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EXHIBIT 99.4
EXECUTION COPY
MANAGEMENT AGREEMENT
DATED JANUARY 1, 1998
BETWEEN
RED LION HOTELS, INC.,
a Delaware corporation
AND
WESTBOY LLC,
an Ohio limited liability company
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TABLE OF CONTENTS
MANAGEMENT AGREEMENT................................................................ 1
ARTICLE I
REPRESENTATIONS AND WARRANTIES.......................... 8
1.1 Representations and Warranties of Manager................................ 8
1.2 Representations and Warranties of Westboy................................ 8
ARTICLE II
GENERAL MANAGEMENT AND OPERATION......................... 9
2.1 General Management Services.............................................. 9
2.2 Operating Plan and Budget................................................ 10
2.3 Maintenance, Repairs and Capital Improvements............................ 10
2.4 Books and Records, Financial Statements and Internal Audits.............. 13
2.5 Personnel................................................................ 14
2.6 Special Projects......................................................... 15
2.7 National Sales, Business Promotion and Reservations Services............. 15
2.8 Regional Cooperative Marketing........................................... 17
2.9 Manager's Computer Software.............................................. 17
2.10 Manager's Charge Card.................................................... 18
2.11 Hotel Retail Space....................................................... 18
2.12 Affiliated Companies..................................................... 19
2.13 Costs and Expenses....................................................... 19
2.14 Termination Agreement.................................................... 20
ARTICLE III
MANAGEMENT FEES AND DISTRIBUTION OF CASH FLOW.................. 20
3.1 Definitions of Gross Revenue, Gross Operating Profit, Adjusted Gross
Operating Profit and Cash Flow Available for Incentive Fee............... 20
3.2 Management Fees.......................................................... 23
3.3 Place of Payment......................................................... 25
3.4 Westboy's Obligation to Provide Funds to Pay Fees and Expenses;
Financing Program........................................................ 25
3.5 Hotel Bank Accounts...................................................... 26
3.6 Withdrawals from Hotel Bank Accounts..................................... 26
3.7 Remittances to Westboy................................................... 26
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ARTICLE IV
TERM AND TERMINATION............................... 26
4.1 Term of Agreement; Option to Extend...................................... 26
4.2 Events of Termination.................................................... 27
4.3 Actions to be Taken on Termination....................................... 28
ARTICLE V
INSURANCE.................................... 29
5.1 Insurance by Manager..................................................... 29
5.2 Parties Insured, Amount of Coverage, Etc................................. 30
5.3 Evidence of Insurance, Etc............................................... 31
5.4 Reports by Manager....................................................... 31
5.5 Review of Limits......................................................... 32
5.6 Limitation on Scope of Services.......................................... 32
ARTICLE VI
SUBORDINATION; MORTGAGES............................. 32
6.1 Prohibition Against Mortgaging Hotels or Leasehold Estate................ 32
6.2 Fee Mortgages............................................................ 32
6.3 Subordination............................................................ 33
6.4 Rights of Mortgagee...................................................... 35
6.5 Estoppel Certificates.................................................... 36
ARTICLE VII
DESTRUCTION................................... 36
7.1 Westboy to Restore After Insured Casualty................................ 36
7.2 Termination After Substantial Insured Casualty........................... 36
7.3 Uninsured Casualty - Westboy's Option to Terminate or Restore............ 37
7.4 Commencement and Completion of Casualty Restoration...................... 37
7.5 Proceeds of Business Interruption Insurance.............................. 37
ARTICLE VIII
CONDEMNATION................................... 38
8.1 Permanent Taking......................................................... 38
8.2 Taking for Temporary Use................................................. 38
ARTICLE IX
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ASSIGNMENTS, ETC................................. 39
9.1 By Manager............................................................... 39
9.2 By Westboy............................................................... 40
9.3 Owner Agreement.......................................................... 42
ARTICLE X
MISCELLANEOUS.................................. 42
10.1 Complimentary/Discount Policies.......................................... 42
10.2 Manager Identification; Names of Hotels.................................. 42
10.3 Compliance with Law...................................................... 43
10.4 Governing Law............................................................ 44
10.5 No Waiver of Breach...................................................... 44
10.6 Notices.................................................................. 44
10.7 Successors and Assigns................................................... 45
10.8 Indemnification.......................................................... 45
10.9 Limitation on Pledging Westboy's Credit.................................. 46
10.10 Entire Agreement......................................................... 46
10.11 Counterparts............................................................. 46
10.12 Captions Etc............................................................. 46
10.13 No Partnership or Joint Venture.......................................... 46
10.14 Amendment................................................................ 46
10.15 Limited Recourse......................................................... 47
10.16 Memorandum of Agreement.................................................. 47
10.17 Protection of REIT Status................................................ 47
10.18 Performance of Westboy Obligations....................................... 47
10.19 Performance Guarantee by DT Management, Inc.............................. 48
10.20 Centralized Services..................................................... 48
10.21 Doubletree License Agreement............................................. 48
10.22 Special Provisions with Respect to Bellevue.............................. 49
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MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is entered into as of this 1st
day of January, 1998, by and between WESTBOY LLC, an Ohio limited liability
company ("Westboy"), and RED LION HOTELS, INC., a Delaware corporation
("Manager") (hereinafter sometimes individually referred to as the "Party" and
collectively referred to as the "Parties").
RECITALS
A. Westboy holds a leasehold estate in the hotels described in Exhibit
A, attached hereto and incorporated herein by this reference (the "Hotels"),
pursuant to a Percentage Lease Agreement of even date herewith (the "Percentage
Lease"), by and between Westboy, as Lessee, and Red Lion Inns Operating L.P., a
Delaware limited partnership ("Owner"), as Lessor.
B. Westboy 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:
Additional FFE Reserve shall have the meaning set forth in Section
2.3(c).
Adjusted Gross Operating Profit shall have the meaning set forth in
Section 3.1(d).
Adjustment Date shall mean January 1, 2003, and each January 1 of every
fifth year thereafter (i.e., January 1, 2008, January 1, 2013, etc.) occurring
prior to expiration or earlier termination of this Agreement.
Advanced Incentive Fee Payments shall have the meaning set forth in
Section 3.2(d).
Affiliated Hotels shall mean hotels operating under the tradenames (or
variants thereof) Doubletree, Club Hotel by Doubletree, Doubletree Club and/or
Doubletree Guest Suites) or servicemark(s) now or hereafter used by Manager or
any Manager Affiliates, including, without limitation, the Hotels and Doubletree
hotels operated by Manager or its affiliates
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and Doubletree hotels operated by others under franchise agreements with Manager
or its affiliates.
Annual Debt Service Priority Amount shall have the meaning set forth in
Section 6.3.
Applicable Laws shall mean 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.
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 Article VI of this Agreement.
Approved Mortgagee shall mean the lender making the loan secured by any
Approved Mortgage.
Balance of Shared Priority Capital Cost shall have the meaning set forth
in Section 2.3(h).
Base Fee shall mean the fee calculated as provided in Section 3.2(a).
Base FFE Reserve shall mean an accrual equal to three percent (3%) of
Gross Revenues.
Bellevue Hotel shall have the meaning set forth in Section 10.22.
Capex Threshold Amount shall mean Five Million Dollars ($5,000,000),
except that effective on each Adjustment Date, the Capex Threshold Amount shall
be adjusted to equal the product of Five Million Dollars ($5,000,000) multiplied
by a fraction, the numerator of which is equal to the Consumer Price Index as of
the respective Adjustment Date and the denominator of which is equal to the
Consumer Price Index as of the Commencement Date.
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. No Capital Improvements
shall be owned by Manager.
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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(d).
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.
Centralized Services shall have the meaning set forth in Section 10.20.
Commencement Date shall mean January 1, 1998.
Confidential Software shall have the meaning set forth in Section
2.9(a).
Consumer Price Index shall mean the "U.S. City Average, All Items"
Consumer Price Index for All Urban Consumers published by the Bureau of Labor
Statistics of the United States Department of Labor (Base: 1982-1984=100), or
any successor index thereto. If (i) a significant change is made in the number
or nature (or both) of items used in determining the Consumer Price Index, or
(ii) the Consumer Price Index shall be discontinued for any reason, Westboy
shall request that the Bureau of Labor Statistics furnish a new index comparable
to the Consumer Price Index, together with information which will make possible
a conversion to the new index in computing the adjusted Capex Threshold Amount
hereunder. If for any reason the Bureau of Labor Statistics does not furnish an
index and such information, the Parties will instead mutually select, accept and
use such other index or comparable statistic on the cost of living in Seattle,
Washington that is computed and published by an agency of the United States or a
responsible financial periodical of recognized authority.
Current Priority Amount during any month shall mean an amount equal to
the sum of (i) $888,417, (ii) $16,581, (iii) an amount equal to three-eighths
percent (0.375%) of Gross Revenues per annum, 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 for which there is
not a substitution subject to this Agreement pursuant to Section 9.2(c) (the
"Excluded Hotels"), the amounts described in clauses (i), (ii) 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 three calendar
years (or such lesser period for which results of operation of the Hotels
hereunder
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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.
Debt Allocated to the Hotels shall have the meaning set forth in Section
3.2(f).
Deemed Debt Service shall mean an assumed annual amount that would be
payable under a hypothetical loan in the Maximum Principal Amount, bearing
interest at an annual rate equal to the then applicable interest rate on the
U.S. Treasury issue (primary issue) with a maturity of ten years plus 180 basis
points, and having an amortization period of twenty-five years.
Deferral Interest Rate shall mean fifteen percent (15%) per annum.
Discretionary Capex Fund shall have the meaning set forth in Section
2.3(d).
Disposition shall mean a Taking of a Hotel, an election by Owner or
Westboy, as the case may be, not to restore a Hotel following a casualty, a sale
of a Hotel, an expiration or other termination of a ground lease to Owner as
ground lessee, or any other event which results in a Hotel no longer being
managed by Manager pursuant to this Agreement.
Doubletree shall have the meaning set forth in Section 10.21.
DTM shall have the meaning set forth in Section 10.19.
Event of Termination shall have the meaning set forth in Section 4.2.
Excess Capex Funds shall have the meaning set forth in Section 2.3(c).
Excluded Hotels shall have the meaning set forth in the definition of
Current Priority Amount.
FFE Reserve shall have the meaning set forth in Section 2.3(b).
Financial Statements shall have the meaning set forth in Section 2.4(c).
Furniture, Fixtures 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
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and systems (for example, the elevators). No Furniture, Fixtures and Equipment
shall be owned by Manager.
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).
Gross Rooms Sales shall mean gross revenues of all kinds attributable to
or payable for the rental of guest rooms and suites at the Hotels, from cash,
barter or credit transactions and computed on an accrual basis (before
commissions and discounts for credit cards, prompt or cash payments), including
the proceeds of any business interruption insurance or other loss of income
insurance attributable to lost revenues for the rental of guest rooms and
suites, and excluding only sales or room taxes.
Hotels shall have the meaning set forth in Recital A; provided that, in
the event of a Disposition of a Hotel, "Hotels" shall not include the Hotel
subject to the Disposition from and after the occurrence thereof.
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).
Individual shall mean the meaning set forth in Section 10.15.
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 Westboy.
Manager Affiliate shall mean any individual, company, corporation,
association, partnership, joint venture, business enterprise, trust, estate or
other legal entity which, directly or indirectly, controls or is controlled by
or is under common control with Manager. "Control," with respect to any person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or the policies of such person, whether
through the ownership of equity securities, by contract, or otherwise.
Merger Agreement shall have the meaning set forth in Section 4.1.
Mortgage shall mean a mortgage, deed of trust, security agreement or
other encumbrance affecting the Hotels and existing on the Commencement Date.
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National Sales, Business Promotion and Reservation Services shall have
the meaning set forth in Section 2.7(a).
National Sales, Business Promotion and Reservation Assessment shall have
the meaning set forth in Section 2.7(b).
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 Expenses shall have the meaning set forth in Section 3.1(b).
Operating Plan and Budget shall mean a budget prepared under Section
2.2.
Operating Profit Target shall be $36,000,000. Upon the Disposition of a
Hotel or Hotels for which there is not a substitution subject to this Agreement
pursuant to Section 9.2(c), 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 Westboy.
Operating Year shall mean each calendar year or portion thereof during
the term of this Agreement.
Outside Taking Date shall have the meaning set forth in Section 10.22.
Owner Agreement shall have the meaning set forth in Section 9.3.
Net Proceeds shall have the meaning set forth in Section 3.2(e).
Parties shall mean, collectively, Westboy and Manager.
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Party shall mean, individually, Westboy or Manager.
Person shall mean any individual, corporation, general or limited
partnership, limited liability company, limited liability partnership, stock
company or association, joint venture, association, company, trust, bank, trust
company, land trust, business trust, or other entity and any government or any
agency or political subdivision thereof.
Prime Rate shall mean the fluctuating rate per annum which is publicly
announced from time to time by Citibank, N.A. (or its successor), as being its
so-called "prime rate" or "base rate" thereafter in effect.
Priority Capital Expenditure shall mean a Capital Expenditure that is
compelled to be made (i) by an imminent threat to the health or safety of guests
or employees of a Hotel, (ii) to comply with and abide by Applicable Laws, (iii)
by the terms of subsection 8.1(d), or (iv) in connection with a Casualty
Restoration pursuant to Article VII. The following sentence shall be in effect
until the earlier of the closing of the merger under the Merger Agreement and
December 31, 1998. For purposes of clause (ii) this definition, a Capital
Expenditure is "compelled" if it is required to be made to prevent (A) the
closing of all or any portion of one or more of the Hotels, (B) the imposition
of criminal penalties on Owner, Westboy or Manager, or (C) by order of a
governmental authority having jurisdiction over the subject Hotel.
Priority Return shall mean a monthly return equal to $924,055.
Project shall have the meaning set forth in Section 10.22.
Project Services shall have the meaning set forth in Section 2.6.
Regional Maximum Amount shall have the meaning set forth in Section 2.8.
Shared Priority Capital Expenditure shall mean a Priority Capital
Expenditure that (i) is compelled to be made to comply with the Americans with
Disabilities Act, or (ii) arises from the installation of a sprinkler system
that is compelled to be made by Applicable Law.
Taking shall mean a taking of a fee, leasehold or easement estate as a
result of condemnation or eminent domain, or a conveyance by Owner or Westboy,
as the case may be, in lieu thereof, of or upon all or part of a Hotel.
Taking Authorities shall have the meaning set forth in Section 10.22.
Termination Agreement shall mean the Termination of Management Agreement
of even date herewith, a copy of which is attached as Exhibit B, pursuant to
which the
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Management Agreement, dated April 6, 1987, by and between Red Lion Inns
Operating L.P. and RL Acquisition Company, as amended, has been terminated.
TPR Charges shall have the meaning set forth in Section 2.7(d).
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.
Unsecured Loan shall have the meaning set forth in Section 6.3(b).
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 Westboy.
ARTICLE I
REPRESENTATIONS AND WARRANTIES
1.1 Representations and Warranties of Manager. Manager represents and
warrants to Westboy as follows:
a. Manager is a corporation duly organized and validly existing
under the laws of the State of Delaware.
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 Westboy. Westboy represents and
warrants to Manager as follows:
a. Westboy is a limited liability company duly organized and validly
existing under the laws of the State of Ohio.
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b. Westboy 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
Westboy enforceable in accordance with its terms, and does not
constitute a breach of or default under any other agreement to which
Westboy 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 Westboy, manage the
Hotels in a faithful and efficient manner, consistent with the standards
prevailing in and with the same degree of care as other Affiliated Hotels. In
furtherance thereof, Manager shall:
a. provided Westboy 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 or Westboy after the
date hereof, 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 Affiliated Hotels;
c. at Westboy'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
Westboy'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;
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(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;
(iii) make purchases of 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; and
(iv) make purchases of Furniture, Fixtures and Equipment in
accordance with Section 2.3; and
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 prepare and, on or before thirty
(30) days before the end of each Operating Year, deliver to Westboy 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
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 Hotels' 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. Manager has delivered an
Operating Plan and Budget for 1998.
2.3 Maintenance, Repairs and Capital Improvements.
a. The Hotels shall be managed as a member of the Affiliated 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 Affiliated Hotels and not
be a detriment thereto by reason of any deficient condition thereof. In
furtherance thereof but always subject to the remaining provisions of
this Section 2.3, Manager shall, at Westboy'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
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shall replace all such items of Furniture, Fixtures and Equipment
(subject to the remaining subsections of this Section 2.3) 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. Subject to Section 10.22, provided that
Westboy has cooperated in reserving and spending such amounts required
by subsections 2.3(c), (e) and (g), notwithstanding any other provision
of this Agreement, if Westboy is deemed to be in default of this
subsection 2.3(a), Manager's sole and exclusive remedy shall be to
terminate this Agreement with respect to the noncomplying Hotel; no
termination fees or charges will become payable with respect thereto;
and in no event shall Westboy be liable for money damages nor shall
Manager be entitled to any remedy, at law or in equity, except for
termination.
b. Manager shall hold back from funds otherwise due to Westboy (or
Westboy shall cause Owner to reserve) funds equal to the Base FFE
Reserve (the Base FFE Reserve plus the other amounts to be added to the
Base FFE Reserve pursuant to this Section 2.3 being referred to herein
as 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. All proceeds from the sale of Furniture,
Fixtures and Equipment that are replaced by Manager shall be added to
the FFE Reserve and deposited in the interest bearing account, 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 Westboy
or Owner, as the case may be. Manager may waive the actual depositing 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
deposited, and (ii) Manager shall be entitled to budget and expend, and
Westboy shall be liable for the payment of, such amounts as if they had
been deposited.
c. In addition to the FFE Reserve, from and after June 30, 1998,
Westboy shall reserve (or cause Owner to reserve) (but need not, in
either case, deposit) funds equal to one percent (1%) of Gross Revenue
(the "Additional FFE Reserve") toward the cost of Capital Improvements.
All funds in the Additional FFE Reserve shall be owned by Westboy or
Owner, as the case may be. Amounts in the Additional FFE Reserve up to
the Capex Threshold Amount shall be disbursed only to fund Capital
Improvements that have been approved by Westboy in its sole discretion.
Funds in the Additional FFE Reserve in excess of the Capex Threshold
Amount ("Excess Capex Funds") shall be subject to the next sentence,
shall be deposited (unless waived by Manager) in the FFE Reserve, and
shall be subject to the same conditions as are applicable to the FFE
Reserve. If, by reason of the adjustment in the Capex Threshold Amount
on any Adjustment Date, the amount of any Excess Capex Funds which are
then held in the FFE Reserve in excess of the amount that would
thereafter be required, such surplus shall be disbursed to Westboy to be
held by Westboy as part of the Additional FFE Reserve.
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d. 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 Westboy
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 the sum of (i) all amounts in the FFE Reserve, (ii) all
amounts to be added to the FFE Reserve on a current basis, and (iii) the
Excess Capex Fund (the sum of the amounts described in clauses (i), (ii)
and (iii) of this Section 2.3(d), the "Discretionary Capex Fund"), such
Capital Improvement Plan, in total, shall be subject to Westboy's
approval or disapproval within thirty (30) days after delivery of the
Capital Improvement Plan to Westboy. If Westboy disapproves such Capital
Improvement Plan, Manager shall nonetheless have, and is hereby granted,
the right and authority to make any expenditures set forth on the
disapproved Capital Improvement Plan at Manager's sole discretion
(subject, however, to subsection (g), below), to the extent that the
cost of such expenditures can be paid from the Discretionary Capex Fund.
e. In addition to and without limiting the provisions of subsections
2.3(b)-(d), Westboy agrees to spend Ten Million Dollars ($10,000,000)
prior to June 30, 2000, on Capital Improvements. Westboy will consult
with Manager, but decisions regarding the nature and timing of such
Capital Improvements and the Hotels involved, whether or not the
projects are contemplated by the Capital Improvement Plan, shall be
entirely within the discretion of Westboy (subject, however, to
subsection (g), below). Any portion of the $10,000,000 Capital
Improvement investment that remains uncommitted as of June 30, 2000,
shall be immediately paid by Westboy to Manager for deposit in the
Discretionary Capex Fund.
f. All Capital Improvements 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 appropriate capital
reserve or with Westboy supplied funds, if applicable.
g. Capital Expenditures arising from the installation of a sprinkler
system at any Hotel that is installed at the discretion of or pursuant
to policies of Manager or Manager
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Affiliates (as opposed to being required by Applicable Law), shall be
paid for from the FFE Reserve.
h. In the event that a Priority Capital Expenditure is required, the
cost of such Priority Capital Expenditure shall be allocated and
charged:
(1) if the Priority Capital Expenditure is a Shared Priority
Capital Expenditure, to the FFE Reserve and the Additional
FFE Reserve at a ratio of three to one. If the FFE Reserve
is exhausted prior to full payment of such Shared Priority
Capital Expenditure, then the balance of such cost ("Balance
of Shared Priority Capital Cost") shall be paid for from the
Additional FFE Reserve until the Additional FFE Reserve is
exhausted, and thereafter such cost shall be paid for by
Westboy or Owner, as the case may be. Any amounts paid for
on account of the Balance of Shared Priority Capital Cost
from the Additional FFE Reserve, by Westboy or Owner, as the
case may be, shall be reimbursed dollar-for-dollar from
future amounts to be added to the FFE Reserve, as they
accrue, on a monthly basis.
(2) if the Priority Capital Expenditure is not a Shared Priority
Capital Expenditure, to the Additional FFE Reserve until the
Additional FFE Reserve is exhausted, and thereafter such
cost shall be paid for by Westboy or Owner, as the case may
be.
i. Except as set forth in (a)-(g), above, and in connection with
Priority Capital Expenditures, under no circumstances will (i) Westboy
be required to make expenditures to maintain, repair or improve any
Hotel, or (ii) Manager be authorized to make any expenditures on behalf
of Westboy to maintain, repair or improve any Hotel.
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 Westboy, at all reasonable times, for
examination, audit, inspection and copying. Original records of sales
(guest checks,
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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 Westboy 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, National Sales, Business Promotion and Reservations Assessment
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 Affiliated Hotels.
c. Assuming all required information in the possession of Westboy
and Owner 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 Westboy, 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, statement of earnings and
retained earnings, statement of changes in financial position, and
computation of Gross Revenue, Gross Operating Profit, the Base Fee
National Sales, Business Promotion and Reservations Assessment 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 Westboy may also elect to conduct internal audits of
one or more Hotels from time to time at Westboy's expense and Manager
shall cooperate with Westboy in connection therewith.
e. Manager shall promptly deliver to Westboy copies of any documents
relating to lawsuits and claims or notices received from Owner relating
to a Hotel, 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.
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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 Westboy's cost and
expense, but all such personnel shall be employees of Manager and not
employees of Westboy.
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
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. Direction and administration of renovation
projects, other planning, design, concept development and implementation,
management information systems and accounting services for specific renovation
or other projects and related project management services which any of the
Hotels may require (collectively, "Project Services") are not General Management
Services and are not provided for under the scope of this Agreement.
Accordingly, Manager will not furnish, and Westboy will not be charged for,
Project Services, unless the same are provided for in a Capital Improvement Plan
or Operating Plan and Budget approved by Westboy or otherwise approved by
Westboy. In such event, Manager may use the services of its Manager Affiliates
to perform Project Services, in which case, Project Services shall be furnished
to Westboy on terms and conditions that are comparable to those available from a
competitive outside source. If Manager or a Manager Affiliate desires to perform
any Project Services, unless, in each case, the procedures in this sentence are
waived by Westboy, Manager shall provide Westboy with bids from vendors or
contractors including Manager or a Manager Affiliate, as the case may be.
Westboy shall have the right to select, in its sole discretion, which vendor or
contractor provides the Project Services or, alternatively, to provide or
perform the Project Services for its own account.
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2.7 National Sales, Business Promotion and Reservations Services.
a. Manager shall cause to be furnished to the Hotels certain
services ("National Sales, Business Promotion and Reservation Services")
consisting of central marketing services and a central reservations
system. The central marketing services shall provide System-wide
marketing activities for all Affiliated Hotels and shall include
national and regional advertising, sales promotion, public relations and
direct selling efforts for the collective business development of all
Affiliated Hotels. The central reservations system shall provide a
national toll-free system for inquiries regarding customer bookings and
for making, changing and canceling reservations for the Hotels and other
Affiliated Hotels.
b. Manager shall assess, and Westboy shall pay to Manager, a monthly
assessment (the "National Sales, Business Promotion and Reservations
Assessment") for National Sales, Business Promotion and Reservations
Services equal to three and one-half percent (3 1/2%) of Gross Room
Sales for each of the Hotels. Such amount may be increased by a vote of
the operators, owners or lessees, as the case may be, of a majority of
the rooms and suites in all Affiliated Hotels. The National Sales,
Business Promotion and Reservations Assessment will be payable each
month directly from a bank account for each of the Hotels based upon
Gross Room Sales for the preceding month. The National Sales, Business
Promotion and Reservations Assessment shall be included in the annual
Operating Budgets for the Hotels as a separate line item and shall not
be subject to any approval procedure set forth in this Agreement.
c. Costs of National Sales, Business Promotion and Reservations
Services shall consist of the actual cost of providing such services
without mark-up for profit to Manager or any Manager Affiliate, but
shall include salary and employee benefit costs and cost of equipment
used in providing such services, in each case reasonably allocable
thereto.
d. The National Sales, Business Promotion and Reservations
Assessment does not cover charges for third-party reservations systems
(such as airline reservations systems) and/or third-party reservations
fees ("TPR Charges"), which shall be paid for separately by Westboy as
Operating Expenses of the Hotels. TPR Charges shall include costs
incurred by Manager or any affiliate (without mark-up for profit to
Manager or any affiliate) in administering such systems or fees, such as
salary and employee benefit costs, cost of equipment, and overhead costs
of the home office or any regional or other local office in
administering such systems and fees, in each case reasonably allocable
thereto.
e. National Sales, Business Promotion and Reservations Services may
be provided in common with other hotels, resorts and all-suite
properties owned, operated
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or franchised by, or otherwise affiliated with, Manager or its
affiliates, and with other hotels which elect to participate in such
services. In any event, advertising and promotional materials for
Affiliated Hotels may include cross-sell references to such hotels,
resorts and all-suite properties, and to their affiliation with Manager.
f. Manager may arrange for and make trades of goods and/or services
(including, but not limited to, room/suite occupancy, food, beverages,
incidental charge items and taxes relating to any thereof) furnished or
to be furnished to the Hotels, for goods and/or services (including, but
not limited to, advertising, air and ground transportation, rental
vehicles and taxes relating to any thereof) furnished or to be furnished
to or for the benefit of the Hotels or Manager. In such event, if the
goods and/or services received in a particular trade are exclusively for
the use or benefit of any of the Hotels (and not for any other use or
benefit of Manager or any other hotel or activity) there shall be
included in Gross Revenue the usual charges for the goods and/or
services given therefor in such trade and the same amount shall be
deemed contemporaneously expended as Operating Expenses for such goods
and/or services received; and if the goods and/or services received in a
particular trade are, to any extent, for the use or benefit of Manager
and/or any other hotel or activity (and not exclusively for the benefit
of any of the Hotels), Manager shall pay to the Hotels the usual charges
for the goods and/or services given by the Hotels in such trade (and
such payment shall be included in Gross Revenue), and if any of the
goods or services so received are used by or for the benefit of the
Hotels, the entire amount so paid by Manager shall be equitably
allocated among the Hotels and all other hotels or activities benefiting
therefrom in a manner similar to the allocation of costs of marketing
and of general management services, and the portion thereof fairly
allocable to the Hotels shall be reimbursed to Manager as operating
expense.
g. The Hotels shall participate in the existing "Doubletree" cookie
program. The Hotels shall participate in such other promotional programs
(e.g., frequent flyer programs, etc.) as may, from time to time, be
included in the operational standards applicable to the Hotels. The cost
and expense of such programs will be borne by all participating hotels
in a fair and equitable manner, as reasonably determined by Manager, and
will be in addition to the other fees and charges payable by such
hotels.
2.8 Regional Cooperative Marketing. Manager shall make available to the
Hotels, and the Hotels shall participate in, such regional cooperative
advertising and marketing programs involving other Affiliated Hotels as Manager
deems appropriate based upon geographical and market considerations relevant to
the Hotels. The costs of participating in such programs shall be allocated
equitably among the Hotels and the Affiliated Hotels participating therein, and
Manager shall endeavor to ensure that the Hotels and all such Affiliated Hotels
receive an equitable share of the benefits derived therefrom. The regional
cooperative advertising and marketing programs described in this Section 2.8
shall provide advertising and other marketing activities in addition to National
Sales, Business
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Promotion and Reservations Services and other advertising and marketing
activities of the Hotels, and the charges for such programs shall be in addition
to the National Sales, Business Promotion and Reservations Assessment and
charges for other advertising and marketing activities of the Hotels, if any.
Notwithstanding the foregoing, the maximum charge per Hotel shall not exceed
one-half of one percent (1/2%) of Gross Room Sales per month (the "Regional
Maximum Amount"); provided however, that if all of the hotels participating in a
regional cooperative advertising and marketing program (including any Hotels)
agree to a charge per hotel that exceeds one half of one percent (1/2%) of Gross
Room Sales per month, then the Regional Maximum Amount shall be the maximum
amount agreed to by such hotels.
2.9 Manager's Computer Software.
a. Manager (or a Manager Affiliate) has developed confidential
computer software programs ("Confidential Software") for use at various
hotels managed by Manager. The Confidential Software is used in all of
the Hotels. Manager shall make additional or newly developed
Confidential Software available to Westboy for use at the Hotels using
the Confidential Software for a user fee based on the cost (without
mark-up for profit) 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 of rooms in the Hotels using
the Confidential Software to the total number of rooms in the Affiliated
Hotels using the Confidential Software. Westboy 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 Westboy agrees to
any such change provided it is applied to all other Affiliated 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. Westboy acknowledges Manager's proprietary interest in the
Confidential Software and neither Westboy nor Westboy's employees shall
at any time, directly or indirectly, disclose, disseminate, reproduce,
appropriate or otherwise make a claim of interest concerning such
Confidential Software. Westboy 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, Westboy 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 guests and for
the promotion of the Affiliated Hotels. At any time when such a charge card
system is in effect, Manager shall make such system available to the Hotels, and
Westboy hereby
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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 Westboy leases, licenses and concession
agreements covering the Hotel Retail Space, and shall thereafter administer said
leases, licenses and concession agreements on behalf of Westboy. Any Hotel
Retail Space may be leased to a Manager Affiliate provided that such lease is on
terms and conditions no less favorable to Westboy than those which would
otherwise be available from third parties. Manager shall not enter into or renew
leases for any space in the Hotels, other than Hotel Retail Space, without
Westboy's prior written consent. Manager agrees to submit to Westboy for its
prior approval, the form of any new leases or renewals of existing leases for
any space in the Hotels, and Westboy shall have the right to disapprove (and
Manager will not thereafter enter into) any such lease if the lease is based on
net income or profits of any tenant or on other terms that may, in the
reasonable and good faith judgment of Westboy, cause Westboy to be in violation
of Article XVIII of the Percentage Lease.
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 Westboy hereunder and
Manager shall remain fully liable to Westboy 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. Westboy shall pay Manager for all costs and
expenses incurred by Manager under the terms and provisions of this Article II
(without mark-up for profit for costs and expenses incurred under this Section
2.13), 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
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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. 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 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
c. Charges for the Hotels' pro rata cost of the standard and
customary Manager group services accepted by other Affiliated 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 Affiliated Hotels. Westboy 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
Westboy agrees to any such change provided it is applied to all other
Affiliated 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.
2.14 Termination Agreement. Westboy shall not be responsible or liable
for any of the obligations of Red Lion Inns Operating L.P. arising under the
Termination Agreement or the management agreement terminated thereby.
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ARTICLE III
MANAGEMENT FEES AND DISTRIBUTION OF CASH FLOW
3.1 Definitions of Gross Revenue, 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
Westboy or Manager for the use, occupancy or enjoyment of the Hotels, or
any part thereof, or received by Westboy 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: (i) all income and proceeds received from rental of
rooms and commercial and other space within the Hotels including net
parking revenue; (ii) 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; (iii) 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); (iv) all awards for condemnation for
temporary use (after deducting therefrom all costs incurred in the
adjustment or collection thereof); and (v) 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
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of the Hotels (which costs and expenses do not include depreciation and
amortization except as otherwise provided in this Agreement, any rent
payable by Westboy 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 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 Westboy or by Manager directly or
at Westboy'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;
(v) Insurance premiums for insurance related to Hotel employees
and for insurance required to maintained hereunder other than
insurance premiums relating to fire, extended coverage and business
interruption insurance policies.
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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; and
(ix) All expenses for advertising the Hotels and all expenses of
sales promotion and public relations 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
(whether such sums are paid for by Owner or Westboy):
(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 Westboy;
(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
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(iv) The Base FFE Reserve, plus one-half of one percent (1/2%)
of Gross Revenues.
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 reimbursement 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 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 statements, (ii) shall be payable only after
payment of the Current Priority Amount on a cumulative basis for each
Operating Year and shall be promptly repaid by Manager if any monthly
statement shows that Incentive Fee has been overpaid.
c. Subject to Section 3.2(d), 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 Westboy to Manager from twenty-five percent (25%) of the Cash Flow
Available for Incentive Fee remaining after payment of the current
Incentive Fee.
d. At Manager's sole written election, any amount of Incentive Fee
which would otherwise be accrued pursuant to Section 3.2(c), shall be
paid currently by Westboy (the amount so paid to Manager being referred
to herein as "Advanced Incentive Fee Payments"). In no event, however,
shall the sum of the then outstanding amounts of the Advanced Incentive
Fee Payments plus the then outstanding accrued Incentive Fees exceed
$6,000,000. If Manager makes such election, then:
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(i) Manager shall pay monthly to Westboy interest on the then
outstanding amount of Advanced Incentive Fee Payments at the
Deferred Interest Rate;
(ii) At Manager's written election, Manager may at any time,
prepay to Westboy a portion or all of any Advanced Incentive
Fee Payments received by Manager. The amount so paid by
Manager shall thereafter be considered accrued Incentive
Fees payable to Manager in accordance with this Section 3.2.
e. If there are any accrued Incentive Fees and/or outstanding
Advanced Incentive Fee Payments at the time of the sale or refinancing
of one or more Hotels by Owner, Westboy shall, at the time of such sale
or refinancing, pay to Manager an amount equal to the lesser of: (i)
such accrued Incentive Fees, or (ii) an amount equal to the lesser of
(A) $6,000,000, or (B) the amount of net proceeds of such sale or
refinancing above the amount of Debt Allocated to the Hotels, as defined
in Section 3.2(f), that was in effect immediately preceding such sale or
refinancing, which are being sold or refinanced ("Net Proceeds").
Alternatively, if there are any outstanding Advanced Incentive Fee
Payments at the time of the sale or refinancing of one or more Hotels by
Owner, then, for the purposes of Section 3.2(d)(ii), Westboy shall be
deemed to have been paid by Manager an amount equal to up to the first
$6,000,000 of Net Proceeds on account of such outstanding Advanced
Incentive Fee Payments (i.e., so that Manager shall have no further
obligation to pay any interest payments to the extent of such retirement
of Advanced Incentive Fee Payments), but the amount of such "deemed"
payments shall not increase the amount of accrued Incentive Fees payable
to Manager. If there are both accrued Incentive Fees and outstanding
Advanced Incentive Fee Payments at the time of the sale or refinancing
of one or more Hotels by Owner, then, at Manager's election, either or
both of the first two sentences shall apply to accrued Incentive Fees
and outstanding Advanced Incentive Fee Payments, as aforesaid, in such
proportion as Manager shall determine, provided that in no event shall
an amount equal to more than the first $6,000,000 of Net Proceeds be
applied to this sentence. See Section 6.3(b) as to the effect of
Westboy's election to increase the Annual Debt Service Priority Amount
in connection with an Unsecured Loan, on accrued Incentive Fees and
Advanced Incentive Fee Payments.
f. "Debt Allocated to the Hotels" shall initially be as allocated
under the Existing Mortgage. If, after the Commencement Date, Owner
obtains appraisals (from an independent appraiser which is reputable and
experienced in appraising hotel values) of the value of the Hotels for
use in connection with an Approved Mortgage (other than a Nondisturbance
Mortgage), then the Debt Allocated to Hotels shall be allocated
according to the values set forth in such appraisals. If, after the
Commencement Date, Owner places any Approved Mortgage (other than a
Nondisturbance Mortgage) on the Hotels and no such appraisals are
obtained, then the Debt Allocated to the Hotels shall
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be determined by the ratio of the Gross Operating Profit generated by
such Hotel for the most recently completed full Operating Year, to the
Gross Operating Profit generated by all Hotels for such Operating Year,
multiplied by the principal amount of the Approved Mortgage(s). If Owner
exercises its right, pursuant to Section 6.3, to increase the
subordination of the Incentive Fees in connection with an Unsecured
Loan, or if Owner places a Nondisturbance Mortgage, in either case with
respect to which appraisals are obtained, then the Debt Allocated to the
Hotels shall be determined by allocating the Maximum Principal Amount
according to (or in proportion to, if the debt is in excess of the
Maximum Principal Amount) the values set forth in such appraisals; if
appraisals are not obtained, then the Debt Allocated to the Hotels shall
be determined by the ratio of the Gross Operating Profit generated by
such Hotel for the most recently completed full Operating Year, to the
Gross Operating Profit generated by all Hotels for such Operating Year,
multiplied by the Maximum Principal Amount.
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 Westboy as Manager shall designate in writing to
Westboy.
3.4 Westboy'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, Westboy shall make
deposits of sufficient funds into the Hotels' bank accounts established under
Section 3.5 in order to make such payments. If Westboy 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 (a) the Prime Rate in effect
from time to time, plus one percent (1%) per annum computed on the first day of
each month, or (b) 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 ($5,000,000.00). Each
Hotel's operating expenses shall be paid out of its special accounts or such
other accounts as may be maintained for Westboy, 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
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provisions of this Agreement. Neither Manager nor Westboy 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 Westboy. Concurrently with delivery of the monthly
statements required pursuant to Section 2.4(b), Manager shall remit to Westboy
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 Westboy's
account maintained at the bank where the said account is maintained, or at such
other place as Westboy 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 Commencement Date and shall
terminate, unless sooner terminated as provided in this Agreement, on April 5,
2012. Notwithstanding the foregoing, in the event that the merger contemplated
by the Agreement and Plan of Merger of even date herewith by and among Red Lion
Inns Limited Partnership, Boykin Lodging Company, and other parties thereto (the
"Merger Agreement"), is not completed on or before December 31, 1998, and the
Percentage Lease is terminated by Westboy as of December 31, 1998, then this
Agreement shall automatically terminate as of December 31, 1998, with no further
action by either Party; no termination fees or charges will become payable with
respect thereto; and in no event shall either Party be liable for money damages
or be entitled to any remedy, at law or in equity. If this Agreement is not
terminated pursuant to the immediately preceding sentence, Manager shall have
the right to extend the term of this Agreement by not less than six (6) months'
prior written notice to Westboy 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, provided that such Event of Termination has not been cured,
terminate this Agreement by giving notice to the other
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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 Westboy 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 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 Westboy
hereunder;
c. if Manager or Westboy 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 proceeding, 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 Westboy 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
Manager or Westboy, or appointing a receiver, trustee or liquidator of
all or a substantial part of Manager's or Westboy'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
Westboy 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
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judgment or judgments shall continue undischarged and unsettled for an
aggregate of sixty (60) days (whether or not consecutive).
f. if a breach or default by DTM of its obligations under Sections
10.19 or 10.20 or by Doubletree of its obligations under Section 10.21
shall occur, and such breach or default shall not be cured within thirty
(30) days following 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 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. If an event described in this subsection shall occur, Westboy
shall be considered the nondefaulting party.
Subject to Section 2.3(a) and Section 10.22, if this Agreement is
terminated based upon an Event of Termination, the non-defaulting party shall be
entitled to recover any damages which it can demonstrate based upon such
termination.
4.3 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 4.3(a), Westboy 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
Westboy.
d. Manager shall purchase from Westboy, 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), Westboy 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 or Westboy, but shall not reorder
any such items.
e. Manager shall assign and transfer to Westboy:
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(i) all Westboy'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
(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, Westboy shall reimburse Manager therefor if
Westboy requests such assignment and transfer of such licenses and
permits.
f. Manager shall release and transfer to Westboy any of Westboy'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 Westboy's cost and expense, maintain insurance
coverage on the Hotels and the business conducted therein substantially similar
to that maintained for other Affiliated 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, any adjoining streets and passageways thereof, or
otherwise arising under this Agreement;
(ii) appropriate workers' 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 Westboy's and
Manager's employees at the Hotels;
(iii) insurance against "all risks" of loss or damage, including,
to the extent available at reasonable cost, earthquake and flood,
available under
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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
Affiliated Hotels or such other amounts as shall be agreed to by
Manager and Westboy; 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 Westboy at lesser premiums and otherwise on terms and conditions more
advantageous to Westboy, then Westboy may, upon notice to Manager,
obtain such insurance for its own account. Such notice must be received
by Manager prior to the Commencement Date if it is to become effective
on the Commencement Date, or six (6) months prior to the effective date
of said insurance following the Commencement Date, as the case may be;
provided, however, that Manager shall in all events, at Westboy'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 Westboy elects to
provide the coverage under Section 5.1(a)(ii) for Westboy'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:
a. Manager, Owner and Westboy as parties insured thereunder, as
their interests may appear;
b. except as otherwise expressly stated herein, such amount of
coverage and deductibles shall be in amounts established by Manager for
all Affiliated Hotels or in such greater amounts as Westboy shall
require to protect Westboy from material risk of being a co-insurer;
c. where appropriate, mortgagee endorsements in favor of Approved
Mortgagee(s);
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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 Westboy
and the insurer's waiver of subrogation rights against Westboy 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 transferable 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 shall report to Westboy 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 Westboy 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 5.4(a) and 5.4(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 Commencement 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)
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years; provided, however, that insurance policy limits may not be reduced to an
amount lower than that in effect for all Affiliated Hotels except by mutual
consent of the Parties.
5.6 Limitation on Scope of Services. Westboy 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 Westboy for the
ownership and operation of the Hotels, and Westboy is to rely exclusively on its
own insurance advisors with regard thereto.
ARTICLE VI
SUBORDINATION; MORTGAGES
6.1 Prohibition Against Mortgaging Hotels or Leasehold Estate. Except as
set forth in this Article VI, no mortgages, deeds of trust, liens, or other
encumbrances to secure borrowed money may be placed on the Hotels. Westboy shall
not mortgage or otherwise encumber its leasehold estate in the Hotels. The
limitation in this Section shall not prohibit estoppels, subordinations,
assignments and other customary certificates, agreements and instruments that
may be necessary or required by an Approved Mortgagee in support of indebtedness
of Owner.
6.2 Fee Mortgages.
(a) Westboy covenants with Manager to enforce (and not amend) the
provisions of Section 32.1 of the Percentage Lease (relating to
mortgaging of the fee estate in the Hotels), for the benefit of Manager.
Manager shall have the right to exercise Westboy's approval rights under
Section 32.1 of the Percentage Lease (and Westboy covenants not to
exercise such approval rights without obtaining Manager's prior written
consent). Any mortgage approved thereunder shall constitute an "Approved
Mortgage" and shall be subject to the provisions of Section 3.2(e).
Section 32.1 of the Percentage Lease is attached as Exhibit C hereto.
(b) In the event that Westboy or any successor thereto ever becomes
a fee owner of a Hotel, or if, pursuant to the Owner Agreement, this
form of Management Agreement is used as the basis of an agreement to
manage any of the Hotels between Manager and any other owner of the fee
interest in such Hotels, then Westboy, such successor, or such fee
owner, as the case may be, agrees to recognize and be bound by the
provisions of said Section 32.1 (which provisions shall be incorporated
in the management agreement in question) with the following
understandings:
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(i) The term "Lessor" shall be deemed to refer to the fee owner
of the Hotel(s):
(ii) The term "Lessee" shall be deemed to refer to Manager:
(iii) The term "Fiscal Year" shall be defined as an Operating
Year.
(iv) The term "Cash Flow Available for Debt Service for the most
recent Fiscal Year less the Incentive Amount" shall be defined as
Cash Flow Available for Debt 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).
(v) The term "Existing Mortgages" shall be defined as the
mortgages, deeds of trust, security agreements or other encumbrances
affecting the Hotels and existing as of the date of this Agreement.
(vi) The term "Existing Indebtedness" shall be defined as the
indebtedness secured by the Existing Mortgages.
6.3 Subordination. Manager agrees that this Agreement shall be subject
and subordinate to any Approved Mortgage, and Manager acknowledges and agrees
that in the event of a foreclosure by an Approved Mortgagee under an Approved
Mortgage (other than a Nondisturbance Mortgage), or a deed in lieu of
foreclosure to an Approved Mortgagee under an Approved Mortgage (other than a
Nondisturbance Mortgage), such Approved Mortgagee shall have the right to
terminate this Agreement with respect to any Hotel(s). Manager further agrees
that any Incentive Fees payable hereunder and any amounts payable under the last
paragraph of Section 4.2 (except for amounts payable under this Agreement (other
than Incentive Fees) that have accrued up to, but not including, the time of
termination) are subject and subordinate to, at the option of Westboy or Owner,
as the case may, debt service and rent payable under the Percentage Lease up to
the Annual Debt Service Priority Amount, as hereinafter defined. Initially, the
Annual Debt Service Priority Amount shall be $11,609,000. Manager agrees to
execute in favor of an Approved Mortgagee a subordination agreement with
reasonable and customary terms not inconsistent with this Agreement. The "Annual
Debt Service Priority Amount" either in connection with the placing of an
Approved Mortgage on the Hotels or in connection with unsecured debt borrowed by
the fee owner of the Hotels, shall be adjusted as follows:
a. If, in accordance with the provisions of Section 32.1 of the
Percentage Lease, Owner places any Approved Mortgage on the Hotels, then
the Annual Debt Service Priority Amount shall be adjusted to equal fifty
percent (50%) of an amount equal to the Cash Flow Available for Debt
Service for the most recent full Operating Year at the time that the
Approved Mortgage was placed less the Incentive Fee (without
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any accrual or limitation based upon Cash Flow Available for Incentive
Fee). The provisions of Section 3.2(e) shall apply to any Approved
Mortgage.
b. If there is no Approved Mortgage on the Hotels and if Westboy
desires to increase the Annual Debt Service Priority Amount in
connection with an unsecured loan ("Unsecured Loan") entered into by
Owner, then Westboy may, by written notice given to Manager at the time
that such Unsecured Loan is entered into, adjust the Annual Debt Service
Priority Amount to equal fifty percent (50%) of an amount equal to the
Cash Flow Available for Debt Service for the most recent full Operating
Year at the time the Unsecured Loan was procured less the Incentive Fee
(without any accrual or limitation based upon Cash Flow Available for
Incentive Fee), provided that, if Westboy requests an adjustment under
this subsection: (i) an amount equal to the proceeds of such Unsecured
Loan, up to the Maximum Principal Amount, shall, for the purposes of
Section 3.2(e), be considered to be the proceeds of loan secured by an
Approved Mortgage, and (ii) simultaneously with the giving of such
notice Westboy pays to Manager any accrued Incentive Fees and/or
acknowledges that an amount equal to the Net Proceeds of such Unsecured
Loan have been applied to Advanced Incentive Fee Payments, in accordance
with said Section 3.2(e).
c. The Maximum Principal Amount shall be the highest principal
amount for a loan which satisfies the following conditions: (i) the
loan-to-value ratio (i.e., the ratio of the Maximum Principal Amount to
the value of the Hotels) is no greater than 54%, (ii) Cash Flow
Available for Debt Service for the most recent full Operating Year less
the Incentive Fee (without any accrual or limitation based upon Cash
Flow Available for Incentive Fee) is at least two hundred percent (200%)
of the Deemed Debt Service, and (iii) with respect to an Unsecured Loan,
such Unsecured Loan is otherwise on ordinary and normal terms for the
type of lender making the loan. The Parties agree that the Cash Flow
Available for Debt Service for the most recent full Operating Year is
$23,217,000.
d. In the event a Hotel becomes an Excluded Hotel, the Annual Debt
Service Priority Amount shall be reduced by the product of (x) such
amounts existing immediately before the subject 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 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.
6.4 Rights of Mortgagee. If Westboy 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:
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a. Manager shall, simultaneously with the giving to Westboy 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 Westboy 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 Westboy 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 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 shall become the owner of any
Hotel as a result of any foreclosure or a bona-fide conveyance in lieu
of foreclosure, Manager shall have no right or power to terminate this
Agreement, and shall recognize such Approved Mortgagee or such other
person or entity as Owner to the same extent as though it or they had
been Owner hereunder as of the execution of this Agreement; provided,
however, that such Approved Mortgagee 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.
6.5 Estoppel Certificates. Manager agrees, at any time and from time to
time, upon not less than fifteen (15) days prior written notice by Westboy,
Owner or an Approved Mortgagee, to execute, acknowledge and deliver to 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 Westboy 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 Westboy,
then Westboy shall (or shall cause Owner to) repair, restore, replace or rebuild
such Hotel ("Casualty Restoration") to the extent insurance proceeds are made
available to Westboy 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 Westboy in obtaining
all insurance proceeds payable on account of such damage or destruction so that
the same shall be available to Westboy (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 Westboy 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, Westboy 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 Westboy elects to
terminate this Agreement with respect to such Hotel, Westboy 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 Westboy has elected to terminate this Agreement for the most
recent full Operating Year together with interest on such amount at the
annual rate of interest from the date of casualty to the date of payment
equal to Prime Rate plus one percent (1%); provided, however, if Westboy
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, Westboy may deliver its duly
executed, acknowledged and recordable deed to the Hotel together with
all insurance proceeds paid to Westboy in respect of such casualty
(together with an assignment of any unpaid insurance proceeds with
respect to such casualty) in full satisfaction of Westboy's obligation
to pay such termination fee to Manager. Notwithstanding such election by
Westboy to terminate this Agreement with respect to such Hotel, such
Hotel shall remain subject to Manager's right of first refusal pursuant
to the Owner Agreement and Section 9.3(a) hereof.
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b. Westboy must notify Manager within thirty (30) days of the
occurrence of such damage or destruction whether Westboy elects to
terminate this Agreement under this Section 7.2 with respect to a Hotel
that has suffered a casualty.
7.3 Uninsured Casualty - Westboy'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
Westboy or Owner, and the estimated cost of the Casualty Restoration exceeds
thirty percent (30%) of the total replacement cost (without deduction for
depreciation) of such Hotel, then Westboy 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 Westboy
shall be entitled to terminate this Agreement under Sections 7.2 or 7.3, Westboy
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 obligation 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 Westboy 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 Westboy to Manager under this Agreement.
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 Westboy 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 Westboy or Manager may terminate this Agreement
with respect to such Hotel.
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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 Westboy to the extent of Manager's loss; provided,
however, that Westboy 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 Westboy shall repair, restore, replace or
rebuild the remainder of such Hotel to the extent condemnation proceeds
are made available to Westboy for such repair, restoration, replacement
or rebuilding as nearly as possible to its value, condition and
character immediately prior to the Taking. Westboy 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:
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,
Westboy shall, to the extent condemnation proceeds are made available to
Westboy 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 or Years in which
received, and the remainder of such awards or other proceeds (including
interest as aforesaid) shall be paid to Westboy.
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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 Westboy 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
Westboy 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.
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 Westboy'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 Manager through one
or more transactions, if the Management Agreement constitutes
substantially all of the assets of Manager at the time of such event,
then such event shall be subject to the prior written consent of
Westboy, 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
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(ii) the delivery to Westboy of an executed counterpart of the
instrument of assignment and assumption of right 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.
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 Westboy's approval.
9.2 By Westboy.
a. Subject to Manager's rights pursuant to Section 9.3, so long as
no default attributable to Westboy shall have occurred and be
continuing, including an Event of Termination and subject to Section
9.2(b), Westboy 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 (subject to the assignee's option under subsection 9.2(b)(i)(B)
and Westboy's option under subsection 9.2(c)) this Agreement to the
extent appropriate together with all assets of Westboy 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 (A) assume and agree to be bound by all of
the terms and provisions of this Agreement or, at the assignee's
option, (B) agree to a management agreement in the same form as this
Agreement, or in substantially the same form to account for
differences if the new management agreement covers a single hotel or
is an agreement with an assignee who is the owner of the fee title
in the Hotel in question rather than a leasehold interest), except
that (a) the Current Priority Amount for such Hotel shall be the
amount by which the Current Priority Amount existing immediately
before such Disposition exceeds the Current Priority Amount for the
Hotels which continue to be leased by Westboy, and (b) the Operating
Profit Target for such Hotel shall be the amount by which the
Operating Profit Target existing immediately before such Disposition
exceeds the Operating Profit Target for the Hotels which continue to
be leased by Westboy;
(ii) the delivery to Manager of an executed counterpart of the
instrument of assignment and assumption of rights and obligations;
and
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(iii) the assignee shall be a 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. This subsection (c) shall apply only to the Hotels located in
Spokane, Yakima, and Bellevue, Washington, and Springfield, Oregon. In
the event that Westboy desires to assign, transfer or convey an interest
in any of the Hotels located in Spokane, Yakima or Bellevue, Washington,
or Springfield, Oregon, such interest may be freely transferred, not
subject to this Agreement or any other agreement with Manager, provided
that there is offered to be to substituted therefor (whether under this
Agreement or another management agreement with Manager), a full service
hospitality property owned or otherwise controlled by Owner that (i) on
a pro forma basis will provide Manager with the greater of (A) a base
fee equivalent to three percent (3%) of Gross Revenues and an incentive
fee equivalent to the incentive fee then received by Manager in similar
hotels, and (B) the sum of the Base Fee and the Incentive Fee (without
any accrual or limitation based on Cash Flow Available for Incentive
Fee) for the prior full Operating Year attributable to the transferred
Hotel, (ii) meets then current Doubletree standards, (iii) is to be
operated as a Doubletree hotel or other full-service Manager Affiliate
brand, and (iv) was not operated as a Doubletree hotel immediately prior
to such substitution. In the event that such substitute hotel is not
opened and operated as a Doubletree hotel or other full-service Manager
Affiliate brand within 180 days after the transfer of the prior hotel,
then Westboy shall pay, on a monthly basis, the amount set forth in
clause B of the preceding sentence. If by the one year anniversary of
the termination of such 180 day period, such substitute hotel is not
opened and operated as a Doubletree hotel, Westboy shall pay to Manager,
on demand, an amount equal to the present value (discounted at the Prime
Rate) of the difference between the remaining gross fees (including,
without limitation, Base Fees and Incentive Fees) expected to be payable
under this Agreement after such Disposition (assuming all extension
options are exercised), and the expected gross fees which would have
been payable to Manager under this Agreement (assuming all extension
options are exercised) had the Hotel not been subject to a Disposition.
d. In the event that Westboy 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), or under Section 9.2(c), then Westboy shall
not be liable for any obligation arising under this Agreement after the
date of such assignment, transfer or conveyance. In the event that
Westboy shall assign, transfer or convey its right, title and interest
in a Hotel pursuant to Section 9.2(c), then Westboy shall not be liable
for any obligation under this Agreement with respect to the Hotel which
has been affected by such assignment, transfer or conveyance, after the
date of such assignment, transfer or conveyance,
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provided however, that nothing herein shall relieve Westboy of its
obligations to Manager under Section 9.2(c).
e. Except as set forth in this Section 9.2, Westboy shall have no
right to transfer, assign, or convey its interest in the Hotels.
9.3 Owner Agreement. Manager is a party with Owner to an Owner
Agreement, a copy of which is attached hereto as Exhibit D (the "Owner
Agreement"). In the event that Westboy or any successor thereto ever becomes a
fee owner of a Hotel, or if, pursuant to the Owner Agreement, this form of
Management Agreement is used as the basis of an agreement to manage any of the
Hotels between Manager and any other owner of the fee interest in such Hotels,
then Westboy, such successor, or such fee owner, as the case may be, agrees to
recognize and be bound by the rights of Manager under the Owner Agreement
contained in Section 16 thereof.
ARTICLE X
MISCELLANEOUS
10.1 Complimentary/Discount Policies. Westboy 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
Westboy's discount policies at the Hotels which are in effect from time to time.
10.2 Manager Identification; Names of Hotels.
a. The names of the Hotels are set forth in Exhibit A attached hereto
and incorporated herein by this reference. Westboy acknowledges that
such names are the property of Manager or a Manager Affiliate, 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 Westboy 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" or "Doubletree", such name(s) would be the property of
Westboy. Prior to termination of this Agreement, Manager may not change
the name of a Hotel without Westboy's prior written consent. If Manager
breaches the prohibition in the immediately preceding sentence, Westboy
shall have the right to terminate this Agreement and be entitled to all
remedies available to it, at law or in equity. Without limiting the
immediately preceding sentence, for each of the Hotels, Manager
covenants to maintain a license for the Hotel names and for the
Doubletree system. Upon the termination of this Agreement for any reason
whatsoever, Westboy shall have no right to use, and shall refrain from
using, any name incorporating the terms "Red
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Lion" or "Doubletree" and any other name or variant thereof employed in
connection with the name(s) of any Hotel.
b. Westboy further acknowledges that the trade name "Doubletree" or
cognates or successors thereof, and Manager's logotype or cognates or
successors thereof, are the property of Manager or a Manager Affiliate
and that, upon termination of this Agreement for any reason whatsoever,
Westboy 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, Westboy 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, Westboy
agrees that it will not engage in a business or advertising practice
which will lead the public or the Hotels' customers to believe there is
any relationship, affiliation or identity with Manager. Westboy further
agrees that during the term of this Agreement it will not identify as a
"Doubletree" hotel any hotel which is not a Doubletree 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 Westboy, to comply with and
abide by all Applicable Laws. 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
Westboy.
b. With respect to a violation of any such laws, rules, regulations,
requirements, orders, notices, determinations or ordinances, Westboy
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. Notwithstanding
the foregoing, until the earlier of the closing of the merger under the
Merger Agreement and December 31, 1998, Westboy shall have the right to
contest such violations and postpone compliance pending the
determination of such contest if so permitted by law and so long as such
contest would not result in (i) the closing of all or any portion of one
or more of the Hotels, or (ii) the imposition of criminal penalties on
Owner, Westboy or Manager.
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 internal substantive laws of the State of New York,
without consideration of conflicts of
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laws; provided, however, with respect to the creation, perfection, priority and
enforcement regarding any liens created by this Agreement, and the determination
of deficiency judgments, the laws of the state where the Hotel is located shall
apply.
10.5 No Waiver of Breach. No failure by Manager or Westboy 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 consents, approvals, notices or other communications
provided for in this Agreement shall be in writing and shall be deemed delivered
when personally served at, or sent by reputable overnight delivery service or by
postage prepaid Registered or Certified Mail to, the respective addresses for
Westboy and Manager set forth below, until such time as written notice, as
provided hereby, of a change of address with a new address to be used thereafter
is delivered to the other Party. Upon request a Party shall send copies of any
notice or communication by ordinary mail as instructed by the other Party.
If to Manager:
Red Lion Hotels, Inc.
410 North 44th Street
Suite 700
Phoenix, Arizona 85008
Attention: Chief Financial Officer
If to Westboy (until March 1, 1998):
c/o Boykin Management Company
Terminal Tower, Suite 1500
50 Public Square
Cleveland, Ohio 44113
Attention: President
If to Westboy (from and after March 1, 1998):
c/o Boykin Management Company
Guildhall Building
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45 West Prospect Avenue
Suite 1500
Cleveland, Ohio 44115
Attention: President
with a copy to:
Red Lion Inns Operating L.P.
410 North 44th Street
Suite 700
Phoenix, Arizona 85008
Attention: Chief Financial Officer
or at such other address as the party to whom the notice is sent shall have
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. Westboy 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 omission of Manager
in the performance of its obligations under this Agreement; provided, however,
that Manager shall protect, defend, indemnify and save harmless Westboy 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. The provisions of
this Section 10.8 shall survive termination of this Agreement.
10.9 Limitation on Pledging Westboy's Credit. 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 Westboy or pledge the
credit of Westboy without Westboy'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 Westboy against any claims,
suits, liabilities, costs and expenses, including attorneys' fees, which may be
asserted against or incurred by Westboy by reason of any such unauthorized
actions by Manager. To the extent Manager uses or pledges its credit in making
purchases on behalf of Westboy in the ordinary course of business in the
management of the Hotels within the scope of this Agreement, Westboy agrees to
pay for
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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 Westboy
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 purpose or 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. Westboy covenants with
Manager not to amend the Percentage Lease, without prior approval of Manager, in
any manner which materially adversely effects Manager's economic interest;
provided, however, that Manager agrees that an amendment revising the formulas
for Base Rent and Percentage Rent (as defined in the Percentage Lease) so that
such formulas substantially reflect the then prevailing rents under Leases made
by REIT's of similar properties, as agreed to by Lessee and Lessor in good
faith, will not constitute a materially adverse effect on Manager's economic
interest.
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
Manager (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 Manager's request, Westboy 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 in which a Hotel is
located for the purpose of putting subsequent transferees or prospective
transferees on notice concerning the existence of this Agreement.
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10.17 Protection of REIT Status and MLP Status.
(a) Anything contained in this Agreement to the contrary
notwithstanding, Manager shall not sublet any part of the Hotels on any
basis such that the rental to be paid by Tenant or sublessee thereunder
would be based, in whole or in part, on either (i) the income or profits
derived by the business activities of the sublessee, or (ii) any other
formula such that any portion of the Rent would fail to qualify as
"rents from real property" within the meaning of Section 856(d) of the
Code, or any similar provisions thereto.
(b) Anything contained in this Agreement to the contrary
notwithstanding, Manager shall not sublease any portion of the Hotels to
any Person in which Owner or the direct or indirect owner of Owner owns,
directly or indirectly, a ten percent (10%) or more interest, within the
meaning of Section 856(d)(2)(B) of the Code or any similar or successor
provisions thereto.
(c) Anything contained in this Agreement to the contrary
notwithstanding, neither Manager nor any Manager Affiliate shall
acquire, directly or indirectly, a ten percent (10%) or more interest in
Boykin Lodging Company, within the meaning of Section 856(d)(2)(B) of
the Code or a five percent (5%) or more interest in Boykin Hotel
Properties, L.P. as set forth in Section 7704 of the Code, or any
similar or successor provisions thereto.
10.18 Performance of Westboy Obligations. Without limiting the
underlying obligations of Westboy under this Agreement, Manager acknowledges
that certain of the obligations of Westboy hereunder (e.g., maintenance of
insurance, funding of Capital Improvements, payment of ground lease rentals and
payment of ad valorem taxes) are contemplated to be discharged by Owner pursuant
to the Percentage Lease. Wherever Westboy is required to perform obligations
under this Agreement which are to be performed by Owner, Westboy shall cause
Owner to perform such obligations and the failure of Owner to timely perform
such obligations shall be deemed to be a default by Westboy under this
Agreement. Nothing in this Agreement shall be construed to require Westboy, in
its performance hereunder, to duplicate the performance of Owner under the
Percentage Lease. Wherever Westboy is required to perform obligations under this
Agreement which are to be performed by Owner, Westboy shall cause Owner to
perform such obligations. The failure of Owner to timely perform such
obligations shall not excuse any default by Westboy arising hereunder.
10.19 Performance Guarantee by DT Management, Inc..
(a) DT Management, Inc., a Delaware corporation ("DTM"), a Manager
Affiliate, hereby absolutely and unconditionally guarantees the prompt
performance of all the terms, covenants, and conditions of this
Agreement to be performed by
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Manager, and prompt payment when due of any and all existing and future
liability of every kind, nature or character owing to Westboy under this
Agreement, whether direct or indirect, absolute or contingent.
(b) The obligations of DTM set forth in this subsection (a) shall
extend to all amendments, supplements, modifications, renewals,
replacements and extensions granted by Westboy. The liability of DTM and
the rights of Westboy under this Section shall not be impaired or
affected in any manner by, and DTM hereby consents in advance to and
waives any requirement of notice for, any (1) release (including
adjudication or discharge in bankruptcy) or settlement with any person
primarily or secondarily liable for performance and payment under this
Agreement; (2) delay in enforcement of this Agreement or this Section;
or (3) delay, omission, waiver, or forbearance in exercising any right
or power with respect to this Agreement.
10.20 Centralized Services. DTM represents and warrants to Westboy that
it controls the systems accessed by Manager and Manager Affiliates in delivering
management services on a centralized basis including, without limitation,
National Sales, Business Promotion and Reservation Services (collectively,
"Centralized Services"). Understanding that Westboy is relying on the provisions
of this subsection in entering into this Agreement, DTM covenants to Westboy to
cooperate with and assist Manager in discharging Manager's obligations hereunder
that are subject to Centralized Services, including, without limitation,
management services described in Sections 2.1, 2.3 and 2.7 hereof.
10.21 Doubletree License Agreement. Doubletree Corporation
("Doubletree") represents and warrants to Westboy that a License Agreement in
the form of Exhibit E has been executed and delivered by Doubletree and Manager
and that the License Agreement is in full force and effect. Doubletree and
Manager each covenants with Westboy that, while this Agreement is in effect with
respect to a particular Hotel, they will not, without Westboy's consent (which
may be withheld in Westboy's sole discretion), (a) amend or waive any provision
of the License Agreement that would limit the ability of the Parties to use the
Hotel names listed on Exhibit A or the names that may become substituted
pursuant to the terms hereof during the term of this Agreement, or (b) terminate
the License Agreement.
10.22 Special Provisions with Respect to Bellevue. Reference is made to the
fact that the Federal Highway Administration, the Department of Transportation
of the State of Washington and the City of Bellevue, Washington (collectively
"Taking Authorities") are considering a taking affecting the Hotel located in
Bellevue, Washington (the "Bellevue Hotel") for the purpose of the Northeast
8th/I-405 Interchange Project (the "Project").
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(a) Notwithstanding the provisions of Section 2.3(a), Manager shall
have no right to terminate this Agreement with respect to the Bellevue
Hotel pursuant to Section 2.3(a) prior to the Outside Taking Date.
(b) The "Outside Taking Date" shall be defined as the earlier of (x)
June 30, 2010 (except that if prior to June 30, 2010, any of the Taking
Authorities has issued a notice of taking or written offer to purchase
in connection with the Project that has not, as of June 30, 2010,
concluded, then the Outside Taking Date pursuant to this clause (x)
shall be June 30, 2013, or (y) three (3) years after the Project has
concluded.
(c) For purposes of Section 10.22: the Project shall be "concluded"
if either (i) there has been (A) executed with respect to the Bellevue
Hotel or the land on which it is located, a Purchase by Deed, or (B) a
judgment entered in a just compensation proceeding in connection with a
taking of the Bellevue Hotel, or the land on which it is located, or
(ii) the Taking Authorities have conclusively abandoned the Project.
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IN WITNESS WHEREOF, Westboy and Manager have executed this Management
Agreement on the day and year first above written.
"Westboy" WESTBOY LLC, an Ohio limited liability
company
By: /s/ Boykin Management Company Limited Liability Company
--------------------------------------------------------
Its Managing Member
By: /s/ Ronald A. Cook
--------------------------------------------------------
"Manager" RED LION HOTELS, INC.,
a Delaware corporation
By: /s/ Anupam Narayan
--------------------------------------------------------
Anupam Narayan
Executed for the purpose of acknowledging and agreeing to the terms of
Section 10.19 and Section 10.20.
DT MANAGEMENT, INC.,
a Arizona corporation
By: /s/ David Heuck
--------------------------------------------------------
David Heuck
Executed for the purpose of acknowledging and agreeing to the terms of
Section 10.21.
DOUBLETREE CORPORATION,
a Delaware corporation
By: /s/ David L. Stivers
--------------------------------------------------------
David L. Stivers
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EXHIBIT A
THE HOTELS
Doubletree Hotel Bellevue Center
818-112th Avenue NE
Bellevue, Washington
Doubletree Hotel Riverside
29th & Chinden Blvd.
Boise, Idaho
Doubletree Hotel Colorado Springs - World Arena
1775 E. Cheyenne Mountain Blvd.
Colorado Springs, Colorado
Doubletree Hotel Omaha Downtown
1616 Dodge Street
Omaha, Nebraska
Doubletree Hotel Portland Downtown
310 SW Lincoln
Portland, Oregon
Doubletree Hotel Sacramento
2001 Point West Way
Sacramento, California
Doubletree Hotel Spokane Valley
I-90 at Sullivan Road
Spokane, Washington
Doubletree Hotel Eugene/Springfield
3280 Gateway Road
Springfield, Oregon
Doubletree Hotel Yakima Valley
1507 North First Street
Yakima, Washington
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Doubletree Hotel Lloyd Center
1000 N.E. Multnomah
Portland, Oregon
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EXHIBIT B
TERMINATION OF MANAGEMENT AGREEMENT
(attached)
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EXHIBIT C
TEXT OF SECTION 32.1
OF THE PERCENTAGE LEASE
32.1 Authorization to Mortgage Hotels. Except as set forth in this Section 32.1,
Lessor shall have no right to place any mortgage, deed of trust, lien or other
encumbrance on the Leased Property.
(a) Approved Mortgages. Lessee hereby consents to and approves the
Existing Indebtedness and the Existing Mortgages. Lessor shall have the right to
grant to any subsequent lender lending funds to Lessor, a lien or encumbrance on
all or any part of the Lessor's right, title and interest in and to this
Agreement (collectively the "Collateral"); provided, however that either (i) the
aggregate principal amount of all loans secured by the Collateral does not
exceed, One Hundred and Twenty Million and No/100 Dollars ($120,000,000.00) and
the loans are not cross-defaulted or cross-collateralized with any other
obligation (the parties hereby agree that if any Hotel is sold by Lessor, such
$120,000,000 limitation shall be reduced by the amount of the debt allocated to
the Hotel that is sold, and if a substitute Hotel is put in place, the amount
allocated to the sold Hotel shall be restored to the extent of the value of the
substitute Hotel relative to the value of the sold Hotel, as the value of the
substitute Hotel is determined by mutually agreeable appraisal or other mutually
agreeable method, (ii) such loan has been approved in writing by Lessee, which
consent shall not be unreasonably withheld provided that (A) the loan-to-value
ratio is no greater than fifty-four percent (54%), (B) the Cash Flow Available
For Debt Service for the most recent Fiscal Year less the Incentive Amount is at
least two hundred percent (200%) of the scheduled debt service for such new
loan, (C) the new loan is otherwise on ordinary and normal terms for the type of
lender making such loan, and (D) the loan is not cross-defaulted or cross-
collateralized with any other obligation (and the parties hereby agree that if
any Hotel is sold by Lessor, the permissible principal amount of a loan
qualifying under this subsection (ii) shall be reduced by the amount of the debt
allocated to the Hotel that is sold, and if a substitute Hotel is put in place,
the amount allocated to the sold Hotel shall be restored to the extent of the
value of the substitute Hotel relative to the value of the sold Hotel, as the
value of the substitute Hotel is determined by mutually agreeable appraisal or
other mutually agreeable method, if any), or (iii) the loan is secured by a lien
or encumbrance ("Nondisturbance Mortgage") and the lender lending funds to
Lessor executes a nondisturbance agreement ("Nondisturbance Agreement"), in form
reasonably acceptable to Lessee and Manager (if any), in favor of Lessee and its
Manager (if any) (any mortgage, deed of trust or other encumbrance securing a
loan meeting the criteria set forth in (i), (ii) or (iii) above is herein
referred to as an "Approved Mortgage"). If Lessor has not delivered to Lessee a
commitment for the refinancing of the loan secured by the Existing Mortgage or
any loan secured by an Approved Mortgage within 60 days of the scheduled
maturity of such loan, Lessee shall
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have the right, on behalf of Lessor, 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. Lessor shall execute any and all documents reasonably
requested by Lessee in connection with such placement of a new loan. Any
mortgage securing such a loan obtained by Lessee on behalf of Lessor shall be an
Approved Mortgage. Lessee shall have no obligation to place such a loan on
behalf of Lessor.
(b) Debt shall be allocated to the Hotels initially as allocated under
the Existing Mortgages. If, after the Commencement Date, Owner obtains
appraisals (from an independent appraiser which is reputable and experienced in
appraising hotel values) of the value of the Hotels for use in connection with
an Approved Mortgage (other than a Nondisturbance Mortgage), then the debt shall
be allocated according to the values set forth in such appraisals. If, after the
Commencement Date, Owner places any Approved Mortgage (other than a
Nondisturbance Mortgage) on the Hotels and no appraisals are obtained, then the
debt shall be allocated by the ratio of the Gross Operating Profit generated by
such Hotel for the most recently completed full Fiscal Year, to the Gross
Operating Profit generated by all Hotels for such Fiscal Year, multiplied by the
principal amount of the Approved Mortgage(s). If Owner places a Nondisturbance
Mortgage with respect to which appraisals are obtained, then the Debt Allocated
to the Hotels shall be determined by allocating the Maximum Principal Amount
according to (or in proportion to, if the debt is in excess of the Maximum
Principal Amount) the values set forth in such appraisals; if appraisals are not
obtained, then the Debt Allocated to the Hotels shall be determined by the ratio
of the Gross Operating Profit generated by such Hotel for the most recently
completed full Operating Year, to the Gross Operating Profit generated by all
Hotels for such Operating Year, multiplied by the Maximum Principal Amount.
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EXHIBIT D
OWNER AGREEMENT
(attached)
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EXHIBIT E
LICENSE AGREEMENT
(attached)
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