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EXHIBIT 10.38
SUBORDINATED PROMISSORY NOTE
$12,457,109.04 November 11, 1996
FOR VALUE RECEIVED, Candlewood Hotel Company, Inc., a Delaware
corporation ("Candlewood Inc"), having its principal place of business at
Lakepoint Office Park, 9342 East Central, Wichita, Kansas 67206, hereby promises
to pay Doubletree Corporation, a Delaware corporation ("Doubletree"), a
principal sum of Twelve Million Four Hundred and Fifty Seven Thousand One
Hundred Nine Dollars and Four Cents ($12,457,109.04), which is equal to the sum
of (i) the amount of capital in excess of $200,100 previously contributed by
Doubletree to Candlewood Hotel Company, L.L.C. ("Candlewood LLC") under the
Limited Liability Company Agreement of Candlewood Hotel Company, L.L.C. and (ii)
the preferred return on such amount as of the date of this Note. Each portion of
the principal amount hereunder (a "Contributed Amount") will bear interest at
varying rates depending on the date upon which Doubletree contributed such
Contributed Amount to Candlewood LLC (the "Contribution Date"). Each Contributed
Amount will bear simple interest at rates of seven percent per annum for the
first 12 months following the Contribution Date for that Contributed Amount, 10%
per annum for the second 12 months following that Contribution Date and 15% per
annum thereafter. The Contribution Date and amount of each Contributed Amount
are set forth on Schedule A hereto. The interest on the entire principal amount
shall be payable quarterly on the last business day of each March, June,
September and December, commencing on December 31, 1996. Each payment by
Candlewood, Inc. under this Note shall first be applied to reduce the accrued
but unpaid interest on the entire principal amount and then the principal amount
of the Contributed Amounts in the inverse or order in which the Contributed
Amounts were contributed to Candlewood, Inc. The entire principal amount shall
become due on the fifth anniversary hereof.
This Note may be prepaid at the option of Candlewood Inc in
whole at any time or in part from time to time without penalty or premium. Each
such repayment shall be applied to accrued but unpaid interest and then to the
principal on the Contributed Amounts in the inverse order in which they were
contributed to Candlewood LLC.
This Note is issued pursuant to a credit facility agreement
(the "Agreement") between the parties.
If an Event of Default (as hereinafter defined) shall occur,
then, at the option of the holder hereof, and subject to the subordination
provisions below, this Note shall become immediately due and payable.
An "Event of Default" shall be deemed to have occurred
hereunder if (a) Candlewood Inc shall fail to make any payment under this Note
in full within five (5) days of the date upon which it is due; (b) any
proceedings shall be commenced by or against Candlewood Inc, as debtor, under
any bankruptcy, reorganization, insolvency, readjustment of debt, arrangement,
receivership or liquidation law or statute of the federal or any state
government, and, with respect to any such proceeding commenced against
Candlewood Inc, such proceeding is not dismissed within 60 days or an order for
relief is granted in such proceeding; or (c) Candlewood Inc is
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deemed to be in default in the payment of principal or interest under any
instrument evidencing the Senior Indebtedness (as defined below) as a result of
which holders of such Senior Indebtedness shall be entitled to accelerate its
maturity. If an Event of Default occurs and is continuing, the interest rate
upon this Note shall be increased to the lesser of (i) the then prevailing rate
plus 4% or (ii) the maximum rate permitted by law, running from the time payment
should have been made to the time that the Event of Default is cured or the Note
is paid in full.
The indebtedness represented by this Note (including the
interest thereon) shall be subordinate and junior in right of payment, to the
extent set forth herein, to all indebtedness of Candlewood Inc for money
borrowed from banks or other institutional lenders for the development of hotels
and any bank line of credit, including in either case any refinancings or
consolidations thereof (collectively "Senior Indebtedness"). Until all Senior
Indebtedness has been paid in full, no payment shall be due or made hereunder if
at the time of such payment (i) a default in the payment of principal or
interest on Senior Indebtedness occurs and is continuing or would occur as a
result of such payment, that in either case permits the holders of such Senior
Indebtedness to accelerate its maturity or the maturity of which has been
accelerated; or (ii) (x) Candlewood Inc receives a written notice of a default,
other than a payment default, under any Senior Indebtedness permitting an
acceleration thereof, (y) such default is continuing and has not been cured or
waived, and (z) one hundred and eighty days have not passed since the date of
receipt of such notice, but payments may and shall thereafter be resumed if the
maturity of such Senior Indebtedness has not been or does not remain
accelerated. Candlewood Inc may and shall resume payments on this Note when the
default is cured or waived or payment is otherwise permitted under clause (ii)
above; provided that such payments will again be subject to the limitations set
forth under clauses (i) and (ii) above if a subsequent default under the same
provisions of the instrument governing Senior Indebtedness occurs after a
similar default has been cured or waived, except that (I) in no event shall the
same set of facts give rise to more than a single one hundred and eighty (180)
day period under clause (ii) above and (II) no default existing on the date any
such notice is given may be used as the basis for any subsequent notice. If any
payment or distribution shall be received by any holder of this Note in
contravention of any of the terms hereof and before all Senior Indebtedness
shall be paid in full, such payment or distribution shall be held in trust for
the benefit of, and, if such Senior Indebtedness has been accelerated, shall be
paid over or delivered to, the holders of the Senior Indebtedness at the time
outstanding for application of the payment of all Senior Indebtedness remaining
unpaid, in accordance with the priorities of payment thereof, to the extent
necessary to pay all Senior Indebtedness in full. No act or failure to act on
the part of Candlewood Inc, and no default under or breach of any agreement of
Candlewood Inc, whether or not herein set forth, shall in any way prevent or
limit the holder of any Senior Indebtedness from enforcing fully the
subordination herein provided for, irrespective of any knowledge or notice which
such holder hereof may at any time have. So long as any Senior Indebtedness
shall be outstanding, Candlewood Inc shall not, without the prior written
consent of all holders thereof, alter or amend any of the terms of this Note in
any manner which might adversely affect the holders of Senior Indebtedness.
Nothing in this paragraph shall impair or qualify, as between Candlewood Inc and
the holder hereof, (i) the obligation of Candlewood Inc which is absolute and
unconditional to pay the holder hereof the principal of and interest on this
Note when and as due and set forth elsewhere herein, or (ii) the rights of the
holder hereof upon an Event of Default.
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Upon any distribution to creditors of Candlewood Inc in a
liquidation or dissolution of Candlewood Inc or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to Candlewood Inc or its
property: (i) holders of Senior Indebtedness shall be entitled to receive
payment in full in cash of the principal of and interest (including interest
accruing after the commencement of any such proceeding) to the date of payment
on the Senior Indebtedness before any payment of principal of or interest shall
be made hereunder and until the Senior Indebtedness is paid in full in cash, any
distribution which would have been made but for this provision shall be made to
holders of Senior Indebtedness as their interests may appear, except that the
holder of this Note may receive securities that are subordinated to Senior
Indebtedness to or at least the same extent as this Note.
Subject to the payment in full of all Senior Indebtedness, the
holder of this Note shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions applicable to the Senior
Indebtedness to the extent that payments or distributions otherwise payable on
this Note have been applied to the payment of Senior Indebtedness. For the
purposes of such subrogation, no payment or distribution to the holders of
Senior Indebtedness under the provisions hereof, to which the holder of this
Note would be entitled other than for the subordination provisions hereof, and
no payment pursuant to the provisions hereof to the holders of Senior
Indebtedness by the holder of this Note shall, as between Candlewood Inc and its
creditors (other than the holders of Senior Indebtedness and the holder of this
Note), be deemed to be a payment by Candlewood Inc on account of such Senior
Indebtedness, it being understood that the subordination provisions of this Note
are solely for the purpose of defining the relative rights of the holder of this
Note, on the one hand, and the holders of Senior Indebtedness, on the other
hand.
Candlewood Inc hereby waives all rights to offset against its
obligations hereunder with respect to claims which it may now or hereafter have
against the payee or subsequent holder hereof, except for claims arising under
the Agreement or any agreement or instruments entered into pursuant thereto.
Candlewood Inc and all guarantors and endorsers hereof, and their successors and
assigns, hereby waive presentment, demand, protest and notice thereof or of
dishonor.
If any action should be commenced to collect this Note or any
portion thereof, the prevailing party shall be entitled to recover its costs and
expenses, including, without limitation, reasonable attorneys' fees and
disbursements incurred in connection with such action, including any appeal of
such action.
In the event that any term, covenant, condition, provision or
agreement herein contained is held to be invalid, void or otherwise
unenforceable by any court of competent jurisdiction, the fact that such term,
covenant, condition, provision or agreement is invalid, void or otherwise
unenforceable shall in no way affect the validity or enforceability of any other
term, covenant, condition, provision or agreement herein contained.
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This Note shall be governed by and construed in accordance
with the internal laws of the State of California without regard to principles
of conflict of laws, and may not be amended, modified or canceled orally.
Candlewood Hotel Company, Inc.
By: /s/ Warren D. Fix
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Warren D. Fix
Executive Vice President,
Chief Financial Officer and
Secretary
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