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Exhibit 10.32
MANAGEMENT AGREEMENT
DATED APRIL 6, 1987
BETWEEN
RED LION INNS OPERATING L.P.,
a Delaware limited partnership
AND
RL ACQUISITION COMPANY,
a California limited partnership
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MANAGEMENT AGREEMENT
DATED APRIL 6, 1987
BETWEEN
RED LION INNS OPERATING L.P.,
a Delaware limited partnership
AND
RL ACQUISITION COMPANY,
a California limited partnership
TABLE OF CONTENTS
SECTION
PAGE
RECITALS................................................................... 1
DEFINITIONS................................................................ 1
ARTICLE I - REPRESENTATIONS AND WARRANTIES........................... 5
1.1 Representations and Warranties of Manager............. 5
1.2 Representations and Warranties of Owner............... 6
ARTICLE II - GENERAL MANAGEMENT AND OPERATION......................... 6
2.1 General Management Services........................... 6
2.2 Operating Plan and Budget............................. 7
2.3 Maintenance, Repairs and Capital Improvements......... 8
2.4 Books and Records, Financial Statements and
Internal Audits....................................... 10
2.5 Personnel............................................. 11
2.6 Special Projects...................................... 12
2.7 Communications........................................ 12
2.8 Sales and Reservations................................ 14
2.9 Manager's Computer Software........................... 14
2.10 Manager's Charge Card................................. 15
2.11 Hotel Retail Space.................................... 15
2.12 Affiliated Companies.................................. 16
2.13 Costs and Expenses.................................... 16
ARTICLE III - MANAGEMENT FEES AND REIMBURSABLE EXPENSES................ 17
3.1 Definitions of Gross Revenue, Gross Operating Profit,
Adjusted Gross Operating Profit and Cash Flow
Available for Incentive Fee........................... 17
3.2 Management Fees....................................... 21
3.3 Place of Payment...................................... 22
(i)
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SECTION PAGE
3.4 Owner's Obligation to Provide Funds
to Pay Fees and Expenses; Financing
Program............................. 22
3.5 Hotel Bank Accounts................. 22
3.6 Withdrawals from Hotel Bank
Accounts............................ 23
3.7 Remittances to Owner................ 23
ARTICLE IV -- TERM AND TERMINATION.................... 23
4.1 Term of Agreement................... 23
4.2 Events of Termination............... 23
4.3 Replacement of Red Lion Properties,
Inc., as General Partner............ 25
4.4 Actions to be Taken on Termination.. 25
ARTICLE V -- INSURANCE............................... 26
5.1 Insurance by Manger................. 26
5.2 Parties Insured, Amount of
Coverage, Etc. ..................... 27
5.3 Evidence of Insurance, Etc. ........ 28
5.4 Reports by Manager.................. 28
5.5 Review of Limits.................... 29
5.6 Limitation on Scope of Services..... 29
ARTICLE VI -- SUBORDINATION; MORTGAGES................ 29
6.1 Authorization to Mortgage Hotels.... 29
6.2 Subordination....................... 30
6.3 Rights of Mortgages................. 30
6.4 Estoppel Certificates............... 31
ARTICLE VII -- DESTRUCTION............................. 32
7.1 Owner to Restore After Insured
Casualty............................ 32
7.2 Termination After Substantial
Insured Casualty.................... 32
7.3 Uninsured Casualty - Owner's Option
to Terminate or Restore............. 33
7.4 Commencement and Completion of
Casualty Restoration................ 33
7.5 Proceeds of Business Interruption
Insurance........................... 33
ARTICLE VIII -- CONDEMNATION............................ 34
8.1 Permanent Taking.................... 34
8.2 Taking for Temporary Use............ 34
(ii)
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SECTION PAGE
ARTICLE IX -- ASSIGNMENTS, ETC. ...................... 36
9.1 By Manager.......................... 36
9.2 By Owner............................ 37
9.3 Sale of Hotels...................... 37
ARTICLE X -- MISCELLANEOUS........................... 39
10.1 Complimentary/Discount Policies..... 39
10.2 Manager Identification, Names of
Hotels.............................. 39
10.3 Compliance with Law................. 40
10.4 Governing Law....................... 40
10.5 No Waiver of Breach................. 40
10.6 Notices............................. 40
10.7 Successors and Assigns.............. 41
10.8 Indemnification..................... 41
10.9 Limitation on Pledging Owner's
Credit.............................. 41
10.10 Entire Agreement.................... 42
10.11 Counterparts........................ 42
10.12 Captions, Etc. ..................... 42
10.13 No Partnership or Joint Venture..... 42
10.14 Amendment........................... 42
10.15 Limited Recourse.................... 42
10.16 Memorandum of Agreement............. 42
(iii)
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MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is entered into this 6th day of
April, 1987, by and between RED LION INNS OPERATING L.P., a Delaware limited
partnership ("Owner"), and RL ACQUISITION COMPANY, a California limited
partnership ("Manager") (hereinafter sometimes individually referred to as the
"Party" and collectively referred to as the "Parties").
RECITALS
A. Owner plans to acquire from Manager all of Manager's interest in
the hotels described in Exhibit A, attached hereto and incorporated herein by
this reference (the "Hotels").
B. Owner desires to have Manager manage and operate the Hotels and
Manager is willing to perform such services on the terms and conditions set
forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the Parties agree as
follows:
DEFINITIONS
When used in this Agreement, the following terms shall have the
following meanings:
Acquisition Date shall have the meaning set forth in Section 4.1.
Adjusted Gross Operating Profit shall have the meaning set forth in
Section 3.1(d).
Applicable Operating Year shall have the meaning set forth in Section
2.2(a).
Approved Mortgage shall mean the Mortgage and any other lien or
encumbrance approved by Manager pursuant to Section 6.1.
Approved Mortgagee shall mean the lender making the loan secured by any
Approved Mortgage.
Base Fee shall mean the fee calculated as provided in Section 3.2(a).
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Capital Improvement shall mean those items (other than routine repairs
and maintenance) constructed or installed as part of a Hotel (including
Furniture, Fixtures and Equipment) the cost of which for accounting purposes
may not be expensed but must be capitalized according to generally accepted
accounting principles in effect as of the date hereof. All Capital Improvements
shall be owned by Owner.
Capital Improvement Plan shall mean the budget for Capital Improvements
(plus additions and replacements of Furniture, Furnishings and Equipment) for a
Hotel as provided in Section 2.3(c).
Cash Flow Available for Debt Service shall have the meaning set forth
in Section 3.1(e).
Cash flow Available for Incentive Fee shall have the meaning set forth
in Section 3.1(f).
Casualty Restoration shall have the meaning set forth in Section 7.1.
Closing Costs shall mean the total cost to Owner, including all closing
costs, of: (i) purchasing the Hotels, (ii) obtaining and consummating the loan
secured by the Mortgage, and (iii) entering into this Agreement.
Current Priority Amount during any month shall mean an amount equal to
the sum of (i) the actual interest plus amortization of principal (excluding
"balloon" payments, if any) due and payable by the Owner during such month on
(A) the loan secured by the Mortgage or (B) after the repayment of the loan
secured by the Mortgage, the scheduled monthly debt service on the loan secured
by the Mortgage during the last year of the original term thereof, (ii) interest
payable on the Working Capital Line, (iii) an amount equal to $27,083.33 for
Owner's administrative expenses for such month for the first thirty-six full
months of the term hereof and thereafter Owner's actual administrative expenses
for such month incurred for accounting and legal services and other similar
expenses, not to exceed three-eighths percent (0.375%) of Gross Revenues per
annum if a Manager Affiliate is not the general partner of Owner, and (iv) the
Priority Return.
If Manager's right to manage a Hotel pursuant to this Agreement is
terminated by reason of a Disposition of one or more Hotels (the "Excluded
Hotels"), the amounts described in clauses (i) and (iv) above shall each be
reduced by the product of (x) such amounts existing immediately before such
Disposition and (y) a fraction, the numerator of which is the Adjusted Gross
Operating Profit for the immediately preceding
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three calendar years (or such lesser period for which results of operation of
the Hotels hereunder are available) for the Excluded Hotels and the denominator
of which is the Adjusted Gross Operating Profit of all of the Hotels managed
under this Agreement immediately before such Disposition for such period.
DISPOSITION shall mean a Taking of a Hotel, an election by Owner not to
restore a Hotel following a casualty, a sale of a Hotel or any other event
which results in a Hotel no longer being managed by Manager pursuant to this
Agreement.
FURNITURE, FIXTURE and EQUIPMENT shall mean the furniture, furnishings,
fixtures and equipment installed and used in a Hotel, including without
limitation all necessary furniture and furnishings for guest rooms, public
areas and non-public areas (such as kitchen, laundry and cleaning facilities,
rooms for the use of employees, storage areas, front desk and administrative
offices), floor and window coverings, decorative light fixtures and equipment,
but excluding, however, a Hotel's major mechanical and electrical equipment and
systems (for example, the elevators). All Furniture, Fixtures and Equipment
shall be owned by Owner.
GROSS OPERATING PROFIT shall have the meaning set forth in Section
3.1(c).
GROSS REVENUE shall have the meaning set forth in Section 3.1(a).
HOTEL shall have the meaning set forth in Recital A.
HOTEL PERSONNEL shall have the meaning set forth in Section 2.5(a).
HOTEL RETAIL SPACE shall mean any space in the Hotels other than rooms
and associated space, convention facilities, restaurants and food and beverage
service facilities.
INCENTIVE FEE shall mean the fee calculated as provided in Section
3.2(b).
INVENTORIES shall mean the inventories of food, beverage and other
goods for operation of a Hotel, as defined in the Uniform System. All
Inventories shall be owned by Owner.
MANAGER AFFILIATES shall mean any corporation, partnership, joint
venture or other entity in which manager and any Manager Affiliates have a
majority ownership interest.
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MORTGAGE shall mean the mortgage, deed of trust, security agreement or
other encumbrance placed by Owner on the Hotels in connection with Owner's
acquisition of the Hotels.
MORTGAGEE shall mean the holder of the secured obligations under the
Mortgage.
NOTICE OF DEFAULT shall have the meaning set forth in Section 4.2(a).
NOTICE OF TERMINATION shall mean the notice described in Section 4.2 or
any other notice provided herein whereby a Party may terminate this Agreement.
OPERATING PLAN AND BUDGET shall mean a budget prepared under Section
2.2.
OPERATING PROFIT TARGET shall be as set forth on Schedule I attached
hereto and incorporated herein by this reference. Upon the Disposition of a
Hotel or Hotels, the Operating Profit Target shall be adjusted as follows: the
Operating Profit Target existing immediately before such Disposition of a Hotel
or Hotels shall be reduced by an amount equal to the product of (x) the
Operating Profit Target existing immediately before such Disposition and (y) a
fraction, the numerator of which is the Adjusted Gross Operating Profit for the
immediately preceding three calendar years (or such lesser period for which
results of operation of the Hotels hereunder are available) for the Hotel or
Hotels subject to the Disposition and the denominator of which is the Adjusted
Gross Operating Profit of the Hotels managed under this Agreement immediately
before such sale for such period.
OPERATING SUPPLIES shall mean all consumable or expendable items for
operation of a Hotel, including without limitation, supplies for laundry,
housekeeping, food and beverage service, engineering and accounting uses,
together with paper supplies and miscellaneous general supply items, as
defined in the Uniform System. All Operating Supplies shall be owned by Owner.
OPERATING YEAR shall mean each calendar year or portion thereof during
the term of this Agreement.
PARTIES shall mean, collectively, Owner and Manager.
PARTY shall mean, individually, Owner or Manager.
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Priority Return shall mean one-twelfth of the product of (A) the number
of Units issued on or about the Acquisition Date multiplied by (B) the
following amounts divided by .9801:
12 Month Period After
Effective Date Hereof Amount
-------------------- ------
1st full through 12th $2.00
13th through 24th 2.05
25th through 36th 2.10
37th through 48th 2.15
49th and thereafter 2.20
Red Lion Hotels shall mean the hotels managed by Manager or a Manager
Affiliate.
Taking shall mean a taking of either a fee or an easement as a result
of condemnation or eminent domain, or a conveyance by Owner in lieu thereof, of
or upon all or part of a Hotel.
Uniform System shall mean the "Uniform System of Accounts" as adopted
by the American Hotel and Motel Association, with such exceptions as may be
required by the provisions of this Agreement (including, without limitation,
the definitions of Gross Revenue, Gross Operating Profit, Adjusted Gross
Operating Profit, and Operating Expenses).
Units shall mean the ownership interests held by limited partners in
Red Lion Inns, L. P., a Delaware limited partnership, the sole limited partner
in Owner.
Working Capital shall mean capital requirements for operating expenses
of the Hotels for the day-to-day requirements of the Hotels as contemplated in
this Agreement. All Working Capital shall be owned by Owner.
Working Capital Line shall mean a bank line of credit obtained by Owner
for the purpose of enabling Owner to meet any funding requirements imposed on
it pursuant to this Agreement.
ARTICLE I
REPRESENTATIONS AND WARRANTIES
1.1 Representations and Warranties of Manager. Manager represents
and warrants to Owner as follows:
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a. Manager is a limited partnership duly organized and
validly existing under the laws of the State of California.
b. Manager has full power, authority and legal right to
perform and observe the provisions of this Agreement.
c. This Agreement constitutes a valid and binding
obligation of Manager enforceable in accordance with its terms, and does
not constitute a breach of or default under any other agreement to which
Manager is a party or by which any of its assets are bound or affected.
1.2 Representations and Warranties of Owner. Owner represents and
warrants to Manager as follows:
a. Owner is a partnership duly organized and validly
existing under the laws of the State of Delaware.
b. Owner has full power, authority and legal right to
perform and observe the provisions of this Agreement.
c. This Agreement constitutes a valid and binding
obligation of Owner enforceable in accordance with its terms, and does
not constitute a breach of or default under any other agreement to
which Owner is a party or by which any of its assets are bound or
affected.
ARTICLE II
GENERAL MANAGEMENT AND OPERATION
2.1 General Management Services. Subject to the provisions of this
Agreement, from and after the commencement of the term of this Agreement as
provided for in Section 4.1, Manager shall, on behalf of Owner, manage the
Hotels in a faithful and efficient manner, consistent with the standards
prevailing in and with the same degree of care as other Red Lion Hotels. In
furtherance thereof, Manager shall:
a. provided Owner has supplied Manager with complete copies
and all amendments of any Approved Mortgage and any ground leases
existing as of the date hereof, do everything reasonably within its
power to manage the Hotels in all material respects in accordance with
the terms and conditions of any Approved Mortgage, any such ground
leases and any material contracts entered into on behalf of Owner after
the date hereof,
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if, as a result thereof, Manager is not required to assume responsibilities in
addition to or different than those provided for herein;
b. subject to the terms of this Agreement, implement Manager's
standard administrative, accounting, budgeting, computer systems, marketing,
personnel and operational policies and practices relating to or affecting the
operation of Red Lion Hotels.
c. at Owner's cost and expense:
(i) arrange for the Hotels to be furnished with water, electricity,
gas, power, telephone, vermin extermination, trash removal, equipment
maintenance, security and such other services as are necessary for the
proper operation and maintenance of the Hotels as contemplated by this
Agreement; provided, however, that without Owner's approval, which
approval shall not be unreasonably withheld, Manager shall not cause any
Hotel to enter into any agreement for any such services which is not
incurred in the ordinary course of operating the Hotel;
(ii) to the extent that it is within Manager's power to do so,
obtain and keep in full force and effect all permits, licenses
(including, without limitation, liquor licenses, restaurant licenses and
business licenses) and authorizations required in connection with the
conduct of the business of each Hotel; and
(iii) make purchases of all Furniture, Fixtures and Equipment, all
Operating Supplies and Inventories and such services and other
merchandise as are necessary for the proper operation and maintenance of
each of the Hotels as contemplated by this Agreement.
d. review the operation and maintenance of the Hotels from time to
time in accordance with Manager's established management practices and policies.
2.2 Operating Plan and Budget. In accordance with Manager's standard
planning and budgeting processes Manager shall, on or about thirty (30) days
before the end of each Operating Year, prepare and deliver to Owner an
operating plan and budget for the next ensuing Operating Year ("Operating Plan
and Budget") setting forth in reasonable detail an estimate of the revenue and
expenses of each of the Hotels for the next ensuing Operating Year ("Applicable
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Operating Year"). In the preparation of each Operating Plan and Budget, Manager
shall take into account the operations and outlook for the advance bookings,
the competition, anticipated changes in the Hotel's expenses (including,
without limitation, pending union negotiations, anticipated increases in
property taxes, utility costs and insurance premiums) and anticipated changes
in general economic conditions. It is understood, however, that the Operating
Plan and Budget is an estimate only and that the actual results of operations
for any given Operating year will be determined by the actual sales, revenues,
costs and expenses of the Hotels during such Operating Year.
2.3 Maintenance, Repairs and Capital Improvements.
a. The Hotels shall be managed as a member of the Red Lion Hotels.
The Hotels (including but not limited to the Hotel buildings, adjacent grounds,
Furniture, Fixtures and Equipment, Operating Supplies and Inventories) will be
maintained, repaired and improved in order to continue operation of the Hotels
at a standard which will permit the Hotels to serve effectively as a member of
the Red Lion Hotels and not be a detriment thereto by reason of any deficient
condition thereof. In furtherance thereof, Manager shall, at Owner's cost and
expense, cause the Hotels (including but not limited to the Hotels buildings,
adjacent grounds, Furniture, Fixtures and Equipment, Operating Supplies and
Inventories) to be maintained in good operating condition and repair, and
shall, subject to the provisions of this Section 2.3, replace all such items of
Furniture, Fixtures and Equipment and Operating Supplies and Inventories as
Manager shall, from time to time, deem advisable, including but not limited to
those which may be deemed to constitute Capital Improvements.
b. Manager shall reserve funds equal to the following percentages of
Gross Revenue each corresponding twelve month period during the term hereof
(the "FFE Reserve") and deposit such funds in an interest bearing account to
pay the cost of additions to and replacements of Furniture, Fixtures and
Equipment:
Twelve Month Period Percentage of Gross Revenue
------------------- ---------------------------
1st full through 12th 1.0%
13th through 24th 2.5%
Thereafter 3.0%
All proceeds from the sale of Furniture, Fixtures and Equipment that are
replaced by Manager shall be added to
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the FFE Reserve and all interest that is earned on funds in the FFE Reserve
shall be added to the FFE Reserve. All funds in the FFE Reserve shall be owned
by Owner. Manager may waive the actual reserving of amounts to be added to the
FFE Reserve on an annual basis. Notwithstanding any such waiver (i) all fees
payable hereunder shall be calculated as if amounts to be added to the FFE
Reserve were in fact reserved and (ii) Manager shall be entitled to budget and
expend, and Owner shall be liable for the payment of, such amounts as if they
had been reserved.
c. Manager shall prepare an annual Capital Improvement Plan for all
Capital Improvements (including additions to and replacements of Furniture,
Fixtures and Equipment) to be made in each of the Hotels during the Applicable
Operating Year which shall be provided to Owner in accordance with the schedule
provided for in Section 2.2. If such Capital Improvement Plan provides for the
expenditure of funds in addition to all amounts in the FFE Reserve and all
amounts to be added to the FFE Reserve on a current basis, such Capital
Improvement Plan shall be subject to Owner's approval or disapproval within
thirty (30) days after delivery of the Capital Improvement Plan to Owner. If
Owner disapproves such Capital Improvement Plan, Manager shall nonetheless
have, and is hereby granted, the right and authority to make any expenditures
set forth of the disapproved Capital Improvement Plan and to pay the cost
thereof from (1) the FFE Reserve and (2) amounts to be added to the FFE Reserve
on a current basis.
d. All Capital Improvements undertaken by Manager shall be subject to
the following:
(i) all permits, licenses and authorizations required to be
procured in connection with any Capital Improvement shall be procured,
or caused to be procured, by Manager as the same are required;
(ii) any Capital Improvement shall be made in a good and
workmanlike manner and in compliance with all applicable laws and
insurance requirements; and
(iii) the cost of any Capital Improvement shall be promptly
paid, or caused to be paid, by Manager from the FFE Reserve or with
Owner supplied funds, if applicable.
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2.4 Books and Records, Financial Statements and Internal Audits.
a. In accordance with Manager's standard procedures as from
time-to-time in effect, Manager shall cause books of account and other
records relating to or reflecting the results of the operation of the
Hotels to be kept on an accrual basis in accordance with the Uniform
System of Accounts for Hotels. Except for the books and records which
may be kept in Manager's home office or other suitable location pursuant
to the adoption of a central billing system or other centralized
service, all such books of account and other records with respect to
each Hotel shall at all times during the term of this Agreement be kept
at each such Hotel and shall, together with any centrally maintained
books and records, be available to Owner, at all reasonable times, for
examination, audit, inspection and copying. Original records of sales
(guest checks, folios, etc.) shall be maintained for a reasonable
period of time consistent with Manager's normal policy or as prescribed
by law.
b. During each Operating Year, Manager shall cause to be
prepared and delivered to Owner on or before the thirtieth (30th) day
of the following month a reasonably detailed monthly operating report
and financial statements for each Hotel and on a consolidated basis,
including a profit and loss and cash flow statement, reflecting the
results of operations by department, together with a supplemental
schedule of revenues and expenses and a balance sheet showing cash
position and results of operations for the preceding calendar month
and cumulative for the Operating Year to date. The consolidated
statements shall include a computation of Gross Revenue, Gross Operating
Profit, Base Fee and Incentive Fee for such month and Operating Year to
date. Such reports and statements shall be prepared on an accrual basis
in accordance with the Uniform System of Accounts for Hotels
consistently applied and shall be in a format similar to the operating
reports and financial statements which are prepared for other Red Lion
Hotels.
c. Assuming all required information in Owner's possession is
made available to Manager on a timely basis, then no later than sixty
(60) days immediately following each Operating Year, Manager shall cause
to be prepared and delivered to Owner, as an operating expense of the
Hotels, reasonably detailed unaudited financial statements for the
preceding Operating Year ("Financial Statements"), which shall consist
of a balance sheet,
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statement of earnings and retained earnings, statement of changes in
financial position, and computation of Gross Revenue, Gross Operating
Profit, the Base Fee and the Incentive Fee for such Operating Year.
d. Manager shall perform internal audits of each Hotel
consistent with Manager's standard audit policy, as an operating
expense of the hotels. Such audit shall be conducted by Manager's
personnel. Manager acknowledges that Owner may also elect to conduct
internal audits of one or more Hotels from time to time at Owner's
expense and Manager shall cooperate with Owner in connection therewith.
e. Manager shall promptly deliver to Owner copies of any
documents relating to lawsuits and claims or notices received from the
holder of the Mortgage, and, to the extent they would appear to have a
material adverse effect on any of the Hotels or their operations,
claims or notices received from any governmental agency or any insurance
carrier.
2.5 Personnel.
a. Manager shall select a general manager and the department
heads for each Hotel, and they, or such person or persons to whom they
may delegate such authority, shall select all personnel which any of
them determine to be necessary for the operation of each Hotel
(collectively "Hotel Personnel").
b. All decisions with regard to the terms of employment,
including but not limited to compensation, bonuses, fringe benefits,
discharge and replacement of all Hotel Personnel, whether made directly
by Manager or through the general manager, department heads or any of
their designees, shall be at the sole discretion of Manager.
c. All Hotel Personnel shall be employed at Owner's cost and
expense, but all such personnel shall be employees of Manager and not
employees of Owner.
d. Manager shall provide all supervisory services of its
corporate non-Hotel Personnel employees necessary to enable Manager
to perform its obligations under this Agreement.
e. Manager shall administer all necessary employee benefit
programs, maintain all necessary records, file all reports, and pay all
taxes with respect to the Hotel Personnel; provided that the direct
costs of
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administration incurred under this Section 2.5(e) shall be operating
expenses of each Hotel and Manager shall be reimbursed for such payment
in accordance with Section 2.13.
2.6 Special Projects. With Owner's approval, Manager may undertake
special projects, including but not limited to work undertaken with
respect to Capital Improvements and any other matters which (i) are
not included within the scope of the general management services as
contemplated in this Article II and (ii) if not provided or caused to
be provided by Manager would involve Owner's engagement of a third
party to perform such services (for example, special sales or marketing
programs, special market reviews, assistance in opening new food and
beverage preparation facilities, and special projects performed by
Manager's legal, taxation, data processing, insurance, and engineering
personnel). Manager agrees that any such services shall be on terms
and conditions no less favorable to Owner than the terms on
which such services are provided by Manager to other Red Lion Hotels.
Owner shall reimburse Manager for the services of personnel assigned to
such special projects at a daily per diem rate equal to 2.5 times the
total costs of employment to Manager for such personnel.
2.7 Communications and Marketing.
a. Manager shall provide the Hotels with such advertising,
public relations and promotional services as are judged by it to be
reasonably necessary and appropriate in order to promote the name and
facilities of the Hotels and to maintain their identity as Red Lion
Hotels. Such services shall include but not be limited to assistance in:
(i) developing and implementing the Hotels'
communications plan following Manager's guidelines which include
planning, publicity and internal communications and organizing
and bugeting the Hotels' advertising and public relations
programs;
(ii) selecting and providing guidance as required for
the public relations personnel;
(iii) preparing and disseminating news releases for
trade and consumer publications;
(iv) selecting an advertising agency; and
(v) maintaining a coporate communications program,
including Manager's corporate identity program and its national
advertising programs,
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coordinating the Hotels' communications program with Manager's
corporate communications program, and including the Hotels in
Manager's corporate identity and national advertising programs, as
appropriate.
b. The following costs and expenses incurred
under Section 2.7(a) shall be operating expenses of the Hotels and shall
be in addition to the charges referred to in Section 2.13:
(i) those incurred in the implementation of the Hotels'
communications plan including, without limitation, the Hotels' pro
rata share of Manager's corporate communications program based on
the ratio of the number of rooms in the Hotels to the total number
of rooms in the Red Lion Hotels. Owner acknowledges that such
basis may change during the term of this Agreement if Manager
determines in its sole but good faith judgment that another basis
of allocation may more fairly distribute the costs of such
services, and Owner agrees to any such change provided it is
applied to all other Red Lion Hotels situated in the United States
and that the changes are not made on a basis which results in a
discriminatory effect on the Hotels;
(ii) those incurred in the production, distribution and
placement of other promotional materials relating to the Hotels,
including but not limited to materials for the promotion of
employee relations, generally paid for by other Red Lion Hotels
when materials of a similar nature are provided to them; and
(iii) those incurred as a result of the attendance of Hotel
Personnel at conventions, meetings, seminars, conferences and
travel congresses. The above listed costs and expenses shall not
include payroll costs and expenses associated with such activities
which shall only be reimbursed to Manager under Section 3.4.
c. Owner acknowledges that the Hotels' communications plan shall
be in accordance with Manager's sales, advertising and public relations
philosophies, and must adhere to Manager's corporate identity
requirements.
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2.8 Sales and Reservations
a. Manager shall secure bookings for the Hotels through the sales
and reservation offices of Manager and its affiliates, and shall
encourage the use of the Hotels by tourists, special groups, travel
congresses, travel agencies, airlines and other recognized sources of
hotel business. Manager shall develop a sales program including personal
visits by the sales staff of Manager and telephone and direct mail
contracts. Manager will represent the Hotels at appropriate conventions
and travel congresses, and will list the Hotels in printings of general
tariff bulletins.
b. Manager shall process reservations for the Hotels through
Manager's reservations system. Any charges payable in connection with
the securing of reservations for the Hotels shall be an operating
expense of the Hotels on the basis of the reservations obtained for the
Hotels. Owner acknowledges that such basis may change during the term of
this Agreement if Manager determines in its sole but good faith judgment
that another basis of allocation may more fairly distribute the costs of
such services, and Owner agrees to any such change provided it is
applied to all other Red Lion Hotels situated in the United States and
that the changes are not made on a basis which results in a
discriminatory effect on the Hotels. Owner agrees to honor all
reservations made by Manager in the ordinary course of business even
though reservations extend or are for a period of time subsequent to the
termination of this Agreement; provided, however, that Owner shall be
entitled to instruct Manager not to make reservations for all or some
portion of the time subsequent to the termination of this Agreement and
Manager shall thereafter adhere to such instruction.
2.9 Manager's Computer Software.
a. Manager has developed confidential computer software programs
("Confidential Software") for use at various hotels managed by Manager.
The Confidential Software is used in three of the Hotels currently and
it is contemplated that this Confidential Software will be installed and
utilized in the balance of the Hotels following the commencement hereof.
Manager shall make additional or newly developed Confidential Software
available to Owner for use at the Hotels using the Confidential Software
for a user fee based on the cost of development of the Confidential
Software programs which cost shall be allocated to the Hotels using the
Confidential Software based on the ratio of the number
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of rooms in the Hotels using the Confidential Software to the total
number of rooms in the Red Lion Hotels using the Confidential Software.
Owner acknowledges that such basis may change during the term of this
Agreement if Manager determines in its sole but good faith judgment that
another basis of allocation may more fairly distribute the costs of such
services, and Owner agrees to any such change provided it is applied to
all other Red Lion Hotels situated in the United States and that the
changes are not made on a basis which results in a discriminatory effect
on the Hotels.
b. Owner acknowledges Manager's proprietary interest in the
Confidential Software and neither Owner nor Owner's employees shall at
any time, directly or indirectly, disclose, disseminate, reproduce,
appropriate or otherwise make a claim of interest concerning such
Confidential Software. Owner shall not be permitted to use said
Confidential Software at any location other than the Hotels and in the
event this Agreement is terminated for any reason whatsoever, this
paragraph shall survive said termination. Following termination of this
Agreement, Owner and its successors in interest may continue to use at
the Hotels all Confidential Software in use at the Hotels immediately
prior thereto for a period not to exceed six (6) months during the
transition to new management.
2.10 MANAGER'S CHARGE CARD. Manager may, from time to time, at its
sole discretion, implement a charge card system for the convenience of guest
and for the promotion of the Red Lion Hotels. At any time when such a charge
card system is in effect, Manager shall make such system available to the
Hotels, and Owner hereby authorizes Manager to accept such charge card and all
other charge or credit cards designated by Manager for all Hotel charges
authorized in accordance with Manager's credit card billing policies, as
amended from time to time. Manager shall retain the right, at any time and from
time to time during the term of this Agreement, to discontinue utilization of
its charge card system.
2.11 HOTEL RETAIL SPACE. Manager shall either operate the Hotel Retail
Space or negotiate and sign on behalf of Owner leases, licenses and concession
agreements covering the Hotel Retail Space, and shall thereafter administer
said leases, licenses and concession agreements on behalf of Owner. Any Hotel
Retail Space may be leased to a Manager Affiliate provided that such lease is
on terms and conditions no less favorable to Owner than those which would
otherwise be available from third parties. Manager shall not lease any space in
the Hotels, other than Hotel Retail space, without Owner's prior written
consent.
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2.12 AFFILIATED COMPANIES. In providing the services required to be
performed by it under this Agreement, Manager may from time to time use the
services of Manager Affiliates; provided, however, that there shall be no
changes in the compensation or reimbursements owing by Owner hereunder and
Manager shall remain fully liable to Owner to fulfill the obligations
hereunder. Subject to the immediately preceding sentence, if rather than
arrange for a third party to provide goods or services for the Hotels, Manager
shall contract with a Manager Affiliate for such goods or services, then any
such contracts shall be on terms and conditions which are in the aggregate no
less favorable than those which would otherwise be available from third parties
for comparable quality.
2.13 COSTS AND EXPENSES. Owner shall pay Manager for all costs and
expenses incurred by Manager under the terms and provisions of this Article II,
including, but not limited to the following:
a. The salaries and wages, including costs of payroll
taxes, bonuses, retirement plan contributions, fringe benefits, and
related payroll items incurred with respect to the Hotel Personnel
assigned to the Hotels on a full-time basis and the moving and related
expenses (in accordance with Manager's standard policies, as amended
from time to time by Manager) incurred in connection with relocating any
salaried Hotel personnel assigned to the Hotels on a full-time basis.
Hotel Personnel shall be deemed to be assigned to the hotels on a
full-time basis even though they may have assumed supervisory
responsibilities at other hotels managed by Manager or participate in
other Manager related activities on a limited basis. In the event that
Hotel Personnel are assigned to work on a day-to-day basis at the Hotels
and another hotel managed by Manager in a shared employee program, then
the payments under this Section 2.13(a) shall be equitably prorated
among said hotels on the basis of the amount of time devoted to each
hotel;
b. The daily per diem rate for those personnel of Manager
assigned to special projects for the Hotels as provided in Section 2.6;
c. Travel and out-of-pocket expenses incurred directly in
connection with the management of the Hotels by Manager's operations
personnel, food and beverage division personnel, rooms division
personnel, marketing division personnel, systems division personnel,
financial services division personnel, design and construction division
personnel, insurance division
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personnel, other executive staff personnel, and those personnel assigned
to the special projects under Section 2.6, but only when a specific
event or circumstance at a Hotel directly dictates the need for such
attention, and excluding general supervision or oversight and corporate
or central office administration or overhead; and
d. Charges for the Hotels' pro rata cost of the standard and
customary Manager group services accepted by other Red Lion Hotels,
including but not limited to services provided by Manager's operations
personnel, food and beverage division personnel, rooms division
personnel, marketing division personnel, systems division personnel,
financial services division personnel, design and construction division
personnel, insurance division personnel and other executive staff
personnel, attendance at Manager's annual management and other
conferences, and operating handbooks, manuals and forms, but excluding
general supervision or oversight and corporate or central office
administration or overhead, which charges shall be allocated to the
Hotels on the basis of the ratio of the number of rooms in the Hotels to
the total number of rooms in the Red Lion Hotels. Owner acknowledges
that such basis may change during the term of this Agreement if Manager
determines in its sole but good faith judgment that another basis of
allocation may more fairly distribute the costs of such services, and
Owner agrees to any such change provided it is applied to all other Red
Lion Hotels situated in the United States and that the changes are not
made on a basis which results in a discriminatory effect on the Hotels.
ARTICLE III
MANAGEMENT FEES AND DISTRIBUTION OF CASH FLOW
3.1 Definitions of Gross Revenues, Gross Operating Profit, Adjusted
Gross Operating Profit and Cash Flow Available for Incentive Fee.
a. As used in this Agreement, the term "Gross Revenue" shall
mean, in accordance with the Uniform System, all income and proceeds
(whether in cash or on credit, and computed on an accrual basis)
received by Owner or Manager for the use, occupancy or enjoyment of the
Hotels, or any part thereof, or received by Owner or Manager for the
sale of any goods, services or other items sold on or provided from the
Hotels' premises in the ordinary course of the Hotels' operation,
including without limitation: (a) all income and proceeds received from
rental of rooms and commercial and other
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space within the Hotels including net parking revenue; (b) all income
and proceeds received from food and beverage operations and from
catering services conducted from the Hotels even though rendered outside
of the Hotels; (c) all income and proceeds from business interruption,
rental interruption and use and occupancy insurance with respect to the
operation of the Hotels (after deducting therefrom all necessary costs
and expenses incurred in the adjustment or collection thereof); (d) all
awards for condemnation for temporary use (after deducting therefrom all
costs incurred in the adjustment or collection thereof); and (e) all
income and proceeds from judgments, settlements and other resolutions of
disputes with respect to matters which would be includable in "Gross
Revenue" if received in the ordinary course of the Hotels' operation
(after deducting therefrom all necessary costs and expenses incurred in
the adjustment or collection thereof). Such term shall not include: (1)
gross receipts received by lessees, licensees or concessionaires of the
Hotels; (2) consideration received at the Hotels for hotel
accommodations, goods and services to be provided at other hotels,
although arranged by, for or on behalf of Manager; (3) income and
proceeds from the sale or other disposition of goods, capital assets and
other items not in the ordinary course of the Hotels' operation; (4)
federal, state and municipal excise, sales and use taxes collected
directly from patrons or guests of the Hotels as part of or based on the
sales receipts, room, admission, cabaret or equivalent taxes; (5)
condemnation awards (except to the extent provided in clause (d) of this
paragraph; (6) bad debt reserves, subject to adjustment; (7) gratuities
collected by Hotel employees; (8) the proceeds of any financing; (9)
other income or proceeds resulting other than from the use or occupancy
of the Hotels, or any part thereof, or other than from the sale of
goods, services or other items sold on or provided from the Hotels'
premises in the ordinary course of business; and (10) interest and
income on any funds standing from time to time in the Hotels' agency or
reserve accounts.
b. As used in this Agreement, the term "Operating Expenses" shall
mean all reasonable costs and expenses of maintaining, conducting and
supervising the operation of the Hotels (which costs and expenses do not
include (a) depreciation and amortization except as otherwise provided
in this Agreement, any rent payable by Owner either in respect of the
Hotels, the Furniture, Fixtures and Equipment, the Operating Supplies,
or any part of the foregoing, except as otherwise provided in this
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Agreement, and the costs of any other things specified herein to be
done or provided at Owner's or Manager's sole expense) incurred by
Owner or by Manager directly or at Owner's or Manager's request
pursuant to this Agreement or as otherwise specifically provided herein
which are properly attributable to the period under consideration under
Manager's system of accounting, including without limitation:
i. The cost of all food and beverage sold or consumed
and of all Inventories and Operating Supplies placed in use. For
purposes of this provision, Inventories and Operating Supplies shall be
considered to have been placed in use when they are transferred from
the storerooms of the Hotels to the appropriate operating departments.
ii. Salaries and wages of Hotel personnel, including
costs of payroll taxes and employee benefits (which benefits may
include, without limitation, a pension plan, medical insurance, life
insurance, travel accident insurance and an executive bonus program)
and the costs of moving executive personnel, their families and their
belongings to the area in which the Hotel is located at the
commencement of their employment at the Hotel and all other expenses
not otherwise specifically referred to in this section which are
referred to as "Administrative and General Expenses" in the Uniform
System. Except as herein otherwise expressly provided with respect to
employees regularly employed at the Hotels, the salaries or wages of
other employees or executives of Manager shall in no event be Operating
Expenses, but they shall be entitled to free room and board and the
free use of all Hotel facilities at such times as they visit the Hotels
exclusively in connection with the management of the Hotels.
iii. The cost of all other goods and services obtained by
Manager in connection with its operation of the Hotels, including,
without limitation, heat and utilities, office supplies and all
services performed by third parties, including leasing expenses in
connection with telephone and data processing equipment and such other
equipment as the parties hereto may agree upon in writing.
iv. The cost of repairs to and maintenance of the Hotels.
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v. Insurance premiums for insurance related to Hotel employees
and for insurance required to be maintained hereunder. Premiums on
policies for more than one year will be prorated over the period of
insurance and premiums under blanket policies will be allocated among
properties covered.
vi. All taxes, assessments and other charges (other than
federal, state or local income taxes and franchise taxes or the
equivalent) payable by or assessed against Operator with respect to the
operation of the Hotels, and water and sewer charges. Specifically
excluded from this item are all taxes levied or imposed against the
Hotels or their contents, such as real and personal property taxes.
vii. Legal and accounting fees for services directly related to
the operation of the Hotels.
viii. The costs and expenses of technical consultants and
specialized operational experts for specialized services in connection
with nonrecurring work on operational, functional, decorating, design
or construction problems and activities.
ix. All expenses for advertising the Hotels and all expenses
of sales promotion and public relation activities.
c. As used in this Agreement, the term "Gross Operating Profit" shall
mean the excess, if any, of Gross Revenue over Operating Expenses.
d. As used in this Agreement, the term "Adjusted Gross Operating
Profit" shall mean the excess, if any, of Gross Operating Profit over the Base
Fee.
e. As used in this Agreement, the term "Cash Flow Available for Debt
Service" shall mean the Adjusted Gross Operating Profit from operations of the
Hotels for the applicable Operating Year determined in accordance with the
provisions of this Agreement less the sum of the following:
(i) All taxes, including but not limited to ad valorem taxes
on real property, and personal property taxes but excluding taxes based
upon income of Owner;
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(ii) Insurance premiums relating to fire, extended
coverage and business interruption insurance policies;
(iii) Rentals under any leases of real property and
rentals under any leases of personal property; and
(iv) Amounts added to the FFE Reserve.
f. As used in this Agreement, the term "Cash Flow Available for
Incentive Fee" shall mean the excess, if any, of Cash Flow Available for Debt
Service over the Current Priority Amount.
3.2 Management Fees. In addition to charges and reimbursements as
provided for in Section 2.13, Manager shall retain out of Gross Revenues the
following fees for the services to be provided by Manager pursuant to Article
II:
a. An annual minimum management fee ("Base Fee") equal to
three percent (3%) of annual Gross Revenue. The Base Fee for each
Operating Year shall be paid monthly based upon the Gross Revenue for
the Operating Year to date less the Base Fee paid to date.
b. In addition to the annual Base Fee provided for in Section
3.2(a), an annual incentive management fee ("Incentive Fee") equal to
the lesser of (A) fifteen percent (15%) of the Adjusted Gross Operating
Profit up to the Operating Profit Target and twenty-five percent (25%)
of the Adjusted Gross Operating Profits in excess of the Operating
Profit Target or (B) subject to the accrual set forth in Section 3.2(c)
below, the Cash Flow Available for Incentive Fee. The Incentive Fee (i)
shall be paid on a cumulative basis for each Operating Year as set
forth in the monthly operating statement, (ii) shall be payable only
after payment of the Current Priority Amount on a cumulative basis for
each Operating Year, and (iii) shall be promptly repaid by Manager if
any monthly statement shows that Incentive Fee has been overpaid.
c. If Cash Flow Available for Incentive Fee is, from time to
time, insufficient to pay the entire Incentive Fee as calculated
pursuant to Section 3.2(b)(A), then, to the extent of such deficiency,
said Incentive Fee shall be accrued without interest up to a maximum
accrual of $6,000,000. Such accrued Incentive Fee shall be paid by
Owner to Manager from twenty-five
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(25%) of the Cash flow Available for Incentive Fee remaining after
payment of the current Incentive Fee.
d. Upon the sale or refinancing of one or more Hotels, up to
the first $6,000,000 of net proceeds of such sale or refinancing after
any amounts due under any loan secured by a lien or encumbrance on the
Hotel or Hotels sold or refinanced are paid ("Net Proceeds") shall be
applied to accrued Incentive Fees. After the first $6,000,000 of Net
Proceeds have been so applied to accrued Incentive Fees, all remaining
amounts shall be distributed to Owner.
3.3 Place of Payment. All fees and payment of expenses payable to
Manager under Article III shall be retained by Manager out of Gross Revenues
or, with respect to payments of accrued Incentive Fee out of Net Proceeds,
remitted to Manager by or on behalf of Owner as Manager shall designate in
writing to Owner.
3.4 Owner's Obligation to Provide Funds to Pay Fees and Expenses;
Financing Program. If, at any time during the term of this Agreement, the funds
available from the operation of the Hotels for the payment of all financial
requirements of the Hotels, including any of the fees and the costs and
expenses specified in Articles II or III (other than accrued Incentive Fee),
shall be insufficient to pay the same as they become due and payable, Owner
shall make deposits of sufficient funds into the Hotels' bank accounts
established under Section 3.5 in order to make such payments. If Owner fails to
make such deposits and there are fees earned and expenses outstanding for which
Manager and/or Manager Affiliates have not been paid, said fees and expenses
shall accrue interest at the annual rate of the lesser of Manager's actual cost
of funds, as such cost of funds changes from time to time, plus one percent
(1%) per annum computed on the first day of each month or the maximum annual
interest rate allowable under applicable law.
3.5 Hotel Bank Accounts. Manager shall select all banks with which each
Hotel shall conduct its various banking affairs. All funds received in the
operation of each Hotel shall be deposited into one or more special accounts
bearing the name of such Hotel in a bank so selected having a branch reasonably
convenient to such Hotel and having a capital and surplus of not less than Five
Million Dollars ($5,000,000). Each Hotel's operating expenses shall be paid out
of its special accounts or such other accounts as may be maintained for Owner,
as well as Manager's fees, payroll expenses and other expenses to be paid to or
reimbursed to Manager and Manager Affiliates for such Hotel in accordance with
the terms and provisions of this
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Agreement. Neither Manager nor Owner shall commingle any separate funds in such
accounts.
3.6. WITHDRAWALS FROM HOTEL BANK ACCOUNTS. Checks or other documents
of withdrawal from the Hotel bank accounts established pursuant to Section 3.5
may be made for any purpose authorized under this Agreement and shall be
signed by duly authorized representatives of Manager.
3.7 REMITTANCES TO OWNER. Concurrently with delivery of the monthly
statements required pursuant to Section 2.4(b), Manager shall remit to Owner
all sums in the Hotels' bank accounts established pursuant to Section 3.5 in
excess of the amounts required to maintain sufficient Working Capital for the
Hotels for the next month. All such amounts shall be transferred to Owner's
account maintained at the bank where the said account is maintained, or at such
other place as Owner may from time to time designate.
ARTICLE IV
TERM AND TERMINATION
4.1 TERM OF AGREEMENT; OPTION TO EXTEND. The services to be provided
by Manager under this Agreement shall commence on the date Owner acquires the
Hotels (the "Acquisition Date") and shall terminate, unless sooner terminated
as provided in this Agreement twenty-five (25) years from the Acquisition Date.
Manager shall have the right to extend the term of this Agreement by not less
than six (6) months' prior written notice to Owner during the then current term
for up to ten (10) consecutive extended terms of five (5) years each.
4.2 EVENTS OF TERMINATION. In addition to Articles VI, VII, VIII and
IX pertaining to the termination of this Agreement with respect to one or more
Hotels, if at any time during the term of this Agreement any of the following
events ("Event of Termination") shall occur, then the nondefaulting Party may,
at its option, terminate this Agreement by giving notice to the other party
("Notice of Termination") specifying a date, not earlier than thirty (30) days
after the giving of such notice, when this Agreement shall terminate:
a. if Manager or Owner shall breach any material
representation, warranty or covenant contained in this Agreement, or
shall default in the performance of any such obligation hereunder, and
such breach or default shall not be cured within thirty (30) days
following notice thereof ("Notice of Default"); provided, however, that
an Event of Termination shall not exist with regard thereto if such
breach or default is not attributable to
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a failure to pay any sums due under this Agreement and such Event is
curable but it is not possible to cure such breach or default within
said thirty (30) day period, so long as the defaulting party commences
to cure such breach or default within said period and thereafter
proceeds diligently and in good faith to complete the cure;
b. if a court of competent jurisdiction has entered a final,
non-appealable judgment finding Manager liable for actual fraud, gross
negligence or willful and wanton misconduct in its dealings with Owner
hereunder;
c. if Manager or Owner shall apply for or consent to the
appointment of a receiver, trustee or liquidator of all or a substantial
part of its assets or make a general assignment for the benefit of its
creditors, or file a voluntary petition in bankruptcy or a petition
seeking reorganization, composition, arrangement with creditors,
liquidation or similar relief under any present or future statute, law
or regulation, or file any answer admitting the material allegations of
a petition filed against it in any such preceding, or be adjudicated a
bankrupt or insolvent, or take any action looking toward dissolution;
d. if any final order, judgment or decree (that is, an order,
judgment or decree affirmed on appeal to a court of last resort or after
the expiration of any period to appeal) shall be entered without the
application, approval or consent of Manager or Owner by any court of
competent jurisdiction, approving a petition seeking reorganization,
composition, arrangement with creditors. liquidation or similar relief
under any present or future statute, law or regulation with respect to
Manger or Owner, or appointing a receiver, trustee or liquidator of all
or a substantial part of Manager's or Owner's assets and such order,
judgment or decree shall continue unstayed and in effect for an
aggregate of sixty (60) days (whether or not consecutive); or
e. if a final judgment (that is, a judgment affirmed on appeal
to a court of last resort or after the expiration of any period to
appeal) not fully covered by insurance shall be rendered against Manager
or Owner which, with other outstanding final judgments (defined as
aforesaid) against such party not fully covered by insurance exceed an
aggregate of One Hundred Thousand Dollars ($100,000.00), and such final
judgment of judgments shall continue undischarged and unsettled
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for an aggregate of sixty (60) days (whether or not consecutive).
4.3 REPLACEMENT OF GENERAL PARTNER OF OWNER. If Red Lion
Properties, Inc., a Delaware corporation (the "General Partner") is removed or
discharged as the sole general partner of Owner, Manager shall have the right,
for a period of six (6) months from the effective date of such removal or
discharge, at Manager's sole election, to terminate this Agreement upon thirty
(30) days written notice to Owner. For purposes of Section 4.4(a) there shall
be no defaulting party, and the costs described therein shall be borne equally
by Manager and Owner.
4.4 ACTIONS TO BE TAKEN ON TERMINATION. Upon any termination of
this Agreement pursuant to this Article IV, the following shall be applicable:
a. The Financial Statements required pursuant to Section 2.4(c)
shall be prepared as of the date of such termination, with all costs and
expenses thereof to be borne by the defaulting Party.
b. Within thirty (30) days after the delivery of the Financial
Statements referred to in Section 4.4(a), Owner shall pay Manager all
fees and other payments earned or due under the terms and provisions of
this Agreement.
c. Manager shall peacefully vacate and surrender the Hotels to
Owner.
d. Manager shall purchase from Owner, for a purchase price
equal to fair market value, but not exceeding cost, all unbroken cases
of Operating Supplies then on hand at the Hotels or ordered or purchased
and which bear the identification of Manager. Notwithstanding the
provisions of Section 10.2(b), Owner may continue to use in connection
with the Hotels any and all items of Operating Supplies or other
products or items then on hand bearing the identification of Manager
which are not repurchased by Manager from Owner, but shall not reorder
any such items.
e. Manager shall assign and transfer to Owner:
(i) all Owner's books and records respecting the Hotels in
the custody and control of Manager, including but not limited
to those provided for in Section 2.4; and
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(ii) all Manager's right, title and interest in and to all
liquor, restaurant and other licenses and permits, if any, used
by Manager in the operation of the Hotels; provided, however,
that if Manager has expended any of its own funds in the
acquisition of such licenses or permits, Owner shall reimburse
Manager therefore if Owner requests such assignment and transfer
of such licenses and permits.
f. Manager shall release and transfer to Owner any of Owner's
funds held or controlled by Manager, including any funds in any Hotel
bank accounts.
ARTICLE V
INSURANCE
5.1 INSURANCE BY MANAGER.
a. Subject to Section 5.1(b), Manager shall, at all times
during the term of this Agreement and at Owner's cost and expense
maintain insurance coverage on the Hotels and the business conducted
therein substantially similar to that maintained for other Red Lion
Hotels. Such insurance includes, as of the date hereof:
(i) comprehensive general liability insurance which has
been endorsed to include premises operations, elevators,
independent contractors, blanket contractual, products
liability, personal injury (including contractual), broad form
property damage, fire legal liability, host liquor liability
(including the loss of means of support), liquor liability,
innkeepers liability (including safety deposit box liability)
and comprehensive automobile liability including all owned,
hired, leased or substituted vehicles, and garagekeepers legal
liability, against the claims for personal and bodily injury or
death and property damage occurring upon, in or about the
Hotels, or any adjoining streets and passageways thereof, or
otherwise arising under this Agreement;
(ii) appropriate worker's compensation and employer's
liability insurance as shall be required by and be in
conformance with the laws of any state where a Hotel is located
for both Owner's and Manager's employees at the Hotels;
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(iii) insurance against "all risks" of loss or damage,
including, to the extent available at reasonable cost,
earthquake and flood, available under commercial property
insurance policies with licensed insurance companies in amounts
not less than the then current full insurable value of each
Hotel building and its contents. As used herein, the term "full
insurable value" shall mean the actual replacement cost of each
Hotel building and its contents;
(iv) boiler and machinery insurance on boilers,
pressure vessels and other machinery including power
interruption coverage in amounts equal to or greater than the
coverages maintained at other Red Lion Hotels or such other
amounts as shall be agreed to by Manager and Owner; and
(v) business interruption insurance covering risk of
loss due to an insured peril described in Sections 5.1(a)(iii)
and 5.2(a)(iv) hereof, including any loss or damage to a Hotel
structure, its contents, boiler, pressure vessels or machinery
and any resulting damage thereby rendering such Hotel premises
untenantable or the services to be provided by such Hotel
unmarketable causing a loss of business.
b. If the insurance referred to in Section 5.1(a) could be
obtained by Owner at lesser premiums and otherwise on terms and
conditions more advantageous to Owner, then Owner may, upon notice to
Manager, obtain such insurance for its own account. Such notice must be
received by Manager at least sixty (60) days prior to the Acquisition
Date if it is to become effective on the Acquisition Date, or six (6)
months prior to the effective date of said insurance following the
Acquisition Date, as the case may be; provided, however, that Manager
shall in all events, at Owner's cost and expense, maintain appropriate
worker's compensation and employer's liability insurance for Manager's
employees at the Hotels as described in Section 5.1(a)(ii) and provided,
further, that if Owner elects to provide the coverage under Section
5.1(a)(ii) for Owner's employees (if any) at the Hotels, Manager shall
nevertheless provide the said coverage for Manager's employees at the
Hotels.
5.2 Parties Insured, Amount of Coverage, Etc. All insurance
policies provided for in Section 5.1 shall include:
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a. Manager and Owner as parties insured thereunder, as
their interests may appear;
b. except as otherwise expressly stated herein, such amount
of coverage and deductibles as shall be in amounts established by
Manager for all Red Lion Hotels or in such greater amounts as Owner
shall require to protect Owner from material risk of being a co-insurer;
c. where appropriate, mortgage endorsements in favor of
Mortgage(s);
d. where appropriate (including but not limited to the
insurance provided for in Section 5.1(a)), the insurer's waiver of
subrogation rights against Manager for all insurance policies procured
by Owner and the insurer's waiver of subrogation rights against Owner
for all insurance policies procured by Manager; and
e. a requirement that the insurer provide at least ten (10)
days' notice of cancellation or material change in the terms and
provisions of the policies.
5.3 EVIDENCE OF INSURANCE, ETC.
a. Prior to the effective date of the applicable coverages
the party obtaining the insurance coverages under Section 5.1 shall
provide the other party with certified copies of policies for such
insurance or certificates of insurance. Prior to the expiration date of
all such policies, the party obtaining said insurance shall provide the
other party with a binder, certified copies of renewal policies, or
certificates of insurance. On the termination of this Agreement, there
shall be an apportionment of any prepaid insurance premiums in respect
of insurance policies obtained by Manager pursuant to Section 5.1(a).
b. On request, each party shall furnish the other with a
schedule of insurance obtained by them under Section 5.1, listing the
policy numbers of the insurance obtained, the names of the companies
issuing such policies, the names of the parties insured, the amounts and
expiration date or dates of such policies and the risks covered thereby.
5.4 REPORTS BY MANAGER. Manager shall promptly:
a. cause to be investigated all accidents and claims for
damage relating to the operation and maintenance of any Hotel as they
become known to Manager, and
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shall report to Owner any such incident which is material;
b. cause to be investigated all damage to or destruction of any
Hotel as it becomes known to Manager, and shall report to Owner any such
incident which is material together with the estimated cost of repair
thereof; and
c. prepare any and all reports required by any insurance company
as the result of an incident mentioned in Sections 5.5(a) and 5.5(b).
5.5 Review of Limits. All insurance policy limits provided pursuant to
this Article V shall be reviewed by the Parties each three (3) years following
the Acquisition Date, or sooner if reasonably requested by either Party, to
determine the suitability of such insurance limits in view of exposures
reasonably anticipated over the following three (3) years; provided, however,
that insurance policy limits may not be reduced to an amount lower than that in
effect for all Red Lion Hotels except by mutual consent of the Parties.
5.6 Limitation on Scope of Services. Owner acknowledges that in
arranging for insurance coverages under this Article V nothing contained herein
or therein shall be deemed to constitute a representation or warranty by
Manager or any insurance broker utilized by Manager with regard to the nature
or extent of the insurance coverages which should be considered by Owner for
the ownership and operation of the Hotels, and Owner is to rely exclusively on
its own insurance advisors with regard thereto.
ARTICLE VI
SUBORDINATION; MORTGAGES
6.1 Authorization to Mortgage Hotels. Owner shall have the right to
grant the Mortgage on all of the assets which comprise the Hotels, and to
assign to the Mortgage, as collateral security, of Owner's right, title
and interest in and to this Agreement (collectively the "Collateral"). Owner
shall have the right to grant to any subsequent lender lending funds to Owner,
a lien or encumbrance on all or any part of the Collateral; provided, however
that either (i) such loan is in a principal amount of the loan secured by the
Mortgage less any amortization of such amount through the date of closing of
such new loan, or (ii) such loan has been approved in writing by Manager, which
consent shall not be unreasonably withheld provided that the loan-to-value
ratio is no greater than the ratio for the loan secured by the Mortgage, the
Cash Flow Available for Debt
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Service for the most recent full Operating Year less the Incentive Fee (without
any accrual or limitation based on Cash Flow Available for Incentive Fee) is at
least equal to two hundred percent (200%) of the scheduled debt service on such
new loan, the new loan has a term of at least five years, and the new loan is
otherwise on ordinary and normal terms for the type of lender making such loan
(any mortgage, deed of trust or other encumbrance securing a loan meeting the
criteria set forth in (i) or (ii) above is herein referred to as an "Approved
Mortgage"). If Owner has not delivered to Manager a commitment for the
refinancing of the loan secured by the Mortgage or of any loan secured by an
Approved Mortgage within 60 days of the scheduled maturity of such loan,
Manager shall have the right, on behalf of Owner, to seek such a commitment and
to place such a loan, on arms length terms with an institutional lender
regularly making real property secured loans, in an amount equal to the then
outstanding principal balance of the existing loan together with reasonable
closing costs, including any commitment fee. Owner shall execute any and all
documents reasonably requested by Manager in connection with such placement of
a new loan. Any mortgage securing such a loan obtained by Manager on behalf of
Owner shall be an Approved Mortgage. Manager shall have no obligation to place
such a loan on behalf of Owner.
6.2 Subordination. Manager agrees that this Agreement shall be subject
and subordinate to any Approved Mortgage.
6.3 Rights of Mortgagee. If Owner or any Approved Mortgagee shall have
furnished to Manager the name and address of such Approved Mortgagee, then so
long as any Hotel, or any part thereof or any interest therein, shall be
subject to the Approved Mortgage, the following shall be applicable:
a. Manager shall, simultaneously with the giving to Owner of any
Notice of Default or Notice of Termination under this Agreement, send a
copy of such Notice to such Approved Mortgagee in the manner provided in
Section 10.6 for the giving of notices, and no Notice of Default or
Notice of Termination given by Manager to owner shall be effective
unless a copy of such Notice shall have been sent as herein provided.
b. If, under Section 4.2, a default by Owner shall have occurred
and be continuing so as to constitute an Event of Termination, Manager
shall not be entitled to terminate this Agreement so long as no other
default shall have occurred and be continuing (other than those which
are being cured as provided for in this Agreement), if within thirty
(30) days after Manager
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shall have given to Approved Mortgagee the Notice of Termination, such
Approved Mortgagee shall cure such default respecting the payment of
money, or for any other default, shall within such thirty (30) day
period, commence and thereafter proceed with diligence and good faith to
cure such other default.
c. Upon reasonable advance notice from such Approved
Mortgagee, Manager shall accord to it and its agents the right to enter
upon any part of the Hotels at any reasonable time during the term of
this Agreement for the purpose of examining, inspecting or making
extracts from the books and records of the Hotels.
d. If such Approved Mortgagee or any person or entity other
than a person or entity who competes with Manager as described in
Section 9.2(a) shall become the owner of any Hotel as a result of any
foreclosure of a bona-fide conveyance in lieu of foreclosure, Manager
shall have no right or power to terminate this Agreement, and shall
recognize such Approved Mortgages or such other person or entity as
Owner hereunder to the same extent as though it or they had been Owner
hereunder as of the execution of this Agrement; provided, however, that
such Approved Mortgage or such other person or entity shall agree in
writing with Manager to be bound by the terms and provisions of this
Agreement to the same extent as if such Approved Mortgagee or such other
person or entity had been an original Party hereto. If a person or
entity who competes with Manager as described in Section 9.2(a) shall
become the owner of any Hotel as the result of any foreclosure or
conveyance in lieu of foreclosure, then Manager's option to terminate as
set forth in Section 9.2(a) shall become operative.
6.4 ESTOPPEL CERTIFICATES. Manager agrees, at any time and from
time to time, upon not less than fifteen (15) days prior written notice by Owner
or an Approved Mortgagee, to execute, acknowledge and deliver to Owner or such
Approved Mortgagee a statement in writing certifying that this Agreement has not
been modified and is in full force and effect (or, if there have been
modifications, that the same is in full force and effect as modified and
specifying the modifications) and stating whether or not, to the best knowledge
of Manager, there exists any default by Owner under this Agreement, including
any Event of Termination, and if so, specifying each such default of which
Manager may have knowledge. Upon similar notice, Manager shall be entitled to a
similar certificate from Owner.
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ARTICLE VII
DESTRUCTION
7.1 OWNER TO RESTORE AFTER INSURED CASUALTY. Subject to Section
7.2, if all or any part of a Hotel shall be damaged or destroyed by a cause for
which insurance coverage was required by this Agreement to be maintained by
Owner, then Owner shall repair, restore, replace or rebuild such Hotel
("Casualty Restoration") to the extent insurance proceeds are made available to
Owner for restoration as nearly as is reasonably possible to the value,
condition and character of such Hotel immediately prior to the occurrence of
such damage or destruction. Manager shall cooperate with Owner in obtaining all
insurance proceeds payable on account of such damage or destruction so that the
same shall be available to owner (subject to the terms of any Approved
Mortgage) as the Casualty Restoration progresses.
7.2 TERMINATION AFTER SUBSTANTIAL INSURED CASUALTY.
a. If all or any part of a Hotel is damaged or destroyed to
such an extent that the estimated cost of the Casualty Restoration
exceeds fifty percent (50%) of the total replacement cost (without
deduction for depreciation) of such Hotel then, if Owner reasonably
concludes that on the basis of the factors existing at the time of such
casualty it would be uneconomic to repair and restore the Hotel, Owner
shall have the right to terminate this Agreement (other than the
provisions of Section 9.3(a)) with respect to such Hotel by written
notice to manager given within sixty (60) days of such casualty. If
Owner elects to terminate this Agreement with respect to such Hotel,
Owner shall pay to Manager a termination fee equal to five (5) times the
total Base Fee and Incentive Fee (without any accrual or limitation
based on Cash Flow Available for Incentive Fee) earned by Manager with
respect to the Hotel as to which Owner has elected to terminate this
Agreement for the most recent full Operating Year together with interest
on such amount at the rate of interest payable on the Working Capital
Line from the date of the casualty to the date of payment; provided,
however, if Owner determines in its sole discretion that the value of
the Hotel and all insurance proceeds payable with respect to such
casualty will be less than the amount of the termination fee, Owner may
deliver its duly executed, acknowledged and recordable deed to the Hotel
together with all insurance proceeds paid to Owner in respect of such
casualty (together with an assignment of any unpaid insurance proceeds
with respect to such casualty) in full satisfaction of Owner's
obligation to pay such
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termination fee to Manager. Notwithstanding such election by Owner to
terminate this Agreement with respect to such Hotel, such Hotel shall
remain subject to Manager's right of first refusal pursuant to Section
9.3(a) hereof.
b. Owner must notify Manager within thirty (30) days of the
occurrence of such damage or destruction if Owner elects to terminate
this Agreement under this Section 7.2.
7.3 Uninsured Casualty - Owner's Option to Terminate or Restore. If
all or any part of a Hotel shall be damaged or destroyed by any cause for which
insurance coverage was not required by this Agreement to be maintained by Owner,
and the estimated cost of the Casualty Restoration exceeds thirty (30%) percent
of the total replacement cost (without deduction for depreciation) of such Hotel
then Owner may terminate this Agreement with respect to such Hotel if it elects
to do so by written notice to Manager within thirty (30) days after the
occurrence of such damage or destruction.
7.4 Commencement and Completion of Casualty Restoration. Unless Owner
shall be entitled to terminate this Agreement under Sections 7.2 or 7.3, Owner
shall commence the Casualty Restoration promptly after the occurrence of such
damage or destruction and shall complete the same with diligence. If such a
right of termination does exist, then the obligation to commence the Casualty
Restoration shall be delayed until the earlier of the giving of the applicable
notice of termination (in which event the obligations shall not become
operative) or the expiration of the applicable notice period (in which event the
obligation to commence and complete as provided in this Section 7.4 shall become
operative immediately).
7.5 Proceeds of Business Interruption Insurance. The proceeds of any
business interruption insurance shall be allocated between Owner and Manager, it
being the intention of the parties that Manager share in such proceeds to the
extent that they specifically represent fees or reimbursements otherwise payable
by Owner to Manager under this Agreement.
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ARTICLE VIII
CONDEMNATION
8.1 PERMANENT TAKING.
a. In the event of a Taking of an entire Hotel, this
agreement shall terminate as of the date of Taking with respect to such
Hotel.
b. In the event of a Taking of less than the entire portion
of a Hotel, if Manager or Owner reasonably determines that the remaining
land and building or buildings, after necessary repairs, cannot
economically and feasibly be operated as a hotel as contemplated in this
Agreement, then either Owner or Manager may terminate this Agreement
with respect to such Hotel.
c. Upon any Taking of a Hotel, whether or not this
Agreement is terminated with respect to such Hotel, Manager shall, if
applicable law permits, undertake separate proceedings with respect to
the determination of its loss resulting from the Taking. If such
separate proceedings cannot be undertaken, Manager shall nonetheless be
entitled to a fair and equitable share of the award or other proceeds of
the Taking paid to Owner to the extent of Manager's loss; provided,
however, that Owner shall receive the entire proceeds attributable to
the Taking of all land, the Hotel, the Furniture, Fixtures and
Equipment, Operating Supplies, Inventories and Capital Improvements.
d. If this Agreement is not terminated with respect to a
Hotel following a partial Taking under this Section 8.1, then this
Agreement shall remain in full force and effect with respect to the
remainder of the Hotel so taken, and Owner shall repair, restore,
replace or rebuild the remainder of such Hotel to the extent
condemnation proceeds are made available to owner for such repair,
restoration, replacement or rebuilding as nearly as possible to its
value, condition and character immediately prior to the Taking. Owner
shall commence the work promptly after the date of the Taking and
shall complete the same with diligence.
8.2 Taking for Temporary Use. Subject to Section 8.2(b), in the
event of a Taking of all or part of a Hotel for temporary use, this Agreement
shall remain in full force and effect with respect to such Hotel, and the
following shall be applicable:
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a. If the Taking is for a period not extending beyond the
term of this Agreement, the awards or other proceeds on account of the
Taking (including any interest included or paid with respect to such
awards or proceeds) other than any portion of such awards or proceeds
specifically identified as compensation for alterations or damages to
such Hotel shall be included in Gross Revenue and Adjusted Gross
Operating Profit for the Operating Year or Years in which received. When
and if during the term of this Agreement, the period of temporary use
shall terminate, Owner shall, to the extent condemnation proceeds are
made available to Owner for restoration, repair and alterations, make
all such restoration, repairs and alterations as shall be necessary to
restore such Hotel to its condition prior to such Taking for temporary
use and shall complete the same with diligence.
b. If the Taking is for a period extending beyond the term
of this Agreement, the awards or other proceeds on account of the Taking
(including any interest included or paid with respect to such awards or
proceeds) other than any portion of such awards or proceeds specifically
identified as compensation for alterations or damages to such Hotel for
the period of the Taking up to the stated expiration of the term of this
Agreement shall be included in determining Gross Revenue and Adjusted
Gross Operating Profit for the Operating Year of Years in which
received, and the remainder of such awards or other proceeds (including
interest as aforesaid) shall be paid to Owner.
c. Notwithstanding the foregoing provisions of this Section
8.2, if during the last five (5) Operating Years of this Agreement as
the term hereof may be extended by Manager there should be a temporary
taking of all or a part of any Hotel which extends for a period of at
least thirty-six (36) months, and Owner concludes in good faith that it
would not be economically reasonable to operate such Hotel as
contemplated in this Agreement following the temporary taking, then
Owner may elect to terminate this Agreement with respect to such Hotel
as of the Date of Taking by giving written notice to Manager within
thirty (30) days thereof, in which event the provisions of Section
8.2(b) shall apply with regard to the proceeds.
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ARTICLE IX
ASSIGNMENTS, ETC.
9.1 BY MANAGER.
a. So long as no default attributable to Manager shall have
occurred and be continuing, including an Event of Termination and
subject to Section 9.1(b), Manager shall have the right, without Owner's
consent, to assign, transfer or convey all of its right, title and
interest under this Agreement:
(i) to a Manager Affiliate;
(ii) to any successor or assignee of Manager which
acquires all or substantially all of the business and assets of
Manager as the result of any merger, consolidation or
reorganization; or
(iii) to a person or entity which acquires all or
substantially all of the business and assets of Manager;
provided, however, that in the event of (ii) or (iii) above or in the event of
the sale of at least a majority interest in the Manager through one or more
transactions, if the Management Agreement constitutes substantially all of the
assets of the Manager at the time of such event, then such event shall be
subject to the prior written consent of Owner, which consent shall not be
unreasonably withheld.
b. Any assignment, transfer or conveyance under Section
9.1(a) shall be subject to the following:
(i) the assignee must assume and agree to be bound by
all of the terms and provisions of this Agreement; and
(ii) the delivery to Owner of an executed counterpart
of the instrument of assignment and assumption of rights and
obligations.
c. In the event that Manager shall assign, transfer or
convey its right, title and interest under this Agreement under Sections
9.1(a) and 9.1(b), then Manager shall not be liable for any obligations
arising under this Agreement after the date of such assignment, transfer
or conveyance.
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d. Except as provided in this Section 9.1, Manager shall
not assign, transfer or convey all or any of its right, title and
interest under this Agreement without Owner's approval.
9.2 BY OWNER.
a. Subject to Manager's rights pursuant to Section 9.3, so
long as no default attributable to Owner shall have occurred and be
continuing, including an Event of Termination and subject to Section
9.2(b), Owner shall have the right, without Manager's approval, to
assign, transfer or convey all or any part of its right, title and
interest in any Hotel or any interest therein (which assignment must
include this Agreement to the extent appropriate together with all
assets of Owner related to the operation of such Hotel, including,
without limitation, all of the issued and outstanding capital stock of
any liquor license holding corporation).
b. Any assignment, transfer or conveyance under Section
9.2(a) shall be subject to the following:
(i) the assignee must assume and agree to be bound by
all of the terms and provisions of this Agreement;
(ii) the delivery to Manager of an executed counterpart
of the instrument of assignment and assumption of rights and
obligations; and
(iii) the assignee shall be United States national
who is not involved or reputed to be involved in organized
crime, who does not have a generally recognized reputation for
unethical business dealings and is not a competitor of Manager
and does not have any material ownership interest in a
competitor of Manager.
c. In the event that Owner shall assign, transfer or convey
its right, title and interest in any Hotel and in this Agreement under
Sections 9.2(a) and 9.2(b), then Owner shall not be liable for any
obligation arising under this Agreement after the date of such
assignment, transfer or conveyance.
9.3 SALE OF HOTELS.
a. If at any time, or from time to time, during the term of
this Agreement, Owner receives and is willing to accept a bona fide
offer from a third party
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to purchase all or any portion of Owner's interest in one or more
Hotels, or if Owner offers to sell all or any portion of its interest in
one or more Hotels to any third party, in each case, other than an offer
or sale incidental to the exercise of any remedy by an Approved
Mortgagee and other than an offer or sale following Manager's delivery
of a Notice of Termination with respect to the affected Hotel or Hotels
(any such offer to or from a third party is herein called a Third Party
Offer), Owner shall promptly transmit to Manager its written offer to
sell its interest in the Hotel or Hotels described in the Third Party
Offer to Manager upon the terms and conditions set forth in the Third
Party Offer, together with a true copy of such offer, and shall give
Manager thirty (30) days to accept such offer. If Manager accepts such
offer by written notice to Owner within such time, Owner and manager
shall duly perform their obligations under such agreement. If Manager
fails to accept such offer in accordance with this paragraph, then Owner
shall be free, within 180 days of Manager's failure to accept such
offer, to sell its interest in the Hotel or Hotels described in the
Third Party Offer to such third party upon the terms and conditions
contained in such offer.
b. Upon, and as a condition to, any sale, assignment,
conveyance or other transfer of a Hotel or Hotels by Owner Manager and
the new owner of the Hotel or Hotels shall enter into a new Management
Agreement on all of the terms and conditions of this Agreement, except
that (A) the Current Priority Amount shall be equal to the Current
Priority Amount hereunder multiplied by a fraction, the numerator of
which is the Adjusted Gross Operating Profit for the immediately
preceding calendar year for the Hotel which has been sold and the
denominator of which is the Adjusted Gross Operating Profit of all of
the Hotels managed under this Agreement immediately before such sale for
such period, and (B) the Operating Profit Target under the new agreement
shall be equal to the Operating Profit Target existing under this
Agreement immediately before the sale of the Hotel or Hotels to be
managed under the new agreement multiplied by a fraction, the numerator
of which is the Adjusted Gross Operating Profit for the immediately
preceding calendar year of the Hotel or Hotels sold and the denominator
of which is the Adjusted Gross Operating Profit of all of the Hotels
managed under this Agreement immediately before such sale for such
period.
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ARTICLE X
MISCELLANEOUS
10.1 COMPLIMENTARY/DISCOUNT POLICIES. Owner will accept Manager's
complimentary and discount policies in effect from time to time at the Hotels
so long as they conform to general industry practices. Manager will accept
Owner's discount policies at the Hotels which are in effect on the date hereof.
10.2 MANAGER IDENTIFICATION, NAMES OF HOTELS.
a. The names of the Hotels are set forth in Exhibit __
attached hereto and incorporated herein by this reference. Owner
acknowledges that such names are the property of Manager, that such
names may not be changed without the approval of Manager and that such
names, or any variants thereof, may not be used by Owner in connection
with any premises other than the Hotels without the express prior
written consent of Manager. Manager acknowledges that if any Hotel
becomes known by any name(s) exclusive of any name incorporating the
term "Red Lion", such name(s) would be the property of Owner. Upon the
termination of this Agreement for any reason whatsoever, Owner shall
have no right to use, and shall refrain from using, any name
incorporating the term "Red Lion" and any other name or variant thereof
employed in connection with the name(s) of any Hotel.
b. Owner further acknowledges that the trade names "Maxis"
and "Red Lion" or cognates or successors thereof, and Manager's logotype
or cognates or successors thereof, are the property of Manager and that
upon termination of this Agreement for any reason whatsoever, Owner and
the Hotels shall discontinue using them in the conduct of their business
to the extent they are using them; provided, however, that if this
Agreement is terminated with respect to one or more Hotels by reason of
Manager's default, Owner may continue using such tradenames and
trademarks for a period of up to one hundred twenty (120) days following
such termination to permit an orderly transition to new management of
the Hotel or Hotels as to which this Agreement has been terminated.
Subject to the foregoing, upon such termination, Owner agrees that it
will not engage in a business or advertising practice which will lead
the public or pe Hotels' customers to believe there is any relationship,
affiliation or identity with Manager. Owner further agrees that during
the term of this Agreement it will not identify as a "Red Lion" hotel
any hotel which is not a Red Lion
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Hotel, as that group may exist from time to time, or identify the
Hotels with any hotel organization other than Manager.
10.3 COMPLIANCE WITH LAW.
a. Manager shall make all reasonable efforts, in the name
of and at the expense and with the cooperation of Owner, to comply with
and abide by all laws, rules, regulations, requirements, orders,
notices, determinations and ordinances of any federal, state or
municipal authority applicable to the Hotels, including, without
limiting the foregoing, the state and local liquor authorities, the
Board of Fire Underwriters and the requirements of any insurance
companies covering any of the risks against which the Hotels are
insured. If the cost of compliance exceeds, or appears reasonably likely
to exceed, Five Thousand Dollars ($5,000.00) per Hotel (subject to
inflationary increases from time to time) in any instance and is not
provided for in a current approved Operating Plan and Budget or Capital
Improvement Plan, Manager shall promptly notify Owner.
b. With respect to a violation of any such laws, rules,
regulations, requirements, orders, notices, determinations or
ordinances, Owner shall have the right to contest any of the foregoing
and postpone compliance pending the determination of such contest, if so
permitted by law and not detrimental to the operation of the Hotels.
10.4 GOVERNING LAW. The Parties agree that all disputes relating to
the performance and/or interpretation of any term or provision of this
Agreement shall be governed by the laws of California.
10.5 NO WAIVER OF BREACH. No failure by Manager or Owner to insist
upon the strict performance of any covenant, agreement, term or provision of
this Agreement, or to exercise any right or remedy consequent upon a breach
thereof, shall constitute a waiver of any such breach or any subsequent breach
of such covenant, agreement, term or provision. No waiver of any breach shall
affect or alter this Agreement, but each and every covenant, agreement, term
and provision of this Agreement shall continue in full force and effect with
respect to any other then existing or subsequent breach thereof.
10.6 NOTICES. All notices, requests, approvals, demands and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given and to be effective five
(5)
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business days after being deposited in the United States mail as registered or
certified matter, postage prepaid, return receipt requested, addressed as
follows:
a. If to Manager:
RL Acquisition Company
4001 Main Street
Vancouver, Washington 98663
Attention: James Rech
b. If to Owner:
Red Lion Inns Operating, L.P.
4001 Main Street
Vancouver, Washington 98663
Attention: H. Raymond Bingham
or at such other address as the party to whom the notice is sent shall have
been designated in accordance with the provisions of this Section 10.6.
10.7 SUCCESSORS AND ASSIGNS. Subject to the provisions of Article IX,
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Parties hereto.
10.8 INDEMNIFICATION. Owner shall protect, defend, indemnify and save
harmless Manager and Manager Affiliates against and from all claims, damages,
losses and expenses, including but not limited to attorneys' fees and costs, by
reason of any suit, claim, demand, judgment or cause of action initiated by any
person, arising or alleged to have arisen out of any act or mission of
Manager in the performance of its obligations under this Agreement; provided,
however, that Manager shall protect, defend, indemnify and save harmless
Owner against and from all claims, damages, losses and expenses, including
but not limited to attorneys' fees and costs, arising out the gross
negligence, willful misconduct or breach of this Agreement by Manager or
Manager Affiliates.
10.9 LIMITATION ON PLEDGING OWNER'S CREDIT. Except as provided in
Section 6.1, Manager shall not borrow any money or execute any promissory note,
bill of exchange or other obligation, mortgage or encumbrance in the name and
on behalf of Owner or pledge the credit of Owner without Owner's approval except
for purchases made in the ordinary course of business in the management of the
Hotels within the scope of this Agreement. Manager hereby agrees to indemnify
Owner against any claims, suits, liabilities, costs and expenses,
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including attorneys' fees, which may be asserted against or incurred by Owner
by reason of any such unauthorized actions by Manager. To the extent Manager
uses or pledges its credit in making purchases on behalf of Owner in the
ordinary course of business in the management of the Hotels within the scope of
this Agreement, Owner agrees to pay for such purchases to the extent funds from
the Hotels' operations are insufficient, and agrees to indemnify Manager
against any claims, suits, liabilities, costs and expenses, including, but not
limited to attorneys' fees and costs which may be asserted against or incurred
by Manager by reason of the failure of Owner to pay for such purchases.
10.10 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the Parties with respect to the subject matter hereof.
10.11 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which shall
constitute but one and the same instrument.
10.12 CAPTIONS, ETC. The Index and captions to the Articles and
Sections of this Agreement are for convenience of reference only and in no way
define, limit or describe the pe o intent of this Agreement or any part hereof,
nor in any other way affect this Agreement or any part hereof.
10.13 NO PARTNERSHIP OR JOINT VENTURE. Nothing contained in this
Agreement shall constitute or be construed to be or create a partnership, joint
venture or similar relationship between the Parties.
10.14 AMENDMENT. This Agreement may be amended, modified and/or
supplemented only by written agreement of the parties hereto.
10.15 LIMITED RECOURSE. Notwithstanding anything to the contrary
contained herein or elsewhere, no general partner, limited partner, officer,
director, stockholder, employee, agent, servant or other representative of
Manger (each an "Individual") shall have any personal liability for the
performance of any obligations, or in respect of any liability, of Manager
under this Agreement, and no monetary or other judgment shall be sought or
enforced against any such Individuals or their assets.
10.16 MEMORANDUM OF AGREEMENT. At Manger's request, Owner shall
execute, acknowledge and deliver to Manager, in recordable form, multiple
original counterparts of a memorandum of this Agreement, which Manager is
hereby authorized to record in the property records of each county
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in which a Hotel is located for the purpose of putting subsequent transferees or
prospective transferees on notice concerning the existence of this Agreement.
IN WITNESS WHEREOF, Owner and Manager have executed this Management
Agreement on the day and year first above written.
"Owner" RED LION INNS OPERATING L.P.,
a Delaware limited partnership
By Red Lion Properties, Inc.,
a Delaware corporation,
Its General Partner
By /s/ H. Raymond Bingham
--------------------------------
H. Raymond Bingham
Its Executive Vice President
"Manager" RL ACQUISITION COMPANY,
a California limited partnership
By /s/ H. Raymond Bingham
--------------------------------
H. Raymond Bingham
Its Attorney-In-Fact
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