year thereafter, and with each such
repayment to reduce the remaining scheduled
amortization payments of such tranche of Term Loans
pro rata (based on the amount of each remaining
scheduled amortization payment).
Mandatory Repay-
ments: Mandatory repayments of Term Loans, and to the
extent applicable, mandatory reductions to the
unutilized portion of the Term Loan Facilities (and
after all Term Loans (and commitments in respect
thereof) have been repaid (and/or terminated) in
full, permanent reductions to the Revolving Credit
Facility), to be required from (a) 100% of the net
proceeds from asset sales (or 50% if the Leverage
Ratio is less than 3.00:1.00 and no payment
default, and no event of default, exists under the
Senior Bank Financing), other than asset sales in
the ordinary course of business and asset sales the
proceeds which are reinvested in like assets
(subject, in each case, to size and other
limitations to be mutually agreed upon), (b) 100%
of the net proceeds from issuances of debt,
provided, in the event that bridge Senior
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EXHIBIT A
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Subordinated Notes are issued as part of the
Transaction, the proceeds from the issuance of the
permanent Senior Subordinated Notes (or other
junior debt securities reasonably acceptable to the
Agents and the Required Lenders) shall be used to
refinance any outstanding bridge Senior
Subordinated Notes (which for purposes of this
clause does not include any rollover Senior
Subordinated Notes that bear interest at a fixed
rate), (c) 50% of the net proceeds from equity
issuances or capital contributions, provided, in
the event that bridge Senior Subordinated Notes are
issued as part of the Transaction, the proceeds
from any equity issuance after the Closing Date
shall be used to refinance any outstanding bridge
Senior Subordinated Notes (which for purposes of
this clause does not include any rollover Senior
Subordinated Notes that bear interest at a fixed
rate), (d) 50% of annual excess cash flow (the
definition of which will be mutually agreed upon)
and (e) 100% of certain insurance proceeds, with
certain reinvestment rights to be agreed upon. In
addition, 50% of the net cash proceeds from the
Equity Offering in excess of $250,000,000 will be
applied to reduce the Term Loan Facilities. The
Term Loan Facilities also shall be reduced as
provided in the final sentence of clause (v) under
the heading "Conditions Precedent to Initial Loans"
of this Summary of Terms.
All mandatory repayments of Term Loans (and, to the
extent applicable, all mandatory reductions to the
unutilized commitments under the Term Loan
Facilities) will be applied ratably as between the
Tranche A Term Loans and the Tranche B Term Loans,
and shall be applied to reduce the remaining
scheduled amortization payments under the Tranche A
Term Loan Facility and the Tranche B Term Loan
Facility on a pro rata basis (based on the amount
of each remaining scheduled amortization payment).
Notwithstanding the foregoing, the Borrower will
have the right to ask either the Lenders under the
Tranche A Term Loan Facility or the Lenders under
the Tranche B Term Loan Facility (but not both) to
forgo any mandatory prepayment applicable to that
tranche, and with respect to any Lender under such
tranche that has agreed to forgo such mandatory
prepayment, such Lender's portion of such mandatory
prepayment instead will be applied to the other
tranche of Term Loans.
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EXHIBIT A
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Documentation: The Agents' commitments will be subject to the
negotiation, execution and delivery of definitive
financing agreements (and related security
documentation, guaranties, etc.) consistent with
the terms of this letter, in each case prepared by
counsel to the Agents. All documentation shall be
governed by New York law.
Conditions Precedent: In addition to conditions precedent typical for
these types of facilities that are mutually
acceptable to the Borrower and the Agents, the
following conditions shall apply:
A. To the Initial Loans
(i) The structure and all terms of, and the
documentation for, the Transaction (and each
component thereof) shall be reasonably satisfactory
to the Agents and the Required Lenders it being
understood that (x) the form of the Merger
Agreement (including the exhibits thereto), and the
structure of the Acquisition, in each case as in
effect on the date hereof are satisfactory, (y) the
pricing, maturity and general structure of the
bridge Senior Subordinated Notes as in effect on
the date hereof are satisfactory and (z) the
general terms of the $100,000,000 private common
equity investment in the Borrower by General
Electric Investment (the "Private Equity
Investment") as in effect on the date hereof is
satisfactory; provided that, notwithstanding the
foregoing clauses (y) and (z), (A) the definitive
documentation for the bridge Senior Subordinated
Notes (including, but not limited to, the specific
terms and provisions of the covenants,
representations and warranties, events of default,
remedies, redemption provisions, subordination
provisions and guaranty terms) are still required
to be in form and substance reasonably satisfactory
to the Agents and the Required Lenders and (B) the
definitive documentation evidencing the Private
Equity Investment is still required to be
reasonably satisfactory to the Agents and the
Required Lenders. All conditions precedent to the
consummation of the Transaction (and each component
thereof) as set forth in the documentation relating
thereto shall have been satisfied in all material
respects, and not waived except with the reasonable
consent of the Agents and the Required Lenders, to
the reasonable satisfaction of the Agents and the
Required Lenders. The Agents shall have received
copies of the "comfort" letters referred to in
Sections 6.2(f) and 6.3(e) of the Merger Agreement.
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EXHIBIT A
Page 10
(ii) The Borrower shall have received $250,000,000 of
gross cash proceeds from the Equity Offering and/or
the issuance of the Senior Subordinated Notes,
provided that not more than $150,000,000 of such
proceeds may be received from the Senior
Subordinated Notes. The structure and all terms
and conditions of, and the documentation for, the
Equity Offering and the Senior Subordinated Notes
(including, without limitation, in the case of the
Senior Subordinated Notes, the subordination
provisions, covenants, events of defaults,
remedies, interest rate, maturities, sinking fund
and redemption provision, limitations on cash
interest payable and all other terms) shall be
reasonably satisfactory to the Agents. The Agents
shall have received evidence satisfactory to them
that the Borrower and/or Red Lion have cash on
hand, when added to the aggregate amount of the
Term Loan Facilities, up to $15,000,000 of the
Revolving Credit Facility and the amount received
from the Equity Offering and/or the issuance of the
Senior Subordinated Notes, that is sufficient to
consummate the Acquisition and the Refinancing and
to pay the fees and expenses incurred in connection
with the Transaction.
(iii) The Borrower shall have issued shares of its common
stock having an implied value of $283,000,000 (with
such implied value subject to adjustment based on
the closing pricing of the shares of stock of the
Borrower as provided in the merger agreement for
the Acquisition) as part of the Equity Rollover.
(iv) After giving effect to the transactions
contemplated in clause (ii) above, the Borrower
shall have used the aggregate amount of proceeds so
received to make payments owing in connection with
the Transaction before utilizing any proceeds of
Loans pursuant to the Senior Bank Financing for
such purpose.
(v) All necessary governmental approvals (other than
approvals required to effect the transfer of liquor
licenses), all necessary shareholder and board of
director approvals and the approval of the lenders
to Red Lion Inns Operating L.P. (or (x) the written
acknowledgement by such lenders that such approval
is not necessary or (y) 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 Senior Bank Financing and otherwise referred
to herein shall have
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been obtained and remain in effect, and all
applicable waiting periods 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 Senior Bank
Financing and otherwise referred to herein. The
Borrower shall have informed the Agents as to
whether (x) the Borrower intends to refinance, as
part of the Refinancing, the loans outstanding to
either or both of Red Lion's joint ventures for its
Glendale hotel (the "Glendale Joint Venture Debt")
and/or its Santa Barbara hotel (the "Santa Barbara
Joint Venture Debt", and together with the Glendale
Joint Venture Debt, the "Specified Joint Venture
Debt") aggregating $85,000,000 and/or (y) the
Borrower intends to keep outstanding either or both
of the Glendale Joint Venture Debt and/or the Santa
Barbara Joint Venture Debt. To the extent that the
Borrower intends to refinance, as part of the
Refinancing, either or both of the issues of
Specified Joint Venture Debt with Term Loans, such
debt shall be required to be refinanced within
three months after the Closing Date. To the extent
that either or both of the issues of Specified
Joint Venture Debt are to remain outstanding, the
Term Loan Facilities would be reduced by the
principal amount of the issue or issues of
Specified Joint Venture Debt to remain so
outstanding.
(vi) Nothing shall have occurred (and (x) neither the
Agents nor the Lenders 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) is inaccurate,
incomplete or misleading) which (in any such case)
could reasonably be expected to have a Material
Adverse Effect. As used herein, the term Material
Adverse Effect shall mean a material adverse effect
(i) on the Transaction or (ii) on the business,
property, assets, operations, liabilities or
financial condition of the Borrower, Red Lion and
their respective subsidiaries taken as a whole.
(vii) No material litigation by any entity (private or
governmental) shall be pending or threatened with
respect to the Transaction or the Senior Bank
Financing or any documentation executed in
connection therewith.
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(viii) The Lenders shall have received legal opinions from
counsel, and covering matters, reasonably
acceptable to the Agents and the Required Lenders.
(ix) There shall have been no material changes to the
corporate and capital structure (and all agreements
related thereto) of the Borrower and its
subsidiaries, or to any organizational documents of
such entities.
(x) All Loans and other financing to the Borrower shall
be in full compliance with all applicable
requirements of the margin regulations.
(xi) All costs, fees, expenses (including, without
limitation, legal fees and expenses) and other
compensation contemplated hereby payable to the
Lenders or the Agents shall have been paid to the
extent due.
(xii) The Lenders shall have received (x) insurance
certificates naming the collateral agent for the
Lenders as an additional insured and/or loss payee
and stating that such insurance will not be
terminated without at least 30 days' prior notice to
such collateral agent (or such shorter period of
time as a particular insurance company generally
provides) and (y) a solvency certificate from the
chief financial officer of the Borrower with
respect to the solvency of the Borrower and its
subsidiaries (on a consolidated basis) acceptable
to the Agents and the Required Lenders.
(xiii) The Lenders shall have a perfected first priority
security interest in the assets of the Borrower and
the Guarantors as required above. The Guarantors
shall have executed their guaranty in respect of
the Senior Bank Financing.
(xiv) The Borrower and its subsidiaries shall have no
other indebtedness except such indebtedness which
shall be acceptable to the Agents and the Required
Lenders and permitted under the Senior Bank
Financing.
(xv) There not having occurred and be continuing a
material disruption of or material adverse change
in financial, banking or capital markets that would
have a material adverse effect on the successful
syndication of the Senior Bank Financing as
determined
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EXHIBIT A
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by the Agents in their reasonable discretion. The
Borrower and Red Lion shall have fully cooperated
in the syndication efforts, including, without
limitation, by promptly providing the Agents with
all information deemed necessary by them to
successfully complete the syndication.
B. Conditions to All Loans
Absence of material adverse change, absence of
material litigation, absence of default or
unmatured default under the Senior Bank Financing,
continued accuracy of representations and
warranties and receipt of such documentation as
shall be required by the Agents.
Representations
and Warranties: The Senior Bank Financing and related documentation
shall contain representations and warranties
typical for these types of facilities, as well as
any additional ones appropriate in the context of
the proposed transaction.
Covenants: Those typical for these types of facilities and any
additional covenants appropriate in the context of
the proposed transaction. Although the covenants
have not yet been specifically determined, we
anticipate that the covenants shall in any event
include:
(i) Restrictions on other indebtedness.
(ii) Restrictions on mergers, acquisitions, joint
ventures, investments, partnerships and
acquisitions and dispositions of assets; provided
that, commencing on January 1, 1998, there shall be
a $20,000,000 aggregate investment, partnership,
joint venture, acquisition and additional capital
expenditure basket (although no more than
$10,000,000 may be spent in any year).
(iii) Restrictions on dividends and amendments of
organizational, corporate and other documents.
(iv) Restrictions on voluntary prepayments of other
indebtedness and amendments thereto.
(v) Restrictions on transactions with affiliates
and formation of subsidiaries.
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(vi) Restrictions on sale-leaseback transactions,
provided that sale-leaseback transactions shall be
permitted so long as such transactions (w) are for
at least 75% in cash, (x) are at fair market value,
(y) all net proceeds therefrom are applied as a
mandatory prepayment of Term Loans and (z) no
default or event of default then exists or would
result therefrom under the Senior Bank Financing.
(vii) Maintenance of existence and properties.
(viii) No liens, with exceptions to be negotiated.
(ix) Financial covenants consisting of minimum fixed
charge coverage, minimum interest coverage, maximum
total debt to EBITDA, maximum total senior debt to
EBITDA (which covenant shall only be included while
any Senior Subordinated Notes are outstanding) and
maximum total debt to capitalization. The
financial covenants will reflect the Borrower's
intention to deleverage over time.
(x) Adequate insurance coverage.
(xi) ERISA covenants.
(xii) The obtaining of interest rate protection in
amounts and for periods to be determined.
(xiii) Limitations on capital expenditures.
(xiv) Financial reporting.
(xv) Compliance with laws.
Events of Default: Those typical for these types of facilities and any
additional ones appropriate in the context of the
proposed transaction, including, without limitation,
a change of control of the Borrower.
Assignments and
Participations: The Borrower may not assign its rights or
obligations under the Senior Bank Financing without
the prior written consent of the Lenders. Any
Lender may assign, and may sell participations in,
its rights and obligations under the Senior Bank
Financing, subject (x) in the case of
participations, to customary restrictions on the
voting rights of the participants and (y) in the
case of
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EXHIBIT A
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assignments, to such limitations as may be
established by the Agents (including a minimum
assignment amount of $5,000,000 and the receipt of
the consent of the Agents). The Senior Bank
Financing shall provide for a mechanism which will
allow for each assignee to become a direct
signatory to the Senior Bank Financing and will
relieve the assigning Lender of its obligations
with respect to the assigned portion of its
commitment.
Required Lenders: Lenders holding a majority of the loans and
commitments under the Credit Facilities.