-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QS6emyqOWzW7sgCxr/ppbPioe9HKu18JAerpRjFlSGFIk1qXSpKmOeE3wYAiSD2I SmG2AqlX2V9lE9jr3jptuA== 0000950152-98-000151.txt : 19980112 0000950152-98-000151.hdr.sgml : 19980112 ACCESSION NUMBER: 0000950152-98-000151 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971230 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980109 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOYKIN LODGING CO CENTRAL INDEX KEY: 0001015859 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 341824586 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-11975 FILM NUMBER: 98503905 BUSINESS ADDRESS: STREET 1: 1500 TERMINAL TOWER STREET 2: 50 PUBLIC SQUARE CITY: CLEVELAND STATE: OH ZIP: 44113 BUSINESS PHONE: 2162416375 MAIL ADDRESS: STREET 1: 1500 TERMINAL TOWER STREET 2: 50 PUBLIC SQUARE CITY: CLEVELAND STATE: OH ZIP: 44113 FORMER COMPANY: FORMER CONFORMED NAME: BOYKIN LODGING TRUST INC DATE OF NAME CHANGE: 19960604 8-K 1 BOYKIN LODGING COMPANY 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: December 30, 1997 --------------------------- BOYKIN LODGING COMPANY (Exact Name of Registrant as Specified in Its Charter) Ohio 001-11975 34-1824586 (State or Other Jurisdiction (Commission File Number) (IRS Employer of Incorporation) Identification Number) Terminal Tower, Suite 1500, 50 Public Square, - --------------------------------------------- Cleveland, Ohio 44113 --------------- ----- (Address of Principal Executive Offices) (Zip Code) (216) 241-6375 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) 2 ITEM 5. OTHER EVENTS. The Merger - ---------- On December 30, 1997, Boykin Lodging Company, an Ohio corporation ("Parent"), entered into an Agreement and Plan of Merger (the "Merger Agreement") with Red Lion Inns Limited Partnership, a Delaware limited partnership (the "Partnership"), Red Lion Properties, Inc., a Delaware corporation (the "General Partner"), Red Lion Inns Operating L.P., a Delaware limited partnership (the "Subsidiary Partnership"), Boykin Hotel Properties, L.P., an Ohio limited partnership ("Boykin LP"), Boykin Acquisition Corporation I, Inc., an Ohio corporation and a wholly owned subsidiary of Parent ("Newco I"), Boykin Acquisition Corporation II, Inc., an Ohio corporation and a wholly owned subsidiary of Parent ("Newco II"), and Boykin Acquisition Partnership, L.P., a Delaware limited partnership ("Merger Sub"), pursuant to which the Merger Sub will be merged with and into the Partnership (the "Merger"). The Merger Agreement and the Merger were unanimously approved by the board of directors of Parent. The Merger is expected to close in March 1998. As a result of the Merger (which will be a taxable transaction), (i) each issued and outstanding limited partnership unit of the Partnership (each a "Unit" and collectively, the "Units") will be converted into the right to receive a pro rata portion per Unit of that portion of the Cash Consideration (as defined below) and that portion of the Share Consideration (as defined below) allocated to the holders of the Units pursuant to the allocation schedule attached to the Merger Agreement (the "Allocation Schedule") and (ii) the General Partner's general partnership interest in the Partnership will be converted into the right to receive that portion of the Cash Consideration and that portion of the Share Consideration allocated to the General Partner pursuant to the Allocation Schedule. "Cash Consideration" means an amount in cash equal to approximately $35.3 million minus the amount of cash required to be paid to the General Partner, in its capacity as the general partner of the Subsidiary Partnership, pursuant to the Assignment Agreement (as defined below). "Share Consideration" means that number of Common Shares, without par value, of Parent (the "Parent Common Shares") equal to approximately 3.1 million minus the number of the Parent Common Shares required to be issued to the General Partner, in its capacity as the general partner of the Subsidiary Partnership, pursuant to the Assignment Agreement. Based upon the closing price of the Parent Common Shares on December 30, 1997, the Share Consideration and the Cash Consideration equal $115.4 million, or $26.37 for each Unit. Because the number of Parent Common Shares to be issued in the Merger is fixed, and because of the General Partner's interest, the total value of the Share Consideration and the Cash Consideration to be received by the holders of the Units will be based upon the price of the Parent Common Shares at the closing of the Merger. The Merger is conditioned upon, among other things, approval by the holders of a majority of the outstanding Units of the Partnership and the holders of a majority of the outstanding Parent Common Shares. The Merger Agreement provides that the Partnership may not, and the General Partner shall cause the Subsidiary Partnership not to, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to, any person (other than Parent and its affiliates) concerning any proposal for an acquisition of all or substantially all of the business and properties or partnership units or interests of the Partnership or the Subsidiary Partnership, whether by merger, tender offer, purchase of assets or partnership units or otherwise (the "Acquisition Proposal") (including any person with whom discussions or negotiations have previously been held concerning any Acquisition Proposal), subject to certain exceptions. If the Merger Agreement is terminated under certain circumstances, the Partnership must (i) reimburse Parent and Boykin -1- 3 Management Company Limited Liability Company for certain out-of-pocket expenses related to the negotiation, execution and delivery of the Merger Agreement and the performance of the obligations contained therein and (ii) pay to Parent a break-up fee of $5.5 million (subject to certain adjustments). The Merger Agreement also provides that the Partnership will pay a special distribution (the "Special Distribution") to the holders of the Units and the General Partner immediately prior to the closing of the Merger (the "Closing") in an amount such that the Special Distribution plus the accrued dividend on the Parent Common Shares to be received by the holders of the Units and the General Partner will equal the Partnership's existing distribution rate prorated to the Closing. The Merger Agreement is filed as Exhibit 2.1 hereto and is incorporated herein by reference. Related Arrangements - -------------------- In connection with the execution of the Merger Agreement, each of the Assignment Agreement, the Lease Agreement, the Termination Agreement, the Management Agreement and the Owner Agreement (each as described below) were executed on December 30, 1997. The General Partner entered into a Partnership Interest Assignment Agreement (the "Assignment Agreement") with Parent, Boykin LP and West Doughboy LLC, an Ohio limited liability company (the "GP Assignee"), pursuant to which, among other things, the General Partner will sell and assign to the GP Assignee the General Partner's 1% general partnership interest in the Subsidiary Partnership on the closing of the Merger. The Assignment Agreement is filed as Exhibit 99.1 hereto and is incorporated herein by reference. The Subsidiary Partnership entered into a Percentage Lease Agreement (the "Lease Agreement") with Westboy LLC, an Ohio limited liability company (the "Lessee"), effective as of January 1, 1998, pursuant to which, among other things, the Subsidiary Partnership will lease or sublease, as applicable, to Lessee all of the hotels (the "Hotels") owned or leased by the Subsidiary Partnership. The Lease Agreement is filed as Exhibit 99.2 hereto and is incorporated herein by reference. The Subsidiary Partnership entered into a Termination of Management Agreement (the "Termination Agreement") with Red Lion Hotels, Inc., a Delaware corporation (the "Manager"), pursuant to which the existing Management Agreement dated as of April 6, 1987, as amended, between the Subsidiary Partnership and Manager was terminated with no further force or effect. The Termination Agreement is filed as Exhibit 99.3 hereto and is incorporated herein by reference. Simultaneously, the Manager entered into a Management Agreement (the "Management Agreement") with the Lessee, effective as of January 1, 1998, pursuant to which, among other things, the Manager will manage and operate the Hotels in which Lessee holds a leasehold estate pursuant to the Lease Agreement. The Management Agreement is filed as Exhibit 99.4 hereto and is incorporated herein by reference. The Subsidiary Partnership entered into an Owner Agreement (the "Owner Agreement") with the Lessee and the Manager, effective as of January 1, 1998, pursuant to which the Subsidiary Partnership commits to take certain actions if Lessee breaches the Management Agreement. The Owner Agreement is filed as Exhibit 99.5 hereto and is incorporated herein by reference. A copy of the Joint Press Release dated as of December 30, 1997 issued by the Partnership and Parent relating to the Merger is filed as Exhibit 99.6 and is incorporated herein by reference. -2- 4 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) The following exhibits are filed as part of this Report. Exhibit Number Description - -------------- ----------- 2.1 Agreement and Plan of Merger dated as of December 30, 1997 by and among Red Lion Inns Limited Partnership, Red Lion Properties, Inc., Red Lion Inns Operating L.P., Boykin Hotel Properties, L.P., Boykin Lodging Company, Boykin Acquisition Corporation I, Inc., Boykin Acquisition Corporation II, Inc., and Boykin Acquisition Partnership, L.P. 99.1 Partnership Interest Assignment Agreement dated as of December 30, 1997 by and among Red Lion Properties, Inc., Boykin Hotel Properties, L.P., Boykin Lodging Company and West Doughboy LLC. 99.2 Percentage Lease Agreement dated as of December 30, 1997 by and between Red Lion Inns Operating L.P. and Westboy LLC 99.3 Termination of Management Agreement dated as of December 30, 1997 by and between Red Lion Inns Operating L.P. and Red Lion Hotels, Inc. 99.4 Management Agreement dated as of December 30, 1997 by and between Red Lion Hotels, Inc. and Westboy LLC. 99.5 Owner Agreement dated as of December 30, 1997 by and among Red Lion Inns Operating L.P., Westboy LLC and Red Lion Hotels, Inc. 99.6 Joint Press Release of Red Lion Inns Limited Partnership and Boykin Lodging Company dated as of December 30, 1997. -3- 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: January 8, 1998 BOYKIN LODGING COMPANY By: /S/ Raymond P. Heitland --------------------------- Raymond P. Heitland Chief Financial Officer -4- 6 EXHIBIT INDEX Exhibit Number Description - -------------- ----------- 2.1 Agreement and Plan of Merger dated as of December 30, 1997 by and among Red Lion Inns Limited Partnership, Red Lion Properties, Inc., Red Lion Inns Operating L.P., Boykin Hotel Properties, L.P., Boykin Lodging Company, Boykin Acquisition Corporation I, Inc., Boykin Acquisition Corporation II, Inc., and Boykin Acquisition Partnership, L.P. 99.1 Partnership Interest Assignment Agreement dated as of December 30, 1997 by and among Red Lion Properties, Inc., Boykin Hotel Properties, L.P., Boykin Lodging Company and West Doughboy LLC. 99.2 Percentage Lease Agreement dated as of December 30, 1997 by and between Red Lion Inns Operating L.P. and Westboy LLC 99.3 Termination of Management Agreement dated as of December 30, 1997 by and between Red Lion Inns Operating L.P. and Red Lion Hotels, Inc. 99.4 Management Agreement dated as of December 30, 1997 by and between Red Lion Hotels, Inc. and Westboy LLC. 99.5 Owner Agreement dated as of December 30, 1997 by and among Red Lion Inns Operating L.P., Westboy LLC and Red Lion Hotels, Inc. 99.6 Joint Press Release of Red Lion Inns Limited Partnership and Boykin Lodging Company dated as of December 30, 1997. -5- EX-2.1 2 EXHIBIT 2.1 1 EXECUTION COPY EXHIBIT 2.1 ================================================================================ AGREEMENT AND PLAN OF MERGER among RED LION INNS LIMITED PARTNERSHIP, RED LION PROPERTIES, INC., RED LION INNS OPERATING L.P., BOYKIN HOTEL PROPERTIES, L.P., BOYKIN LODGING COMPANY, BOYKIN ACQUISITION PARTNERSHIP, L.P., BOYKIN ACQUISITION CORPORATION I, INC. and BOYKIN ACQUISITION CORPORATION II, INC. __________________ December 30, 1997 __________________ ================================================================================ 2 TABLE OF CONTENTS
Page ARTICLE 1 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.2 Closing; Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3 Certificate and Agreement of Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.4 Contribution Following the Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 2 CONVERSION OF PARTNERSHIP INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.1 Conversion of Company Units and General Partnership Interest . . . . . . . . . . . . . . . . . . . . . 5 2.2 Treasury Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.3 Conversion of Interests in Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.4 Payment of GP Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.5 Payment of Unit Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.6 Special Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.7 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE GENERAL PARTNER AND THE SUBSIDIARY PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.1 Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.2 Authorized and Outstanding Company Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.3 Authority; Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.4 No Conflict or Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.5 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.6 SEC Filings; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.8 Ownership of Certain Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.9 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.10 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3.11 Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 3.12 Condemnation Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 3.13 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.14 Bankruptcy Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.15 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.16 Finders and Investment Bankers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.17 Opinions of Financial Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 3.18 Vote or Consent Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
i 3 3.19 Investigation by the Company, the General Partner and the Subsidiary Partnership . . . . . . . . . . . 27 3.20 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 3.21 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 3.22 Work Stoppages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.23 Intangible Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.24 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.25 Employees and Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.26 No Ownership of Voting Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.27 Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.28 General Partner Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE OPERATING PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 4.1 Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 4.2 Authorized and Outstanding Capital Shares of the Parent . . . . . . . . . . . . . . . . . . . . . . . 34 4.3 Authority; Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 4.4 No Conflict or Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.5 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 4.6 SEC Filings; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 4.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 4.8 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 4.9 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 4.10 Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 4.11 Finders and Investment Bankers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 4.12 Sufficient Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 4.13 Investigation by the Parent and the Operating Partnership . . . . . . . . . . . . . . . . . . . . . . 44 4.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 4.15 Condemnation Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 4.16 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 4.17 Bankruptcy Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 4.18 Vote or Consent Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 4.19 Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 4.20 Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 4.21 Newly Formed Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE 5 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 5.1 Conduct of Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 5.2 Conduct of Business of the Parent and the Operating Partnership . . . . . . . . . . . . . . . . . . . 53
ii 4 5.3 Proxy Statement; Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 5.4 Access and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 5.5 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 5.6 Reasonable Efforts; Additional Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 5.7 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 5.8 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 5.9 Indemnification; Directors and Officers Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 5.10 Parent Shares Issued Free and Clear of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 5.11 Satisfaction of Certain Liabilities; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 5.12 Tax Administration; Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 5.13 Other Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 5.14 Allocation Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 5.15 Amendment of the Company and the Subsidiary Partnership Agreements . . . . . . . . . . . . . . . . . . . 73 5.16 NYSE Listing of the Parent Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 5.17 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 5.18 Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 5.19 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 ARTICLE 6 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 6.1 Conditions to Each Party's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 6.2 Conditions to Obligations of the Parent, the Operating Partnership, Newco I, Newco II and Merger Sub . . 77 6.3 Conditions to Obligation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 ARTICLE 7 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 7.2 Procedure for and Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 ARTICLE 8 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 8.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 8.2 Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 8.3 Waiver of Compliance; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 8.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 8.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 8.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 8.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 8.8 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 8.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 8.10 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
iii 5 8.11 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 8.12 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 8.13 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 8.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
iv 6 Exhibits: Exhibit A Assignment Agreement Exhibit B New Management Agreement Exhibit C Operating Lease Exhibit D Operating Lease Ancillary Agreement Exhibit E Owner Agreement Exhibit F Termination Agreement Schedules: Schedule I Allocation Schedule Schedule II Due Diligence Expenses v 7 Index of Defined Terms in Agreement and Plan of Merger
Term Section - ---- ------- Acquisition Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(a) Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Allocation Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Alternative Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.2 Assignment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recital (c) Base Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.2 BMCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.2 Break-Up Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.2 Break-Up Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.2 Break-Up Fee Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.2 Cash Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Certificate of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.2 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Company Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.1 Company Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.12 Company Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Company 10-K's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 Company 10-Q's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 Company SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 Company Unitholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.11 Company Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Constituent Partnerships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 DRULPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recital (a) Due Diligence Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.7 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.25 Environmental Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.25 Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5.1 Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5.1 Filed Company SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 Filed Parent SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7 General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
vi 8
Term Section Governmental Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 GP Assignee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recital(c) GP Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 GP Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Ground Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.21 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.13 Hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8.2 Indemnitee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9.1 Intercompany Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(b) IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.2 knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(c) Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recital (e) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8.1 Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recital (d) Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recital (d) Manager Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.25 Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(d) Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recital (a) Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Newco I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Newco II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble New Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(e) NYSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.16 OGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Omaha Ground Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.21 Operating Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(f) Operating Lease Ancillary Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(g) Operating Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 Owner Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(h) Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Parent Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.2 Parent Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Parent Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11 Parent Long Term Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(i) Parent Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Parent Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.15 Parent Shareholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.11 Parent Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Parent 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6
vii 9 Term Section Parent 10-Q's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 Parent SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(j) Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Qualifying Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.2 REIT Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2.2 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.11 Releasee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.18 Releasor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.18 SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 Share Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Special Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recital (a) Special Committee Financial Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . 3.16 Special Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6 Springfield Ground Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.21 subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(k) Subsidiary Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recital (c) Subsidiary Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Surviving Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Takeover Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.27 taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.15 Termination Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(l) Transaction Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1(m) Transaction Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.12 Unit Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Unitholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5.2
viii 10 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated as of December 30, 1997 (the "AGREEMENT") among Red Lion Inns Limited Partnership, a Delaware limited partnership (the "COMPANY"), Red Lion Inns Operating, L.P., a Delaware limited partnership which owns title to the Hotels (as defined below) and in which the Company owns a 99% limited partnership interest (the "SUBSIDIARY PARTNERSHIP"), Red Lion Properties, Inc., a Delaware corporation and the general partner of each of the Company and the Subsidiary Partnership (the "GENERAL PARTNER"), Boykin Hotel Properties, L.P., an Ohio limited partnership (the "OPERATING PARTNERSHIP"), Boykin Lodging Company, an Ohio corporation and the general partner of the Operating Partnership (the "PARENT"), Boykin Acquisition Corporation I, Inc., an Ohio corporation and wholly-owned subsidiary of the Parent ("NEWCO I"), Boykin Acquisition Corporation II, Inc., an Ohio corporation and wholly-owned subsidiary of the Parent ("NEWCO II"), and Boykin Acquisition Partnership, L.P., a Delaware limited partnership in which Newco I owns a 1% general partnership interest and Newco II owns a 99% limited partnership interest ("MERGER SUB"). Merger Sub and the Company are sometimes collectively referred to herein as the "CONSTITUENT PARTNERSHIPS." 11 2 R E C I T A L S : a. The Board of Directors of the Parent in its individual capacity, and as general partner of the Operating Partnership, the Board of Directors of Newco I in its individual capacity and as general partner of Merger Sub, the Board of Directors of Newco II in its individual capacity and as limited partner of Merger Sub, the Board of Directors of the General Partner in its individual capacity and the Board of Directors of the General Partner, together with the Special Committee thereof (the "SPECIAL COMMITTEE"), in the General Partner's capacity as general partner of each of the Company and the Subsidiary Partnership and on behalf of the Company in the Company's capacity as limited partner of the Subsidiary Partnership, have each approved this Agreement pursuant to which, among other things, Merger Sub will be merged with and into the Company (the "MERGER") on the terms and conditions contained herein and in accordance with the Delaware Revised Uniform Limited Partnership Act (the "DRULPA"). b. The parties desire to make certain representations, warranties, covenants and agreements in connection with the Merger and to prescribe various conditions to the Merger. c. Pursuant to a Partnership Interest Assignment Agreement (the "ASSIGNMENT AGREEMENT") of even date herewith among the General Partner, the Parent, the Operating Partnership and West Doughboy LLC, an Ohio limited liability company wholly owned by the Operating Partnership (the "GP ASSIGNEE"), a copy of 12 3 which Assignment Agreement is annexed hereto as EXHIBIT A, simultaneously with the consummation of the Merger and the other transactions contemplated by this Agreement to occur on the Closing Date (as defined below), the General Partner shall assign to the GP Assignee (the "SUBSIDIARY ASSIGNMENT"), in exchange for the consideration and on the terms and conditions specified in the Assignment Agreement, the General Partner's 1% interest as general partner in the Subsidiary Partnership. d. Red Lion Hotels, Inc. (the "MANAGER") has consented to this Agreement, the Merger and the other transactions contemplated hereby and, subject to the provisions of the Notice and Waiver of even date herewith executed and delivered by the Manager (a copy of which has previously been delivered to the Parent or the Operating Partnership), has waived its rights set forth in Section 9.3(a) of the Management Agreement, dated April 6, 1987, between the Subsidiary Partnership and the Manager, as amended (the "MANAGEMENT AGREEMENT"). e. Westboy LLC, an Ohio limited liability company (the "LESSEE"), has executed and delivered to the General Partner a letter of even date herewith pursuant to which the Lessee has agreed to enter into the Operating Lease (as defined below), the Termination Agreement (as defined below), the New Management Agreement (as defined below) and the Owner Agreement (as defined below), in each case not later than December 31, 1997, upon the execution and delivery of such agreements by the other parties thereto. 13 4 NOW THEREFORE, in consideration of the representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE 1 THE MERGER 1.1 The Merger. Upon the terms and subject to the conditions of this Agreement, at the Effective Time (as defined below) and in accordance with the DRULPA, Merger Sub shall be merged with and into the Company which shall be the surviving partnership in the Merger (the "SURVIVING PARTNERSHIP"). At the Effective Time, the separate existence of Merger Sub shall cease and the other effects of the Merger shall be as set forth in Section 17-211 of the DRULPA. 1.2 Closing; Effective Time. Subject to the provisions of Article 6, the closing of the Merger (the "CLOSING") shall take place in New York City at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, as soon as practicable but in no event later than 10:00 a.m. New York City time on the first business day after the date on which each of the conditions set forth in Article 6 has been satisfied or waived by the party or parties entitled to the benefit of such conditions, or at such other place, at such other time or on such other date as the Parent and the Operating Partnership, on the one hand, and the General Partner and the Company, on the other hand, may mutually agree. The date on which the Closing actually occurs is hereinafter referred to as the "CLOSING DATE." At the Closing, the parties hereto shall cause a certificate of 14 5 merger (the "CERTIFICATE OF MERGER") to be executed and filed with the Secretary of State of the State of Delaware in accordance with the DRULPA. The Merger shall become effective as of the date and time (the "EFFECTIVE TIME") of such filings or at such other time as may be specified in the Certificate of Merger. 1.3 Certificate and Agreement of Limited Partnership. The agreement of limited partnership and the certificate of limited partnership of the Company, as in effect immediately prior to the Effective Time, shall become, from and after the Effective Time, the agreement of limited partnership and the certificate of limited partnership of the Surviving Partnership, until thereafter altered, amended or repealed as provided therein and in accordance with applicable law. 1.4 Contribution Following the Effective Time. Immediately after the Effective Time, each of Newco I and Newco II intend to contribute to the Operating Partnership all of their respective partnership interests in the Surviving Partnership in exchange for partnership interests in the Operating Partnership. ARTICLE 2 CONVERSION OF PARTNERSHIP INTERESTS 2.1 Conversion of Company Units and General Partnership Interest. The partnership units of the Company, representing limited partnership interests in the Company (collectively, the "COMPANY UNITS"), issued and outstanding immediately prior to the Effective Time (other than those held by the Company or the Subsidiary Partnership) shall, at the Effective Time, by virtue of the Merger and without any 15 6 action on the part of the holders thereof, be converted into the right to receive a pro rata portion per Company Unit of the Unit Merger Consideration (as defined below). The General Partner's general partnership interest in the Company (the "GP INTEREST") shall, at the Effective Time, by virtue of the Merger and without any action of the General Partner be converted into the right to receive the GP Merger Consideration (as defined below). "UNIT MERGER CONSIDERATION" means that portion of the aggregate Cash Consideration (as defined below) and that portion of the aggregate Share Consideration (as defined below) allocated to the Unitholders (as defined below) pursuant to the allocation schedule attached to this Agreement as Schedule I (the "ALLOCATION SCHEDULE"). "GP MERGER CONSIDERATION" means that portion of the aggregate Cash Consideration and that portion of the aggregate Share Consideration allocated to the General Partner pursuant to the Allocation Schedule. "CASH CONSIDERATION" means an amount in cash equal to $35,305,000 minus the amount of cash required to be paid to the General Partner, in its capacity as general partner of the Subsidiary Partnership, pursuant to the Assignment Agreement. "SHARE CONSIDERATION" means that number of fully paid and nonassessable common shares, without par value, of the Parent ("PARENT SHARES") equal to 3,110,048 minus the number of Parent Shares required to be issued to the General Partner, in its capacity as general partner of the Subsidiary Partnership, under the Assignment Agreement. "MERGER CONSIDERATION" means the Cash Consideration plus the Share Consideration. Notwithstanding the foregoing, if between the date of this Agreement and the Effective Time the outstanding Company Units or Parent Shares shall have been changed into a 16 7 different number of units or a different class or the percentage interest represented by the GP Interest shall have changed, by reason of any distribution, dividend, subdivision, reclassification, recapitalization, split, combination or exchange of Company Units or other partnership interests in the Company or Parent Shares, the Merger Consideration shall be correspondingly adjusted to reflect such distribution, dividend, subdivision, reclassification, recapitalization, split, combination or exchange. 2.2 Treasury Units. Each Company Unit held by the Company or the Subsidiary Partnership immediately prior to the Effective Time, if any, shall, by virtue of the Merger, automatically be canceled and retired and cease to exist and no consideration shall be delivered in exchange therefor. 2.3 Conversion of Interests in Merger Sub. Newco I's 1% general partnership interest in Merger Sub, by virtue of the Merger and without any action on the part of Newco I, shall be converted into a 1% general partnership interest in the Surviving Partnership and Newco II's 99% limited partnership interest in Merger Sub, by virtue of the Merger and without any action on the part of Newco II, shall be converted into a 99% limited partnership interest in the Surviving Partnership. 2.4 Payment of GP Merger Consideration. Upon the Effective Time, the Parent shall deliver to the General Partner (i) a certificate representing the number of whole Parent Shares constituting the common share portion of the GP Merger Consideration (as determined pursuant to the Allocation Schedule), (ii) a payment of cash, in immediately available funds, constituting the cash portion of the GP Merger Consideration (as determined pursuant to the Allocation Schedule) and (iii) an amount 17 8 of cash, in immediately available funds, sufficient to make the cash payment in respect of fractional Parent Shares otherwise issuable to the General Partner, as contemplated by Section 2.7. 2.5 Payment of Unit Merger Consideration. 2.5.1 Prior to the Closing Date, the Parent shall appoint National City Bank or another agent mutually acceptable to the Parent and the Company to act as exchange agent (the "EXCHANGE AGENT") for the Merger. At the Effective Time, the Parent shall deposit, or cause to be deposited, with the Exchange Agent (i) certificates evidencing that number of Parent Shares constituting the Share Consideration portion of the Unit Merger Consideration (as determined pursuant to the Allocation Schedule), (ii) cash in the aggregate amount required to make the cash payments constituting the Cash Consideration portion of the Unit Merger Consideration (as determined pursuant to the Allocation Schedule), such aggregate sum being referred to as the "EXCHANGE FUND," and (iii) an amount of cash sufficient to enable the Exchange Agent to make the cash payments in respect of fractional Parent Shares otherwise issuable to Unitholders, as contemplated by Section 2.7. 2.5.2 As soon as reasonably practicable following the Closing Date, the Parent shall instruct the Exchange Agent to mail to each holder (each a "UNITHOLDER") of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding Company Units (collectively, the "CERTIFICATES"), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of 18 9 the Certificates to the Exchange Agent and shall be in such form and have such other provisions as the Parent may reasonably specify) and (ii) instructions for effecting the surrender of the Certificates in exchange for certificates representing the Share Consideration portion of the Unit Merger Consideration and an amount in cash representing the Cash Consideration portion of the Unit Merger Consideration. 2.5.3 After the Effective Time, each Unitholder shall surrender and deliver its Certificates to the Exchange Agent together with a duly completed and executed transmittal letter. Upon such surrender and delivery, each such Unitholder shall receive (i) a certificate representing the number of whole Parent Shares into which such Unitholder's Company Units have been converted pursuant to Section 2.1, (ii) a payment of cash constituting the portion of the Cash Consideration into which such Unitholder's Company Units have been converted pursuant to Section 2.1 and (iii) a payment of cash in lieu of any fractional Parent Share otherwise issuable to the Unitholder, as provided in Section 2.7. No interest will be paid or accrued on the cash payable upon the surrender of the Certificates. If the payment is to be made to a person other than the person in whose name a Certificate surrendered is registered, it shall be a condition of payment that (a) the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and (b) the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of the Certificate surrendered or establish to the satisfaction of the Parent that such tax has been paid or is not applicable. Until so surrendered and exchanged, each outstanding Certificate after the Effective Time shall 19 10 be deemed for all purposes to evidence the right to receive the Unit Merger Consideration and the other cash payments described in this Section 2.5.3. No dividends with respect to Parent Shares with a record date after the Effective Time shall be paid to the holder of any Certificate with respect to the Parent Shares represented thereby and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 2.7, in each case until the surrender of such Certificate in accordance with this Article 2. 2.5.4 After the Effective Time, no transfer of Company Units shall be made, other than transfers of Company Units that have occurred prior to the Effective Time. In the event that, after the Effective Time, Certificates are presented to the Surviving Partnership, they shall be canceled and exchanged for the Unit Merger Consideration, the Special Distribution (as defined below) and the other cash consideration described in Section 2.5.3. 2.5.5 Any Parent Shares or cash deposited with the Exchange Agent pursuant to Section 2.5.1 which remain undistributed to the former Unitholders for one year after the Effective Time shall be delivered to the Parent, upon demand, and any former Unitholders of the Company who have not theretofore complied with this Article 2 shall thereafter look only to the Parent for payment of their claims for any portion of the Unit Merger Consideration, any unpaid Special Distribution and any dividends, distributions or other payments with respect thereto. 2.5.6 None of the General Partner, the Surviving Partnership, the Parent, the Subsidiary Partnership, the Operating Partnership, Newco I, Newco II 20 11 and the Exchange Agent shall be liable to any person in respect of any Parent Shares comprising the Unit Merger Consideration or any cash payable pursuant to this Article 2 delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. 2.6 Special Distribution. Immediately prior to the Effective Time, the Company shall make a distribution described in this Section 2.6 (the "SPECIAL DISTRIBUTION") to its Unitholders and to the General Partner, the record date for which shall be the close of business on the last business day prior to the Effective Time. The Special Distribution shall have two components. The first component shall be equal to the amount of any distribution with respect to the Company Units and the GP Interest, calculated in accordance with the Company's most recent quarterly distribution rates for each and not yet paid by the Company in respect of each full fiscal quarter ended prior to the Closing Date. The second component shall be calculated and payable for any period of less than a full calendar quarter ending on the Closing Date. This component shall equal the sum of (a) the difference between (i) the Company's most recent quarterly distribution rates per Company Unit and with respect to the G.P. Interest and (ii) the Parent's most recent quarterly dividend rate per Parent Share, such difference multiplied by the number of Parent Shares constituting the Share Consideration, plus (b) an amount payable with respect to the Company Units and the GP Interest calculated in accordance with the Company's most recent quarterly distribution rates for each and multiplied by 30%, and such sum shall be further multiplied by the number of days elapsed from the first day of such calendar quarter to 21 12 the Closing Date and divided by 90. The amount of the second component shall be allocable between the General Partner and the Unitholders in the same percentage that the GP Merger Consideration bears to the Unit Merger Consideration. The portion of the Special Distribution payable to the Unitholders shall be paid by the Company immediately prior to the Effective Time. The portion of the Special Distribution payable to the General Partner shall be paid by the Company to the General Partner immediately prior to the Effective Time. To the extent that the Company does not have sufficient funds available to make the Special Distribution, the General Partner shall lend to the Company an amount of cash, in immediately available funds, necessary to make the Special Distribution as described in this Section 2.6, at an interest rate not to exceed the then applicable interest rate under the Company Credit Facility (as defined below) without any other fees and charges and any such loan shall be repaid in accordance with Section 5.11. 2.7 Fractional Shares. No fractional Parent Shares shall be issued in the Merger and fractional shares shall not entitle the owner thereof to vote or to any rights of a shareholder of the Parent. In lieu of any fractional Parent Shares that a Unitholder would otherwise be entitled to receive as a result of the Merger such fractional Parent Shares shall be aggregated and if a fractional Parent Share results from such aggregation, such Unitholder shall receive an amount in cash determined by multiplying $25.63 by the fraction of a Parent Share which such Unitholder would otherwise have been entitled to by virtue of the Merger. In lieu of any fractional Parent Shares that the General Partner would otherwise be entitled to receive as a result 22 13 of the Merger, the General Partner shall receive an amount in cash determined by multiplying $25.63 by the fraction of a Parent Share which the General Partner would otherwise have been entitled to by virtue of the Merger. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE GENERAL PARTNER AND THE SUBSIDIARY PARTNERSHIP Each of the Company, the General Partner and the Subsidiary Partnership represents and warrants to the Parent, the Operating Partnership, Newco I, Newco II and Merger Sub, as follows: 3.1 Existence and Power. Each of the Company, the General Partner and the Subsidiary Partnership is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each of the Company, the General Partner and the Subsidiary Partnership is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by the Company or the Subsidiary Partnership or the nature of the business conducted by the Company or the Subsidiary Partnership makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect (as defined below) with respect to the Company. The Company has previously 23 14 delivered or made available to the Parent correct and complete copies of the agreement of limited partnership and certificate of limited partnership, as currently in effect, of each of the Company and the Subsidiary Partnership, and of the certificate of incorporation and bylaws of the General Partner, as currently in effect. Section 3.1 to the Company Disclosure Letter (as defined below) sets forth each subsidiary of the Company and of the Subsidiary Partnership and the ownership interest therein of each of the Company and the Subsidiary Partnership. Except for the partnership interests in such subsidiaries, neither the Company nor the Subsidiary Partnership owns, directly or indirectly, any capital stock, partnership interest or other equity ownership interest in any person. 3.2 Authorized and Outstanding Company Units. The Company is authorized to issue 4,940,000 Company Units. As of the date of this Agreement, 4,133,500 Company Units are issued and outstanding, which represent all of the limited partnership interests in the Company other than those held by the Company or the Subsidiary Partnership. As of the date of this Agreement, the GP Interest is the only outstanding general partnership interest in the Company. As of the date of this Agreement, except as set forth in this Section 3.2, no Company Units or other general or limited partnership interests or voting securities of the Company were issued, reserved for issuance or outstanding. All outstanding Company Units are duly authorized, validly issued, fully paid and, subject to the DRULPA, not subject to preemptive rights. The GP Interest is duly authorized, validly issued and, subject to the DRULPA, not subject to preemptive rights. There are no bonds, debentures, notes 24 15 or other indebtedness or any other security of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which the General Partner or the Unitholders may vote. Except as set forth in Section 3.2 of the disclosure letter previously provided by the Company to the Parent (the "COMPANY DISCLOSURE LETTER") and as otherwise provided in this Agreement, as of the date of this Agreement there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the General Partner or the Company is a party or by which the General Partner or the Company is bound, obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional Company Units, additional partnership interests, voting securities or other ownership interests in the Company or obligating the Company to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. Except as set forth in Section 3.2 of the Company Disclosure Letter, there are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire the GP Interest or any Company Units or other ownership interests in the Company or make any material investment (in the form of a loan, capital contribution or otherwise) in any person. All of the issued and outstanding limited partnership interests in the Subsidiary Partnership are owned by the Company and all of the issued and outstanding general partnership interests in the Subsidiary Partnership are owned by the General Partner. Except as provided in Section 3.2 of the Company Disclosure Letter and in this Agreement, there are no outstanding securities, options, 25 16 warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the General Partner, the Company or the Subsidiary Partnership is a party or by which the General Partner, the Company or the Subsidiary Partnership is bound, obligating the Subsidiary Partnership to issue, deliver or sell, or cause to be issued, delivered or sold, additional partnership units of the Subsidiary Partnership, voting securities or other ownership interests in the Subsidiary Partnership or obligating the Subsidiary Partnership to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. 3.3 Authority; Binding Agreement. Each of the General Partner, the Company and the Subsidiary Partnership has the full legal power and authority to execute and deliver this Agreement and the other Transaction Documents (as defined below) to which it is a party and, subject to the adoption of this Agreement and the other Transaction Documents by the Unitholders in accordance with the immediately succeeding sentence, to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary partnership and corporate action, as the case may be, on the part of the Company, the Subsidiary Partnership and the General Partner to the extent it is a party hereto or thereto, subject to the adoption of this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby by the Unitholders in accordance with the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), the DRULPA, the rules and regulations of 26 17 the American Stock Exchange, Inc. and the agreements of limited partnership of the Company and the Subsidiary Partnership. Each of this Agreement and the other Transaction Documents has been or will be duly and validly executed and delivered by the Company and the Subsidiary Partnership, to the extent it is a party hereto or thereto and, subject to the adoption of this Agreement and the other Transaction Documents and the approval of the transactions contemplated hereby and thereby by the Unitholders in accordance with the immediately preceding sentence, constitutes or will constitute a legal, valid and binding agreement of the Company and the Subsidiary Partnership, to the extent it is a party hereto or thereto, enforceable against the Company and the Subsidiary Partnership, to the extent it is a party hereto or thereto, in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or transfer and similar laws now or hereafter in effect relating to or affecting creditors' rights generally and to general principles of equity. 3.4 No Conflict or Violation. Subject to (a) the items set forth in Section 3.4 of the Company Disclosure Letter, (b) obtaining the requisite Unitholder approval and (c) making the filings and obtaining the approvals identified in Section 3.5, and except with respect to matters that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect with respect to the Company, neither the execution and delivery by each of the General Partner, the Company and the Subsidiary Partnership of this Agreement or the other Transaction Documents to which it is a party nor the consummation of the transactions 27 18 contemplated hereby and thereby will (i) contravene or conflict with or result in any breach of any provision of the certificate of limited partnership or the agreement of limited partnership of the Company or the Subsidiary Partnership or the certificate of incorporation or bylaws of the General Partner, (ii) require any consent, approval or notice under or conflict with or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement or other instrument or obligation (collectively, "CONTRACTS") to which the Company or the Subsidiary Partnership is a party or by which they or any material portion of their properties or assets may be bound or (iii) violate any order, judgment, writ, injunction, determination, award, decree, law, statute, rule or regulation (collectively, "LEGAL REQUIREMENTS") applicable to the Company or the Subsidiary Partnership or any material portion of their properties or assets. 3.5 Governmental Approvals. No consent, approval or authorization of or declaration or filing with any foreign, federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality (each, a "GOVERNMENTAL ENTITY") on the part of the Company or the Subsidiary Partnership that has not been obtained or made is required in connection with the execution or delivery by the General Partner, the Subsidiary Partnership or the Company of this Agreement or the other Transaction Documents to which it is a party or the consummation by the General Partner, the Subsidiary Partnership or the Company of 28 19 the transactions contemplated hereby or thereby to which it is a party, other than (a) the filing of a Certificate of Merger with the Secretary of State of the State of Delaware, (b) filings and other applicable requirements under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and the Exchange Act, (c) filings, approvals or other actions or authorizations required under any applicable liquor license laws and regulations, (d) as may be required under state securities or "blue sky" laws and (e) consents, approvals, authorizations, declarations or filings that (i) are set forth in Section 3.5 of the Company Disclosure Letter or (ii) if not obtained or made, would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect with respect to the Company or prevent the Company from consummating the transactions contemplated hereby. 3.6 SEC Filings; Financial Statements. The Company has made all filings required to be made with the Securities and Exchange Commission (the "SEC") since December 31, 1995 and has delivered or made available to the Parent or the Operating Partnership correct and complete copies of the Company's (a) Annual Reports on Form 10-K for the years ended December 31, 1995 and December 31, 1996 (together, the "COMPANY 10-K'S"), as filed with the SEC and (b) all other reports, statements and registration statements (including Quarterly Reports on Form 10-Q (collectively, the "COMPANY 10-Q'S") and Current Reports on Form 8-K) filed by the Company with the SEC since December 31, 1995 (the items identified in clauses (a) and (b) (in each case including all exhibits and schedules thereto and documents incorporated by reference therein) being referred to collectively as the "COMPANY SEC 29 20 FILINGS"). As of their respective dates, the Company SEC Filings, taken together with all amendments thereto, comply in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the rules and regulations thereunder and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of the Company included or incorporated by reference in the Company 10-K's and the Company 10-Q's (a) were prepared in accordance with generally accepted accounting principles in effect during the periods involved (except, in the case of unaudited quarterly statements, as permitted by Form 10-Q under the rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes to such financial statements) and (b) fairly present in all material respects the consolidated financial position of the Company at the respective dates thereof and the consolidated results of operations and cash flows for the respective periods then ended (subject, in the case of unaudited interim financial statements, to normal year-end audit adjustments). 3.7 Absence of Certain Changes or Events. Except as (a) disclosed in the Company SEC Filings filed prior to the date hereof (the "FILED COMPANY SEC FILINGS"), (b) specifically contemplated by this Agreement or (c) set forth in Section 3.7 of the Company Disclosure Letter, since September 30, 1997, there has not been any condition, event or occurrence that, individually or in the aggregate, has resulted in a Material Adverse Effect with respect to the Company. 30 21 3.8 Ownership of Certain Assets. 3.8.1 The General Partner is the sole general partner of the Subsidiary Partnership and owns a 1% general partnership interest therein. Except as set forth in Section 3.8.1 of the Company Disclosure Letter, the Company owns, as its sole assets, a ninety nine percent (99%) limited partnership interest in the Subsidiary Partnership, free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, "LIENS"), cash and cash equivalents derived from its ownership interest in the Subsidiary Partnership and rights arising from Contracts to which it is a party. 3.8.2 The Subsidiary Partnership is the owner of good and marketable fee title to the hotels listed in Section 3.8.2A of the Company Disclosure Letter free and clear of all Liens or other title defects, except for (a) such Liens or other title defects listed in Section 3.8.2B of the Company Disclosure Letter, (b) the hotels identified in Section 3.8.2C of the Company Disclosure Letter, the ownership by the Subsidiary Partnership of which is subject to the respective ground leases identified in such section of the Company Disclosure Letter (together with the hotels listed in Section 3.8.2A of the Company Disclosure Letter, the "HOTELS") and (c) such Liens or other title defects that, individually or in the aggregate, have not resulted or would not reasonably be expected to result in a Material Adverse Effect with respect to the Company. 3.9 Absence of Litigation. Except as disclosed in the Filed Company SEC Filings and as set forth in Section 3.9 of the Company Disclosure Letter, as of the 31 22 date hereof there are no claims, actions or proceedings pending or, to the knowledge of the Company, threatened against the Company or the Subsidiary Partnership or any of their properties or assets, before any court or Governmental Entity that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect with respect to the Company. As of the date hereof, neither the Company nor the Subsidiary Partnership nor any portion of their properties or assets is subject to any order, judgment, injunction or decree (collectively, "ORDERS") of any court or Governmental Entity that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect with respect to the Company. 3.10 Compliance. Except as disclosed in the Filed Company SEC Filings and as described in Section 3.10 of the Company Disclosure Letter, neither the Company nor the Subsidiary Partnership is in default or violation of any term, condition or provision of (a) its certificate of limited partnership or agreement of limited partnership, or (b) except with respect to matters that, individually or in the aggregate, have not resulted or would not reasonably be expected to result in a Material Adverse Effect with respect to the Company, (i) any Contracts to which it is a party or by which it or any material portion of the Company's and the Subsidiary Partnership's properties or assets may be bound or (ii) any Legal Requirements applicable to it or any material portion of the Company's and the Subsidiary Partnership's properties or assets, taken as a whole. 3.11 Information Supplied. None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in (a) the 32 23 registration statement on Form S-4 to be filed with the SEC by the Parent in connection with the Merger (such registration statement, together with any amendments or supplements thereto, the "REGISTRATION STATEMENT") and (b) the Proxy Statement (as defined below) to be filed with the SEC by the Company and the Parent in connection with the meeting of the Unitholders (the "COMPANY UNITHOLDERS' MEETING") and the meeting of the shareholders of the Parent (the "PARENT SHAREHOLDERS' MEETING") to be conducted or held in connection with their respective approvals of the Merger, the Transaction Documents and the issuance of the Parent Shares in connection with the Merger, as the case may be, will, at the time the Registration Statement is filed with the SEC, at any time it is amended or supplemented or at the time it becomes effective under the Securities Act or at the time the Proxy Statement is mailed to the Unitholders and the Parent shareholders, as the case may be, contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. 3.12 Condemnation Actions. Except as set forth in Section 3.12 of the Company Disclosure Letter, neither the Company nor the Subsidiary Partnership has received any written notice of and neither of them has knowledge of any pending condemnation action of any nature with respect to any of the Hotels, other than any such actions that, individually or in the aggregate, have not resulted or would not reasonably be expected to result in a Material Adverse Effect with respect to the Company. If, between the date hereof and the Effective Time, the Company or the 33 24 Subsidiary Partnership receives a written notice of or obtains knowledge of, any such pending condemnation action, the Company shall promptly notify the Parent of such notice or knowledge, and the Parent shall have the right to consult with the Company in the settlement of any such condemnation action. 3.13 Hazardous Materials. Except as disclosed in the reports or studies regarding Hazardous Materials (as defined below) or Environmental Laws (as defined below) made available to the Parent in due diligence or in Section 3.13 of the Company Disclosure Letter, and except with respect to matters that, individually or in the aggregate, have not resulted or would not reasonably be expected to result in a Material Adverse Effect with respect to the Company, neither the Company nor the Subsidiary Partnership has received any written notice of and neither of them has knowledge of, (a) any alleged violation of any Environmental Law with respect to any Hotel, which violation has not been previously remedied or (b) any investigation by any Governmental Entity with respect to the existence of any Hazardous Materials at any of the sites at which an investigation remains open. "HAZARDOUS MATERIALS" means any asbestos-containing materials, petroleum, urea formaldehyde, polychlorinated biphenyls (PCBs), and any materials, wastes, substances or chemicals that are deemed hazardous, toxic, a pollutant or a contaminant under any Environmental Law. "ENVIRONMENTAL LAW" means, collectively, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801, et seq.), the Resource Conservation and Recovery Act of 1976, 34 25 as amended (42 U.S.C. Section 6901, et seq.), any comparable law of any state in which any of the Hotels is located, and all other applicable laws and regulations relating to the protection of human health and safety, the environment, or hazardous or toxic substances or wastes, pollutants or contaminants. 3.14 Bankruptcy Matters. Neither the Company nor the Subsidiary Partnership has made a general assignment for the benefit of creditors, filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by its creditors, suffered the appointment of a receiver to take possession of all or substantially all of its assets, suffered the attachment or other judicial seizure of all or substantially all of its assets, admitted its inability to pay its debts as they come due, or made an offer of settlement, extension or composition to its creditors generally. 3.15 Taxes. Except as disclosed in Section 3.15 of the Company Disclosure Letter, each of the Company and the Subsidiary Partnership has filed all tax returns and reports required to be filed by it (after giving effect to any filing extension properly granted by a Governmental Entity having authority to do so) and has paid all taxes required to be paid by it, other than in cases where the failure to pay such taxes, individually or in the aggregate, has not resulted or would not reasonably be expected to result in a Material Adverse Effect with respect to the Company, and the financial statements included in the most recent Company 10-K reflect an adequate reserve for all material taxes payable by the Company or the Subsidiary Partnership for all taxable periods and portions thereof through the date of those financial statements. Except as disclosed in Section 3.15 of the Company Disclosure Letter, each of the Company and 35 26 the Subsidiary Partnership has been, since its date of formation, and will be, through the date of Closing, treated as a partnership and not as an association taxable as a corporation for federal income tax purposes. As used in this Agreement (unless otherwise specified), "TAXES" shall include all federal, state, local and foreign income, property, sales, excise and other taxes, tariffs or governmental charges of any nature whatsoever, together with penalties, interest or additions to tax with respect thereto. 3.16 Finders and Investment Bankers. None of the General Partner, the Company, the Subsidiary Partnership and the Special Committee has employed any investment banker, financial advisor, broker or finder in connection with the transactions contemplated by this Agreement, except for each of Morgan Stanley Realty Inc. and Legg Mason Wood Walker, Incorporated (the "SPECIAL COMMITTEE FINANCIAL ADVISORS") which have been engaged as financial advisors to the Special Committee, or incurred any liability for any investment banking, business consultancy, financial advisory, brokerage or finders' fees or commissions in connection with the transactions contemplated hereby, except for fees payable to the Special Committee Financial Advisors, all of which fees have been or will be paid by the Company, except as otherwise provided in Section 5.11. The Company has previously delivered to the Parent copies of the engagement letters between the Special Committee and each of the Special Committee Financial Advisors. 3.17 Opinions of Financial Advisors. The Special Committee has received the oral opinions of each of the Special Committee Financial Advisors and the written opinion of Legg Mason Wood Walker, Incorporated, a copy of which opinion 36 27 has been delivered to the Parent, to the effect that, as of the date of this Agreement, the Unit Merger Consideration is fair to the Unitholders from a financial point of view. The written opinion of Morgan Stanley Realty Incorporated will be delivered to the Parent as soon as practicable after the date hereof following delivery of such written opinion to the Special Committee by Morgan Stanley Realty Incorporated. 3.18 Vote or Consent Required. The affirmative vote or consent of a majority in interest of the Unitholders is the only vote or consent of Unitholders that is necessary (under applicable law or otherwise) to enable each of the General Partner, the Company and the Subsidiary Partnership to enter into this Agreement and the other Transaction Documents to which it is a party and to perform their respective obligations hereunder and thereunder. 3.19 Investigation by the Company, the General Partner and the Subsidiary Partnership. In entering into this Agreement, the Company, the General Partner and the Subsidiary Partnership: (a) acknowledge that, except as set forth in this Agreement and in the certificates and other documents and instruments to be delivered by the Parent and the Operating Partnership at the Closing, neither the Parent nor the Operating Partnership or any of their respective partners, directors, officers, employees, affiliates, subsidiaries, agents, advisors or representatives makes any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information provided or made available to the Company, the General Partner, the Subsidiary Partnership or their agents or representatives, and 37 28 (b) agree, to the fullest extent permitted by law that, except as provided in this Agreement, neither the Parent nor the Operating Partnership or any of their respective partners, directors, officers, employees, shareholders, affiliates, subsidiaries, agents, advisors or representatives shall have any liability or responsibility whatsoever to the Company, the General Partner or the Subsidiary Partnership on any basis (including, without limitation, in contract or tort, under federal or state securities laws or otherwise) based upon any information provided or made available, or statements made, to the Company, the General Partner or the Subsidiary Partnership. 3.20 Absence of Undisclosed Liabilities. Except as reflected in the Filed Company SEC Filings or disclosed in Section 3.20 of the Company Disclosure Letter, neither the Company nor the Subsidiary Partnership has any liabilities or obligations of any nature, whether accrued, contingent or otherwise and whether due or to become due, that, individually or in the aggregate, has resulted or would reasonably be expected to result in a Material Adverse Effect with respect to the Company. 3.21 Contracts. All the Contracts that are material to the business of the Company or the Subsidiary Partnership are described in Section 3.21 of the Company Disclosure Letter. The Subsidiary Partnership has a valid leasehold interest in the property demised under the Ground Lease dated May 1, 1973, as amended, between Charles P. Larson, Jr. and the Subsidiary Partnership, as assignee (the "SPRINGFIELD GROUND LEASE"), and the Ground Lease dated October 23, 1968, as amended, between First National Bank of Omaha and the Subsidiary Partnership, as assignee (the "OMAHA GROUND LEASE", and together with the Springfield Ground 38 29 Lease, the "GROUND LEASES"), and such Ground Leases are in full force and effect in accordance with their terms. The Subsidiary Partnership is not in default under either Ground Lease and, to its, the Company's and the General Partner's knowledge, the other party to each Ground Lease is not in default under the Ground Lease to which it is a party, except for any such default that, in each case, individually or in the aggregate, has not resulted in or would not reasonably be expected to result in a Material Adverse Effect with respect to the Company. The Subsidiary Partnership has not heretofore transferred, mortgaged or pledged its interest under either of the Ground Leases, except pursuant to the Company Credit Facility (as defined below). 3.22 Work Stoppages. No strike, general work stoppage, general work slow down, general sick out, concerted refusal to work overtime or similar concerted conduct that is disruptive of work by the employees of the Manager exists or, to the knowledge of the Company or the Subsidiary Partnership, is imminent, which would reasonably be expected to have a Material Adverse Effect with respect to the Company. 3.23 Intangible Property. Except with respect to matters that, individually or in the aggregate, have not resulted or would not reasonably be expected to result in a Material Adverse Effect with respect to the Company, the Company and the Subsidiary Partnership have the right to use all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights necessary for the conduct of their respective businesses, and neither the Company nor the Subsidiary Partnership has 39 30 knowledge of any claim of infringement by any other person with respect to any of the foregoing. 3.24 Insurance. All of the insurance policies that are material to the business of the Company and the Subsidiary Partnership, taken as a whole, and all material claims thereunder are described in Section 3.24 of the Company Disclosure Letter. 3.25 Employees and Employee Benefit Plans. (a) Neither the Company nor the Subsidiary Partnership directly employs any individuals or maintains any employee benefit plans. Pursuant to the Management Agreement, the Subsidiary Partnership retains the services of certain employees of the Manager (the "EMPLOYEES") and pays the Manager for all costs and expenses incurred by the Manager in respect of such Employees under the terms of Article II of the Management Agreement. Employee benefit plans maintained by the Manager in which Employees are participants are hereinafter referred to as "MANAGER PLANS." (b) (i) No Manager Plan is subject to Title IV of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or Section 412 of the Code (as defined below), or provides welfare benefits to former employees or beneficiaries or dependents thereof (other than as required under Section 4980 of the Code and any applicable state laws). None of the Company, the Subsidiary Partnership and the Manager (or any predecessors thereof) maintains, has maintained, contributes to or has contributed to a plan subject to Section 412 of the Code or Title IV of ERISA for the benefit of persons providing services to the Company or the Subsidiary 40 31 Partnership within the five years preceding this year. No Manager Plan is a multiemployer plan (within the meaning of Sections 3(37) or 4003(a)(3) of ERISA or Section 414(f) of the Code). (ii) Each Manager Plan which is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service regarding its qualified status. (iii) Each Manager Plan has been administered in all material respects in accordance with its terms and is in compliance in all material respects with all applicable laws, including ERISA and the Code. (iv) Except where failure to do so would not result in a material liability to the Company, full payment has been made, in a timely manner, of all amounts which the Manager or any of its subsidiaries is required to pay under the terms of each of the Manager Plans. None of the Manager Plans nor any trust established thereunder has incurred any "accumulated funding deficiency" (as defined in ERISA), whether or not waived. (v) None of the Manager or the Company or the Subsidiary Partnership has engaged in any "prohibited transaction," as such term is defined in Section 4975 of the Code or Section 406 of ERISA, with respect to any Manager Plan. 3.26 No Ownership of Voting Stock. Neither the Company nor the Subsidiary Partnership owns ten percent (10%) or more of the voting securities of any corporation or association taxable as a corporation for federal income tax purposes. 41 32 3.27 Takeover Statutes. No "fair price," "moratorium," "control share acquisition" or other anti-takeover statute or similar statute or regulation enacted by any state (a "TAKEOVER STATUTE") applies to the Merger or the other transactions contemplated by this Agreement and the other Transaction Documents. 3.28 General Partner Conduct. In connection with the discharge of its duties as general partner of the Company and the Subsidiary Partnership, the General Partner has not committed one or more acts or omissions constituting gross negligence or willful misconduct which, individually or in the aggregate, might reasonably be expected to result in a Material Adverse Effect with respect to the Company. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE OPERATING PARTNERSHIP Each of the Parent, the Operating Partnership, Merger Sub, Newco I and Newco II represents and warrants to the Company, the General Partner and the Subsidiary Partnership, as follows: 4.1 Existence and Power. Each of the Parent, the Operating Partnership, Merger Sub, Newco I and Newco II and each of their respective subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each of the Parent, the Operating Partnership, Merger Sub, Newco I and Newco II 42 33 and each of their respective subsidiaries is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it, or the nature of the business conducted by it, makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect with respect to the Parent or the Operating Partnership. The Parent has previously delivered or made available to the Company correct and complete copies of the articles of incorporation and code of regulations or by-laws for each of the Parent, Newco I and Newco II and the certificate of limited partnership and the agreement of limited partnership of each of the Operating Partnership and Merger Sub, as currently in effect. Section 4.1 to the disclosure letter previously provided by the Parent to the Company (the "PARENT DISCLOSURE LETTER") sets forth each subsidiary and the ownership interest therein of each of the Parent and the Operating Partnership. Except for the capital stock of or other equity interests in such subsidiaries neither the Parent nor the Operating Partnership owns, directly or indirectly, any capital stock or other equity ownership interest, with a fair market value as of the date of this Agreement greater than $1,000,000 in any person. 4.2 Authorized and Outstanding Capital Shares of the Parent. The Parent is authorized to issue 40,000,000 Parent Shares, and 10,000,000 preferred shares, without par value (the "PARENT PREFERRED SHARES"). As of the date of this Agreement, 9,542,251 Parent Shares are issued and outstanding and no Parent Preferred Shares are issued or outstanding. All issued and outstanding Parent Shares 43 34 have been duly authorized and are validly issued, fully paid, and, subject to the General Corporation Law of the State of Ohio (the "OGCL"), nonassessable and not subject to preemptive rights. The Parent has reserved 603,500 Parent Shares for issuance upon the exercise of outstanding options to purchase Parent Shares. Except as set forth in this Section 4.2, no Parent Shares, other voting securities of the Parent or Parent Preferred Shares were issued, reserved for issuance or outstanding. There are no outstanding stock appreciation rights relating to the Parent Shares. Upon issuance, each Parent Share issued to former Unitholders and the General Partner shall be (a) duly authorized, validly issued, fully paid and, subject to the OGCL, nonassessable and not subject to preemptive rights and (b) registered under the Securities Act. There are no bonds, debentures, notes or other indebtedness or any other securities of the Parent having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Parent Shares may vote. Except as otherwise disclosed in this Section 4.2, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Parent is a party or by which the Parent is bound, obligating the Parent to issue, deliver or sell, or cause to be issued, delivered or sold, additional Parent Shares, other voting securities, Parent Preferred Shares or other ownership interests of the Parent or obligating the Parent to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. There are no outstanding contractual obligations of the Parent to repurchase, redeem or otherwise acquire any Parent Shares or other 44 35 ownership interests in the Parent or make any material investment (in the form of a loan, capital contribution or otherwise) in any person. As of the date of this Agreement, all of the issued and outstanding common shares of each of Newco I and Newco II are owned by Parent. Immediately prior to the Effective Time, 850 common shares of Newco I and 850 common shares of Newco II are issued and outstanding, all of which shares shall be duly authorized, validly issued, fully paid and, subject to the OGCL, nonassessable and not subject to preemptive rights. As of the date of this Agreement, Newco I shall own a 1% general partnership interest in Merger Sub and Newco II shall own a 99% limited partnership interest in Merger Sub. As of the date of this Agreement, no other person shall own a partnership interest, general or limited, in Merger Sub. 4.3 Authority; Binding Agreement. Each of the Parent, the Operating Partnership, Merger Sub, Newco I and Newco II has the full legal power and authority to execute and deliver this Agreement and the other Transaction Documents to which it is a party and, subject to the adoption of this Agreement and the other Transaction Documents and the approval of the transactions contemplated hereby and thereby by the shareholders of the Parent in accordance with the immediately succeeding sentence, to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate and partnership action, as the case may be, on the part of each of the Parent, the Operating Partnership, Merger Sub, 45 36 Newco I and Newco II, to the extent it is a party hereto or thereto, subject to the adoption of this Agreement and the other Transaction Documents and the approval of the transactions contemplated hereby and thereby by the shareholders of the Parent in accordance with the Exchange Act, the OGCL, the rules and regulations of the New York Stock Exchange, Inc. (as defined below) and the articles of incorporation and code of regulations of the Parent. Each of this Agreement and the other Transaction Documents has been or will be duly and validly executed and delivered by the Parent, the Operating Partnership, Merger Sub, Newco I and Newco II, to the extent it is a party hereto or thereto and, subject to the adoption of this Agreement and the other Transaction Documents and the approval of the transactions contemplated hereby and thereby by the shareholders of the Parent in accordance with the immediately preceding sentence, constitutes or will constitute a legal, valid and binding agreement of each of the Parent, the Operating Partnership, Merger Sub, Newco I and Newco II, to the extent it is a party hereto or thereto, enforceable against each of the Parent, the Operating Partnership, Merger Sub, Newco I and Newco II, to the extent it is a party hereto or thereto, in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or transfer and similar laws now or hereafter in effect relating to or affecting creditors' rights generally and to general principles of equity. 4.4 No Conflict or Violation. Neither the execution and delivery by each of the Parent, the Operating Partnership, Newco I, Newco II and Merger Sub of this Agreement or the other Transaction Documents to which it is a party nor the 46 37 consummation of the transactions contemplated hereby and thereby will (a) contravene or conflict with or result in any breach of any provision of the certificate of limited partnership or the agreement of limited partnership of each of the Operating Partnership and Merger Sub or the articles of incorporation or code of regulations or by-laws of each of the Parent, Newco I and Newco II or (b) except with respect to matters that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect with respect to the Parent or the Operating Partnership, (i) subject to obtaining the affirmative vote of a majority of the outstanding Parent Shares and except as set forth in Section 4.4 of the Parent Disclosure Letter and except for consents, approvals or notices which have been obtained or made or such conflicts, violations or defaults which have been properly waived by the appropriate party, require any consent, approval or notice under or conflict with or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any Contracts to which the Parent, the Operating Partnership or any of their subsidiaries is a party or by which any of them or any material portion of their properties or assets may be bound or (ii) violate any Legal Requirements applicable to the Parent, the Operating Partnership or any of their subsidiaries or any material portion of their properties or assets. 4.5 Governmental Approvals. No consent, approval or authorization of or declaration or filing with any Governmental Entity on the part of the Parent, the Operating Partnership or any of their subsidiaries that has not been obtained or made is 47 38 required in connection with the execution or delivery by the Parent, the Operating Partnership, Newco I, Newco II or Merger Sub of this Agreement or the other Transaction Documents, to which it is a party, or the consummation by the Parent, the Operating Partnership, Newco I, Newco II or Merger Sub of the transactions contemplated hereby and thereby, to which it is a party, other than (a) the filing of a Certificate of Merger with the Secretary of State of the State of Delaware, (b) filings and other applicable requirements under the Securities Act and the Exchange Act, (c) as may be required under state securities or "blue sky" laws, (d) filings, approvals or other actions or authorizations required under any applicable liquor license laws and regulations and (e) consents, approvals, authorizations, declarations or filings that, if not obtained or made, could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect with respect to the Parent or the Operating Partnership or prevent the Parent, the Operating Partnership, Newco I, Newco II or Merger Sub from consummating the transactions contemplated hereby. 4.6 SEC Filings; Financial Statements. The Parent has made all filings required to be made with the SEC since December 31, 1996 and has delivered or made available to the Company correct and complete copies of its (a) Annual Report on Form 10-K for the year ended December 31, 1996 (the "PARENT 10-K"), as filed with the SEC, (b) proxy statements relating to all of the Parent's meetings of shareholders (whether annual or special) since December 31, 1996 and (c) all other reports, statements and registration statements (including Quarterly Reports on Form 10-Q (collectively, the "PARENT 10-Q'S") and Current Reports on Form 8-K) filed 48 39 by the Parent with the SEC since December 31, 1996 (the items identified in clauses (a), (b) and (c) (in each case including all exhibits and schedules thereto and documents incorporated by reference therein) being referred to collectively as the "PARENT SEC FILINGS"). As of their respective dates, the Parent SEC Filings, taken together with all amendments thereto, comply in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the rules and regulations thereunder and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of the Parent included or incorporated by reference in the Parent 10-K and the Parent 10-Q's (a) have been prepared in accordance with generally accepted accounting principles in effect during the periods involved (except, in the case of unaudited quarterly statements, as permitted by Form 10-Q under the rules and regulations of the SEC) (except as may be indicated in the notes to such financial statements) and (b) fairly present in all material respects the consolidated financial position of the Parent and the Operating Partnership at the respective dates thereof and the consolidated results of operations and cash flows for the respective periods then ended (subject, in the case of unaudited interim financial statements, to normal year-end adjustments). 4.7 Absence of Certain Changes or Events. Except as disclosed in the Parent SEC Filings filed prior to the date hereof (the "FILED PARENT SEC FILINGS") or as specifically contemplated by this Agreement or as set forth in Section 4.7 of the 49 40 Parent Disclosure Letter, since September 30, 1997 there has not been any condition, event or occurrence that, individually or in the aggregate, has resulted in a Material Adverse Effect with respect to the Parent or the Operating Partnership. 4.8 Absence of Litigation. Except as disclosed in the Filed Parent SEC Filings or as set forth in Section 4.8 of the Parent Disclosure Letter, as of the date hereof, there are no claims, actions or proceedings pending or, to the knowledge of the Parent or the Operating Partnership, threatened against the Parent or the Operating Partnership or any of their subsidiaries, or any of their respective properties or assets before any court or Governmental Entity that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect with respect to the Parent or the Operating Partnership. As of the date hereof, neither the Parent or the Operating Partnership nor any portion of the Parent's and the Operating Partnership's properties or assets is subject to any Orders of any court or Governmental Entity, that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect with respect to the Parent or the Operating Partnership. 4.9 Compliance. Except as disclosed in the Filed Parent SEC Filings, none of the Parent, the Operating Partnership and their subsidiaries is in default or violation of any term, condition or provision of (a) its certificate of limited partnership, partnership agreement, articles of incorporation, by-laws, code of regulations or other organizational documents, as the case may be, or (b) except with respect to matters that, individually or in the aggregate, have not had or would not reasonably be expected to result in a Material Adverse Effect with respect to the Parent 50 41 or the Operating Partnership, (i) any Contracts to which the Parent or the Operating Partnership or any of their subsidiaries is a party or by which any of them or any material portion of their properties or assets may be bound or (ii) any Legal Requirements applicable to the Parent or the Operating Partnership or any of their subsidiaries or any material portion of their properties or assets. 4.10 Information Supplied. None of the information supplied or to be supplied by the Parent, the Operating Partnership, Newco I, Newco II or Merger Sub for inclusion or incorporation by reference in the Registration Statement or the Proxy Statement to be filed with the SEC by the Parent and the Company in connection with the Company Unitholders' Meeting and the Parent Shareholders' Meeting will, at the time the Registration Statement is filed with the SEC, at any time it is amended or supplemented or at the time it becomes effective under the Securities Act or at the time the Proxy Statement is mailed to the Unitholders and the Parent's shareholders, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. 4.11 Finders and Investment Bankers. None of the Parent or the Operating Partnership or any of their subsidiaries has employed any investment banker, financial advisor, broker or finder in connection with the transactions contemplated by this Agreement, except for Lehman Brothers Inc. (the "PARENT FINANCIAL ADVISOR"), or incurred any liability for any investment banking, business consultancy, financial advisory, brokerage or finders' fees or commissions in connection with the transactions 51 42 contemplated hereby, except for fees payable to the Parent Financial Advisor, all of which fees have been or will be paid by the Parent. The Parent has previously delivered to the Company a copy of the engagement letter between the Parent and the Parent Financial Advisor. 4.12 Sufficient Funds. The Operating Partnership has or upon the Closing Date will have sufficient funds or financing available (through existing credit arrangements or otherwise) to (a) repay, in cash, all indebtedness outstanding under the credit facility provided for pursuant to the Second Amended and Restated Credit Agreement, dated April 2, 1996, between Canadian Imperial Bank of Commerce, as agent, and the Subsidiary Partnership (together with any interest rate hedging agreements entered into pursuant to Section 6.27 of such credit agreement, the "COMPANY CREDIT FACILITY"), plus unpaid interest accrued thereon, and any prepayment, breakage or other costs associated with repayment of amounts under or in connection with the termination of the Company Credit Facility on the Closing Date, as contemplated in Section 5.11, (b) pay, in cash, all amounts owed to the Manager by the Subsidiary Partnership pursuant to the Management Agreement and the Termination Agreement, as contemplated in Section 5.11, (c) repay all loans and other obligations owed by the Company to the General Partner and the Manager, as contemplated in Section 5.11, (d) pay all amounts required to be paid pursuant to the Assignment Agreement, (e) pay all fees, costs and expenses including, without limitation, fees and expenses of counsel for each of the Special Committee, the General Partner and the Company and of the Special Committee Financial Advisors incurred by the Company 52 43 in connection with this Agreement, the Merger, the other transactions contemplated hereby, the Operating Lease and related matters (the amounts in clauses (a) through (e) collectively, the "TRANSACTION EXPENSES"), as contemplated in Section 5.11 and (f) pay all amounts required to be paid in cash pursuant to Article 2. 4.13 Investigation by the Parent and the Operating Partnership. In entering into this Agreement, the Parent, the Operating Partnership, Newco I, Newco II and Merger Sub: (a) acknowledge that, except as set forth in this Agreement and in the certificates and other documents and instruments to be delivered by the General Partner, the Company and the Subsidiary Partnership at the Closing, none of the General Partner, the Company, the Subsidiary Partnership or any of their respective partners, directors (including the Special Committee), officers, employees, affiliates, agents, advisors or representatives makes any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information provided or made available to the Parent, the Operating Partnership or their agents or representatives, and (b) agree, to the fullest extent permitted by law that, except as provided in this Agreement, none of the General Partner, the Company, the Subsidiary Partnership or any of their respective partners, directors (including the Special Committee), officers, employees, shareholders, affiliates, agents, advisors or representatives shall have any liability or responsibility whatsoever to the Parent or the Operating Partnership on any basis (including, without limitation, in contract or tort, 53 44 under federal or state securities laws or otherwise) based upon any information provided or made available, or statements made, to the Parent or the Operating Partnership. 4.14 Taxes. 4.14.1 Each of the Parent, the Operating Partnership and their subsidiaries has filed all tax returns and reports required to be filed by it (after giving effect to any filing extension properly granted by a Governmental Entity having authority to do so) and has paid all taxes required to be paid by it other than cases where the failure to pay any such taxes, individually or in the aggregate, has not resulted or would not reasonably be expected to result in a Material Adverse Effect with respect to the Parent or the Operating Partnership, and the financial statements contained in the most recent Parent 10-K reflect an adequate reserve for all material taxes payable by the Parent, the Operating Partnership or such subsidiaries for all taxable periods and portions thereof through the date of such financial statements. Since February 8, 1996, the Parent has incurred no liability for taxes under Section 857(b), 860(c) or 4981 of the Code (as defined below), and neither the Parent nor the Operating Partnership has incurred any liability for taxes other than in the ordinary course of business. Except as set forth in Section 4.14.1 of the Parent Disclosure Letter, to the knowledge of the Parent or the Operating Partnership, no event has occurred, and no condition or circumstance exists, which presents a material risk that any material tax described in the preceding sentence will be imposed upon the Parent. 54 45 4.14.2 The Parent has been, since its date of formation, and will be through the Closing Date, treated as a real estate investment trust within the meaning of Section 856 of the Code and has satisfied all requirements to qualify as a real estate investment trust for such years, (b) has operated since its date of formation, and intends to continue to operate, in such a manner as to qualify as a real estate investment trust and (c) has not taken or omitted to take any action which could result in a challenge to its status as a real estate investment trust, and to the Parent's knowledge, no such challenge is pending or threatened. The Operating Partnership has been since its date of formation, and will be, through the Closing Date, treated as a Partnership and not as an association taxable as a corporation for federal income tax purposes. The General Partner agrees that it will file the final tax returns of the Company for the taxable year of the Company that ends on the Closing Date as a result of the termination of the Company pursuant to Section 708(b)(1)(B) of the Code and the General Partner, the Company, and the Subsidiary Partnership agree, based on advice of competent tax counsel, that such final tax returns will in all respects reflect and be consistent with the treatment of the Merger as a transfer by the General Partner and each Unitholder of their interests in the Company to Parent in exchange for cash and Parent Shares. Parent, Newco I, Newco II, and Merger Sub agree to treat the Merger for tax purposes consistent with the treatment described herein. 4.15 Condemnation Actions. Except as disclosed in Section 4.15 of the Parent Disclosure Letter, neither the Parent, the Operating Partnership nor any of their respective subsidiaries has received any written notice of and none of them has knowledge of any pending condemnation action of any nature with respect to any of the properties 55 46 owned or leased by the Parent or the Operating Partnership or any of such subsidiaries (collectively, the "PARENT PROPERTIES") other than any such action that, individually or in the aggregate, has not resulted or would not reasonably be expected to result in a Material Adverse Effect with respect to the Parent or the Operating Partnership. If, between the date hereof and the Effective Time, the Parent, the Operating Partnership or any of such subsidiaries receives a written notice of or obtains knowledge of any such pending condemnation action, the Parent shall promptly notify the Company of such notice or knowledge. 4.16 Hazardous Materials. Except as disclosed in Section 4.16 of the Parent Disclosure Letter and except with respect to matters that, individually or in the aggregate, have not had or would not reasonably be expected to result in a Material Adverse Effect with respect to the Parent or the Operating Partnership, none of the Parent, the Operating Partnership and their respective subsidiaries has received any written notice of and none of them has knowledge of (a) any alleged violation of any Environmental Law with respect to any such property, which violation has not been previously remedied or (b) any investigation by any Governmental Entity with respect to the existence of any Hazardous Materials at any of the sites at which an investigation remains open. 4.17 Bankruptcy Matters. None of the Parent, the Operating Partnership or their respective subsidiaries has made a general assignment for the benefit of creditors, filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by its creditors, suffered the appointment of a receiver to take possession of all or substan- 56 47 tially all of its assets, suffered the attachment or other judicial seizure of all or substantially all of its assets, admitted its inability to pay its debts as they come due, or made an offer of settlement, extension or composition to its creditors generally. 4.18 Vote or Consent Required. The affirmative votes of the holders of a majority of the outstanding Parent Shares is the only vote or consent of the holders of any class or series of capital stock of the Parent, Newco I or Newco II or partnership interests in the Operating Partnership or Merger Sub not previously obtained that is necessary (under applicable law or otherwise) to enable each of Parent, Newco I, Newco II, Merger Sub and the Operating Partnership to enter into and consummate this Agreement and the other Transaction Documents to which it is a party and perform their respective obligations hereunder and thereunder. 4.19 Opinion of Financial Advisor. The Parent has received an opinion of the Parent Financial Advisor to the effect that, as of the date of this Agreement, the Merger Consideration is fair to the Parent from a financial point of view. 4.20 Takeover Statutes. No Takeover Statute applies to the Merger or the other transactions contemplated by this Agreement and the other Transaction Documents. 4.21 Newly Formed Subsidiaries. Each of Merger Sub, Newco I and Newco II is a newly formed, wholly-owned subsidiary of the Parent and, except for the activities incident to this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby, none of Newco I, Newco II and Merger Sub has engaged in any business activities of any type or kind whatsoever. Each of Newco I and 57 48 Newco II is a "qualified REIT subsidiary" within the meaning of Section 856(i)(2) of the Code. ARTICLE 5 COVENANTS 5.1 Conduct of Business of the Company. Except as contemplated by this Agreement and the other Transaction Documents (including, without limitation, as contemplated in the immediately succeeding sentence), during the period commencing on the date hereof and ending at the Effective Time, the Company shall, and the General Partner shall cause the Subsidiary Partnership to, conduct its operations in the ordinary course of business consistent with past practice and to use all commercially reasonable efforts to preserve intact its business organization and to maintain satisfactory relationships with its customers and suppliers and others having business relationships with it. Without limiting the generality of the foregoing, and except as otherwise contemplated by this Agreement, prior to the Effective Time, the Company will not, and the General Partner will cause the Subsidiary Partnership not to, without the prior written consent of the Parent or the Operating Partnership: (a) amend its certificate of limited partnership or agreement of limited partnership except as contemplated by Section 5.15 hereof; (b) authorize for issuance, issue, sell, pledge, deliver or agree or commit to issue, sell, pledge or deliver (whether through the issuance or granting of any options, warrants, calls, subscriptions or other rights or other agreements) any Company 58 49 Units or other general or limited partnership interests of any class or any securities convertible into or exchangeable for partnership units or other general or limited partnership interests of any class in the Company or the Subsidiary Partnership; (c) split, combine or reclassify any Company Units or declare, pay or set aside for payment any distribution (other than (x) regularly scheduled quarterly distributions on the Company Units of $.55 per Company Unit and corresponding quarterly distributions on the GP Interest at the rate provided for in the Company's agreement of limited partnership, which shall be paid in the ordinary course of business, and (y) the Special Distribution) in respect of the Company Units or the GP Interest; (d) acquire, sell, lease or dispose of any assets (whether by merger, transfer of securities or otherwise) which in the aggregate are material to the Company and the Subsidiary Partnership taken as a whole; (e) (i) incur or assume any long-term or short-term debt or issue any debt securities except for (A) borrowings under existing lines of credit in the ordinary course of business consistent with past practice, (B) borrowings from the General Partner necessary to enable the Company or the Subsidiary Partnership to pay operating expenses incurred in the ordinary course of business, to make capital expenditures otherwise permitted under Section 5.1(f) and to make regularly scheduled distributions to Unitholders and the General Partner to the extent such distributions are permitted to be made under Section 5.1(c) and to make the Special Distribution; and (C) borrowings from the General Partner in amounts necessary to enable the Company or the Subsidiary Partnership to prepay the amount owed to any lender under the 59 50 Company Credit Facility, so long as the interest rate charged by the General Partner in connection with such borrowings is equal to or lower than the interest rate that would have been applicable to the prepaid amount under the Company Credit Facility during the period in which such borrowings are made and remain outstanding; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the material obligations of any other person (other than the Subsidiary Partnership), except in the ordinary course of business consistent with past practice in an amount not material to the Company and the Subsidiary Partnership taken as a whole; (iii) make any material loans, advances or capital contributions to, or investments in, any other person (other than the Subsidiary Partnership), other than in the ordinary course of business consistent with past practice; (iv) pledge or otherwise encumber any interests in the Subsidiary Partnership; or (v) mortgage or pledge any of its material tangible or intangible assets or voluntarily create any lien, charge, security interest or encumbrance of any kind with respect to any such asset securing an obligation or indebtedness in any one occurrence of $100,000 or more or, in the aggregate, in excess of $1,000,000; (f) (i) acquire (by merger, consolidation or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any material equity interest therein (other than purchases of marketable securities in the ordinary course of business); (ii) enter into any contract or agreement other than in the ordinary course of business consistent with past practice which would be material to the Company and the Subsidiary Partnership taken as a whole; (iii) other 60 51 than capital expenditures provided for in the Company's 1997 and 1998 capital expenditures budgets (provided that substitution of budget line items shall be permitted so long as aggregate capital expenditures budgets are not exceeded), which budgets have been delivered or made available to the Parent, authorize any new capital expenditure or expenditures which, individually, is in excess of $100,000 or, in the aggregate, are in excess of $1,000,000, provided, however, that such limits may be exceeded if and to the extent such expenditures are required in order to comply with the law or in the event of an emergency at one or more of the Hotels that could result in significant harm to the affected property; or (iv) enter into or amend any contract, agreement, commitment or arrangement providing for the taking of any action which would be prohibited hereunder; (g) adopt a plan of complete or partial liquidation or resolutions providing for or authorizing such liquidation or a dissolution, winding up, merger, consolidation, restructuring, recapitalization or other reorganization; (h) materially change any of the accounting methods used by it unless required by generally accepted accounting principles, the SEC or applicable law; (i) settle or compromise any claim (including arbitration) or litigation, which after insurance reimbursement is material to the Company and the Subsidiary Partnership taken as a whole, without the prior written consent of the Parent, which consent will not be unreasonably withheld; or 61 52 (j) authorize or enter into an agreement to do any of the foregoing. Notwithstanding anything to the contrary in this Section 5.1, the Company intends to and shall be permitted to take advantage of the grandfather extension under the Taxpayer Relief Act of 1997 for a publicly traded partnership by electing the application of Section 7704(g) of the Code and consenting to the application of the tax imposed by paragraph (3) of Section 7704(g) of the Code. 5.2 Conduct of Business of the Parent and the Operating Partnership. Except as contemplated by this Agreement and the other Transaction Documents, during the period commencing on the date hereof and ending at the Effective Time, each of the Parent and the Operating Partnership, Newco I, Newco II and Merger Sub shall, and shall cause its subsidiaries to, use all commercially reasonable efforts to preserve intact its business organization and to maintain satisfactory relationships with its customers, suppliers and employees and others having business relationships with it. Except as otherwise contemplated in this Agreement, prior to the Effective Time, neither the Parent nor the Operating Partnership will, or will permit its subsidiaries to, without the prior written consent of the Special Committee (acting on behalf of the General Partner): (a) amend its articles of incorporation, code of regulations, certificate of limited partnership, agreement of limited partnership or other governing or organizational documents; 62 53 (b) except in connection with the Parent's Long Term Incentive Plan (as defined below) and options outstanding on the date hereof or as contemplated by the agreement of limited partnership of the Operating Partnership in respect of the issuance of Parent Shares in exchange for Operating Partnership Units, or in respect of the issuance of Operating Partnership Units in connection with the issuance of Parent Shares, or in connection with any conversion of the Intercompany Note (as defined below), authorize for issuance, issue, sell, pledge, deliver or agree or commit to issue, sell, pledge or deliver (whether through the issuance or granting of any options, warrants, calls, subscriptions or other rights or other agreements) any capital stock or partnership units or interests, as the case may be, of any class or any securities convertible into or exchangeable for capital stock or partnership units or interests, as the case may be, of any class of the Parent or the Operating Partnership which represents (after giving effect to the exchange of any such partnership units for Parent Shares) more than 50% (prior to giving effect to the Merger) of the voting stock of the Parent on a fully diluted basis (after giving effect to the exchange of all currently outstanding Operating Partnership Units for shares of Parent Shares); (c) split, combine or reclassify any Parent Shares or declare, pay or set aside for payment any dividend (other than regularly scheduled quarterly dividends on the Parent Shares of $.45 per Parent Share, which shall be paid in the ordinary course of business) in respect of any Parent Shares or other interests in the Parent, or redeem, purchase or otherwise acquire any of its capital stock; 63 54 (d) (i) incur or assume any long-term or short-term debt or issue any debt securities if such transaction would result in the ratio of net debt to market capitalization of the Parent and the Operating Partnership on a consolidated basis (but excluding for the purposes of such calculation the Intercompany Note) exceeding .45; or (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the material obligations of any other person or persons if such transaction would result in such ratio of net debt to market capitalization exceeding .45; (e) acquire (by merger, consolidation or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any material equity interest therein (other than purchases of marketable securities in the ordinary course of business) or otherwise issue any equity securities or any securities convertible into or exchangeable for equity securities which, in any case, would require the approval of the Parent's shareholders; (f) effect any merger, consolidation or other business combination with any person in which such person will become, after the consummation of such transaction, the surviving entity of the transaction; (g) adopt a plan of complete or partial liquidation or resolutions providing for or authorizing such liquidation or a dissolution, winding-up, merger, consolidation, restructuring, recapitalization or other reorganization; (h) take any action that would cause the representation set forth in Section 4.21 to become untrue at or prior to the Effective Time; or 64 55 (i) authorize or enter into an agreement to do any of the foregoing. 5.3 Proxy Statement; Registration Statement. As promptly as practicable after the execution of this Agreement, (a) the Company and the Parent shall prepare and file with the SEC (with appropriate requests for confidential treatment) under the Exchange Act a joint proxy statement/prospectus and a form of a proxy (such proxy statement/prospectus or joint proxy statement/prospectus, as the case may be, together with any amendments thereof or supplements thereto, in each case in the form or forms delivered to the Unitholders of the Company and the shareholders of the Parent, the "PROXY STATEMENT") relating to the solicitation of approval from the Unitholders and the shareholders of the Parent with respect to the Transaction Documents and the transactions contemplated hereby and thereby and (b) the Parent shall file with the SEC under the Securities Act the Registration Statement, in which the Proxy Statement will be included as a prospectus, in connection with the registration under the Securities Act of the Parent Shares to be issued and distributed to the Unitholders and the General Partner pursuant to the Merger. The Parent and the Company will cause the Registration Statement and the Proxy Statement to comply in all material respects with the Securities Act, the Exchange Act and the rules and regulations thereunder. Each of the Parent and the Company shall use all commercially reasonable efforts to have or cause the Registration Statement to become effective (including clearing the Proxy Statement with the SEC) as promptly as practicable thereafter, and shall take any and all actions required under any applicable federal or 65 56 state securities or "blue sky" laws in connection with the issuance of shares of Parent Shares pursuant to the Merger. Without limiting the generality of the foregoing, each of the Parent and the Company agrees to use all commercially reasonable efforts, after consultation with the other such party, to respond as promptly as possible to any comments made by the SEC with respect to the Proxy Statement (including each preliminary version thereof) and the Registration Statement (including each amendment thereof and supplement thereto). Each of the Parent and the Company shall, and shall cause its respective representatives to, cooperate fully with the other such party with all information concerning it and its affiliates, directors, officers and stockholders as the other may reasonably request in connection with the preparation of the Proxy Statement and the Registration Statement. The Proxy Statement shall include the determination and recommendation of the (a) Board of Directors of the General Partner and the Special Committee and (b) the Board of Directors of the Parent, that the Unitholders and the shareholders of the Parent, respectively, vote in favor of the approval and adoption of the Merger, this Agreement, the other Transaction Documents, the transactions contemplated hereby and thereby and the issuance of the Parent Shares in connection with the Merger, as the case may be; provided, however, that the Board of Directors of the General Partner and the Special Committee may withdraw, modify or change such respective recommendation if any of them determines in good faith, based upon the advice of outside counsel, that making such recommendation, or the failure to so withdraw, modify or change its recommendation, or the failure to recommend any other offer or proposal, could reasonably be deemed to cause them to breach their 66 57 fiduciary duties under applicable law. As promptly as practicable after the Registration Statement shall have become effective, the Company and the Parent shall cause the Proxy Statement to be mailed to the Unitholders and the shareholders of the Parent, respectively. 5.3.1 Without limiting the generality of the foregoing, (a) the General Partner, the Company and the Subsidiary Partnership, on the one hand, and the Parent, the Operating Partnership, Newco I, Newco II and Merger Sub, on the other hand, shall each notify the other as promptly as practicable upon becoming aware of any event or circumstance which should be described in an amendment of, or a supplement to, the Proxy Statement or the Registration Statement, and (b) the Company and the Parent shall each notify the other as promptly as practicable after the receipt by it of any written or oral comments of the SEC on, or of any written or oral request by the SEC for amendments or supplements to, the Proxy Statement or the Registration Statement, and shall promptly supply the other with copies of all correspondence between it or any of its representatives and the SEC with respect to any of the foregoing filings. 5.3.2 The information supplied by the General Partner, Company and the Subsidiary Partnership for inclusion or incorporation by reference in the Proxy Statement and the Registration Statement shall not (a) at the time the Registration Statement is declared effective, (b) at the time the Proxy Statement (or any amendment thereof or supplement thereto) is first mailed to the Unitholders and the shareholders of the Parent, (c) at the time of the (i) Company Unitholders' Meeting or 67 58 (ii) the Parent Shareholders' Meeting, and (d) at the Effective Time, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading. If at any time prior to the Effective Time any event or circumstance relating to the General Partner, Company, the Subsidiary Partnership or any of their subsidiaries or affiliates or their respective officers or directors is discovered by the Company and the Subsidiary Partnership which should be set forth in an amendment to the Registration Statement or a supplement to the Proxy Statement, the General Partner, the Company or the Subsidiary Partnership shall promptly inform the Parent of such event or circumstance. The information supplied by the Parent, Newco I, Newco II, Merger Sub and the Operating Partnership for inclusion or incorporation by reference in the Proxy Statement and the Registration Statement shall not (w) at the time the Registration Statement is declared effective, (x) at the time the Proxy Statement (or any amendment thereof or supplement thereto) is first mailed to the Unitholders and the shareholders of the Parent, (y) at the time of (A) the Company Unitholders' Meeting or (B) the Parent Shareholders' Meeting and (z) at the Effective Time, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which the are made, not misleading. If at any time prior to the Effective Time any event or circumstance relating to the Parent, Newco I, Newco II, Merger Sub, the Operating Partnership or any of their subsidiaries or affiliates or their respective officers or directors is discovered by the Parent, Newco 68 59 I, Newco II, Merger Sub and the Operating Partnership which should be set forth in an amendment to the Registration Statement or a supplement to the Proxy Statement, the Parent, Newco I, Newco II, Merger Sub or the Operating Partnership shall promptly inform the Company of such event or circumstance. 5.3.3 As promptly as practicable after the date of this Agreement, the Company and the Board of Directors of the General Partner will (a) duly call and hold a special meeting of the Unitholders for the purpose of considering and voting upon the approval of this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby (which special meeting shall, to the extent feasible, be held on the same day or as soon as practicable after the date on which the Registration Statement becomes effective) and (b) use all commercially reasonable efforts to solicit from the Unitholders proxies in favor of such approvals and to secure the vote or consent of the Unitholders required by the DRULPA and the Company's agreement of limited partnership. 5.3.4 As promptly as practicable after the date of this Agreement, the Parent and its Board of Directors will, (a) duly call and hold a special meeting of its shareholders for the purpose of considering and voting upon the approval of the issuance of the Parent Shares in connection with the Merger (which special meeting shall, to the extent feasible, be held on the same day or as soon as practicable after the date on which the Registration Statement becomes effective) and (b) use all commercially reasonable efforts to solicit from its shareholders proxies in favor of such approvals and to secure the vote or consent of shareholders required by the rules and 69 60 regulations promulgated by the NYSE and the OGCL to effect the Merger. In connection with the preparation of the Proxy Statement and the Registration Statement, the Parent shall use reasonable efforts to cause to be delivered to the Company prior to the mailing of the Proxy Statement to the Unitholders and to include in the Proxy Statement, the opinion of independent counsel for the Parent dated the date of the Proxy Statement, that (i) the Parent was organized and has operated in conformity with the requirements for qualification as a real estate investment trust within the meaning of the Code since its date of formation and that, after giving effect to the Merger, the Parent's proposed method of operation will enable it to continue to meet the requirements for qualification and taxation as a real estate investment trust under the Code and (ii) the Operating Partnership has been since its date of formation, and continues to be, treated as of the date of the Proxy Statement, for federal income tax purposes, as a partnership and not as a corporation or an association taxable as a corporation. 5.4 Access and Information. 5.4.1 Between the date of this Agreement and the Effective Time, the Company shall afford each of the Parent and the Operating Partnership and its authorized representatives (including its accountants, financial advisors and legal counsel) reasonable access during normal business hours to all of the properties, personnel, Contracts, books and records of the Company and the Subsidiary Partnership and shall promptly deliver or make available to the Parent (a) a copy of each report, schedule and other document filed by the Company pursuant to the 70 61 requirements of federal or state securities laws and (b) all other information concerning the business, the properties and assets of the Company and the Subsidiary Partnership as the Parent may from time to time reasonably request. Each of the Parent and the Operating Partnership and their subsidiaries shall hold, and shall cause its Representatives (as defined in the letter agreement dated July 17, 1997 (the "COMPANY CONFIDENTIALITY AGREEMENT") between the Company and the Parent) to hold, all Evaluation Material (as defined in the Company Confidentiality Agreement) in confidence in accordance with the terms of the Company Confidentiality Agreement and, in the event of the termination of this Agreement for any reason, the Parent shall promptly return or destroy all Evaluation Material in accordance with the terms of the Company Confidentiality Agreement. 5.4.2 Between the date of this Agreement and the Effective Time, each of the Parent, the Operating Partnership, Newco I, Newco II and Merger Sub shall, and shall cause their respective subsidiaries to, afford the General Partner, the Company and their authorized representatives (including their accountants, financial advisors and legal counsel and those of the Special Committee) reasonable access during normal business hours to all of the properties, personnel, Contracts, books and records of the Parent, the Operating Partnership and their subsidiaries and shall promptly deliver or make available to the Company (a) a copy of each report, schedule and other document filed by the Parent pursuant to the requirements of federal or state securities laws and (b) all other information concerning the business, the properties and assets of the Parent, the Operating Partnership and their subsidiaries as the Company 71 62 may from time to time reasonably request. The Company, the General Partner and the Subsidiary Partnership shall hold, and shall cause their Representatives (as defined in the letter agreement dated November 24, 1997 (the "PARENT CONFIDENTIALITY AGREEMENT") between the Parent and the General Partner) to hold, all Evaluation Material (as defined in the Parent Confidentiality Agreement) in confidence in accordance with the terms of the Parent Confidentiality Agreement and, in the event of the termination of this Agreement for any reason, the Company shall promptly return to the Parent or the Operating Partnership or destroy all Evaluation Material in accordance with the terms of the Parent Confidentiality Agreement. 5.5 No Solicitation. Except as otherwise contemplated by this Agreement, from and after the date hereof, the Company shall not, and the General Partner shall cause the Subsidiary Partnership not to, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to, any person or group (other than the Parent, the Operating Partnership, Newco I, Newco II, Merger Sub or any affiliate, associate or designee of the Parent or the Operating Partnership) concerning any proposal for an acquisition of all or substantially all of the business and properties or partnership units or interests of the Company or the Subsidiary Partnership, whether by merger, tender offer, purchase of assets or partnership units or otherwise (any such proposal made after the date hereof, including any renewal of any such proposal, or new proposal, made after the date hereof by a party (other than the Parent, the Operating Partnership, Newco I, Newco II, Merger Sub or any affiliate, associate or designee of the Parent or the Operating 72 63 Partnership) that made any such proposal prior to the date hereof, an "ACQUISITION PROPOSAL"). As of the date of this Agreement, each of the Company, the General Partner and the Subsidiary Partnership hereby (a) represents that as of such date it and the Special Committee have (or immediately following the public announcement of the execution and delivery of this Agreement shall have) discontinued discussions or negotiations with all persons or groups (other than the Parent, the Operating Partnership, Newco I, Newco II, Merger Sub or any affiliate, associate or designee of the Parent or the Operating Partnership) with whom discussions or negotiations have previously been held concerning any proposal for an acquisition of all or substantially all of the business and properties or partnership units or interests of the Company or the Subsidiary Partnership, whether by merger, tender offer, purchase of assets or partnership units or otherwise, and (b) agrees not to, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide information to any such person or group concerning any proposal for an acquisition of all or substantially all of the business and properties or partnership units or interests of the Company or the Subsidiary Partnership, whether by merger, tender offer, purchase of assets or partnership units or otherwise other than in compliance with the provisions of this Section 5.5. Notwithstanding the foregoing, (i) the Board of Directors of the General Partner or the Special Committee may take, and disclose to the Unitholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with respect to any tender offer for Company Units and (ii) the Company, the General Partner and the Subsidiary Partnership may, directly or indirectly, furnish information 73 64 and access and may participate in discussions and negotiate with any person or group concerning any Acquisition Proposal which the Board of Directors of the General Partner or the Special Committee determines in its good faith judgment, after consultation with its independent legal counsel, that it is necessary to do so in the exercise of its fiduciary obligations. 5.6 Reasonable Efforts; Additional Actions. 5.6.1 Upon the terms and subject to the conditions of this Agreement and the other Transaction Documents, each of the parties hereto shall use all commercially reasonable efforts to take, or cause to be taken, all action, and to do or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement and the other Transaction Documents, including using all commercially reasonable efforts to (a) obtain all consents, amendments to or waivers under the terms of any of the Company's, the Subsidiary Partnership's, the Parent's and the Operating Partnership's borrowing or other contractual arrangements or those of their respective subsidiaries, required for the transactions contemplated by this Agreement and the other Transaction Documents (other than consents, amendments or waivers the failure of which to obtain would not, individually or in the aggregate, result or reasonably be expected to result in a Material Adverse Effect with respect to the Company and the Subsidiary Partnership or the Parent and the Operating Partnership, as the case may be) including, but not limited to, the consent of the lessor under the Springfield Ground Lease to the execution and 74 65 delivery of the Operating Lease by the Subsidiary Partnership; provided, however, that the failure to obtain such consent shall not be a breach of this Agreement or a failure of a condition to effect the Merger, (b) effect promptly all necessary or appropriate registrations and filings with Governmental Entities, including, without limitation, filings and submissions pursuant to the Securities Act, the Exchange Act, the DRULPA and applicable regulations of state liquor licensing authorities, (c) defend any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby and (d) fulfill or cause the fulfillment of the conditions to Closing set forth in Article 6. 5.6.2 If, at any time after the Effective Time, the Surviving Partnership shall determine or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Partnership the right, title or interest in, to or under any of the rights, the properties or assets of either of the Constituent Partnerships acquired or to be acquired by the Surviving Partnership as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, the Surviving Partnership shall be authorized to execute and deliver, in the name and on behalf of each of the Constituent Partnerships or otherwise, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of the Constituent Partnerships or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, 75 66 to and under such rights, the properties or assets in the Surviving Partnership or otherwise to carry out this Agreement. 5.7 Notification of Certain Matters. The General Partner, the Company and the Subsidiary Partnership shall give notice to the Parent and the Operating Partnership, and the Parent, Newco I, Newco II, Merger Sub and the Operating Partnership shall give notice to the General Partner and the Company, promptly upon becoming aware of (a) any occurrence, or the failure to occur, of any event, which occurrence or failure to occur has caused or could reasonably be expected to cause any representation or warranty in this Agreement to be untrue or inaccurate in any material respect at any time after the date hereof and prior to the Effective Time and (b) any material failure on its part to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided that the delivery of any notice pursuant to this Section 5.7 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. 5.8 Public Announcements. The initial press release or releases with respect to the transactions contemplated by this Agreement shall be in the form agreed to by the Parent, on the one hand, and the General Partner and the Company, on the other hand. Thereafter, for as long as this Agreement is in effect, the Parent, Newco I, Newco II, Merger Sub and the Operating Partnership, on the one hand, and the Company, the General Partner and the Subsidiary Partnership, on the other hand, shall not issue or cause the publication of any press release or any other announcement with respect to the Merger, this Agreement, the other Transaction Documents or the other 76 67 transactions contemplated hereby or thereby without the consent of the other, except when such release or announcement is required by applicable law or pursuant to any listing agreement with, or the rules or regulations of, any securities exchange or any other regulatory requirement. 5.9 Indemnification; Directors and Officers Insurance. 5.9.1 To the fullest extent permitted by law, the current members and any prior members of the Board of Directors of the General Partner and the current and prior officers of the General Partner (each individually, an "INDEMNITEE") shall each be indemnified and held harmless by each of the Parent and the Operating Partnership, jointly and severally, from and against any and all losses, claims, damages, liabilities, joint and several, expenses (including legal fees and expenses), judgments, fines, settlements and other amounts arising from and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which the Indemnitee may be involved, or threatened to be involved, as a party or otherwise by reason of or in connection with his status as a director or officer of the General Partner or as a member of the Special Committee prior to the Effective Time (including, without limitation, in connection with the Merger and the other transactions contemplated by this Agreement), for a period of six years after the Effective Time if (a) the Indemnitee acted in good faith and in a manner he in good faith believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was unlawful and (b) the Indemnitee's conduct did not constitute gross negligence or willful or wanton 77 68 misconduct. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that the Indemnitee acted in a manner contrary to that specified in (a) or (b) above. The Parent and the Operating Partnership shall pay all reasonable expenses (including legal fees and expenses) that are incurred by an Indemnitee in enforcing this Section 5.9. 5.9.2 To the fullest extent permitted by law, expenses (including legal fees and expenses of counsel selected by the Indemnitee) incurred by an Indemnitee in defending, investigating or participating as a third-party witness in connection with any claim, demand, action, suit or proceeding contemplated by Section 5.9.1 shall, from time to time, be advanced by the Parent or the Operating Partnership prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Parent or the Operating Partnership of an undertaking by or on behalf of the Indemnitee to repay such amount if it shall be determined in a nonappealable adjudication that the Indemnitee is not entitled to be indemnified as authorized in this Section 5.9. An Indemnitee wishing to claim indemnification under this Section 5.9, upon learning of any such claim, demand, action, suit or proceeding, shall notify the Parent and the Operating Partnership thereof, provided that the failure to so notify shall not affect the obligations of the Parent and the Operating Partnership except to the extent such failure to notify materially prejudices the Parent. The Parent and the Operating Partnership shall not, without the prior written consent of the Indemnitee, settle or compromise any claim, or permit a default or consent to the entry 78 69 of any judgment in respect thereof, unless such settlement, compromise or consent includes, as an unconditional term thereof, the giving by the claimant to the Indemnitee an unconditional and irrevocable release from all liability in respect of such claim. 5.9.3 The indemnification provided by this Section 5.9 shall be in addition to any other rights to which an Indemnitee may be entitled under any agreement, as a matter of law or otherwise, as to action in the Indemnitee's capacity as a director or officer of the General Partner or as a member of the Special Committee, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee. 5.9.4 Either the Parent or the Operating Partnership shall purchase and cause to be maintained in effect for a period of six years after the Effective Time, for the benefit of the directors and officers of the General Partner who are covered by directors and officers liability insurance policies maintained by the General Partner on the date of this Agreement, directors and officers liability insurance policies, covering matters arising out of or in connection with such person's status as a director or officer of the General Partner or as a member of the Special Committee prior to the Effective Time, of at least the same coverage as, and which contain terms and conditions that are not less advantageous to such directors and officers of the General Partner than, the directors' and officers' liability insurance policies maintained by the General Partner. On each anniversary of the Effective Time up to and including the sixth anniversary thereof, the Parent or the Operating Partnership shall deliver a 79 70 certificate to each such director and officer certifying compliance with respect to the provisions of this Section 5.9.4. 5.9.5 This covenant is intended to be for the benefit of, and shall be enforceable by, each of the Indemnitees and their respective heirs and legal representatives. 5.10 Parent Shares Issued Free and Clear of Liens. The Parent hereby represents, warrants and covenants for the benefit of each Unitholder and the General Partner that all of the Parent Shares required to be issued to each Unitholder and the General Partner pursuant to this Agreement shall be duly authorized, validly issued and free and clear of any Liens. 5.11 Satisfaction of Certain Liabilities; Indemnity. Upon the Effective Time, the Operating Partnership shall (a) pay to the Manager, in cash, all obligations then payable by the Subsidiary Partnership to the Manager under the Management Agreement or the Termination Agreement, including, without limitation, those obligations relating to the subjects of incentive and deferred compensation, (b) repay all loans and other obligations owed by the Company to the General Partner and the Manager (including, without limitation, any loan made in connection with the Special Distribution), (c) repay, in cash, all indebtedness outstanding under the Company Credit Facility together with unpaid interest accrued thereon, and any prepayment, breakage or other costs associated with repayment of amounts under or in connection with the termination of the Company Credit Facility, and (d) pay, in cash, all Transaction Expenses. The Parent and the Operating Partnership shall, as of the 80 71 Effective Time, assume all of the indemnification obligations of the Company set forth in the Company's agreement of limited partnership. 5.12 Tax Administration; Elections. The General Partner, as general partner of the Company, shall prepare and file on a timely basis all tax returns and reports relating to income of the Company for all taxable periods ending on or before the Closing Date in a manner consistent with prior years' tax returns of the Company using, to the extent permitted by law, consistent methods, conventions and elections to those previously used by the Company; provided, however, that the Company intends to take advantage of the grandfather extension under the Taxpayer Relief Act of 1997 for a publicly traded partnership by electing the application of Section 7704(g) of the Code and consenting to the application of the tax imposed by paragraph (3) of Section 7704(g) of the Code. The Parent and the Operating Partnership shall cooperate with the General Partner in connection with the preparation of such tax returns and reports. 5.13 Other Actions. Each of the Company, the General Partner and the Subsidiary Partnership, on the one hand, and the Parent, Newco I, Newco II, Merger Sub and the Operating Partnership, on the other hand, shall not and shall cause its respective subsidiaries not to take any action (a) that would result in any of the representations and warranties of such party (without giving effect to the "knowledge" qualification) set forth in this agreement becoming untrue in any material respect or (b) that would impair in any material respect the ability of such party to consummate the transactions contemplated by this Agreement. 81 72 5.14 Allocation Indemnity. If, after the closing of the transactions contemplated hereby, a court of competent jurisdiction pursuant to a binding and nonappealable final judgment determines that the allocation of the Merger Consideration provided for herein between the Unitholders, on the one hand, and the General Partner, on the other hand, is contrary to the allocation required under the Company's agreement of limited partnership, the General Partner shall indemnify the Parent and the Operating Partnership against all claims and costs of any nature incurred by the Parent or the Operating Partnership as a consequence thereof. 5.15 Amendment of the Company and the Subsidiary Partnership Agreements. Subject to the approval by the Unitholders, the General Partner, in its capacity as general partner of the Subsidiary Partnership, and the Company, as the limited partner of the Subsidiary Partnership, agree to amend the agreements of limited partnership of each of the Company and the Subsidiary Partnership in order to facilitate the transactions contemplated by this Agreement and the Assignment Agreement. 5.16 NYSE Listing of the Parent Shares. The Parent shall use all commercially reasonable efforts to cause the Parent Shares to be issued in the Merger to be approved for listing on the New York Stock Exchange, Inc. (the "NYSE") (subject to official notice of issuance) prior to the Effective Time. 5.17 Books and Records. After the Closing Date, the Parent, the Operating Partnership, the Subsidiary Partnership and the General Partner agree to, and to cause their respective subsidiaries to, cooperate with and make available to the other parties, during normal business hours, all books and records retained and remaining in 82 73 existence after the Closing which are necessary in connection with the preparation of any tax returns or other reports, or any tax inquiry, audit, investigation or dispute with respect to the Company or the Subsidiary Partnership. The party requesting such books and records shall bear all out-of-pocket costs and expenses (including attorneys' fees and expenses) reasonably incurred in connection with providing such books and records, and shall maintain the confidentiality of all such information in accordance with Sections 5.4.1 and 5.4.2 of this Agreement. 5.18 Release. Following consummation of the Merger, none of the General Partner, Doubletree Corporation, or any of their respective affiliates, predecessors or successors, or any directors, officers, stockholder or representative of such entities (each of the foregoing, a "Releasee") shall have any liability or obligation to the Company, the Subsidiary Partnership, the Parent, Operating Partnership or any of their affiliates (each of the foregoing, a "Releasor") in connection with or arising out of (i) the Amended and Restated Agreement of Limited Partnership of Red Lions Inns Limited Partnership, as amended, or the Amended and Restated Agreement of Limited Partnership of Red Lion Inns Operating L.P., as amended; (ii) their capacity as general partner or limited partner of the Company or the Subsidiary Partnership, or as an owner or controlling person of a general partner or limited partner, except in the case of clause (i) or clause (ii) of this Section 5.18, (A) as otherwise provided in Section 5.14, and (B) for liabilities incurred by any Releasor after the date hereof to third parties arising out of fraud or willful misconduct by such Releasee, or (iii) any event or condition existing prior to the Effective Time related to the business, operations, assets, 83 74 liabilities or employees of the Company or the Subsidiary Partnership, excluding in the case of this clause (iii) any liability or obligation arising under any contractual obligation of the applicable Releasee to the applicable Releasor. 5.19 Dissolution. None of the Parent, Newco I and Newco II shall, for at least six (6) months following the Closing Date, cause or take any action, corporate or otherwise, to cause the dissolution, liquidation or termination of existence of either Newco I or Newco II. 5.20 Certain Income of the Company. For the period January 1, 1998 through the Closing Date, at least 91% of the gross income of the Company will be "qualifying income" within the meaning of Section 7704(d) of the Code. ARTICLE 6 CONDITIONS 6.1 Conditions to Each Party's Obligations. The respective obligations of each party to effect the Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions: (a) Unitholders/Shareholder Approval. This Agreement and the transactions contemplated hereby shall have been (i) adopted and approved by the affirmative vote or consent of the Unitholders owning that number of Company Units required therefor under the agreement of limited partnership of the Company and applicable law; and (ii) adopted and approved by the affirmative vote of the shareholders of the Parent owning that number of Parent Shares required therefor under 84 75 the Parent's articles of incorporation, code of regulations and other organizational documents, the rules and regulations of the NYSE and applicable law; (b) No Order. No Legal Requirements shall have been enacted, entered, promulgated or enforced by any court or Governmental Entity that prohibit or prevent the consummation of the Merger; (c) Registration Statement. The Registration Statement shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order; (d) Government and Regulatory Consents. (i) All consents, authorizations, orders and approvals of (or filings or registrations with) any Governmental Entity required in connection with the execution, delivery and performance of this Agreement shall have been obtained or made (as the case may be), except for the filings described in Section 1.2 and any other documents required to be filed after the Effective Time and except where the failure to have obtained or made any such consent, authorization, order, approval, filing or registration would not have a Material Adverse Effect with respect to the Parent after giving effect to the Merger or with respect to the consummation of the transactions contemplated hereby and (ii) such consents, authorizations, orders and approvals shall be subject to no conditions other than conditions that would not reasonably be expected to result in a Material Adverse Effect with respect to the Parent after giving effect to the Merger. (e) Subsidiary Assignment. The Subsidiary Assignment shall have been consummated as contemplated by the Assignment Agreement; and 85 76 (f) Certain Agreements. The Operating Lease, the New Management Agreement, the Termination Agreement and the Owner Agreement shall each have been executed and delivered by the parties thereto and shall remain in full force and effect. 6.2 Conditions to Obligations of the Parent, the Operating Partnership, Newco I, Newco II and Merger Sub. The obligations of Merger Sub to effect the Merger and of each of the Parent, the Operating Partnership, Newco I and Newco II to perform its obligations under this Agreement required to be performed at Closing shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Agreements and Covenants. The Company shall have performed in all material respects the covenants and obligations required to be performed by it under this Agreement on or prior to the Effective Time; (b) Representations and Warranties. The representations and warranties of the Company, the General Partner and the Subsidiary Partnership contained in this Agreement (x) that are not qualified as to materiality shall be true and correct in all material respects and (y) that are so qualified, shall be true and correct, in each case on and as of the Effective Time as if made on and as of such date (except to the extent that any such representation or warranty had by its terms been made as of a specific date in which case such representation or warranty shall have been true and correct as of such specific date); 86 77 (c) Certificate. The Parent shall have received a certificate signed by an executive officer of the General Partner to the effect of Sections 6.2(a) and (b); and (d) Tax Opinions. The Parent and the Operating Partnership shall have received an opinion of Latham & Watkins, counsel for the Company and the Subsidiary Partnership, in form and substance reasonably satisfactory to the Parent (and subject to customary assumptions and qualifications), that each of the Company and the Subsidiary Partnership has been, since its date of formation, and will be, through the date of Closing, treated as a partnership and not as an association taxable as a corporation for federal income tax purposes. Such opinion shall state that the rent received by the Subsidiary Partnership from Westboy LLC is "qualifying income" for purposes of Section 7704(d) of the Code and that the client has represented that at least ninety percent (90%) or more of the Subsidiary Partnership gross income from January 1, 1998 through the Closing Date consists of such "qualifying income." Such opinion may not be based on (i) a lack of trading under Section 7704 of the Code or the regulations issued thereunder or (ii) the fact that the Company has made an election pursuant to Section 7704(g) of the Code or the regulations issued thereunder to protect its status as a partnership for federal income tax purposes. 6.3 Conditions to Obligation of the Company. The obligation of the Company to effect the Merger and of the General Partner and the Subsidiary Partnership to perform its obligations under this Agreement required to be performed at 87 78 Closing shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Agreements and Covenants. Each of the Parent, the Operating Partnership, Newco I, Newco II and Merger Sub shall have performed in all material respects the covenants and obligations required to be performed by it under this Agreement on or prior to the Effective Time; (b) Representations and Warranties. The representations and warranties of the Parent, the Operating Partnership, Newco I, Newco II and Merger Sub contained in this Agreement (x) that are not qualified as to materiality shall be true and correct in all material respects and (y) that are so qualified, shall be true and correct, in each case on and as of the Effective Time as if made on and as of such date (except to the extent that any such representation or warranty had by its terms been made as of a specific date in which case such representation or warranty shall have been true and correct as of such specific date); (c) Certificate. The Company shall have received a certificate signed by an executive officer of the Parent to the effect of Sections 6.3 (a) and (b); and (d) Tax Opinion. The Company shall have received the opinion of Baker & Hostetler LLP, counsel for the Parent and the Operating Partnership, in form and substance reasonably satisfactory to it, that (i) commencing with its taxable year ended December 31, 1996, the Parent has met the requirements for qualification and taxation as a real estate investment trust and that, after giving 88 79 effect to the Merger, the Parent's proposed method of operation will enable it to continue to meet the requirements for qualification and taxation as a real estate investment trust under the Code and (ii) the Operating Partnership has been since February 8, 1996, and continues to be, treated for federal income tax purposes as a partnership, and not as a corporation or an association taxable as a corporation (in the case of (i) and (ii) above with customary assumptions and qualifications). (e) NYSE Listing of the Parent Shares. The NYSE shall have approved for listing (subject to official notice of issuance) the Parent Shares to be issued in the Merger. ARTICLE 7 TERMINATION 7.1 Termination. This Agreement may be terminated and the Merger contemplated hereby may be abandoned at any time prior to the filing of the Certificate of Merger, whether before or after its adoption by the Unitholders and the Parent's shareholders: (a) By the mutual written consent of the Board of Directors of each of the Parent and the General Partner; (b) By action of the Board of Directors of either the Parent or the General Partner: (i) if a court of competent jurisdiction or other Governmental Entity shall have issued an Order or taken any other action 89 80 permanently restraining, enjoining or otherwise prohibiting the Merger and such Order or other action shall have become final and nonappealable (provided that the party seeking to terminate this Agreement pursuant to this clause (i) shall have used reasonable efforts to remove such injunction, order or decree); or (ii) if the Effective Time shall not have occurred on or before June 30, 1998, provided, however, that the right to terminate this Agreement under this Section 7.1(b)(ii) shall not be available to any party the failure of which to fulfill materially any covenant or obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date; (c) By the Board of Directors of either of the Parent or the General Partner, if the Unitholder approval referred to in Section 6.1(a) shall not have been obtained by reason of the failure to obtain the requisite vote or consent of the Unitholders pursuant to the Company Unitholders' Meeting; (d) By the Board of Directors of either of the Parent or the General Partner, if the Parent shareholder approval referred to in Section 6.1(a) shall not have been obtained by reason of the failure to obtain the requisite vote at the Parent Shareholders Meeting or any adjournment thereof; (e) By the General Partner, if the Company receives an Acquisition Proposal from any person or group and the Board of Directors of the General Partner (with participation by the Special Committee) determines that such 90 81 Acquisition Proposal is more favorable to the Company and its Unitholders than the transactions contemplated by this Agreement; (f) By the Board of Directors of the Parent, if the General Partner Board or the Special Committee (i) shall have withdrawn, or modified or changed in a manner adverse to the Parent its approval or recommendation of this Agreement or the Merger or (ii) shall have recommended an Alternative Transaction (as defined below), or the Company shall have entered into an agreement in principle (or similar agreement) or definitive agreement providing for an Alternative Transaction with a person or entity other than the Parent; (g) By the Board of Directors of the Parent, upon a breach of any representation, warranty, covenant or agreement on the part of the Company, the General Partner or the Subsidiary Partnership set forth in this Agreement, or if any representation or warranty of the Company, General Partner or the Subsidiary Partnership shall have become untrue, in either case such that the conditions set forth in Section 6.2(a) or (b) would be incapable of being satisfied by June 30, 1998 (as otherwise extended); or (h) By the General Partner, upon a breach of any representation, warranty, covenant or agreement on the part of Parent, Newco I, Newco II, Merger Sub or the Operating Partnership set forth in this Agreement, or if any representation or warranty of Parent, Newco I, Newco II, Merger Sub or the Operating Partnership shall have become untrue, in either case such that the conditions 91 82 set forth in Section 6.3(a) or (b) would be incapable of being satisfied by June 30, 1998 (as otherwise extended). 7.2 Procedure for and Effect of Termination. 7.2.1 In the event that this Agreement is terminated and the Merger is abandoned by the Board of Directors of the Parent, on the one hand, or by the General Partner, on the other hand, pursuant to Section 7.1(a), (b), (c), (d), (g) or (h), written notice of such termination and abandonment shall forthwith be given to the other parties and this Agreement shall terminate and the Merger shall be abandoned without any further action. If this Agreement is terminated as provided in this Section 7.2.1, no party hereto shall have any liability or further obligation to any other party under the terms of this Agreement except with respect to the willful breach by any party hereto and except as provided in Section 8.4; provided, however, that, if this Agreement is terminated pursuant to Section 7.1(g) or Section 7.1(h), the foregoing provisions of this sentence shall not relieve a party from liability for breach of contract based upon negligence in making any representation or warranty pursuant to this Agreement as of the date hereof. 7.2.2 In the event that this Agreement is terminated by the General Partner pursuant to Section 7.1(e) or by the Board of Directors of the Parent pursuant to Section 7.1(f), the Company shall (a) reimburse the Parent and Boykin Management Company Limited Liability Company ("BMCL") in cash for all Break-Up Expenses (as defined below), and (b) if, in any case, a termination pursuant to Section 7.1(e) or pursuant to Section 7.1(f) if at the time of such withdrawal or change in 92 83 recommendation an Acquisition Proposal has been made to the Company or publicly announced and within twelve months following termination the Company executes a definitive agreement providing for an Alternative Transaction, pay to the Parent a fee in an amount equal to the sum of the Break-Up Fee (as defined below). The "BREAK-UP FEE" shall be $5,500,000 payable to BMCL (which the parties specifically recognize as a third- party beneficiary of this Agreement) and Parent, allocated between them as BMCL and Parent agree (the amount agreed by Parent and BMCL to be received by Parent herein referred to as the "BASE AMOUNT") subject to compliance with the Code such that Parent shall not be entitled to receive more than the sum of (A) the maximum amount that can be paid to the Parent without causing it to fail to meet the requirements of Sections 856(c)(2) and (3) of the Internal Revenue Code of 1986, as amended (the "CODE"), determined as if the payment of such amount did not constitute income described in Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("QUALIFYING INCOME"), as determined by independent accountants to the Parent, plus (B) in the event the Parent receives a letter from outside counsel (the "BREAK-UP FEE TAX OPINION") indicating that the Parent has received a ruling from the Internal Revenue Service (the "IRS") holding that the Parent's receipt of the Base Amount would (i) constitute Qualifying Income, (ii) be excluded from gross income within the meaning of Sections 856(c)(2) and (3) of the Code (the "REIT REQUIREMENTS") or (iii) would merely be taxable income to Parent but would not adversely affect the REIT status of Parent, and that the receipt by the Parent of the remaining balance of the Base Amount following the receipt of and pursuant to such ruling would not be deemed 93 84 constructively received prior thereto, the Base Amount less the amount payable under clause (A) above. The Company's obligation to pay the Break-Up Fee shall terminate eighteen months from the date of the termination of this Agreement. In the event that the Parent is not able to receive the full Base Amount, the Company shall place the unpaid amount in escrow and shall not release any portion thereof to the Parent unless and until the Company receives any one or combination of the following: (w) a letter from the Parent's independent accountants indicating the maximum amount that can be paid at that time to the Parent without causing the Parent to fail to meet the REIT Requirements or (x) a Break-Up Fee Tax Opinion, in which event the Company shall pay to the Parent the unpaid Base Amount. The "BREAK-UP EXPENSES" shall be an amount equal to the Parent's and BMCL's actual and documented out-of-pocket expenses incurred in connection with the negotiation, execution and delivery of this Agreement and the other Transaction Documents, the Parent's and BMCL's due diligence related thereto, the preparation and filing of a registration statement, proxy materials and other materials contemplated by Section 5.3, and the performance of other obligations required to be performed pursuant to the terms of this Agreement but in no event in an amount greater than $1,000,000; provided, however, that if this Agreement is terminated by the Parent pursuant to Section 7.1 (f)(i) and at the time of such withdrawal or change in recommendation no Acquisition Proposal has been made to the Company or publicly announced, "Break-up Expenses" shall mean the Parent's and BMCL'S actual and documented out-of-pocket expenses incurred in connection with the negotiation, execution and delivery of this Agreement and the other 94 85 Transaction Documents, the Parent's and BMCL's due diligence related thereto, the preparation and filing of a registration statement, proxy materials and other materials contemplated by Section 5.3, and the performance of other obligations required to be performed pursuant to the terms of this Agreement but in no event in an amount, in the aggregate, greater than $2,000,000. The term "ALTERNATIVE TRANSACTION" shall mean any transaction resulting from an Acquisition Proposal made or publicly announced after the date hereof and prior to or within twelve months after the termination of this Agreement pursuant to Section 7.1. ARTICLE 8 MISCELLANEOUS 8.1 Certain Definitions. For purposes of this Agreement, the following terms shall have the meanings ascribed to them in this Section 8.1: (a) "AFFILIATE," with respect to any person, shall mean any person controlling, controlled by or under common control with such first person; (b) "INTERCOMPANY NOTE" shall mean the Intercompany Convertible Note dated October 8, 1997, in the principal amount of $40,000,000, executed by Boykin Hotel Properties, L.P. in favor of Boykin Lodging Company. (c) "KNOWLEDGE," with respect to (i) any corporation, shall mean the actual knowledge of any executive officer or director of such corporation and (ii) any partnership, shall mean the actual knowledge of any executive officer or director of its general partner; 95 86 (d) "MATERIAL ADVERSE EFFECT," with respect to any person, shall mean a material adverse effect on or change in the financial condition, assets or results of operations of such person and its subsidiaries (including any subsidiary partnership) taken as a whole (without regard, however, to changes in conditions generally applicable to the hotel industry or general economic conditions globally, in the United States or in the geographical regions thereof in which such person conducts business, and any changes in the financial condition or results of operations or assets of such person and its subsidiaries, taken as a whole, that are caused primarily or substantially by such changes or events or as a result of the announcement of this Agreement and the transactions contemplated hereby, including the payment of any costs, expenses, fees or similar charges incurred by such person's contemplation, negotiation, execution or consummation of this Agreement or the transactions contemplated hereby); (e) "NEW MANAGEMENT AGREEMENT" shall mean an agreement between the Lessee, as lessee, and the Manager, with respect to the operation of the Hotels, in the form attached hereto as Exhibit B; (f) "OPERATING LEASE" shall mean an agreement between the Subsidiary Partnership, as lessor, and the Lessee, as lessee, with respect to the Hotels, in the form attached hereto as Exhibit C; (g) "OPERATING LEASE ANCILLARY AGREEMENT" shall mean an agreement among the Subsidiary Partnership, the Manager, and the Lessee, in the form attached hereto as Exhibit D; 96 87 (h) "OWNER AGREEMENT" shall mean an agreement among the Subsidiary Partnership, the Manager and the Lessee in the form attached hereto as Exhibit E; (i) "PARENT LONG TERM INCENTIVE PLAN" shall mean the incentive plan approved by the Board of Directors of the Parent on June 18, 1996; (j) "PERSON" shall mean and include an individual, a company, a partnership, a joint venture, a limited liability company, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof; (k) "SUBSIDIARY," with respect to any person, shall mean any corporation 50% or more of the outstanding voting power of which, or any partnership, joint venture, limited liability company or other entity 50% or more of the total equity interest of which, is directly or indirectly owned by such person. For purposes of this Agreement, all references to "subsidiaries" of a person shall be deemed to mean "subsidiary" if such person has only one subsidiary; (l) "TERMINATION AGREEMENT" shall mean an agreement between the Manager and the Subsidiary Partnership in the form attached hereto as Exhibit F; and (m) "TRANSACTION DOCUMENTS" shall mean this Agreement, the Assignment Agreement, the Operating Lease, Operating Lease Ancillary Agreement, the New Management Agreement, the Owner Agreement, the Termination Agreement 97 88 and all other agreements and documents evidencing the transactions contemplated hereby and thereby. 8.2 Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified or supplemented only by a written agreement signed by the Parent and the General Partner acting in its capacity as general partner of the Company at any time prior to the Effective Time with respect to any of the terms contained herein; provided, however, that after this Agreement is adopted by the Unitholders pursuant to Section 5.3, no such amendment or modification shall (a) alter or change the amount or kind of the consideration to be delivered to the Unitholders or (b) alter or change any of the terms or conditions of this Agreement if such alteration or change would adversely affect the Unitholders. 8.3 Waiver of Compliance; Consents. Any failure of the Parent, Newco I, Newco II, Merger Sub or the Operating Partnership, on the one hand, or the Company, the General Partner or the Subsidiary Partnership, on the other hand, to comply with any obligation, covenant, agreement or condition herein may be waived by the Parent or the members of the Special Committee and the Board of Directors of the General Partner acting on behalf of the General Partner in its capacities as general partner of the Company and the Subsidiary Partnership, as the case may be, only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Agreement requires or permits consent by or on behalf of any 98 89 party hereto, such consent shall be given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this Section 8.3. 8.4 Survival. None of the representations or warranties set forth in this Agreement, other than those set forth in Section 5.10, shall survive the Closing hereunder. Section 1.4, Article 2, Sections 3.19, 4.13, 5.6.2, 5.9, 5.10, 5.11, 5.12, 5.14, 5.17, 5.18, 5.19, 7.2 and Article 8 and any other covenant or agreement which contemplates performance after the Effective Time shall survive the consummation of the transactions contemplated hereby. Section 5.8, Section 7.2 and Article 8, and the second sentence of each of Sections 5.4.1 and 5.4.2 shall survive the termination of this Agreement pursuant to Section 7.1. 8.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, by telecopier (with a confirmed receipt thereof) or registered or certified mail (postage prepaid, return receipt requested), and on the next business day when sent by overnight courier service, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to the Parent, the Operating Partnership Newco I, Newco II or Merger Sub, to: Boykin Lodging Company 1500 Terminal Tower Cleveland, Ohio 44113 Attention: Robert W. Boykin Chief Executive Officer Telecopier: (216) 241-1329 99 90 with a copy to: Baker & Hostetler LLP 3200 National City Center Cleveland, Ohio 44114 Attention: Albert T. Adams, Esq. Telecopier: (216) 696-0740 (b) if to the Company or the Subsidiary Partnership, to: Special Committee of the Board of Directors of Red Lion Properties, Inc., as General Partner of Red Lion Inns Limited Partnership 410 North 44th Street Suite 700 Phoenix, AZ 85008 Attention: Mr. Robert M. Melzer Telecopier: (617) 737-0228 and Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Attention: Toby S. Myerson, Esq. Telecopier: (212) 757-3990 (c) if to the General Partner, to: Red Lion Properties, Inc. 410 North 44th Street Suite 700 Phoenix, AZ 85008 Attention: Mr. Anupam Narayan Telecopier: (602) 220-6602 100 91 with a copy to: Latham & Watkins 75 Willow Road Menlo Park, CA 94025 Attention: Peter F. Kerman, Esq. Telecopier: (415) 463-2600 8.6 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto without the prior written consent of the other party. 8.7 Expenses. All fees, charges and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such fees, charges or expenses, except for (a) the expenses described on Schedule II (the "DUE DILIGENCE EXPENSES"), for which the Company and its affiliates were reimbursed by the Parent upon the execution of this Agreement, (b) the payment of the Transaction Expenses by the Operating Partnership pursuant to Section 5.11 and (c) amounts payable to the Parent under Section 7.2.2 if this Agreement is terminated pursuant to Section 7.1(e) or (f). 8.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF, EXCEPT TO THE EXTENT THAT THE 101 92 MERGER OR OTHER TRANSACTIONS CONTEMPLATED HEREBY ARE REQUIRED TO BE GOVERNED BY THE DRULPA. 8.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.10 Interpretation. The Article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. 8.11 Entire Agreement. This Agreement (including the schedules, exhibits, documents or instruments referred to herein), the Company Confidentiality Letter, the Parent Confidentiality Letter and the other Transaction Documents embody the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and thereof and supersede all prior agreements and understandings, both written and oral, among the parties, or between any of them, with respect to the subject matter hereof and thereof. 8.12 Third Party Beneficiaries. Except for Sections 2.1, 2.3, 2.4, 5.3, 5.9, 5.10, 5.11, 5.18, 5.19 and 7.2, this Agreement is not intended to, and does not, create any rights or benefits of any party other than the parties hereto. 8.13 Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent 102 93 breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the State of New York, this being in addition to any other remedy to which they are entitled at law or in equity. 8.14 Severability. If any term or other provision of this Agreement is invalid, illegal or unenforceable, all other provisions shall remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by a person duly authorized to do so as of the date first above written. RED LION INNS LIMITED PARTNERSHIP By Red Lion Properties, Inc., its general partner By /s/ Anupam Narayan --------------------------- Name: Anupam Narayan Title: VP/Treas/Sec RED LION PROPERTIES, INC., By /s/ Anupam Narayan --------------------------- Name: Anupam Narayan Title: VP/Treas/Sec 103 94 RED LION INNS OPERATING L.P. By Red Lion Properties, Inc., its general partner By /s/ Anupam Narayan --------------------------- Name: Anupam Narayan Title: VP/Treas/Sec 104 95 BOYKIN LODGING COMPANY By /s/ Robert W. Boykin ---------------------------- Name: Robert W. Boykin Title: President BOYKIN HOTEL PROPERTIES, L.P. By Boykin Lodging Company, its general partner By /s/ Robert W. Boykin ---------------------------- Name: Robert W. Boykin Title: President BOYKIN ACQUISITION PARTNERSHIP, L.P. By Boykin Acquisition Corporation I its general partner By /s/ Robert W. Boykin ---------------------------- Name: Robert W. Boykin Title: President BOYKIN ACQUISITION CORPORATION I, INC. By /s/ Robert W. Boykin ---------------------------- Name: Robert W. Boykin Title: President 105 96 BOYKIN ACQUISITION CORPORATION II, INC. By /s/ Robert W. Boykin ---------------------------- Name: Robert W. Boykin Title: President 106 SCHEDULE I TO AGREEMENT AND PLAN OF MERGER DATED AS OF DECEMBER 30, 1997 ALLOCATION SCHEDULE On the Closing Date, the aggregate Merger Consideration shall be allocated between the General Partner, on the one hand, and the Unitholders, on the other hand, as follows: 1. Prior to making such allocation, the aggregate value of the Merger Consideration (the "AGGREGATE CONSIDERATION VALUE") shall be calculated by adding (a) an amount equal to the aggregate Cash Consideration and (b) an amount equal to the aggregate value of the Share Consideration based on the closing price for Parent Shares on the NYSE Composite Tape, as printed in The Wall Street Journal (or if not printed therein, as printed in any other authoritative source), on the trading day prior to the Closing Date (the "CLOSING SHARE PRICE"). 2. The Aggregate Consideration Value calculated pursuant to paragraph 1 of this Schedule I shall be allocated between the General Partner, on the one hand, and the Unitholders, on the other hand, as follows (capitalized terms used in this paragraph 2 and not defined in the Agreement shall have the meanings defined in the Company's Amended and Restated Agreement of Limited Partnership (the "PARTNERSHIP AGREEMENT")): (a) first, 99% to the Unitholders and 1% to the General Partner until the Aggregate Consideration Value allocated to the Unitholders, when added to all prior distributions of Cash Flow Available for Distribution and all prior distributions of Sale or Refinancing Proceeds (other than distributions pursuant to Section 5.3(b) of the Partnership Agreement) made to the Unitholders and the Special Distribution and the amount of any dividend on the Parent Shares payable to the Unitholders that is attributable to any time period prior to the Effective Time, equals a 12% cumulative, non-compounded return on the aggregate weighted average balances of the Unitholders' aggregate Net Invested Capital outstanding from time to time prior to the Closing Date; (b) second, 99% to the Unitholders and 1% to the General Partner until the Aggregate Consideration Value allocated to the Unitholders, when added to all prior distributions to the Unitholders of Sale or Refinancing Proceeds (other than distributions made pursuant to Section 5.3(a) of the Partnership Agreement) equals the Unitholders' aggregate Net Invested Capital outstanding on the Closing Date; and 107 (c) thereafter, with respect to any remaining Aggregate Consideration Value, 70.71% to the Unitholders and 29.29% to the General Partner; provided, however, that (d) the portion of the Aggregate Consideration Value allocated to the General Partner pursuant to the foregoing provisions of this paragraph 2 shall be reduced by $997,880 (which is an amount equal to the amount required to be contributed to the Company by the General Partner pursuant to Sections 4.1) and such amount shall be reallocated to the Unitholders and the General Partner pursuant to clauses (a), (b) and (c) of this paragraph 2, as applicable after giving effect to the allocation of the Aggregate Consideration Value as provided for in this paragraph 2, in the order of priority specified therein as if such amount had been included in the definition of Aggregate Consideration Value and provided, further, that (e) the portion of the Aggregate Consideration Value allocated to the General Partner pursuant to clauses (a), (b), (c) and (d) of this paragraph 2 shall be reduced by the amount, if any, that would be required to be contributed to the Company by the General Partner in order to restore to zero any negative balance in the General Partner's Capital Account pursuant to Section 14.3(b) of the Partnership Agreement if the Company were dissolved and liquidated as of the Closing Date (after giving effect to the reduction referred to in clause (d) of this paragraph 2 as if it were a contribution to the General Partner's Capital Account) and 100% of such amount shall be reallocated to the Unitholders. 3. Following the allocation of Aggregate Consideration Value pursuant to paragraph 2 of this Schedule I, an allocation shall be made as follows: (a) An amount equal to the Share Percentage (as defined below) multiplied by the portion of the Aggregate Consideration Value allocated to the General Partner pursuant to paragraph 2 of this Schedule I shall be distributed in the form of Parent Shares (valued by reference to the Closing Share Price) to the General Partner in accordance with Section 2.4 of the Agreement; (b) An amount equal to the Cash Percentage (as defined below) multiplied by the portion of the Aggregate Consideration Value allocated to the General Partner pursuant to paragraph 2 of this Schedule I, shall be paid in cash to the General Partner in accordance with Section 2.4 of the Agreement; (c) An amount equal to the Share Percentage multiplied by the portion of the Aggregate Consideration Value allocated to the Unitholders pursuant to paragraph 2 of this Schedule I (the "UNITHOLDER AGGREGATE SHARE AMOUNT"), shall be delivered in the form of Parent Shares (valued by reference to the Closing Share Price) to the Exchange Agent and distributed to the Unitholders by the Exchange Agent 108 in accordance with Section 2.5 of the Agreement, such that each Unitholder shall receive a number of Parent Shares for each of such Unitholder's Company Units equal to the quotient obtained by dividing (w) the Unitholder Aggregate Share Amount by (x) the number of Company Units outstanding on the Closing Date; and (d) An amount equal to the Cash Percentage multiplied by the portion of the Aggregate Consideration Value allocated to the Unitholders pursuant to paragraph 2 of this Schedule I (the "UNITHOLDER AGGREGATE CASH AMOUNT"), shall be delivered in cash to the Exchange Agent and paid to the Unitholders by the Exchange Agent in accordance with Section 2.5 of the Agreement, such that each Unitholder shall receive for each of such Unitholder's Company Units, an amount in cash equal to the quotient obtained by dividing (y) the Unitholder Aggregate Cash Amount by (z) the number of Company Units outstanding on the Closing Date. "SHARE PERCENTAGE" means the percentage obtained by dividing the aggregate value of the Share Consideration (determined by reference to the Closing Share Price) by the Aggregate Consideration Value. "CASH PERCENTAGE" means the percentage obtained by dividing the aggregate value of the Cash Consideration by the Aggregate Consideration Value. EX-99.1 3 EXHIBIT 99.1 1 EXECUTION COPY EXHIBIT 99.1 ================================================================================ PARTNERSHIP INTEREST ASSIGNMENT AGREEMENT among RED LION PROPERTIES, INC., BOYKIN HOTEL PROPERTIES, L.P., WEST DOUGHBOY LLC and BOYKIN LODGING COMPANY ----------------------- December 30, 1997 ----------------------- ================================================================================ 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 ASSIGNMENT; SUBSTITUTION; INDEMNIFICATION . . . . . . . . . . 2 SECTION 1.1 Interest . . . . . . . . . . . . . . . . . . . . . .. . 2 SECTION 1.2 Consideration . . . . . . . . . . . . . . . . . . . .. . 2 SECTION 1.3 Intent of Substitution . . . . . . . . . . . . . . .. . 2 SECTION 1.4 Indemnification . . . . . . . . . . . . . . . . . . .. . 2 ARTICLE 2 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE 3 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 3 SECTION 3.1 Mutual . . . . . . . . . . . . . . . . . . . . . . .. . 3 SECTION 3.2 Transferee . . . . . . . . . . . . . . . . . . . . .. . 4 SECTION 3.3 Transferor . . . . . . . . . . . . . . . . . . . . .. . 4 SECTION 3.4 Ownership . . . . . . . . . . . . . . . . . . . . . .. . 4 ARTICLE 4 CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 4.1 Mutual Conditions . . . . . . . . . . . . . . . . . . . 4 SECTION 4.2 Conditions to Obligations of Transferee, Operating Partnership and Parent . . . . . . . . . . . . 5 SECTION 4.3 Conditions to Obligations of Transferor . . . . . . . . 5 ARTICLE 5 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 5.1 Termination . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 5.2 Effects of Termination . . . . . . . . . . . . . . . . 5 ARTICLE 6 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 6.1 Certain Definitions. . . . . . . . . . . . . . . . . . . 6 SECTION 6.2 Survival of Representations and Warranties . . . . . . . 6 SECTION 6.3 Further Assurances . . . . . . . . . . . . . . . . . . . 6 SECTION 6.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 6.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 6.6 Waivers and Amendments; Remedies . . . . . . . . . . . . 8 SECTION 6.7 Binding Effect; No Assignment; Third Party Beneficiary . 8 SECTION 6.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 6.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 6.10 Definitional Provisions . . . . . . . . . . . . . . . . . 9 SECTION 6.11 Severability . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 6.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . 9
i 3 PARTNERSHIP INTEREST ASSIGNMENT AGREEMENT, dated December 30, 1997, among BOYKIN HOTEL PROPERTIES, L.P., an Ohio limited partnership (the "OPERATING PARTNERSHIP"), WEST DOUGHBOY LLC, an Ohio limited liability company (the "Transferee"), BOYKIN LODGING COMPANY, an Ohio corporation (the "Parent"), and RED LION PROPERTIES, INC., a Delaware corporation (the "TRANSFEROR"). a. The Parent, the Operating Partnership, the Transferor, Red Lion Inns Operating L.P., a Delaware limited partnership (the "SUBSIDIARY PARTNERSHIP"), Red Lion Inns Limited Partnership, a Delaware limited partnership (the "COMPANY"), Boykin Acquisition Partnership, L.P., a Delaware limited partnership ("MERGER SUB"), Boykin Acquisition Corporation I, Inc., an Ohio corporation and Boykin Acquisition Corporation II, Inc. an Ohio corporation have entered into an Agreement and Plan of Merger of even date herewith (the "MERGER AGREEMENT"), pursuant to which, among other things, Merger Sub is expected to be merged (the "MERGER") with and into the Company. b. The Transferor is the beneficial and record owner of the 1% general partner partnership interest (the "INTEREST") in the Subsidiary Partnership. The Transferor wishes to assign the Interest to the Transferee, and the Operating Partnership wishes for the Transferee, and the Transferee wishes, to accept such assignment and assume all rights, obligations and liabilities of the Transferor with respect to the Interest as part of the transactions contemplated by the Merger Agreement, and concurrently with, the Merger and each of them intends concurrently therewith that the Transferee shall become a substitute general partner of the Subsidiary Partnership with respect to the Interest, subject to the terms of the Amended and Restated Agreement of Limited Partnership of the Subsidiary Partnership (the "PARTNERSHIP AGREEMENT") and this Agreement. c. Certain capitalized terms used herein are defined in Section 6.1. Capitalized terms used herein without definition and non-capitalized terms defined in the Merger Agreement and used herein shall have the meanings assigned to them in the Merger Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 4 ARTICLE 1 ASSIGNMENT; SUBSTITUTION; INDEMNIFICATION SECTION 1.1 Interest. Subject to the terms and conditions of this Agreement, upon the Effective Time, the Transferor shall sell, transfer, convey and assign and the Operating Partnership shall cause the Transferee to, and the Transferee shall, purchase, assume and accept the Interest in accordance with the Partnership Agreement, including Section 10.2 of the Partnership Agreement. The Operating Partnership shall at the Effective Time cause the Transferee to agree and the Transferee agrees to be bound by the terms of the Partnership Agreement. At the Effective Time, Transferee shall assume all obligations of the Transferor under the Partnership Agreement and the Transferor shall have no further obligations with respect thereto, except as and to the extent otherwise provided in the Merger Agreement. SECTION 1.2 Consideration. The consideration for the Interest shall be a number of Parent Shares with a value (based upon the Closing Share Price) equal to the product of the Share Percentage multiplied by the Assignment Consideration Value (with cash in lieu of any fraction of a Parent Share) plus (b) an amount in cash equal to the product of the Cash Percentage multiplied by the Assignment Consideration Value (the "CONSIDERATION"). At the Closing (as defined in Article 2), the Operating Partnership shall cause the Transferee to, and the Transferee shall, deliver the cash portion of the Consideration by wire transfer in immediately available funds to an account previously designated by the Transferor and the Parent Share portion of the Consideration by physical delivery to the General Partner of a certificate representing that number of Parent Shares referred to in clause (a) above. SECTION 1.3 Intent of Substitution. In accordance with Section 11.2 of the Partnership Agreement, the Transferee shall succeed the Transferor as the general partner of the Subsidiary Partnership, and the Transferor shall have no further interest whatsoever in the Subsidiary Partnership. The Transferor hereby agrees and the Operating Partnership hereby agrees to cause the Transferee to execute such other instruments, and take such other actions, as may be deemed necessary to admit the Transferee as a substitute general partner of the Subsidiary Partnership immediately prior to the withdrawal of the Transferor as the general partner of the Subsidiary Partnership. SECTION 1.4 Indemnification. If the Subsidiary Partnership at any time has a net worth that is less than $110,000,000.00 (the difference between the Subsidiary Partnership's net worth at that time and $110,000,000.00, the "Net Worth Shortfall"), the Transferee and the Operating Partnership shall assume, to the extent of the Net Worth Shortfall and for so long as the Net Worth Shortfall exists, all of the 5 indemnification obligations of the Subsidiary Partnership set forth in the Partnership Agreement. For purposes of this Section 1.4, the Subsidiary Partnership's "net worth" at any time means its net worth at that time calculated in accordance with generally accepted accounting principles, increased by the amount of the Subsidiary Partnership's accumulated depreciation and amortization at that time. ARTICLE 2 CLOSING The closing of the purchase, assignment and assumption of the Interest (the "Closing") shall take place concurrently with, and at the same time and place as, the closing of the Merger. ARTICLE 3 REPRESENTATIONS AND WARRANTIES SECTION 3.1 Mutual. Each of the Operating Partnership, the Transferee and the Parent, on the one hand, and the Transferor, on the other hand, represents and warrants to the other as follows: (a) Organization. It is a partnership, limited liability company or a corporation (as the case may be) duly formed or organized, validly existing and in good standing under the laws of its jurisdiction of organization. It has all power and authority (corporate, partnership, limited liability company or otherwise) necessary to execute, deliver and perform its obligations under this Agreement, and to consummate the transactions contemplated hereby. (b) Authorization. The execution and delivery by it of this Agreement, the performance by it of its obligations hereunder and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary actions (corporate, partnership, limited liability company or otherwise) on its part; subject, with respect to the Transferor, to obtaining the requisite approval of the Unitholders of the Merger Agreement, the other Transaction Documents and the transactions contemplated thereby, and with respect to the Parent, to obtaining the requisite approval of the shareholders of the Parent of the issuance of Parent Shares in connection with the Merger and this Agreement. This Agreement has been duly 6 executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with the terms of this Agreement. (c) No Breach. The execution, delivery or performance by it of this Agreement will not violate any provision of its articles or certificate of incorporation or other instrument of organization or by-laws or similar governing regulations, each as amended to date. SECTION 3.2 Transferee. Each of the Operating Partnership, the Transferee and the Parent further represents and warrants to the Transferor that the Transferee shall be purchasing the Interest for its own account for investment and not with a view toward, or for resale in connection with, any distribution thereof. All of the Parent Shares required to be issued to the Transferor pursuant to this Agreement shall, when issued to the Transferor, be duly authorized, validly issued and free and clear of any Liens. SECTION 3.3 Transferor. The Transferor further represents and warrants to the Operating Partnership that it is the legal, beneficial and record owner of the Interest. At the Effective Time, the Transferor shall convey good and valid title to the Interest, free and clear of any Lien, to the Transferee. SECTION 3.4 Ownership. The Transferee is a wholly owned, direct or indirect, subsidiary of the Operating Partnership and no third person has a right of any kind to purchase an interest therein. ARTICLE 4 CLOSING CONDITIONS SECTION 4.1 Mutual Conditions. The obligations of each of the Operating Partnership, the Transferee, the Parent and the Transferor under this Agreement to enter into and complete the Closing are subject to the following conditions precedent: (a) Closing of the Merger. All of the conditions precedent to the Merger shall have been satisfied or waived and the Merger shall have been consummated. (b) Company Unitholders Approval. This Agreement and the transactions contemplated hereby shall have been adopted and approved by the affirmative vote or consent of the Unitholders owning that number of limited 7 partnership units of the Company required therefor under the agreement of limited partnership of the Company and applicable laws. (c) Parent Shareholder Approval. The issuance of the Parent Shares in connection with the Merger and this Agreement shall have been approved by the affirmative vote of the shareholders of the Parent owning that number of Parent Shares required therefor under the Parent's articles of incorporation, code of regulations and other organizational documents, the rules and regulations of the NYSE and applicable law. SECTION 4.2 Conditions to Obligations of Transferee, Operating Partnership and Parent. The obligations of each the Operating Partnership, the Transferee and the Parent under this Agreement to enter into and complete the Closing are subject to the following condition precedent: (a) Representations. Each of the representations and warranties of the Transferor to the Transferee, the Parent and the Operating Partnership contained herein shall be true in all material respects with the same force and effect as though made on, at and as of the Effective Time. The Transferor shall have delivered to each of the Transferee, the Parent and the Operating Partnership a certificate, signed by an authorized representative and dated the Effective Time, to the foregoing effect. SECTION 4.3 Conditions to Obligations of Transferor. The obligations of the Transferor under this Agreement to enter into and complete the Closing are subject to the following condition precedent: (a) Representations. Each of the representations and warranties of the Transferee, the Operating Partnership and the Parent to the Transferor contained herein shall be true in all material respects with the same force and effect as though made on, at and as of the Effective Time. Each of the Transferee, the Operating Partnership and the Parent shall have delivered to the Transferor a certificate, signed by an authorized representative and dated the Effective Time, to the foregoing effect. ARTICLE 5 TERMINATION SECTION 5.1 Termination. This Agreement shall terminate upon any termination of the Merger Agreement. This Agreement may be terminated prior to the Closing with the mutual written consent of the parties. 8 SECTION 5.2 Effects of Termination. If this Agreement is terminated in accordance with Section 5.1 and the transactions contemplated hereby are not consummated, this Agreement shall become void and of no further force and effect; provided that nothing in this Section 5.2 shall relieve a party of any liability if the termination of this Agreement is caused by willful breach of such party; provided further, that if this Agreement is terminated because the Merger Agreement is terminated pursuant to Section 7.1(g) or 7.1(h) of the Merger Agreement, the foregoing provisions of this sentence shall not relieve a party from liability for breach of contract based upon negligence in making any representation or warranty pursuant to this Agreement as of the date hereof. ARTICLE 6 MISCELLANEOUS SECTION 6.1 Certain Definitions. (a) "AGGREGATE EQUITY VALUE" shall mean an amount equal to the sum of (i) $35,305,000 and (ii) the value of 3,110,048 Parent Shares determined by reference to the Closing Share Price. (b) "ASSIGNMENT CONSIDERATION VALUE" shall mean an amount, not to be less than zero, equal to (i) one percent (1%) of the Aggregate Equity Value minus (ii) $987,901 which represents 99% of the Transferor's unpaid capital contribution to the Subsidiary Partnership. (c) "CASH PERCENTAGE" shall mean the percentage obtained by dividing $35,305,000 by the Aggregate Equity Value. (d) "CLOSING SHARE PRICE" shall have the meaning assigned to such term in Schedule I to the Merger Agreement. (e) "SHARE PERCENTAGE" shall mean the percentage obtained by dividing the value of 3,110,048 Parent Shares (determined by reference to the Closing Share Price) by the Aggregate Equity Value. SECTION 6.2 Survival of Representations and Warranties. Section 3.3 shall survive the Closing of this Agreement. None of the other representations or warranties set forth herein shall survive the Closing. SECTION 6.3 Further Assurances. The parties to this Agreement agree to promptly execute, acknowledge, deliver, file or record such further 9 certificates, amendments, instruments or documents, and to do all such other acts, as may be required by law or may be necessary or advisable to carry out the intents and purposes of this Agreement. SECTION 6.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York regardless of the laws that might otherwise govern under applicable principles of conflict of laws thereof. SECTION 6.5 Notices. All notices required or permitted to be given pursuant to this Agreement shall be given in the manner required by Section 8.5 of the Merger Agreement and shall be addressed as follows: if to the Transferor, to: Special Committee of the Board of Directors of Red Lion Properties, Inc., as General Partner of Red Lion Inns Limited Partnership 410 North 44th Street Suite 700 Phoenix, AZ 85008 Attention: Mr. Robert M. Melzer Telecopier: (617) 737-0228 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Attention: Toby S. Myerson, Esq. Telecopier: (212) 757-3990 and Red Lion Properties, Inc., 410 North 44th Street Suite 700 Phoenix, AZ 85008 Attention: Mr. Anupam Narayan Telecopier: (617) 737-0228 10 with a copy to: Latham & Watkins 75 Willow Road Menlo Park, California 94025 Attention: Peter F. Kerman, Esq. Telecopier: (415) 463-2600 if to the Transferee, the Operating Partnership or the Parent, to: Boykin Lodging Company 1500 Terminal Tower Cleveland, Ohio 44113 Attention: Robert W. Boykin Chief Executive Officer Telecopier: (216) 241-1329 with a copy to: Baker & Hostetler LLP 3200 National City Center Cleveland, Ohio 44114 Attention: Albert T. Adams, Esq. Telecopier: (216) 696-0740 SECTION 6.6 Waivers and Amendments; Remedies. This Agreement may be amended, superseded, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties hereto or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. SECTION 6.7 Binding Effect; No Assignment; Third Party Beneficiary. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and legal representatives. This Agreement is not assignable except by operation of law. Except for the persons entitled to the benefits of Section 1.4, no person shall be, or be deemed to be, a third party beneficiary of this Agreement. Nothing expressed or implied in this Agreement is intended or shall be 11 construed to give any Person other than the parties hereto any rights or remedies under or by reason of this Agreement or any transaction contemplated hereby. SECTION 6.8 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement. SECTION 6.9 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. SECTION 6.10 Definitional Provisions. The words "hereby," "hereof," "herein" and "hereunder," and words of like import, refer to this Agreement as a whole and not to any particular Section or Article hereof. The words "including" and "include" mean including without limiting the generality of any description preceding such term. SECTION 6.11 Severability. If any term or other provision of this Agreement is invalid, illegal or unenforceable, all other provisions shall remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. SECTION 6.12 Entire Agreement. This Agreement, the Company Confidentiality Letter, the Parent Confidentiality Letter and the other Transaction Documents embody the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and thereof and supersede all prior agreements and understandings, both written and oral, among the parties, or between any of them, with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. RED LION PROPERTIES, INC. By /s/ Anupam Narayan ----------------------------------------- Name: Anupam Narayan Title: VP/Treas/Sec BOYKIN HOTEL PROPERTIES, L.P. By /s/ Robert W. Boykin ----------------------------------------- Name: Robert W. Boykin Title: President 12 BOYKIN LODGING COMPANY By /s/ Robert W. Boykin ----------------------------------------- Name: Robert W. Boykin Title: President WEST DOUGHBOY LLC By /s/ Ronald A. Cook ----------------------------------------- Name: Ronald A. Cook Title: President EX-99.2 4 EXHIBIT 99.2 1 EXHIBIT 99.2 EXECUTION COPY PERCENTAGE LEASE AGREEMENT DATED AS OF JANUARY 1, 1998 BY AND BETWEEN RED LION INNS OPERATING L.P. AS LESSOR AND WESTBOY LLC AS LESSEE 2 TABLE OF CONTENTS
Page PERCENTAGE LEASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . (1) ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) 1.1 Leased Property; Transferred Property . . . . . . . . . . . . . (1) 1.2 Term; Renewal . . . . . . . . . . . . . . . . . . . . . . . . . (3) ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22) 3.1 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22) 3.2 Payment of Percentage Rent . . . . . . . . . . . . . . . . . . (24) 3.3 Confirmation of Percentage Rent . . . . . . . . . . . . . . . . (25) 3.4 Additional Charges . . . . . . . . . . . . . . . . . . . . . . (26) 3.5 Annual Revenue Projections . . . . . . . . . . . . . . . . . . (27) 3.6 Annual Capital Expenditures Budget . . . . . . . . . . . . . . (27) 3.7 Capital Expenditure Reserves . . . . . . . . . . . . . . . . . (28) 3.8 Application of Capital Expenditure Funds . . . . . . . . . . . (30) 3.9 Agent Method for Purchases of Capital Expenditures . . . . . . (31) ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32) 4.1 Payment of Taxes and Impositions . . . . . . . . . . . . . . . (32) 4.2 Utility Charges . . . . . . . . . . . . . . . . . . . . . . . . (33) 4.3 Insurance Premiums . . . . . . . . . . . . . . . . . . . . . . (33) ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34) No Termination, Abatement, Etc. . . . . . . . . . . . . . . . . . . . (34) ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34) 6.1 Ownership of the Leased Property . . . . . . . . . . . . . . . (34) 6.2 Lessee's Personal Property . . . . . . . . . . . . . . . . . . (34) 6.3 Lessor's Lien . . . . . . . . . . . . . . . . . . . . . . . . . (35) ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36) 7.1 Condition of the Leased Property . . . . . . . . . . . . . . . (36) 7.2 Use of the Leased Property . . . . . . . . . . . . . . . . . . (36) 7.3 Lessor to Grant Easements, Etc . . . . . . . . . . . . . . . . (38) ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39) 8.1 Compliance with Legal, Insurance Requirements, Lessor's Insurance and Tax Obligations, Lessee's Net Worth Obligation . . . . . . . . . . . . . . . (39) 8.2 Legal Requirements Covenants . . . . . . . . . . . . . . . . . (39) 8.3 Environmental Covenants . . . . . . . . . . . . . . . . . . . . (40) 8.4 Net Worth Representations/Covenants . . . . . . . . . . . . . . (42) ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (43) 9.1 Maintenance and Repair . . . . . . . . . . . . . . . . . . . . (43)
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9.2 Encroachments, Restrictions, Etc . . . . . . . . . . . . . . . (44) ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45) 10.1 Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . (45) 10.2 Salvage . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46) 10.3 Joint Use Agreements . . . . . . . . . . . . . . . . . . . . . (46) ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46) ARTICLE XII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47) Permitted Contests . . . . . . . . . . . . . . . . . . . . . . . . . (47) ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48) 13.1 General Insurance Requirements . . . . . . . . . . . . . . . . (48) 13.2 Parties Insured, Amount of Coverage, Etc. . . . . . . . . . . . (50) 13.3 Evidence of Insurance, Etc. . . . . . . . . . . . . . . . . . . (50) 13.4 Reports by Lessee . . . . . . . . . . . . . . . . . . . . . . . (51) 13.5 Review of Limits . . . . . . . . . . . . . . . . . . . . . . . (51) 13.6 Limitation on Scope of Services . . . . . . . . . . . . . . . . (51) ARTICLE XIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (52) 14.1 Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . (52) 14.2 Reconstruction in the Event of Damage or Destruction Covered by Insurance . . . . . . . . . . . . . . .(52) 14.3 Reconstruction in the Event of Damage or Destruction Not Covered by Insurance . . . . . . . . . . . . .(53) 14.4 Lessee's Personal Property . . . . . . . . . . . . . . . . . . (53) 14.5 Abatement of Rent . . . . . . . . . . . . . . . . . . . . . . . (54) 14.6 Commencement and Completion of Casualty Restoration . . . . . . (54) 14.7 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54) ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54) 15.1 Parties' Rights and Obligations . . . . . . . . . . . . . . . . (54) 15.2 Permanent Taking . . . . . . . . . . . . . . . . . . . . . . . (54) 15.3 Taking for Temporary Use . . . . . . . . . . . . . . . . . . . (55) ARTICLE XVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (56) 16.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . (56) 16.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . (58) 16.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62) 16.4 Application of Funds . . . . . . . . . . . . . . . . . . . . . (62) 16.5 Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . (62) ARTICLE XVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (63) Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (63) ARTICLE XVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (63) 18.1 Certain Covenants to Protect REIT and MLP Status . . . . . . . (63) 18.2 Sublease Lessee Limitation . . . . . . . . . . . . . . . . . . (64)
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18.3 Lessee Ownership Limitation . . . . . . . . . . . . . . . . . . (64) ARTICLE XIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64) Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64) ARTICLE XX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (65) Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . (65) ARTICLE XXI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (65) Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . (65) ARTICLE XXII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66) 22.1 Subletting and Assignment . . . . . . . . . . . . . . . . . . . (66) 22.2 Attornment . . . . . . . . . . . . . . . . . . . . . . . . . . (67) 22.3 Management Agreement . . . . . . . . . . . . . . . . . . . . . (67) ARTICLE XXIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (68) 23.1 Officers' Certificates; Financial Statements; Lessor's Estoppel Certificates and Covenants . . . . . . . . . (68) 23.2 Lessee's Financial Covenants . . . . . . . . . . . . . . . . . (69) ARTICLE XXIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (69) Books and Records; Lessor's Right to Inspect . . . . . . . . . . . . (69) ARTICLE XXV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (70) No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (70) ARTICLE XXVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (70) Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . (70) ARTICLE XXVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (70) Acceptance of Surrender . . . . . . . . . . . . . . . . . . . . . . . (70) ARTICLE XXVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (70) No Merger of Title . . . . . . . . . . . . . . . . . . . . . . . . . (70) ARTICLE XXIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (71) Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . (71) ARTICLE XXX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (71) Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . (71) ARTICLE XXXI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (71) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (71) ARTICLE XXXII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (72) 32.1 Authorization to Mortgage Hotels . . . . . . . . . . . . . . . (72) 32.2 Lessee's Right to Cure . . . . . . . . . . . . . . . . . . . . (75) 32.3 Breach by Lessor . . . . . . . . . . . . . . . . . . . . . . . (75) 32.4 Lessee's Cooperation . . . . . . . . . . . . . . . . . . . . . (75)
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ARTICLE XXXIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(76) 33.1 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . .(76) 33.2 Transition Procedures . . . . . . . . . . . . . . . . . . . . .(76) 33.3 Change of Franchise . . . . . . . . . . . . . . . . . . . . . .(77) 33.4 Waiver of Presentment, Etc. . . . . . . . . . . . . . . . . . .(77) ARTICLE XXXIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(78) Memorandum of Lease . . . . . . . . . . . . . . . . . . . . . . . . .(78) ARTICLE XXXV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(78) 35.1 Springfield Ground Lease Premises . . . . . . . . . . . . . . .(78) 35.2 Termination of Sublease of Springfield Leased Land . . . . . .(79) ARTICLE XXXVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(79) Lessor's Option to Terminate Lease with Respect to Hotel upon Sale of a Facility . . . . . . . . . (79) EXHIBIT A List of Hotels EXHIBIT B Legal Description of the Land EXHIBIT C All Space Leases EXHIBIT D Initial FF&E EXHIBIT E Description of Each Facility EXHIBIT F Capital Expenditures EXHIBIT G Ground Leases
(iv) 6 PERCENTAGE LEASE AGREEMENT THIS PERCENTAGE LEASE AGREEMENT (this "Lease"), made as of the 1st day of January, 1998, by and between Red Lion Inns Operating L.P., a Delaware limited partnership ("Lessor"), and Westboy LLC, an Ohio limited liability company ("Lessee"), provides as follows: R E C I T A L S: A. Lessor is the owner and/or ground lessee of the "Leased Property" (as hereinafter defined), which property is commonly known as the hotels listed on Exhibit A, as may be amended from time to time (each, a "Hotel" and collectively, the "Hotels"). B. Lessee desires to lease the Leased Property, to operate as hotel facilities. NOW, THEREFORE, Lessor, in consideration of the payment of rent by Lessee to Lessor, the covenants and agreements to be performed by Lessee, and upon the terms and conditions hereinafter stated, does hereby rent and lease unto Lessee, and Lessee does hereby rent and lease from Lessor, the Leased Property. ARTICLE I 1.1 Leased Property; Transferred Property. (a) Subject to the provisions of Article XXXV, the "Leased Property" is comprised of Lessor's interest in the following: (i) the land described in Exhibit B attached hereto and incorporated herein by reference (the "Land"); (ii) all buildings, structures and other improvements of every kind including, but not limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and off-site), parking areas and roadways appurtenant to such buildings, structures and other improvements presently situated upon the Land (collectively, the "Leased Improvements"), including the Facilities; (iii) all easements, rights and appurtenances relating to the Land and to the Leased Improvements; (iv) all equipment, machinery, fixtures, and other items of property required or incidental to the use of the -1- 7 Leased Improvements as a hotel, including all components thereof, now and hereafter permanently affixed to or incorporated in the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which to the greatest extent permitted by law are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto (collectively, the "Fixtures"); (v) all existing leases of space within the Leased Property (including any security deposits or collateral held by Lessor pursuant thereto), which space leases are listed on Exhibit C attached hereto and incorporated by reference; (vi) all contract rights, trade names, logos and other intangible property of Lessor with respect to the operation of the existing hotel business conducted on the Leased Property; and (vii) the furniture, fixtures and equipment listed or referred to on Exhibit D attached hereto and incorporated by reference. THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL CURRENT AND FUTURE COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS, THE GROUND LEASES AND OTHER MATTERS (NOT LIMITED TO ITEMS OF RECORD), INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS, THE LIENS OF FINANCING INSTRUMENTS, MORTGAGES, DEEDS OF TRUST AND SECURITY DEEDS, AND INCLUDING OTHER MATTERS WHICH WOULD BE DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY THEREOF. (b) Simultaneously with the execution of this Lease, Lessor shall sell, convey, transfer, assign and deliver to Lessee, for an amount equal to Lessor's cost, and Lessee shall purchase from Lessor, all right, title and interest of Lessor in and to all Inventory and Operating Supplies (collectively, the "Transferred Property"). Lessor shall execute and deliver such instruments of sale, assignment or transfer, and shall take or cause to be taken such other or further action as Lessee shall reasonably request at any time or from time to time, in order to vest, confirm or evidence in Lessee title to all or part of the Transferred Property -2- 8 intended to be sold, transferred, assigned and delivered to Lessee under this Lease. (c) Effective on not less than 90 days' prior Notice given at any time within 180 days before the expiration of the Term, but not later than 90 days prior to such expiration, or upon such shorter Notice period as shall be appropriate if this Lease is terminated prior to its expiration date, Lessee shall sell, transfer, assign and deliver to Lessor, for an amount equal to Lessee's cost, and Lessor shall purchase from Lessee, all right, title and interest of Lessee in and to the Transferred Property in existence as of the date of such Notice of Termination. Lessee shall execute and deliver such instruments of sale, assignment or transfer, and shall take or cause to be taken such other or further action as Lessee shall reasonably request at any time or from time to time, in order to vest, confirm or evidence in Lessor title to all or part of the Transferred Property intended to be sold, transferred, assigned and delivered to Lessee under this Lease. 1.2 Term; Renewal. The term of this Lease (the "Term") shall commence on the date hereof (the "Commencement Date") and shall end on the fifth anniversary of the date hereof (the "Initial Term"), unless sooner terminated in accordance with the provisions hereof. If this Lease has not been terminated prior to the expiration of the Initial Term, then, upon the expiration of the Initial Term, subject to the provisions of Article XXXV, Lessee shall have the right to extend the Term of this Lease for twelve additional five year periods (each, an "Additional Term") to follow immediately upon expiration of the Initial Term or an Additional Term, as the case may be. The option for each Additional Term shall be exercised by Lessee's giving written notice to Lessor of Lessee's exercise of such option not less than 270 days prior to the expiration of the Initial Term or an Additional Term, as the case may be. If this Lease is extended, the word "term" as used herein shall mean and refer to each Additional Term for which Lessee's option is exercised and all of the terms, covenants, conditions and provisions of this Lease shall continue in full force and effect during each Additional Term (other than the number of Additional Terms which remain); provided, however, that if Lessor shall, within 30 days after Lessee's exercise of any of its extension options, notify Lessee that in Lessor's good faith judgment the Base Rent and Percentage Rent formulas set forth in this Lease do not substantially reflect the then prevailing rents ("Fair Market REIT Rent") under leases made by REIT's of similar properties, then Lessor and Lessee shall in good faith mutually negotiate an agreement on the Base Rent and such formulas for such Additional Term. If Lessor and Lessee are unable to reach an agreement on the Base -3- 9 Rent and/or the Percentage Rent formulas within 30 days after the giving of Lessor's notice, then Lessor and Lessee shall each have the right to hire an appraiser with at least five years of relevant experience, and such appraisers shall either agree on the Fair Market REIT Rent or together hire a third appraiser with relevant experience whose decision shall be final. Notwithstanding anything to the contrary herein contained, Lessee's right to extend the Term of this Lease is expressly conditioned upon there being no Event of Default of Lessee either at the time of the giving of Lessee's exercise notice or as of the commencement of the Additional Term in question. Notwithstanding anything in this Lease to the contrary, upon a Disposition, this Lease shall terminate as to the Hotel which is the subject of such Disposition and Lessor and Lessee shall negotiate in good faith the Base Rent and Percentage Rent formulas to be applicable after such Disposition so that they substantially reflect Fair Market REIT Rent. Notwithstanding the foregoing provisions of this Section 1.2, if the transactions contemplated by the Merger Agreement have not been consummated by December 31, 1998 Lessor shall have the right to direct Lessee to assign all of its rights and obligations under this Lease to such person as may be designated by Lessor, effective on the close of business on December 31, 1998, by delivering a written notice (the "Assignment Notice") to Lessee on or before November 1, 1998, indicating that, in the event such transactions have not been consummated, Lessor desires that Lessee effectuate such assignment and the party to whom such rights and obligations are to be assigned. If Lessor shall not have delivered an Assignment Notice on or before November 1, 1998, or if Lessor has delivered such notice but such assignment does not close on December 31, 1998, Lessee shall have the right to terminate this Lease effective on the close of business on December 31, 1998, by delivering a written notice to Lessor on or before November 15, 1998, indicating that, in either such event, Lessee desires to terminate this Lease. In the event that Lessor delivers an Assignment Notice as described herein, (i) such assignment shall be without any representations or warranties by Lessee, (ii) Lessor shall pay all costs associated with such assignment, and (iii) Lessor and Lessee shall cooperate and use their best efforts to effectuate the assignment of this Lease provided for in such notice. If this Lease is assigned as provided for in the Assignment Notice, effective upon the effective date of such assignment, Lessee shall be released of and from any and all actions, causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims, and demands whatsoever, in law, admiralty, or equity against the Lessee which the Lessor ever had, now has or hereafter can, shall or -4- 10 may have, for, upon or by reason of any matter, cause or thing whatsoever related to this Lease arising or accruing from and after the effective date of such assignment. ARTICLE II Definitions. For all purposes of this Lease, except as otherwise expressly provided or unless the context otherwise requires, (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular, (b) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles as are at the time applicable, (c) all references in this Lease to designated "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this Lease and (d) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Lease as a whole and not to any particular Article, Section or other subdivision: Additional Charges. As defined in Section 3.4. Adjusted Gross Operating Profit. The Gross Operating Profit less three percent (3%) of Gross Revenues for FFE Reserves. Adjustment Date. January 1, 2003, and each fifth anniversary thereof prior to the expiration or earlier termination of this Lease. Affiliate. As used in this Lease, the term "Affiliate" of a Person shall mean (a) any Person that, directly or indirectly, controls or is controlled by or is under common control with such Person, (b) any other Person that owns, beneficially, directly or indirectly, five percent (5%) or more of the outstanding capital stock, shares or equity interests of such Person, or (c) any officer, director, employee, partner or trustee of such Person or any Person controlling, controlled by or under common control with such Person (excluding trustees and persons serving in similar capacities who are not otherwise an Affiliate of such Person). For the purposes of this definition, "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, partnership interests or other equity interests. After Tax Earnings. As defined in Section 8.4. -5- 11 Applicable Laws. 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. Approved Mortgage. The Existing Mortgages and any other mortgage, lien or encumbrance approved by Lessee pursuant to Section 32.1 of hereunder. Approved Mortgagee. The lender making the loan secured by any Approved Mortgage. Audited Consolidated Financials. Consolidated Financials audited by a firm of independent certified public accountants acceptable to Lessor in its sole discretion. Award. Compensation, sums or anything of value awarded, paid or received on a total or partial Condemnation. Base FFE Reserve. An accrual equal to three percent (3%) of Gross Revenues for FFE Reserves. Base Rate. The rate of interest announced publicly by National City Bank, in Cleveland, Ohio, or its successor, from time to time, as such bank's base rate. If no such rate is announced or if such rate is discontinued, then such other rate as Lessor may reasonably designate. Base Rent. As defined in Section 3.1(a). Business Day. Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which national banks in the City of Cleveland, Ohio, or in the municipality wherein each Hotel is located, are closed. Capex Threshold Amount. An amount, initially, equal to $5,000,000. The Capex Threshold Amount shall be adjusted on each Adjustment Date by the increase, if any, in the Consumer Price Index since the Commencement Date or the immediately preceding Adjustment Date, as the case may be. Capital Expenditures. As defined in Section 3.6. Cash Flow Available for Debt Service. The Adjusted Gross Operating Profit from operations of the Hotels for the applicable Fiscal Year determined in accordance with the provisions of this Lease less Lessor Tax, Insurance and Cap Ex Obligations. -6- 12 Casualty Termination Fee. The product of (A) five (5), and (B) the aggregate amount attributable to each Facility with respect to which Lessor has elected to terminate this Lease of (i) the Incentive Amount for the most recent Fiscal Year and (ii) three percent (3%) of Gross Revenues for FFE Reserves for the most recent Fiscal Year. CERCLA. The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. Code. The Internal Revenue Code of 1986, as amended. Commencement Date. As defined in Section 1.2. Condemnation. A Taking resulting from (1) the exercise of any governmental power, whether by legal proceedings or otherwise, by a Condemnor, and (2) a voluntary sale or transfer by Lessor to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending. Condemnor. Any public or quasi-public authority, or private corporation or individual, having the power of Condemnation. Consolidated Financials. For any fiscal year (or other period for which such statements are prepared) for Lessee and its consolidated subsidiaries, a statement of financial position as of such fiscal year (or other period) end date and statements of operations, cash flows and retained earnings for the fiscal year (or other period) then ended, all in comparative form, together with notes thereto, prepared in accordance with generally accepted accounting principles. Consolidated Net Worth. The sum of consolidated shareholders' equity of Lessee and any consolidated subsidiaries as shown on the most recent Audited Consolidated Financials. Consumer Price Index. 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, the Lessor 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 Base Rent hereunder. If for any reason the Bureau of -7- 13 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. Date of Taking. The date the Condemnor has the right to possession of the property being condemned. Deemed Debt Service. 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. Disposition. The Taking of a Hotel, an election by Lessor not to restore a Hotel following a casualty, a sale of a Hotel, an expiration or other termination of a ground lease to Lessor as ground lessee, or any other event which results in a Hotel no longer being available to Lessor to lease to Lessee pursuant to this Lease. Environmental Authority. Any federal, state, local or foreign department, agency or other body or component of any Government that administers, oversees or enforces any Environmental Laws. Environmental Laws. All federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees, injunctions and duties under the common law relating to occupational health and safety, the protection of human health, and pollution of the indoor and outdoor environment (including without limitation ambient air, surface water, ground water, land surface or subsurface strata), including without limitation laws and regulations relating to emissions, discharges, Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. Environmental Laws include, but are not limited to, CERCLA, EPCRA, FIFRA, RCRA, SARA and TSCA. Environmental Liability. Any and all obligations to pay the amount of any judgment or settlement, the cost of complying with any settlement, judgment or order for injunctive or other equitable relief, the cost of compliance or corrective action in response to any notice or demand from an Environmental Authority, the amount of any civil penalty or -8- 14 fine or criminal fine, and any court costs and reasonable amounts for attorney's fees, fees for witnesses, consultants and experts, and costs of investigation and preparation for defense of any claim or any Proceeding, regardless of whether such Proceeding is threatened, pending or completed, that may be or have been asserted against or imposed upon Lessor, Lessee, any Predecessor, the Leased Property or any property used therein and arising out of: (a) Failure of Lessee, any Predecessor or the Leased Property to comply at any time with all Environmental Laws; (b) Presence of any Hazardous Materials on, in, under, at or in any way affecting the Leased Property; (c) A Release at any time of any Hazardous Materials on, in, at, under or in any way affecting the Leased Property or any off-site property or facility; (d) Identification of Lessee, or any Predecessor as a potentially responsible party under CERCLA or under any Environmental Law similar to CERCLA; (e) Presence at any time of any above ground and/or underground storage tanks as defined in RCRA or in any applicable Environmental Law on, in, at or under the Leased Property or any off-site property or facility; or (f) Any and all claims for injury or damage to persons or property arising out of exposure to Hazardous Materials originating or located at the Leased Property or resulting from operation thereof. EPCRA. The Emergency Planning and Community Right to Know Act, as amended. Event of Default. As defined in Section 16.1. Existing Mortgagee. The holders of the secured obligations under the Existing Mortgages. Existing Mortgages. The mortgage, deed of trust, security agreement or other encumbrance affecting the Leased Property and existing as of the date of this Lease. Facility. Each Hotel and/or other facility offering lodging and other services or amenities being operated or proposed to be operated on the Leased Property which shall be included in the Leased Improvements. Each Facility is more -9- 15 particularly described on Exhibit E, as may be amended from time to time, attached hereto and incorporated by reference. Fair Market Value of the Leasehold Estate. An amount equal to the price that a willing buyer not compelled to buy would pay a willing seller not compelled to sell for Lessee's leasehold estate (or portion thereof) under this Lease. In the event Lessor and Lessee are unable to agree upon the Fair Market Value of the Leasehold Estate, it shall be determined by appraisal using the appraisal procedure set forth in Section 1.2. FFE Reserve. As defined in Section 3.7. FIFRA. The Federal Insecticide, Fungicide, and Rodenticide Act, as amended. Fiscal Year. The 12-month period from January 1 to December 31. Fixtures. As defined in Section 1.1. Food and Beverage Revenues. Gross revenues, receipts and income of any kind (whether on a cash or credit basis) paid, collected or accrued and derived directly or indirectly by Lessee from: (i) the sale, for on-site consumption at the Leased Property or through off-site catering services, of food and nonalcoholic beverages, including sales attributable to guest rooms, banquet rooms, meeting rooms, the restaurant, the lounge, the bar and other similar rooms; (ii) the sale of wine, beer, liquor or other alcoholic beverages, including sales attributable to the restaurant, the bar, the lounge, guest rooms, meeting rooms, banquet rooms, off-site catering or any location at the Leased Property; (iii) cover charges and audio-visual rental charges related to banquet, ballroom or meeting room events; and (iv) banquet and meeting room revenues, including room rental charges from such banquet and meeting rooms. Such revenues shall not include the following: (a) Room and Other Revenues as defined below; (b) Any gratuities or service charges added to a customer's bill or statement in lieu of a gratuity, which gratuity or charge Lessee is obligated to pay to or which was paid directly to an employee; (c) Customary and reasonable credits, rebates, refunds or negative adjustments to guests; (d) Sales taxes and any additional taxes imposed on the sale of alcoholic beverages; -10- 16 (e) Amounts attributable to customary and reasonable allowances, give-aways and promotions; and (f) Sales transactions related to a lounge provided for the use of guests staying in rooms located on the concierge level of any Facility. Furniture, Fixture and Equipment shall mean the furniture, furnishings, fixtures and equipment installed and used in a Hotel, including without limitation all necessary furniture and furnishings for guest rooms, public areas and non-public areas (such as kitchen, laundry and cleaning facilities, rooms for the use of employees, storage areas, front desk and administrative offices), floor and window coverings, decorative light fixtures and equipment, but excluding, however, a Hotel's major mechanical and electrical equipment and systems (for example, the elevators). GAAP. As defined in Section 8.4. Gross Operating Profit. The excess, if any, of Gross Revenues for FFE Reserves over Operating Expenses. Gross Revenues for FFE Reserves. In accordance with the Uniform System, all income and proceeds (whether in cash or on credit, and computed on an accrual basis) received by Lessee or Manager (if any) for the use, occupancy or enjoyment of the Facilities, or any part thereof, or received by Lessee 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 -11- 17 the Hotels for hotel accommodations, goods and services to be provided at other hotels, although arranged by, for or on behalf of Lessee or its Manager (if any); (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 (iv) 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. Government. The United States of America, any state, county, municipality, local government, district or territory thereof, any foreign nation, any state, district, department, territory or other political division thereof, or any administrative agency, board, commission, bureau or political subdivision of any of the foregoing. Ground Leases. The ground leases listed on Exhibit G attached hereto and made a part hereof. Hazardous Materials. All chemicals, pollutants, contaminants, wastes and toxic substances, including without limitation: (a) Solid or hazardous waste, as defined in RCRA or in any Environmental Law; (b) Hazardous substances, as defined in CERCLA or in any Environmental Law; (c) Toxic substances, as defined in TSCA or in any Environmental Law; (d) Insecticides, fungicides, or rodenticides, as defined in FIFRA or in any Environmental Law; and (e) Gasoline or any other petroleum product or byproduct, polychlorinated biphenols, asbestos, radon and urea formaldehyde. -12- 18 Hotels. As defined 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. Impositions. Collectively, all taxes (including, without limitation, all personal property, sales and use (including sales, rent or occupancy taxes on Rent), single business, gross receipts, transaction, privilege, rent or similar taxes as the same relate to or are imposed upon Lessee, its personal property or its business conducted upon the Leased Property), assessments (including, without limitation, all assessments for public improvements or benefit, whether or not commenced or completed prior to the date hereof and whether or not to be completed within the Term), water, sewer or other rents and charges, excises, tax inspection, authorization and similar fees and all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character in respect of the Leased Property or the business conducted thereon by Lessee (including all interest and penalties thereon caused by any failure in payment by Lessee), which at any time prior to, during or with respect to the Term may be assessed or imposed on or with respect to or be a lien upon (a) Lessor's interest in the Leased Property, (b) the Leased Property or any part thereof or any rent therefrom or any estate, right, title or interest therein, or (c) any occupancy, operation, use or possession of, or sales from, or activity conducted on or in connection with the Leased Property or any part thereof or the leasing or use of the Leased Property or any part thereof by Lessee. Notwithstanding the foregoing, Impositions shall not include (1) any Real Estate Taxes on the Leased Property, (2) any personal property taxes on Lessor's personal property, (3) any tax based on net income (whether denominated as an income, franchise or capital stock or other tax) imposed on Lessor or any other Person other than Lessee and Affiliates of Lessee, (4) any net revenue tax of Lessor or any other Person (other than Lessee or an Affiliate of Lessee), (5) all rent under Ground Leases, (6) any tax imposed with respect to the sale, exchange or other disposition by Lessor of any Leased Property or the proceeds thereof, or (7) any single business, gross receipts (other than a tax on any rent received by Lessor from Lessee), transaction, privilege or similar taxes as the same relate to or are imposed upon Lessor, except to the extent that any tax, assessment, tax levy or charge that Lessee is obligated to pay pursuant to the first sentence of this definition, and that is in effect any time during the Term hereof, is totally or partially repealed, and a tax, assessment, tax levy or charge set forth in clauses (1) through (7) is levied, assessed or imposed expressly in lieu thereof. -13- 19 Incentive Amount. An annual amount equal to fifteen percent (15%) of the Adjusted Gross Operating Profit up to the Profit Target and twenty five percent (25%) of the Adjusted Gross Operating Profit in excess of the Profit Target. Indemnified Environmental Liability. As defined in Section 8.3. Indemnified Party; Indemnitee. Either of a Lessee Indemnified Party or a Lessor Indemnified Party. Indemnifying Party. Any party obligated to indemnify an Indemnified Party pursuant to Section 8.3 or Article XXII. Insurance Requirements. All terms of any insurance policy required by this Lease or any Legal Requirement, and all requirements of the issuer of any such policy as to such policy and/or the Leased Property. Inventory. All inventories, supplies, guest supplies, food and beverage inventory, and consumable merchandise used in connection with the operation of each Facility, but excluding all such items to the extent owned by concessionaires, tenants, subtenants, licensees or other Persons occupying all or a portion of the Leased Property as permitted by this Lease. Land. As defined in Section 1.1(a). Lease. This Lease. Leased Improvements; Leased Property. Each as defined in Section 1.1. Legal Requirements. All federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting either the Leased Property or the maintenance, construction, use or alteration thereof (whether by Lessee or otherwise), whether or not hereafter enacted and in force, including (a) all Environmental Laws, and (b) any laws, rules or regulations that may (1) require repairs, modifications or alterations in or to the Leased Property or (2) in any way adversely affect the use and enjoyment thereof; and all permits, licenses and authorizations and regulations relating thereto and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Lessee (other than encumbrances hereafter created by Lessor without the consent of Lessee), at any time in force affecting the Leased Property. -14- 20 Lending Institution. Any insurance company, investment banking company, credit company, federally insured commercial or savings bank, national banking association, savings and loan association, employees welfare, pension or retirement fund or system, corporate profit sharing or pension trust, college or university, or real estate investment trust, including any corporation qualified to be treated for federal tax purposes as a real estate investment trust, such trust having a net worth of at least $10,000,000 and REMIC conduit lenders. Lessee. The Lessee designated on this Lease and its permitted successors and assigns. Lessee Indemnified Party. Lessee and (i) any Affiliate of Lessee, (ii) any Person against whom any liability may be asserted as a result of a direct or indirect ownership interest (including a shareholder's interest) in Lessee; (iii) the officers, directors, shareholders, employees, agents (including Lessee's Manager (if any)) and representatives of Lessee; and (iv) the respective heirs, personal representatives, successors and assigns of any of the foregoing Persons. Lessee's Personal Property. As defined in Section 6.2. Lessor. The Lessor designated on this Lease and its successors and assigns. Lessor Indemnified Party. Lessor and (i) any Affiliate of Lessor; (ii) any Person against whom any liability may be asserted as a result of a direct or indirect ownership interest (including an interest as a partner) in Lessor; (iii) the employees, agents and representatives of Lessor and its Affiliates; and (iv) the respective heirs, personal representatives, successors and assigns of any of the foregoing Persons. Lessor Tax, Insurance and Cap Ex Obligations. The following: (i) All items in clauses (1) through (7) of the definition of "Impositions"; (ii) Insurance premiums relating to the insurance required under Sections 13.1(a)(iii), (iv), and (v); (iii) Rentals under any leases of real property and rentals under any leases of personal property (other than Lessee's Personal Property); and -15- 21 (iv) The Base FFE Reserve plus one-half percent of Gross Revenues for FFE Reserves. Management Agreement. As defined in Section 22.3. Manager. The manager under any management agreement entered into by Lessee Pursuant to Section 22.3. Maximum Principal Amount. 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%, and (ii) Cash Flow Available for Debt Service for the most recent full Fiscal Year less the Incentive Amount is at least two hundred percent (200%) of the Deemed Debt Service. Merger. The merger defined in the Merger Agreement. Merger Agreement. The Agreement and Plan of Merger dated as of December ___, 1997 among Red Lion Inns Limited Partnership, a Delaware limited partnership, Boykin Lodging Company, an Ohio corporation, and other parties thereto. Notice. A notice given pursuant to Article XXXI. Officer's Certificate. A certificate of Lessee in form and substance reasonably acceptable to Lessor signed by the chief operating officer and the chief financial officer or another officer authorized so to sign by the board of directors or by-laws of Lessee, or any other person whose power and authority to act has been authorized by delegation in writing by any such officer. Operating Expenses. All reasonable costs and expenses of maintaining, conducting and supervising the operation of the Hotels (which costs and expenses do not include depreciation and amortization except as otherwise provided in this Lease, any Rent payable by Lessee or Lessor 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 Lease, and the costs of any other things specified herein to be done or provided at Lessor's expense) incurred by Lessee (or insurance paid for by Lessor pursuant to Section 13.1 (b)) directly or at Lessor's request pursuant to this Lease or as otherwise specifically provided herein which are properly attributable to the period under consideration under Lessee'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 -16- 22 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 Lessee or its Manager (if any) 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 Lessee or its Manager (if any) 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 be maintained hereunder. Premiums on policies for more than one year will be prorated over the period of insurance and premiums under blanket policies will be allocated among properties covered; (vi) All taxes, assessments and other charges (other than federal, state or local income taxes and franchise taxes or the equivalent) payable by -17- 23 or assessed against Lessee 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 relation activities. Operating Supplies. 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. Other Revenues: All gross revenues, receipts and income of any kind (whether on a cash or credit basis) paid, collected or accrued and derived directly or indirectly by Lessee from: (i) gift shop operations; (ii) fees collected from telephone, game room and guest laundry services; and (iii) guaranteed no show reservations, space rentals (excluding banquet and meeting room space rentals), discounts earned, vending machines, valet services, movie services, commissions earned, and swim club memberships, and (iv) all other revenues in connection with the use or operation of the Leased Property and all services or activities provided thereon, including revenue derived from subtenants, concessionaires, and licensees, all as determined in accordance with generally accepted accounting principles. Notwithstanding the previous sentence, Other Revenues shall not include: (a) Room Revenues as defined herein; (b) Food and Beverage Revenues as defined above; (c) The amount of any credits, rebates, refunds or adjustments to customers, guests or patrons; -18- 24 (d) Sales or use taxes; (e) Interest income; (f) Gratuities paid or payable to Persons other than Lessee or its Affiliate; and (g) Gains from the sale of assets out of the ordinary course of business. Overdue Rate. On any date, a rate equal to the Base Rate plus 5% per annum, but in no event greater than the maximum rate then permitted under applicable law. Partial Fiscal Year. Any portion of a Fiscal Year which falls during the Term hereof. Payment Date. Any due date for the payment of any installment of Rent. Percentage Rent. As defined in Section 3.1(b). Person. 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 government and agency and political subdivision thereof. Predecessor. Any Person whose liabilities arising under any Environmental Law relating to the Leased Property have or may have been retained or assumed by Lessee, either contractually or by operation of law. Primary Intended Use. As defined in Section 7.2(b). Priority Capital Expenditure. 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 15.2(d), or (iv) in connection with Casualty Restoration pursuant to Article XIV. 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. -19- 25 Proceeding. Any judicial action, suit or proceeding (whether civil or criminal), any administrative proceeding (whether formal or informal), any investigation by a governmental authority or entity (including a grand jury), and any arbitration, mediation or other non- judicial process for dispute resolution. Profit Target. The sum of $36,000,000. Upon the Disposition of a Hotel or Hotels, the Profit Target shall be adjusted as follows: the 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 Profit Target existing immediately before such Disposition and (y) a fraction, the numerator of which is the Gross Operating Profit less three percent (3%) of Gross Revenues for FFE Reserves 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 Gross Operating Profit less three percent (3%) of Gross Revenues for FFE Reserves of the Hotels managed under this Agreement immediately before such sale for such period. RCRA. The Resource Conservation and Recovery Act, as amended. Real Estate Taxes. All real estate taxes (including any applicable interest and penalties thereon), including general and special assessments, if any, and possessory interest taxes which are imposed upon the Land and/or the Leased Property. Release. A "Release" as defined in CERCLA or in any Environmental Law, unless such Release has been properly authorized and permitted in writing by all applicable Environmental Authorities or is allowed by such Environmental Law without authorizations or permits. Rent. Collectively, the Base Rent, Percentage Rent and Additional Charges. Room Revenues: 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. -20- 26 SARA: The Superfund Amendments and Reauthorization Act of 1985, as amended. Shared Priority Capital Expenditure. A Priority Capital Expenditure that (i) is compelled to be made to comply with the Americans with Disabilities Act, as amended, or (ii) arises from installation of a sprinkler system that is compelled to be made by Applicable Law. State: The State or Commonwealth of the United States in which a Facility is located. Subsidiaries: Corporations in which Lessee owns, directly or indirectly, more than fifty percent (50%) of the voting stock or control, as applicable. Taking: A taking or voluntary conveyance during the Term hereof of all or part of any Facility or the Leased Property, or any interest therein or right accruing thereto or use thereof, as the result of, or in settlement of, any Condemnation or other eminent domain proceeding affecting any Facility or the Leased Property whether or not the same shall have actually been commenced. Tax Distribution Amount. As defined in Section 8.4. Term: As defined in Section 1.2. TSCA: The Toxic Substances Control Act, as amended. Unavoidable Delay: A delay due to strikes, lock-outs, labor unrest, inability to procure materials, power failure, acts of God, governmental restrictions, enemy action, civil commotion, fire, unavoidable casualty or other causes beyond the control of the party responsible for performing an obligation hereunder, provided that lack of funds shall not be deemed a cause beyond the control of either party hereto unless such lack of funds is caused by the failure of the other party hereto to perform any obligations of such party under this Lease. Uneconomic for its Primary Intended Use: A state or condition of any Facility such that in the good faith judgment of Lessor it is uneconomic to operate that Facility for its Primary Intended Use, taking into account, among other relevant factors, the number of usable rooms and projected revenues. Uniform System: The "Uniform System of Accounts" as adopted by the American Hotel and Motel Association, as the same may hereafter be revised. -21- 27 Unsuitable for its Primary Intended Use: A state or condition of any Facility such that, in the good faith judgment of Lessor, due to casualty damage or loss through Condemnation, that Facility cannot be operated or cannot function as an integrated hotel facility consistent with standards applicable to a well maintained and operated hotel. ARTICLE III 3.1 Rent. Lessee will pay to Lessor in lawful money of the United States of America which shall be legal tender for the payment of public and private debts, in immediately available funds, at Lessor's address set forth in Article XXXI hereof or at such other place or to such other Person, as Lessor from time to time may designate in a Notice, (A) Base Rent and (B) Percentage Rent and (C) Additional Charges, during the Term, as follows: (a) Base Rent: The annual sum of $20,400,000, payable in arrears in equal, consecutive monthly installments, on or before the tenth day of each calendar month of the Term ("Base Rent"); provided, however, that the first monthly payment of Base Rent shall be payable on the Commencement Date and that the first and last monthly payments of Base Rent shall be prorated as to any partial month; and provided, further, that Base Rent shall be increased by increases in CPI as set forth in Subsection (c) below. (b) Percentage Rent: For each Fiscal Year and Partial Fiscal Year during the Term commencing with the Fiscal Year or Partial Fiscal Year ending December 31, 1998, Lessee shall pay percentage rent ("Percentage Rent"), to the extent that such Percentage Rent is in excess of Base Rent for such Fiscal Year or Partial Fiscal Year, in an amount calculated by the following formula: The amount equal to the sum of (i) the Room Revenues Computation for such Fiscal Year or Partial Fiscal Year, plus (ii) the Food and Beverage Revenues Computation for such Fiscal Year or Partial Fiscal Year, plus (iii) the Other Revenues Computation for such Fiscal Year or Partial Fiscal Year (each as defined below and, collectively, the "Revenue Computations"). For the purpose of this formula: -22- 28 (1) The Room Revenues Computation for the applicable Fiscal Year (or Partial Fiscal Year) is equal to the sum of (A) 31.5% of all amounts above $13,166,000 up to $45,044,000 in Room Revenues for such Fiscal Year or Partial Fiscal Year, (B) 67% of all amounts above $45,044,000 up to $62,367,000 in Room Revenues for such Fiscal Year or Partial Fiscal Year, and (C) 55% of all Room Revenues in excess of $62,367,000 for such Fiscal Year or Partial Fiscal Year (the preceding dollar figures are referred to hereinafter as the "Threshold Amounts"); and (2) The Other Revenues Computation for the applicable Fiscal Year (or Partial Fiscal Year) is equal to 30% of Other Revenues for such Fiscal Year or Partial Fiscal Year; and (3) The Food and Beverage Revenues Computation is equal to 10% of all Food and Beverage Revenues for the applicable Fiscal Year or portion thereof; provided, however, that the Food and Beverage Revenues Computation shall not exceed $3,900,000. (c) CPI Adjustments to the Threshold Amounts and Base Rent: For each Fiscal Year of the Term beginning on or after January 1, 1999, the Threshold Amounts and Base Rent shall be adjusted from time to time as follows: If the most recently published Consumer Price Index as of the last day of the last month (the "Comparison Month") of any Fiscal Year is different than the average Consumer Price Index for the 12 month period prior thereto, each of Base Rent and the Threshold Amounts for the next Fiscal Year shall be adjusted by the percentage change in the Consumer Price Index calculated by multiplying the Base Rent and each Threshold Amount by the quotient obtained by dividing the Consumer Price Index for the most recent Comparison Month by the Consumer Price Index for the month which is exactly 12 months prior thereto. Adjustments in the Threshold Amounts and Base Rent shall be effective on the first day of the first calendar month of the Fiscal Year to which such adjusted Threshold Amounts apply. In the event of casualty and corresponding payment of -23- 29 rent out of the proceeds of business interruption insurance provided pursuant to Section 13.1(a), the Percentage Rent shall be based upon the higher of (i) actual revenues, (ii) revenues for the same period in the previous Fiscal Year (whether or not during the Term), or (iii) projected revenues used in computing the final insurance settlement. 3.2 Payment of Percentage Rent. Percentage Rent shall be due and payable quarterly on or before the 30th day after the last day of each quarter during the Term. Additionally, an Officer's Certificate, setting forth the calculation of such rent payment for such quarter, shall be delivered to Lessor quarterly, together with such quarterly Percentage Rent payment after each quarter of each Fiscal Year (or part thereof) during the Term. Such quarterly payment shall be based on the formula set forth in Section 3.1(b), but, in calculating the Revenue Computations for each quarter, gross revenues for the year to date shall be annualized by dividing such sum by the number of months which have passed year to date (including the current month) and multiplying the result by 12. The resulting Percentage Rent amount shall be multiplied by the number of months that have passed year-to-date (including the current month) and divided by 12. Payments of Base Rent and Percentage Rent for the year to date shall be subtracted from the result to arrive at the Percentage Rent payment due for that quarter. The Revenue Computations shall be appropriately adjusted to calculate Percentage Rent for partial years. There shall be no reduction in the Base Rent regardless of the result of the Revenue Computations. In addition, on or before March 1 of each year, commencing with March 1, 1999, Lessee shall deliver to Lessor an Officer's Certificate reasonably acceptable to Lessor setting forth the computation (based on audited financial statements of Lessee) of the actual Percentage Rent that accrued for each quarter of the Fiscal Year that ended on the immediately preceding December 31 and shall pay to Lessor, with the delivery of the Officer's Certificate, the amount of Percentage Rent due and payable for the Fiscal Year then ended as shown in the Officer's Certificate, if any, that exceeds the amount actually paid as Percentage Rent by Lessee for such Fiscal Year. If the Percentage Rent actually due and payable for such Fiscal Year is shown by such certificate to be less than the amount actually paid as Percentage Rent for the applicable Fiscal Year, Lessor, at its option, shall reimburse such amount to Lessee or credit such amount against the next quarter's Percentage Rent payments; provided, however, that no Event of Default exists. -24- 30 Any difference between the annual Percentage Rent due and payable for any Fiscal Year (as shown in the applicable Officer's Certificate) and the total amount of quarterly payments for such Fiscal Year actually paid by Lessee (i) shall bear interest at the Overdue Rate in the case of an underpayment or (ii) shall bear interest at the Base Rate in the case of an overpayment, which interest shall accrue from the close of such Fiscal Year until the amount of such difference shall be paid by Lessor to Lessee or Lessee to Lessor or otherwise discharged by credit to Lessee. Any such interest payable to Lessor shall be deemed to be and shall be payable as Additional Charges. The obligation to pay Percentage Rent shall survive the expiration or earlier termination of the Term. A final reconciliation, taking into account, among other relevant adjustments, any adjustments which are accrued after such expiration or termination date but which related to Percentage Rent accrued prior to such termination date and Lessee's computation of Percentage Rent due and payable, shall be made not later than 90 days after such expiration or termination date. Within such 90 day period, Lessee shall deliver to Lessor an Officer's Certificate setting forth the final Percentage Rent amount payable to Lessor and payment of the amount due, if any. 3.3 Confirmation of Percentage Rent. Lessee shall utilize, or cause to be utilized, an accounting system for the Leased Property in accordance with generally accepted accounting principles consistently applied and the Uniform System, that will accurately record all data necessary to compute Percentage Rent, and Lessee shall retain for at least four years after the expiration of each Fiscal Year (and in any event until the reconciliation described in Section 3.2 for such Fiscal Year has been made), reasonably adequate records conforming to such accounting system showing all data necessary to compute Percentage Rent for the applicable Fiscal Years. In the event of a conflict between generally accepted accounting principles and the Uniform System, the Uniform System shall prevail. Lessor (or its accountants or representatives), at its expense (except as provided herein), shall have the right from time to time to audit the information that formed the basis for the data set forth in any Officer's Certificate provided under Section 3.2 and, in connection with such audits, to examine all Lessee's records (including supporting data and sales and excise tax returns) reasonably required to verify Percentage Rent, subject to any prohibitions or limitations on disclosure of any such data under Legal Requirements. If any such audit discloses a deficiency in the payment of Percentage Rent, and either Lessee agrees with the result of such audit or the matter is -25- 31 otherwise determined or compromised, Lessee shall forthwith pay to Lessor the amount of the deficiency, as finally agreed or determined, together with interest calculated at the Overdue Rate from the due date for the last quarterly payment of Percentage Rent for the Fiscal Year to the date of payment thereof; provided, however, that as to any audit that is commenced more than two years after the date Percentage Rent for any Fiscal Year is reported by Lessee to Lessor, the deficiency, if any, with respect to such Percentage Rent, shall bear interest at the Overdue Rate only from the date such determination of deficiency is made unless such deficiency is the result of gross negligence or willful misconduct on the part of Lessee. If any such audit discloses that the Percentage Rent actually due from Lessee for any Fiscal Year exceeds those reported by Lessee by more than two percent, Lessee shall pay the cost of such audit and examination. Any proprietary information obtained by Lessor pursuant to the provisions of this Section shall be treated as confidential, except that such information may be used, subject to appropriate confidentiality safeguards, in any litigation between the parties, and except further that Lessor may disclose such information to prospective lenders or purchasers, their respective attorneys, accountants and other representatives, or pursuant to any Legal Requirements. The obligations of Lessee contained in this Section shall survive the expiration or earlier termination of this Lease. 3.4 Additional Charges. In addition to the Base Rent and Percentage Rent, (a) Lessee also will pay and discharge as and when due and payable all other amounts, liabilities, obligations, costs and expenses which are provided to be paid by Lessee under this Lease or which are necessary to perform its obligations hereunder and any Management Agreement with respect to the Leased Property, and (b) in the event of any failure on the part of Lessee to timely pay any of those items referred to in clause (a) of this Section 3.4, Lessee also will promptly pay and discharge every fine, penalty, interest and cost that may be added for non-payment or late payment of such items (the items referred to in clauses (a) and (b) of this Section 3.4 being additional rent hereunder and being referred to herein collectively as the "Additional Charges"), and Lessor shall have all legal, equitable and contractual rights, powers and remedies provided either in this Lease or by statute or otherwise in the case of non-payment of the Additional Charges as in the case of non-payment of the Base Rent. If any installment of Base Rent, Percentage Rent or Additional Charges (but only as to those Additional Charges that are payable directly to Lessor) shall not be paid on its due date, Lessee will pay Lessor on demand, as Additional Charges, a late charge (to the extent permitted by law) computed at the Overdue Rate on the amount of such -26- 32 installment, from the due date of such installment to the date of payment thereof. To the extent that Lessee pays any Additional Charges to Lessor pursuant to any requirement of this Lease (which charges are not payable to Lessor), Lessee shall be relieved of its obligation to pay such Additional Charges to the entity to which they would otherwise be due and Lessor shall pay same from monies received from Lessee. 3.5 Annual Revenue Projections. No later than 45 days prior to the commencement of each Fiscal Year, Lessee shall submit Annual Revenue Projections for such Fiscal Year to Lessor. The Annual Revenue Projections shall be subject to Lessor's prior approval as to form and content and shall be in such form and shall contain such information as Lessee included in its annual revenue projections in accordance with its past practice, and shall, in any event, include the following: (a) Lessee's reasonable estimate of Room and Other Revenues and Food and Beverage Revenues for the Fiscal Year itemized on a monthly basis, as such estimates may be revised or replaced from time to time by Lessee; and (b) A projection of the Percentage Rent payable for such Fiscal Year. 3.6 Annual Capital Expenditures Budget. Subject to the provisions of Sections 8.1, 9.1 and 18.1(a), Lessor, at its sole expense, shall be responsible for all Capital Expenditures as defined in this Section 3.6 and in accordance with Exhibit F attached hereto and incorporated herein by reference. Not later than 45 days prior to the commencement of each Fiscal Year or Partial Fiscal Year, Lessee shall submit to Lessor, Lessee's proposed Annual Capital Expenditures Budget. The Annual Capital Expenditures Budget (the "Capital Expenditures Budget") shall contain the following: (a) Lessee's estimate of the amounts to be expended during the upcoming Fiscal Year to renew, replace or refurbish FF&E in each Hotel, and a reasonably detailed description of the expenses to be incurred, and Lessee's estimate of the amount that will be expended during the upcoming Fiscal Year on capital repairs, replacements and improvements to the Leased Improvements, together with a reasonably detailed description of the capital repairs, replacements and improvements that will be undertaken. The expenditures referred to in this Section 3.6 are referred to in this Lease as "Capital Expenditures." -27- 33 (b) A capital renewal program showing the major anticipated Capital Expenditures that will be incurred over the ensuing three year and five year periods. If Lessor shall not give its approval to the Annual Capital Expenditures Budget, Lessee shall revise the Annual Capital Expenditures Budget, as may be required to obtain Lessor's consent thereto. If such Capital Expenditure Budget provides for the expenditure of funds in addition to (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 (as herein defined), such Capital Expenditure Budget, in total, shall be subject to Lessor's approval or disapproval within thirty (30) days after delivery of the Capital Expenditure Budget to Lessor. The sum of the amounts in clauses (i), (ii) and (iii) above is referred to herein as the "Discretionary Capex Fund." 3.7 Capital Expenditure Reserves. (a) Lessor shall reserve, from Rent hereunder, funds in an amount 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 3.7 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 owned by Lessor 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 Lessor. Lessee may waive the actual depositing of amounts to be added to the FFE Reserve on an annual basis. Notwithstanding any such waiver, Lessee shall be entitled to budget and expend, and Lessor shall be liable for the payment of, such amounts as if they had been deposited. (b) In addition to the FFE Reserve, from and after June 30, 1998, Lessor shall reserve from rent paid hereunder (but need not, in either case, deposit) funds in an amount equal to one percent (1%) of Gross Revenues for FFE Reserves (the "Additional FFE Reserve") toward the cost of Capital Expenditures. All funds in the Additional FFE Reserve shall be owned by Lessor. Amounts in the Additional FFE Reserve up to the Capex Threshold Amount shall be disbursed only to fund Capital Expenditures that have been approved by Lessor in its sole discretion. Funds in the Additional FFE Reserve in excess of the Capex Threshold Amount ("Excess Capex -28- 34 Funds") shall be deposited in and be subject to the same conditions as applicable to the FFE Reserve. If, by reason of the adjustment in the Capex Threshold Amount on any Adjustment Date, the amount of the Excess Capex Funds which are then held in the FFE Reserve are in excess of the amount that would thereafter be required, such surplus shall be disbursed to Lessor to be held by Lessor as a part of the Additional FFE Reserve. (c) If Lessor disapproves of the Capital Expenditure Budget (pursuant to the provisions of Section 3.6), Lessee shall nonetheless have, and is hereby granted, the right and authority to make any expenditures set forth on the disapproved Capital Expenditure Budget and have Lessor pay the cost thereof from the Discretionary Capex Fund. (d) In addition to, and without limiting, the provisions of subsections 3.7(a)-(c), Lessor agrees to spend $10,000,000 prior to June 30, 2000, on Capital Expenditures. Lessor will consult with Lessee, but decisions regarding the nature and timing of such Capital Expenditures and the Hotels involved, whether or not the projects are contemplated by the Capital Expenditure Budget, shall be entirely within the discretion of Lessor. Any portion of said $10,000,000 Capital Expenditure payment which is not spent as of June 30, 2000, shall be deposited in the Discretionary Capex Fund. (e) 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 Lessor. Any amounts paid for on account of the Balance of Shared Priority Capital Cost from the Additional FFE Reserve, Lessor shall be reimbursed dollar-for-dollar from future amounts to be added to -29- 35 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 Lessor. (f) Except as set forth in (a)-(d) above, and in connection with Priority Capital Expenditures, under no circumstances will (i) Lessor be required to make expenditures to maintain, repair or improve any Hotel, or (ii) Lessee be authorized to make any expenditures on behalf of Lessor to maintain, repair or improve any Hotel. Notwithstanding anything in this Lease to the contrary, if Lessor is obligated under this Lease to expend any sums to comply with Applicable Laws (including without limitation, Environmental Laws), Lessor shall have the right, at its expense, to contest such obligation with the appropriate governmental authority or other affected entity or person, but only provided that 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 Lessor, Lessee or Manager (if any). 3.8 Application of Capital Expenditure Funds. Lessee shall be responsible for the implementation of the Capital Expenditure program. The cost of any Capital Expenditure made pursuant to this Lease shall be promptly paid by Lessor within ten days of receipt of a requisition (including appropriate documentation establishing the amounts to be paid in accordance with the Capital Expenditure Budget or such supporting documentation as Lessor may reasonably require) from Lessee from the Discretionary Capex Fund or with Lessor supplied funds, if applicable. Lessor and Lessee shall cooperate in good faith to accomplish such implementation as quickly as practicable in accordance with sound business practices. Except as set forth in Sections 3.6, 3.7 and 3.8 and in connection with Priority Capital Expenditures, under no circumstances will (i) Lessor be required to make expenditures to maintain, repair or improve any Hotel, or (ii) Lessee be authorized to make any expenditures on behalf of Lessor to maintain, repair or improve any Hotel. -30- 36 3.9 Agent Method for Purchases of Capital Expenditures. (a) Lessor hereby retains Lessee as an independent contractor on the terms contained in this Lease to act for and on behalf of Lessor as Lessor's agent in connection with the implementation of the Capital Expenditure program for each Facility. Notwithstanding anything in this Lease to the contrary, Lessee may hire an agent (including its Manager (if any)) to perform its duties in connection with the implementation of the Capital Expenditure program for each Facility. Lessee's cost analysis shall be based upon the plans and furnishings set forth in the specifications and other written information agreed to be implemented under the Capital Expenditure Budget. Lessee will be responsible for negotiating purchases of Capital Expenditures on Lessor's behalf. All purchases will be based on Lessee's actual cost, net of trade discounts (including cash discounts, where applicable). (b) Lessor acknowledges and agrees that purchase orders relating to any Capital Expenditure for each Facility will be executed by Lessee as agent for and on behalf of Lessor. Lessor further acknowledges and agrees that Lessee shall have no liability under this Lease or otherwise for payment of the Capital Expenditure or for freight or storage related to the Capital Expenditure provided that no expenditures shall be made except in accordance with the Budget and as provided above. All down payments as well as payment of all vendor invoices are the responsibility and obligation of Lessor. Lessor acknowledges that a delay on the part of Lessor relating to any required deposits or payments can result in delivery delays of the Capital Expenditure. The timing of the making of all purchase orders and delivery schedules will be established by mutual agreement of Lessor and Lessee. (c) Lessee shall not be obligated under any circumstances to (but in its discretion may) use its own funds for the purpose of making down payments (either at the time purchase orders are processed or otherwise) or making progress or final payments to Capital Expenditure vendors. Taxes, warehouse, delivery, redelivery, restocking, installation and similar charge, including but not limited to delivery and storage costs, shall be obligations of Lessor and Lessor agrees to perform such obligations in a timely manner. All vendor invoices shall be addressed to and issued directly to Lessor. -31- 37 (d) Lessor shall designate a representative authorized to act on its behalf with respect to the Leased Property. (e) Lessor agrees to reimburse Lessee for all out-of-pocket expenses (including long distance and messenger fees) incurred by Lessee on behalf of or in connection with the Capital Expenditures for each Facility. All such reimbursements shall be paid monthly as incurred upon receipt of bills or other evidence reasonably satisfactory to Lessor. (f) Lessor shall furnish to Lessee from time to time all information, take such actions and process such draws as may be reasonably requested by Lessee or otherwise required under this Lease in a timely manner as reasonably necessary for the orderly progress of work under this Lease. Lessee shall have no responsibility or be liable in any manner whatsoever for any delay caused by information to be supplied or actions to be taken by Lessor, its agents or other independent contractors working on or at any Facility or caused by Lessor's failure to timely pay vendors. (g) If Lessor desires to change, modify or alter the quantity or specifications of any Capital Expenditure purchased by Lessee in writing, Lessee will endeavor to satisfy any such request. Lessor acknowledges and understands that Lessee's ability to comply with requested changes, modifications or alterations is subject to acceptance and performance on the part of the vendors and supplier with whom Lessee has entered into agreements for and on behalf of Lessor. Lessee assumes no liability or responsibility for its inability to comply with Lessor's request for changes, modifications or alterations under this paragraph. (h) Lessor shall be responsible for and shall pay all applicable sales and use taxes arising as a result of the purchase or use of the Capital Expenditure or Lessor shall deliver appropriate exemption certificates. ARTICLE IV 4.1 Payment of Taxes and Impositions. Lessor shall pay the taxes referenced in clause (i) of the definition of "Lessor Tax, Insurance and Cap Ex Obligations." Subject to Article XII relating to permitted contests, Lessee will pay, or cause to be paid, all Impositions before any fine, penalty, interest or cost may be added for non-payment, such payments to be made directly to the taxing or other authorities where -32- 38 feasible, and will promptly furnish to Lessor copies of official receipts or other satisfactory proof evidencing such payments. Lessor and Lessee shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Leased Property as may be necessary to prepare any required returns and reports. Lessee shall file all personal property tax returns in such jurisdictions where it is legally required to so file. Lessor, to the extent it possesses the same, and Lessee, to the extent it possesses the same, will provide the other party, upon request, with cost and depreciation records necessary for filing returns for any property so classified as personal property. Where Lessor is legally required to file personal property tax returns, Lessor shall provide Lessee with copies of assessment notices in sufficient time for Lessee to file a protest. Lessee may, upon notice to Lessor, at Lessee's option and at Lessee's sole expense, protest, appeal, or institute such other proceedings (in its or Lessor's name) as Lessee may deem appropriate to effect a reduction of real estate or personal property assessments for those Impositions to be paid by Lessee, and Lessor, at Lessee's expense as aforesaid, shall fully cooperate with Lessee in such protest, appeal, or other action. Lessee hereby agrees to indemnify, defend, and hold harmless Lessor from and against any claims, obligations, and liabilities against or incurred by Lessor in connection with such cooperation, although Lessee is not liable for the amount of any (i) Real Estate Taxes or (ii) personal property taxes attributable to personal property owned by Lessor. Lessor, however, reserves the right to effect any such protest, appeal or other action and, upon notice to Lessee, shall control any such activity, which shall then go forward at Lessor's sole expense. Upon such notice, Lessee, at Lessor's expense, shall cooperate fully with such activities. 4.2 Utility Charges. Lessee will be solely responsible for obtaining utility services to the Leased Property and will pay, or cause to be paid, all charges for electricity, gas, oil, water, sewer and other utilities attributable to, or used on, under or in the Leased Property during the Term as such charges become due. 4.3 Insurance Premiums. Lessee will pay or cause to be paid all premiums for the insurance coverages required to be maintained by it under Article XIII. Lessor shall pay or cause to be paid all premiums for the insurance coverages required to be maintained by it under Article VIII. -33- 39 ARTICLE V No Termination, Abatement, Etc. Except as otherwise specifically provided in this Lease, Lessee, to the extent permitted by law, shall remain bound by this Lease in accordance with its terms and shall neither take any action without the written consent of Lessor to modify, surrender or terminate the same, nor seek nor be entitled to any abatement, deduction, deferment or reduction of the Rent, or setoff against the Rent, nor shall the obligations of Lessee be otherwise affected by reason of (a) any damage to, or destruction of, any Leased Property or any portion thereof from whatever cause or any Taking of the Leased Property or any portion thereof, (b) any claim which Lessee has or might have against Lessor by reason of any default or breach of any warranty by Lessor under this Lease or any other agreement between Lessor and Lessee, or to which Lessor and Lessee are parties, (c) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Lessor or any assignee or transferee of Lessor, (d) any lawful or unlawful prohibition of, or restriction upon, Lessee's use of Leased Property or any portion thereof, or interference with such use, or (e) for any other cause whether similar or dissimilar to any of the foregoing including, without limitation, those referred to in Article XXXVII. Lessee hereby specifically waives all rights, arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law to (1) modify, surrender or terminate this Lease or quit or surrender the Leased Property or any portion thereof, or (2) abate, reduce, suspend or defer Rent or other sums payable by Lessee hereunder, except as otherwise specifically provided in this Lease. The obligations of Lessee hereunder shall be separate and independent covenants and agreements and the Rent and all other sums payable by Lessee hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Lease or by termination of this Lease other than by reason of an Event of Default. ARTICLE VI 6.1 Ownership of the Leased Property. Lessee acknowledges that the Leased Property is the property of Lessor or the Ground Lessors under the Ground Leases and that Lessee has only the right to the possession and use of the Leased Property upon the terms and conditions of this Lease. 6.2 Lessee's Personal Property. Throughout the Term, Lessee will acquire, own, maintain and replace such personal -34- 40 property (other than Capital Expenditures) and Inventory as is required to operate the Leased Property as hotels and, otherwise, in the manner contemplated by this Lease. At all times during the Term, Lessee shall maintain an adequate and customary supply of Inventory. Lessee may (and shall as provided herein below), at its expense, install, affix or assemble or place on any parcels of the Land or in any of the Leased Improvements, any items of personal property (including Inventory) owned by Lessee (collectively, the "Lessee's Personal Property"). Lessee, at the commencement of the Term, and from time to time thereafter, shall provide Lessor with an accurate list of all such items of the Lessee's Personal Property. Lessee may, subject to the conditions set forth in this Section 6.2 and Section 6.3, remove any of Lessee's Personal Property set forth on such list at any time during the Term or upon the expiration or any prior termination of the Term. All of Lessee's Personal Property not removed by Lessee within ten days following the expiration or earlier termination of the Term shall be considered abandoned by Lessee and may be appropriated, sold, destroyed or otherwise disposed of by Lessor without first giving Notice thereof to Lessee, without any payment to Lessee and without any obligation to account therefor. Lessee will, at its expense, restore the Leased Property to the condition required by Section 9.1(b), including repair of all damage to the Leased Property caused by the removal of Lessee's Personal Property, whether effected by Lessee or Lessor. Lessee may make such financing arrangements, title retention agreements, leases or other agreements with respect to the Lessee's Personal Property as it sees fit provided that Lessee first advises Lessor of any such arrangement and such arrangement expressly provides that in the event of Lessee's default thereunder, Lessor may assume Lessee's obligations and rights under such arrangement. 6.3 Lessor's Lien. To the fullest extent permitted by applicable law, Lessor is granted a lien and security interest on all of Lessee's Personal Property now or hereinafter placed in or upon the Leased Property, and such lien and security interest shall remain attached to Lessee's Personal Property until payment in full of all Rent and satisfaction of all of Lessee's obligations hereunder; provided, however, Lessor shall subordinate its lien and security interest to any purchase money security interest of any non-Affiliate of Lessee which finances such Lessee's Personal Property, the terms and conditions of such subordination to be satisfactory to Lessor in the exercise of reasonable discretion. Lessee shall, upon the request of Lessor, execute such financing statements, estoppel certificates and other documents or instruments reasonably requested by Lessor to perfect the lien and security interests herein granted. -35- 41 ARTICLE VII 7.1 Condition of the Leased Property. Lessee acknowledges receipt and delivery of possession of the Leased Property. Lessee has examined and otherwise has knowledge of the condition of the Leased Property and has found the same to be satisfactory for its purposes hereunder. Lessee is leasing the Leased Property "as is," "where is" and with "all faults," in its present condition. Lessee waives any claim or action against Lessor in respect of the condition of the Leased Property. THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF PARTIES IN POSSESSION AND THE RIGHTS OF THE GROUND LESSORS UNDER THE GROUND LEASES, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL CURRENT AND FUTURE COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS, GROUND LEASES AND OTHER MATTERS (NOT LIMITED TO ITEMS OF RECORD) INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS, THE LIEN OF FINANCING INSTRUMENTS, MORTGAGES, DEEDS OF TRUST AND SECURITY DEEDS, AND INCLUDING OTHER MATTERS WHICH WOULD BE DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY THEREOF. LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, OR AS TO THE TITLE THERETO IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT. Notwithstanding the foregoing but subject to Section 5.18 of the Merger Agreement, however, to the extent permitted by law, Lessor hereby assigns to Lessee all of Lessor's rights to proceed against any predecessor in title other than Lessee (or an Affiliate of Lessee which conveyed the Leased Property to Lessor) for breaches of warranties or representations or for latent defects in the Leased Property. Lessor shall fully cooperate with Lessee in the prosecution of any such claim, in Lessor's or Lessee's name, all at Lessee's sole cost and expense. Lessee hereby agrees to indemnify, defend and hold harmless Lessor from and against any claims, obligations and liabilities against or incurred by Lessor in connection with such cooperation. All amounts recovered that are attributable to the period after the Term shall belong to Lessor. 7.2 Use of the Leased Property. (a) Lessee covenants that it will proceed with all due diligence and will exercise its best efforts to obtain and to maintain all license, permits and approvals needed to use -36- 42 and operate the Leased Property and each Facility under applicable local, state and federal law. (b) Lessee shall use or cause to be used the Leased Property only as hotel facilities (including food and beverage operations) consistent with its present use, and for such other uses as may be necessary or incidental to such use or such other use as otherwise approved by Lessor (the "Primary Intended Use"). Lessee shall not use the Leased Property or any portion thereof for any other use without the prior written consent of Lessor, which consent may be granted, denied or conditioned in Lessor's sole discretion. No use shall be made or permitted to be made of the Leased Property, and no acts shall be done, which will cause the cancellation or increase the premium of any insurance policy covering the Leased Property or any part thereof (unless another adequate policy satisfactory to Lessor is available and Lessee pays any premium increase), nor shall Lessee sell or permit to be kept, used or sold in or about the Leased Property any article which may be prohibited by law or fire underwriter's regulations. Lessee shall, at its sole cost, comply with all of the requirements pertaining to the Leased Property of any insurance board, association, organization or company necessary for the maintenance of insurance, as herein provided, covering the Leased Property or any part thereof and Lessee's Personal Property. (c) Subject to the provisions of Articles XIV and XV Lessee covenants and agrees that during the Term it will (1) maintain and operate continuously each Facility as a hotel, (2) keep in full force and effect and comply with all the provisions of any Management Agreement, (3) not terminate or amend any Management Agreement without the consent of Lessor, (4) maintain appropriate certifications and licenses for such use and otherwise comply with all Legal Requirements and (5) seek to maximize the gross revenues generated therefrom consistent with sound business practices. (d) Lessee shall not commit or suffer to be committed any waste on the Leased Property, or any Facility, nor shall Lessee cause or permit any nuisance thereon. (e) Lessee shall neither suffer nor permit the Leased Property or any portion thereof, or Lessee's Personal Property, to be used in such a manner as (1) might reasonably tend to impair Lessor's (or Lessee's, as the case may be) title thereto or to any portion thereof, or (2) may reasonably make possible a claim or claims of adverse usage or adverse possession by the public, as such, or of implied dedication of the Leased Property or any portion thereof, subject to Lessor's prior consent. -37- 43 (f) Lessee shall not use, generate, handle, dispose or store Hazardous Materials on the Leased Property, except in the normal course of operations of the Leased Property as hotel facilities and in compliance with all Environmental Laws. (g) Lessee shall not enter into any collective bargaining agreements with respect to any of the employees at the Leased Property without the prior consent of Lessor, which shall not be unreasonably withheld or delayed, unless required by law. (h) Lessee hereby assumes and agrees to perform all of the obligations of Lessor under all leases in effect at the Leased Property as of the date of commencement of the Term. (i) Lessee represents that, as of the date hereof, its sole business activity consists of, and Lessee covenants that, during the Term hereof, its sole business activity shall consist of the lease and operation of the Leased Property. 7.3 Lessor to Grant Easements, Etc. Lessor will, from time to time, so long as no Event of Default has occurred and is continuing, at the request of Lessee and at Lessee's cost and expense (but subject to the approval of Lessor, which approval shall not be unreasonably withheld or delayed), (a) grant easements and other rights in the nature of easements with respect to the Leased Property or any part thereof to third parties, (b) release existing easements or other rights in the nature of easements which are for the benefit of the Leased Property or any part thereof, (c) dedicate or transfer unimproved portions of the Leased Property or any part thereof for road, highway or other public purposes, (d) execute petitions to have the Leased Property or any part thereof annexed to any municipal corporation or utility district, (e) execute amendments or additions to any covenants and restrictions affecting the Leased Property or any part thereof and (f) execute and deliver to any Person any instrument appropriate to confirm or effect such grants, releases, dedications, transfers, petitions and amendments (to the extent of its interests in the Leased Property), but only upon delivery to Lessor of an Officer's Certificate stating that such grant, release, dedication, transfer, petition or amendment is beneficial to the proper conduct of the business of Lessee on the Leased Property and does not materially reduce the value of the Leased Property. -38- 44 ARTICLE VIII 8.1 Compliance with Legal, Insurance Requirements, Lessor's Insurance and Tax Obligations, Lessee's Net Worth Obligation. Subject to Article XII relating to permitted contests, Lessee, at its expense, will promptly (a) comply and cause the Leased Property to comply with all applicable Legal Requirements and Insurance Requirements in respect of the use, operation, maintenance, repair and restoration of the Leased Property; provided, however, that Lessor shall be responsible for the cost of compliance with Insurance Requirements presented to Lessor in writing, to the extent set forth in Article XIII, and shall be responsible for all Capital Expenditures to the extent provided in Sections 3.6 and 3.7, unless the need for such Capital Expenditure is the result of Lessee's negligence, misconduct or an Alteration (as defined in Section 10.1) made by or commenced by Lessee other than Alterations contained in the Capital Expenditure Budget, and (b) procure, maintain and comply with all appropriate licenses and other authorizations required for any use of the Leased Property and Lessee's Personal Property then being made, and for the proper erection, installation, operation and maintenance of the Leased Property or any part thereof. 8.2 Legal Requirements Covenants. Lessee covenants and agrees that the Leased Property and Lessee's Personal Property shall not be used for any unlawful purpose, and that Lessee shall not permit or suffer to exist any unlawful use of the Leased Property by others. Lessee shall acquire and maintain all appropriate licenses, certifications, permits and other authorizations and approvals needed to operate the Leased Property in its customary manner for the Primary Intended Use, and any other lawful use conducted on the Leased Property as may be permitted from time to time hereunder. Lessee further covenants and agrees that Lessee's use of the Leased Property and maintenance, alteration, and operation of the same, and all parts thereof, shall at all times conform to all Legal Requirements, unless the same are finally determined by a court of competent jurisdiction to be unlawful (and Lessee shall cause all sub-tenants, invitees or others to so comply with all Legal Requirements). Lessee may, however, upon prior Notice to Lessor, and subject to the provisions of Article XII, contest the legality or applicability of any such Legal Requirement or any licensure or certification decision if Lessee maintains such action in good faith, with due diligence, without prejudice to Lessor's rights hereunder, and at Lessee's sole expense. If by the terms of any such Legal Requirement compliance therewith pending the prosecution of any such proceeding may legally be delayed without the incurrence of any lien, charge or liability of any kind against any Facility or Lessee's leasehold interest therein, -39- 45 without adversely affecting the continued operation of the Facility and without subjecting Lessee or Lessor to any liability, civil or criminal, for failure so to comply therewith, Lessee may delay compliance therewith until the final determination of such proceeding. If any lien, charge or civil or criminal liability would be incurred by reason of any such delay, Lessee, with the prior written consent of Lessor, which consent shall not be unreasonably withheld, may nonetheless contest as aforesaid and delay as aforesaid provided that such delay would not subject Lessor to criminal liability and Lessee both (a) furnishes to Lessor security reasonably satisfactory to Lessor against any loss or injury to Lessor by reason of such contest or delay and (b) prosecutes the contest with due diligence and in good faith. 8.3 Environmental Covenants. In addition to, and not in diminution of, Lessee's covenants and undertakings in Sections 8.1 and 8.2 hereof, Lessee covenants and undertakes with Lessor as follows: (a) At all times hereafter until such time as all liabilities, duties or obligations of Lessee to Lessor under the Lease have been satisfied in full, Lessee shall fully comply with all Environmental Laws applicable to the Leased Property and the operations thereon, subject to Lessor's obligation under Section 3.6 and 3.7 to pay for Capital Expenditures (unless the need for such Capital Expenditure is a result of Lessee's negligence, misconduct or an Alteration (as defined in Section 10.1) made by or commenced by Lessee other than Alterations contained in the Capital Expenditure Budget). Lessee agrees to give Lessor prompt written notice of (1) all Environmental Liabilities; (2) all pending, threatened or anticipated Proceedings, and all notices, demands, requests or investigations, relating to any Environmental Liability or relating to the issuance, revocation or change in any Environmental Authorization required for operation of the Leased Property; (3) all Releases at, on, in, under or in any way affecting the Leased Property, or any Release known by Lessee at, on, in or under any property adjacent to or near the Leased Property; and (4) all facts, events or conditions that could reasonably lead to the occurrence of any of the above-referenced matters. (b) Lessor hereby agrees to defend, indemnify and save harmless any and all Lessee Indemnified Parties from and against any and all Environmental Liabilities, in all cases, which were caused by the acts or negligent failures to act of Lessor. (c) Lessee hereby agrees to defend, indemnify and save harmless any and all Lessor Indemnified Parties from and -40- 46 against any and all Environmental Liabilities caused by the acts or negligent failures to act of Lessee. Lessee's responsibility to indemnify Lessor shall survive the termination of this Lease. (d) If any Proceeding is brought against any Indemnified Party in respect of an Environmental Liability with respect to which such Indemnified Party may claim indemnification under either Section 8.3(b) or (c) (an "Indemnified Environmental Liability"), the Indemnifying Party shall at its sole expense resist and defend such Proceeding, or cause the same to be resisted and defended by counsel designated by the Indemnifying Party and approved by the Indemnified Party, which approval shall not be unreasonably withheld; provided, however, that such approval shall not be required in the case of defense by counsel designated by any insurance company undertaking such defense pursuant to any applicable policy of insurance. Each Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel will be at the sole expense of such Indemnified Party unless such counsel has been approved by the Indemnifying Party, which approval shall not be unreasonably withheld. The Indemnifying Party shall not be liable for any settlement of any such Proceeding made without its consent, which shall not be unreasonably withheld, but if settled with the consent of the Indemnifying Party, or if settled without its consent (if its consent shall be unreasonably withheld), or if there be a final, nonappealable judgment for an adversarial party in any such Proceeding, the Indemnifying Party shall indemnify and hold harmless the Indemnified Parties from and against any liabilities incurred by such Indemnified Parties by reason of such settlement or judgment. For purposes of this Section 8.3, all amounts for which any Indemnitee seeks indemnification shall be computed net of (a) any actual income tax benefit resulting therefrom to such Indemnitee, (b) any insurance proceeds received (net of tax effects) with respect thereto, and (c) any amounts recovered (net of tax effects) from any third parties based on claims the Indemnitee has against such third parties which reduce the damages that would otherwise be sustained; provided that in all cases, the timing of the receipt or realization of insurance proceeds or income tax benefits or recoveries from third parties shall be taken into account in determining the amount of reduction of damages. Each Indemnitee agrees to use its reasonable efforts to pursue, or assign to the Indemnifying Party, any claims or rights it may have against any third party which would materially reduce the amount of damages otherwise incurred by such Indemnitee. -41- 47 Notwithstanding anything to the contrary contained in this Lease, if Lessor shall become entitled to the possession of the Leased Property by virtue of the termination of this Lease or repossession of the Leased Property, then Lessor may assign its indemnification rights under this Section 8.3 to any Person to whom Lessor subsequently transfers the Leased Property, subject to the following conditions and limitations, each of which shall be deemed to be incorporated into the terms of such assignment, whether or not specifically referred to therein; (1) The indemnification rights referred to in this section may be assigned only if a known Environmental Liability then exists or if a Proceeding is then pending or, to the knowledge of Lessee or Lessor, then threatened with respect to the Leased Property; (2) Such indemnification rights shall be limited to Indemnified Environmental Liabilities relating to or specifically affecting the Leased Property; and (3) Any assignment of such indemnification rights shall be limited to the immediate transferee of Lessor, and shall not extend to any such transferee's successors or assigns. (e) At any time any Indemnitee has reason to believe circumstances exist which could reasonably result in an Indemnified Environmental Liability, upon reasonable prior written notice to Lessee stating such Indemnitee's basis for such belief, an Indemnitee shall be given immediate access to the applicable portion of the Leased Property (including, but not limited to, the right to enter upon, investigate, drill wells, take soil borings, excavate, monitor, test, cap and use available land for the testing of remedial technologies), Lessee's employees, and to all relevant documents and records regarding the matter as to which a responsibility, liability or obligation is asserted or which is the subject of any Proceeding; provided that such access may be conditioned or restricted as may be reasonably necessary to ensure compliance with Legal Requirements and the safety of personnel and facilities or to protect confidential or privileged information. All Indemnitees requesting such immediate access and cooperation shall endeavor to coordinate such efforts so as to minimize interruption of the operation of the Leased Property as practicable. 8.4 Net Worth Representations/Covenants. Lessee represents and warrants that as of the date hereof, it has a -42- 48 Consolidated Net Worth of at least One Million Dollars ($1,000,000) and that such Consolidated Net Worth includes sufficient working capital for the efficient operation of the Leased Property. The parties agree that such Consolidated Net Worth may include that certain One Million Dollar ($1,000,000) Promissory Note, dated as of December 31, 1997, from Boykin Management Company Limited Liability Company to Lessee. Lessee shall retain no less than fifty percent (50%) of Lessee's cumulative After Tax Earnings until Lessee's Consolidated Net Worth is at least equal to Four Million Dollars ($4,000,000). Lessee, either itself or together with its subsidiaries, shall thereafter retain at least such portion of Lessee's After Tax Earnings as is necessary to cause its Consolidated Net Worth to remain at least equal to Four Million Dollars ($4,000,000). Lessee represents and warrants that its sole business purpose shall be to operate as the lessee of the Leased Property. "After Tax Earnings," for any period, means the consolidated net income of Lessee and its subsidiaries (determined in accordance with Generally Accepted Accounting Principles ("GAAP") for that period, less the Tax Distribution Amount for that period. The "Tax Distribution Amount," for any period, means the combined incremental federal, state and local business, income tax liabilities of Lessee's direct or indirect owners subject to tax (without duplication of amounts) for that period, as reasonably computed by Lessee by using the statutory rates applicable to and computed solely upon the taxable income, gain, loss, deductions and credits of such direct or indirect owners for that period, but no liability so computed may be less than zero. ARTICLE IX 9.1 Maintenance and Repair. (a) Subject to Lessor's obligation to make Capital Expenditures under Sections 3.6 and 3.7 and performance of Lessor's obligations under Subsection 9.1(c), Lessee, at its sole expense, shall keep the Leased Property in good order and repair (whether or not the need for such repairs occurred as a result of Lessee's use, any prior use, the elements or the age of the Leased Property, or any portion thereof). Except as otherwise provided in Section 9.1(b), Article XIV or Article XV, and subject to Lessor's obligation under Sections 3.6 and 3.7 to make Capital Expenditures, Lessee shall, with reasonable promptness, make all necessary and appropriate repairs, replacements, and improvements to the Leased Property of every kind and nature, whether interior or -43- 49 exterior, ordinary or extraordinary, foreseen or unforeseen, or arising by reason of a condition existing prior to the commencement of the Term of this Lease (concealed or otherwise), or required by any governmental agency having jurisdiction over the Leased Property. Lessee, however, shall be permitted upon prior written notice to Lessor to prosecute claims against Lessor's predecessors in title for breach of any representation or warranty or for any latent defects in the Leased Property to be maintained by Lessee unless Lessor is already diligently pursuing or elects to diligently pursue such a claim. All repairs shall, to the extent reasonably achievable, be at least equivalent in quality to the original work. Lessee will not take or omit to take any action, the taking or omission of which might materially impair the value or the usefulness of the Leased Property or any part thereof for its Primary Intended Use. (b) Lessee shall, upon the expiration or prior termination of the Term, vacate and surrender the Leased Property to Lessor in the condition in which the Leased Property was originally received from Lessor, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of the Lease and except for ordinary wear and tear (subject to the obligation of Lessee to maintain the Leased Property in good order and repair, as provided in Subsection 9.1(a), damage by casualty or Condemnation, and Lessor's obligations under Sections 3.6 and 3.7 with respect to Capital Expenditures. (c) Lessor shall be responsible for and pay for items of a capital nature as defined in Exhibit F and to make Capital Expenditures, all as and to the extent required by and provided in Section 3.6 and 3.7 9.2 Encroachments, Restrictions, Etc. If, as a result of any act or omission by Lessee, any of the Leased Improvements, at any time, materially encroach upon any property, street or right-of-way adjacent to the Leased Property, or violate the agreements or conditions contained in any lawful restrictive covenant or other agreement affecting the Leased Property, or any part thereof, or impair the rights of others under any easement or right-of-way to which the Leased Property is subject (each of the foregoing conditions being referred to herein as an "Encroachment"), then promptly upon the request of Lessor or at the behest of any person affected by any such encroachment, violation or impairment, Lessee shall, at its expense, subject to its right to contest the existence of any encroachment, violation or impairment and in such case, in the event of an adverse final determination, either (a) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting from each -44- 50 such encroachment, violation or impairment, whether the same shall affect Lessor or Lessee or (b) subject to prior written consent of Lessor, make such changes in the Leased Improvements, and take such other actions, as Lessee in the good faith exercise of its judgment deems reasonably practicable to remove such encroachment, and to end such violation or impairment, including, if necessary, the alteration of any of the Leased Improvements, and in any event take all such actions as may be necessary in order to be able to continue the operation of the Leased Improvements for the Primary Intended Use substantially in the manner and to the extent that the Leased Improvements were operated prior to the assertion of such violation, impairment or encroachment. If any such alteration is required for any reason other than Lessee's willful misconduct or gross negligence, the cost of such alterations shall be treated as Capital Expenditures and be performed pursuant to Sections 3.6 and 3.7. Any such alteration shall be made in conformity with the applicable requirements of Article X. Nothing contained herein shall be construed as imposing on Lessee any liability for, or responsibility for remedying the effects of, any Encroachment occurring other than as a result of any willful misconduct or gross negligence of Lessee. Lessee's obligations under this Section 9.2 shall be in addition to and shall in no way discharge or diminish any obligation of any insurer under any policy of title or other insurance held by Lessor. ARTICLE X 10.1 Alterations. Lessee shall have the right, but not the obligation, with the prior approval of Lessor (which approval may not be unreasonably withheld) to make additions, modifications or improvements to the Leased Property in connection with the Primary Intended Use (collectively, "Alterations"), provided that such action shall not significantly alter the character or purposes or significantly detract from the value or operating efficiency thereof and shall not impair the revenue-producing capability of the Leased Property or adversely affect the ability of Lessee to comply with the provisions of this Lease; provided, further, that Lessee may, without prior approval of Lessor, make additions, modifications or improvements to the Leased Property in accordance with Sections 3.7, 3.8 and 3.9 or consistent with its maintenance and repair obligations set forth in Section 9.1. As a condition of its approval, Lessor may retain the right to separately approve all plans and specifications related to any additions, modifications or improvements. Lessor may further require Lessee to obtain appropriate completion bonds and to provide for the removal of any improvements upon the termination of this Lease. The cost -45- 51 of such Alterations shall, subject to Lessor's obligations to make Capital Expenditures under this Lease, be paid by Lessee, and all such Alterations shall be included under the terms of this Lease and upon expiration or earlier termination of the Lease shall pass to and become the property of Lessor. 10.2 Salvage. All materials which are scrapped or removed in connection with the making of repairs or alterations required or permitted by Article IX or X shall be or become the property of Lessor or Lessee depending on which party is paying for or providing the financing for such work. 10.3 Joint Use Agreements. Subject to Lessor's prior written approval, Lessee may construct additional improvements that are connected to the Leased Property or any part thereof or share maintenance facilities, heating, ventilation and air conditioning systems or similar apparatus, electrical, plumbing or other systems, utilities, parking or other amenities; provided, that, the parties shall enter into a mutually agreeable cross-easement or joint use agreement to make available necessary services and facilities in connection with such additional improvements, to protect each of their respective interests in the properties affected, and to provide for separate ownership, use, and/or financing of such improvements. ARTICLE XI Liens. Subject to the provision of Article XII relating to permitted contests, Lessee will not directly or indirectly create or allow to remain and will promptly discharge at its expense any lien, encumbrance, attachment, title retention agreement or claim upon the Leased Property or any attachment, levy, claim or encumbrance in respect of the Rent, not including, however, (a) this Lease, (b) the matters, if any, included as exceptions in the title policies insuring Lessor's interest in the Leased Property, (c) restrictions, liens and other encumbrances which are consented to in writing by Lessor or any easements granted pursuant to the provisions of Section 7.3 of this Lease, (d) liens for those items set forth in clauses (1) through (7) of the definition of "Impositions" which Lessee is not required to pay hereunder, (e) subleases permitted by Section 22.1 hereof, (f) liens for Impositions or for sums resulting from noncompliance with Legal Requirements so long as (1) the same are not yet payable or are payable without the addition of any fine or penalty or (2) such liens are in the process of being contested as permitted by Article XII, (g) liens of mechanics, laborers, materialmen, suppliers or vendors for sums either disputed or not yet due provided that (1) the payment of such sums shall not be postponed under -46- 52 any related contract for more than sixty (60) days after the completion of the action giving rise to such lien and such reserve or other appropriate provisions as shall be required by law or generally accepted accounting principles shall have been made therefor or (2) any such liens are in the process of being contested as permitted by Article XII hereof, and (h) any liens which are the responsibility of Lessor pursuant to the provisions of Article XXXIII of this Lease, or result from Lessor's wrongful failure to pay for Capital Expenditures which Lessor is obligated to pay under Sections 3.6 and 3.7. ARTICLE XII Permitted Contests. Lessee shall have the right to contest the amount or validity of any Imposition to be paid by Lessee or any Legal Requirement or Insurance Requirement or any lien, attachment, levy, encumbrance, charge or claim ("Claims") not otherwise permitted by Article XI, by appropriate legal proceedings in good faith and with due diligence (but this shall not be deemed or construed in any way to relieve, modify or extend Lessee's covenants to pay or its covenants to cause to be paid any such charges at the time and in the manner as in this Article provided), on condition, however, that such legal proceedings shall not operate to relieve Lessee from its obligations hereunder and shall not cause the sale or risk the loss of the Leased Property, or any part thereof, or cause Lessor or Lessee to be in default under any mortgage, deed of trust or security deed encumbering the Leased Property or any interest therein or prevent the normal operation of any of the Facilities. Upon the request of Lessor, Lessee shall either (a) provide a bond or other assurance reasonably satisfactory to Lessor that all Claims which may be assessed against the Leased Property together with interest and penalties, if any, thereon will be paid, (b) deposit within the time otherwise required for payment with a bank or trust company as trustee upon terms reasonably satisfactory to Lessor, as security for the payment of such Claims, money in an amount sufficient to pay the same, together with interest and penalties in connection therewith, as to all Claims which may be assessed against or become a Claim on the Leased Property, or any part thereof, in said legal proceedings, or (c) perform the necessary alterations or repairs required to have the Leased Property comply with the applicable Insurance Requirement or Legal Requirements. Lessee shall furnish Lessor and any lender of Lessor with reasonable evidence of such deposit within five days of the same. Lessor agrees to join in any such proceedings if the same be required to legally prosecute such contest of the validity of such Claims; provided, however, that Lessor shall not thereby be subjected to any liability for the payment of -47- 53 any costs or expenses in connection with any proceedings brought by Lessee; and Lessee covenants to indemnify and save harmless Lessor from any such costs or expenses. Lessee shall be entitled to any refund of any Claims and such charges and penalties or interest thereon which have been paid by Lessee or paid by Lessor and for which Lessor has been fully reimbursed by Lessee. In the event that Lessee fails to pay any Claims when due or to provide the security therefor as provided in this Article and to diligently prosecute any contest of the same, Lessor may, upon ten days advance Notice to Lessee, (i) pay such charges together with any interest and penalties and the same shall be repayable by Lessee to Lessor as Additional Charges at the next Payment Date provided for in this Lease or (ii) commence the work set forth in clause (c) above. Provided, however, that should Lessor reasonably determine that the giving of such Notice would risk loss to the Leased Property or any part thereof or cause damage to Lessor, then Lessor shall give such Notice as is practical under the circumstances. Lessor reserves the right to contest any of the Claims at its expense not pursued by Lessee or which relate to a requirement which is Lessor's obligation under this Lease. Lessor and Lessee agree to cooperate in coordinating the contest of any claims. ARTICLE XIII 13.1 General Insurance Requirements. (a) Insurance by Lessee. Subject to Section 13.1(b), Lessee shall, at all times during the term of this Lease maintain insurance coverage on the Leased Property and the business conducted therein substantially similar to that maintained for similar hotels or as required by the Management Agreement (if any). Lessor shall be responsible for the cost and expense of premiums for the insurance in clause (ii) of the definition of "Lessor Tax, Insurance and Cap Ex Obligations." Lessee shall be responsible for the cost and expense of premiums for all other insurance required to be maintained by this Lease. Such insurance, as of the date hereof, shall include: (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 -48- 54 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 any Facility, any adjoining streets and passageways thereof, or otherwise arising under the Management Agreement (if any) or this Lease; (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 Facility is located for both Lessee's and Manager's (if any) 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 commercial property insurance policies with licensed insurance companies in amounts not less than the then current full insurable value of each Facility and its contents. As used herein, the term "full insurable value" shall mean the actual replacement cost of each Facility 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 agreed to by Lessee and Lessor or required under the Management Agreement (if any); and (v) business interruption insurance covering risk of loss due to an insured peril described in Sections 13.1(a)(iii) and 13.2(a)(iv) hereof, including any loss or damage to a Facility, its contents, boiler, pressure vessels or machinery and any resulting damage thereby rendering such Facility premises untenantable or the services to be provided by such Facility unmarketable, causing a loss of business. b. If the insurance referred to in Section 13.1(a)(iii), (iv) and (v) could be obtained by Lessor at lesser premiums and otherwise on terms and conditions more advantageous to Lessor, then Lessor may, upon notice to Lessee, obtain such insurance for its own account. Such notice must be received by Lessee at least sixty (60) days prior to the Commencement Date if it is to become effective on the Commencement Date, or six (6) -49- 55 months prior to the effective date of said insurance following the Commencement Date, as the case may be; provided, however, that Lessee shall in all events, at Lessee's cost and expense, maintain appropriate worker's compensation and employer's liability insurance for Lessee's and Manager's (if any) employees at the Hotels as described in Section 13.1(a)(ii) and provided, further, that if Lessor elects to provide coverage for Lessor's employees (if any) at the Hotels, Lessee shall nevertheless provide the coverage described in Section 13.1(a)(ii) for Lessee's and Manager's (if any) employees at the Hotels. 13.2 Parties Insured, Amount of Coverage, Etc. All insurance policies provided for in Section 13.1 shall include: a. Lessor, Lessee and Lessee's Manager (if any) as parties insured thereunder, as their interests may appear; b. except as otherwise expressly stated herein, such amount of coverage and deductibles as shall be in the greater of amounts (i) as substantially similar to that maintained for similar hotels, (ii) as required by the Management Agreement (if any), or (iii) as Lessor shall require to protect Lessor from material risk of being a co-insurer; c. where appropriate, mortgagee endorsements in favor of Approved Mortgagee(s); d. where appropriate (including but not limited to the insurance provided for in Section 13.1(a), the insurer's waiver of subrogation rights against Lessee and Lessee's Manager (if any) for all insurance policies procured by Lessor and the insurer's waiver of subrogation rights against Lessor and Lessee's Manager (if any) for all insurance policies procured by Lessee or its Manager (if any); 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. 13.3 Evidence of Insurance, Etc. a. Prior to the effective date of the applicable coverages the party obtaining the insurance coverages under Section 13.1 shall provide the other party with certified copies of policies for such insurance or certificates of insurance. Prior to the expiration date -50- 56 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 Lease, there shall be an apportionment of any prepaid transferrable insurance premiums in respect of insurance policies obtained by Lessee pursuant to Section 13.1(a). b. On request, each party shall furnish the other with a schedule of insurance obtained by it under Section 13.1, 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. 13.4 Reports by Lessee. Lessee shall, or shall cause its Manager (if any), to promptly: a. cause to be investigated all accidents and claims for damages relating to the operation and maintenance of any Facility as they become known to Lessee or its Manager (if any), and shall report to Lessor any such incident which is material; b. cause to be investigated all damage to or destruction of any Facility as it becomes known to Lessee or its Manager (if any), and shall report to Lessor 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 13.4(a) and 13.4(b). 13.5 Review of Limits. All insurance policy limits provided pursuant to this Article XIII 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) years; provided, however, that insurance policy limits may not be reduced to an amount lower than those in effect for similar hotels except by mutual consent of the Parties. 13.6 Limitation on Scope of Services. Lessee acknowledges that in arranging for insurance coverages under this Article XIII nothing contained herein or therein shall be deemed to constitute a representation or warranty by Lessee or any insurance broker utilized by Lessee with regard to the nature or extent of the insurance coverages which should be -51- 57 considered by Lessor for the ownership of the Hotels, and Lessor is to rely exclusively on its own insurance advisors with regard thereto. ARTICLE XIV 14.1 Insurance Proceeds. Subject to the rights of the holder of any Approved Mortgage on the Facilities or any of them, all proceeds payable by reason of any loss or damage to the Leased Property, or any portion thereof, and insured under any policy of insurance required by Article XIII of this Lease shall be paid by the payor to Lessor. If for any reason such proceeds are paid to any Person other than Lessor, the recipient shall surrender all proceeds to Lessor to be held in trust by Lessor in an interest-bearing account (subject to the provisions of Section 14.6 and the rights of holder of such mortgage). The net proceeds shall be made available for reconstruction or repair, as the case may be, of any damage to or destruction of the Leased Property, or any portion thereof, and shall be paid out by Lessor from time to time for the reasonable costs of such reconstruction or repair upon satisfaction of reasonable terms and conditions. Any excess proceeds of insurance remaining after the completion of the restoration or reconstruction of the Leased Property shall be paid to Lessor. If Lessor is not required to, and elects not to, repair and restore, and the Lease is terminated as described in Section 14.2(a), all such insurance proceeds shall be retained by Lessor. All salvage resulting from any risk covered by insurance shall belong to Lessor. Notwithstanding anything in this Lease to the contrary, the proceeds of any business interruption insurance shall be allocated between Lessor, Lessee and Lessee's Manager (if any). 14.2 Reconstruction in the Event of Damage or Destruction Covered by Insurance. (a) Subject to Section 14.2(b), if all or any part of a Facility shall be damaged or destroyed by a cause for which insurance coverage was required by this Lease to be maintained by Lessee, then Lessor shall (or shall cause Lessee to) repair, restore, replace or rebuild such Facility ("Casualty Restoration") to the extent insurance proceeds are made available to Lessor for restoration as nearly as is reasonably possible to the value, condition and character of such Facility immediately prior to the occurrence of such damage or destruction. Lessor shall cooperate with Lessee in obtaining all insurance proceeds payable on account of such damage or destruction so that the same shall be available to Lessor (subject to the -52- 58 terms of any Approved Mortgage) as the Casualty Restoration progresses. (b) If all or any part of a Facility 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 Facility then, if Lessor 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 Facility, Lessor shall have the right to terminate this Lease with respect to such Facility by written notice to Lessee given within sixty (60) days of such casualty. If Lessor elects to terminate this Lease with respect to such Facility, Lessor shall pay to Lessee the Casualty Termination Fee with interest on such amount from the date of such casualty to the date of such payment at the rate of interest equal to the Base Rate plus one percent (1%); provided, however, if Lessor determines in its sole discretion that the value of the Facility and all insurance proceeds payable with respect to such casualty will be less than the amount of the termination fee, Lessor may deliver its duly executed, acknowledged and recordable deed to the Facility together with all insurance proceeds paid to Lessor in respect of such casualty (together with an assignment of any unpaid insurance proceeds with respect to such casualty) in full satisfaction of Lessor's obligation to pay the Casualty Termination Fee to Lessee. (c) Lessor must notify Lessee within thirty (30) days of the occurrence of such damage or destruction if Lessor elects to terminate this Lease under this Section. 14.3 Reconstruction in the Event of Damage or Destruction Not Covered by Insurance. If all or any part of a Facility shall be damaged or destroyed by any cause for which insurance coverage was not required by this Lease to be maintained by Lessee or Lessor, and the estimated cost of the Casualty Restoration exceeds thirty percent (30%) of the total replacement cost (without deduction for depreciation) of such Facility then Lessor may terminate this Lease with respect to such Facility if it elects to do so by written notice to Lessee within thirty (30) days after the occurrence of such damage or destruction. 14.4 Lessee's Personal Property. All insurance proceeds payable by reason of any loss of or damage to any of Lessee's Personal Property shall be paid to Lessee. -53- 59 14.5 Abatement of Rent. In the event of a casualty, except as otherwise provided herein, this Lease shall remain in full force and effect and Lessee's obligation to make rental payments and to pay all other charges required by this Lease (whether through the payment of insurance proceeds to Lessor or otherwise) shall remain unabated. 14.6 Commencement and Completion of Casualty Restoration. Unless Lessor shall be entitled to terminate this Lease under Section 14.2(b), Lessor 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 14.6 shall become operative immediately). 14.7 Waiver. Lessee hereby waives any statutory rights of termination that may arise by reason of any damage or destruction of any Facility that Lessor is obligated to restore or may restore under any of the provisions of this Lease. ARTICLE XV 15.1 Parties' Rights and Obligations. If during the Term there is any Condemnation of all or any part of the Leased Property or any interest in this Lease, the rights and obligations of Lessor and Lessee shall be determined by this Article XV. 15.2 Permanent Taking. (a) In the event of a Taking of an entire Facility, this Lease shall terminate as of the date of such Taking with respect to such Facility. (b) In the event of a Taking of less than the entire portion of a Facility, if Lessee or Lessor 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 Lease, then either Lessor or Lessee may terminate this Lease with respect to such Facility. -54- 60 (c) Upon any Taking of a Facility, whether or not this Lease is terminated with respect to such Facility, Lessee 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, Lessee shall nonetheless be entitled to a fair and equitable share of the award or other proceeds of the Taking paid to Lessor to the extent of Lessee's loss; provided, however, that Lessor shall receive the entire proceeds attributable to the Taking of all land, the Facility, the Furniture, Fixtures and Equipment, and Capital Improvements. (d) If this Lease is not terminated with respect to a Facility following a partial Taking under this Section 15.2, then this Lease shall remain in full force and effect with respect to the remainder of the Facility so taken, and Lessor shall repair, restore, replace or rebuild the remainder of such Facility to the extent condemnation proceeds are made available to Lessor for such repair, restoration, replacement or rebuilding as nearly as possible to its value, condition and character immediately prior to the Taking. Lessor shall commence the work promptly after the date of the Taking and shall complete the same with diligence. 15.3 Taking for Temporary Use. Subject to Section 15.3(b), in the event of a Taking of all or part of a Facility for temporary use, this Lease shall remain in full force and effect with respect to such Facility, and the following shall be applicable: (a) If the Taking is for a period not extending beyond the term of this Lease, 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 Facility shall be included in Gross Revenue for FFE Reserves for the Fiscal Year or Years in which received. When and if during the term of this Lease, the period of temporary use shall terminate, Lessee shall, to the extent condemnation proceeds are made available to Lessee for restoration, repair and alterations, make all such restoration, repairs and alterations as shall be necessary to restore such Facility 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 Lease as it may be extended, the awards -55- 61 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 Facility for the period of the Taking up to the stated expiration of the term of this Lease shall be included in determining Gross Revenue for FFE Reserves for the Fiscal Year or Years in which received, and the remainder of such awards or other proceeds (including interest as aforesaid) shall be paid to Lessor. (c) Notwithstanding the foregoing provisions of this Section 15.3, if during the last five (5) years of this Lease as the Term hereof may be extended by Lessee there should be a temporary taking of all or a part of any Facility which extends for a period of at least thirty-six (36) months, and Lessee concludes in good faith that it would not be economically feasible to operate such Facility as contemplated in this Lease following the temporary taking, then Lessee may elect to terminate this Lease with respect to such Facility as of the Date of Taking by giving written notice to Lessor within thirty (30) days thereof, in which event the provisions of Section 15.3(b) shall apply with regard to the proceeds. ARTICLE XVI 16.1 Events of Default. If any one or more of the following events (individually, an "Event of Default") occurs: (a) Lessee fails to make payment of the Base Rent when the same becomes due and payable and such condition continues for a period of ten (10) days; or (b) Lessee fails to make payment of Percentage Rent when the same becomes due and payable and such condition continues for a period of ten (10) days; or (c) Lessee fails to observe or perform any other term, covenant or condition of this Lease and such failure is not cured by Lessee within a period of thirty (30) days after receipt by Lessee of Notice thereof from Lessor, unless such failure cannot with due diligence be cured within a period of thirty (30) days, in which case it shall not be deemed an Event of Default if Lessee proceeds promptly and with due diligence to cure the failure and diligently completes the curing thereof; provided, however, in no event shall such cure period extend beyond 180 days after such Notice or such lesser -56- 62 period as may be required by applicable law for the curing thereof; or (d) Lessee shall file a petition in bankruptcy or reorganization for an arrangement pursuant to any federal or state bankruptcy law or any similar federal or state law, or shall be adjudicated a bankrupt or shall make an assignment for the benefit of creditors or shall admit in writing its inability to pay its debts generally as they become due, or if a petition or answer proposing the adjudication of Lessee as a bankrupt or its reorganization pursuant to any federal or state bankruptcy law or any similar federal or state law shall be filed in any court and Lessee shall be adjudicated a bankrupt and such adjudication shall not be vacated or set aside or stayed within sixty (60) days after the entry of an order in respect thereof, or if a receiver of the Lessee or of the whole or substantially all of the assets of the Lessee shall be appointed in any proceeding brought by the Lessee or if any such receiver, trustee or liquidator shall be appointed in any proceeding brought against the Lessee and shall not be vacated or set aside or stayed within sixty (60) days after such appointment; or (e) without Lessor's consent, Lessee is liquidated or dissolved, or begins proceedings toward such liquidation or dissolution, or, in any manner, permits the sale or divestiture of substantially all of its assets; or (f) the estate or interest of Lessee in the Leased Property or any part thereof is voluntarily or involuntarily transferred, assigned, conveyed, levied upon or attached in an proceeding (unless Lessee is contesting such lien or attachment in good faith in accordance with Article XII hereof); or (g) except as a result of damage, destruction or a partial or complete Condemnation, Lessee voluntarily ceases operation of the Leased Property or any part thereof for a period in excess of ten (10) days; or (h) the Management Agreement with respect to each Facility on the Leased Premises is terminated by the Manager as a result of any action or failure to act by the Lessee or any Person with whom the Lessee contracts for management services at any Facility; or (i) after the Merger, an Event of Default shall occur under any Percentage Lease (other than this Lease) between Lessor and Lessee (but not including affiliates of Lessee); or -57- 63 (j) Lessee shall breach the terms of Article 18, Section 22.1, or Section 23.2; then, and in any such event, Lessor may, so long as such Event of Default continues, exercise one or more remedies available to it herein or at law or in equity including, but not limited to, its right to terminate this Lease by giving Lessee the shortest Notice of such termination permitted by law. If litigation is commenced with respect to any alleged default under this Lease, the prevailing party in such litigation shall receive, in addition to its damages incurred, such sum as the court shall determine as its reasonable attorneys' fees, and all costs and expenses incurred in connection therewith. No Event of Default (other than a failure to make a payment of money) shall be deemed to exist under clause (c) during any time the curing thereof is prevented by an Unavoidable Delay, provided that upon the cessation of such Unavoidable Delay, Lessee remedies such default or Event of Default without further delay. 16.2 Remedies. (a) If any one or more Events of Default shall occur and be continuing, then Lessor shall have the right, in addition to all other rights or remedies available at law or in equity, at its election: (i) To give Lessee written notice of Lessor's intention to terminate this Lease on the earliest date permitted by law or on any later date specified in such notice, in which case Lessee's right to possession of the Leased Property shall cease and this Lease will be terminated on such date, except as to liability of Lessee expressly, stated herein to survive the termination of this Lease, including, without limitation, liability pursuant to Section 16.2(d); or (ii) Without further demand or notice, to reenter and take possession of the Leased Property or any part of the Leased Property, repossess the same, expel Lessee and those claiming through or under Lessee, and remove the effects of both or either, using such force for such purposes as may be lawful and necessary, without being liable for prosecution, without being deemed guilty of any manner of trespass, and without prejudice to any remedies for arrears or future payments of Base Rent, Percentage Rent, Additional Charges or other amounts payable under this Lease or as a result of any preceding breach of covenants or conditions; or -58- 64 (iii) To cure any Event of Default and to charge Lessee for the cost of effecting such cure, including, without limitation, reasonable attorneys' fees and interest on the amount so advanced at the Overdue Rate, provided that Lessor shall have no obligation to cure any such Event of Default. (b) Should Lessor elect to reenter as provided in Section 16.2(a)(ii), or should Lessor take possession pursuant to legal proceedings or pursuant to any notice provided by law while an Event of Default is continuing, Lessor may, from time to time, without terminating this Lease, relet the Leased Property or any part of the Leased Property in Lessor's or Lessee's name, but for the account of Lessee, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Term of this Lease) and on such conditions and upon such other terms (which may include concessions of free rent and alteration and repair of the Leased Improvements) as Lessor, in its reasonable discretion, may determine and Lessor may collect and receive the rent. No such reentry or taking possession of the Leased Property by Lessor will be construed as an election on Lessor's part to terminate this Lease unless a written notice of such intention is given to Lessee. No notice from Lessor under this Article 16 or under a forcible or unlawful entry and detainer statute or similar law will constitute an election by Lessor to terminate this Lease unless such notice specifically so states. Lessor reserves the right, following any such reentry or reletting, to exercise its right to terminate this Lease by giving Lessee such written notice, in which event this Lease will terminate as specified in such notice. (c) In the event that Lessor does not elect to terminate this Lease as permitted in Section 16.2(a)(i), but elects instead to take possession as provided in Section 16.2(a)(ii), Lessee shall pay to Lessor Base Rent, Percentage Rent, Additional Charges and other sums as provided in this Lease which would be payable under this Lease if such repossession had not occurred, less the net proceeds, if any, of any reletting of the Leased Property, after deducting all of Lessor's expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, attorneys' fees, expenses of employees, alteration and repair costs and expenses of preparation for such reletting. If, in connection with any reletting, the new lease term extends beyond the existing Term of this Lease, or the premises covered by such new lease include other premises not part of the Leased Property, a fair apportionment of the rent received from such reletting and the expenses incurred in connection with such reletting as provided in this Paragraph will be made in determining the net proceeds from such -59- 65 reletting, and any rent concessions will be equally apportioned over the term of the new lease. Lessee shall pay such rent and other sums to Lessor monthly on the date on which the Base Rent and Additional Charges, and, in the case of Percentage Rent, quarterly on the day on which Percentage Rent would have been payable under this Lease if possession had not been retaken, and Lessor shall be entitled to receive such rent and other sums from Lessee on each such day. (d) If an Event of Default has occurred and this Lease is terminated by Lessor, Lessee shall remain liable to Lessor for damages in an amount equal to Base Rent, Percentage Rent, Additional Charges and other amounts which would have been owing by Lessee for the balance of the Term of this Lease had this Lease not been terminated, less the net proceeds, if any, of any reletting of the Leased Property by Lessor subsequent to such termination, after deducting all of Lessor's expenses in connection with such reletting, including, but without limitation, the expenses enumerated in Section 16.2(c) (which expenses, if the reletting is for a term that will extend beyond the existing Term, will be apportioned as described in Section 16.2(c)). Lessor shall be entitled to collect such damages from Lessee monthly on the day on which Base Rent or Additional Charges, and quarterly on the day on which Percentage Rent, would have been payable under this Lease if this Lease had not been terminated, and Lessor shall be entitled to receive such Base Rent and other amounts from Lessee on each such day. Alternatively, at the option of Lessor, in the event this Lease is so terminated, Lessor shall be entitled to recover against Lessee as damages for loss of the bargain and not as a penalty: (i) The worth at the time of award of the unpaid Base Rent and Percentage Rent which had been earned at the time of termination; (ii) The worth at the time of award of the amount, if any, by which the unpaid Base Rent, Percentage Rent and all Additional Charges which would have been earned after termination until the time of award exceeds the amount of rental loss that Lessee proves could have been reasonably avoided; (iii) The worth at the time of award of the amount, if any, by which the unpaid Base Rent, Percentage Rent and Additional Charges for the balance of the Term (had the same not been so terminated by Lessor) after the time of award exceeds the amount of such rental loss during such period that Lessee proves could be reasonably avoided; and -60- 66 (iv) Any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee's failure to perform its obligations under this Lease or which in the ordinary course of events would be likely to result therefrom. The "worth at the time of award" of the amounts referred to in clauses (i) and (ii) above shall be computed by adding interest from the date of termination until the time of the award computed at the Overdue Rate on the date on which this Lease is terminated. The worth at the time of award of the amount referred to in Clause (iii) above shall be computed by using a discount rate of the Federal Reserve Bank of New York at the time of the award plus one percent (1%). (e) Percentage Rent for the purposes of this Section 16.2 shall be a sum equal to (i) the average of the annual amounts of the Percentage Rent for the three (3) Fiscal Years immediately preceding the Fiscal Year in which the termination, re-entry or repossession takes place, or (ii) if three (3) Fiscal Years shall not have elapsed, the average of the Percentage Rent during the preceding Fiscal Years during which the Lease was in effect, or (iii) if one (1) Fiscal Year has not elapsed, the amount derived by analyzing the Percentage Rent from the effective date of this Lease. (f) Any suit or suits for the recovery of the amounts and damages set forth in Sections 16.2(c) or (d) may be brought by Lessor, from time to time, at Lessor's election, and nothing in this Lease will be deemed to require Lessor to await the date upon which this Lease or the Term of this Lease would have expired had there occurred no Event of Default. Each right and remedy provided for in this Lease as a result of the occurrence of a default is cumulative and is in addition to every other right or remedy provided for in this Lease or now or after the date of the commencement of the Term existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Lessor of any one or more of the rights or remedies provided for in this Lease or now or after the date of the commencement of the Term existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by Lessor of any or all other rights or remedies provided for in this Lease or now or after the date of the commencement of the Term existing at law or in equity or by statute or otherwise. All costs incurred by Lessor in collecting any amounts and damages owing by Lessee pursuant to the provisions of this Lease or to enforce any provision of this Lease, including, but not limited to, reasonable attorneys' fees and related costs, whether or not one or more actions are commenced by Lessor, shall also be recoverable by Lessor from Lessee. -61- 67 (g) Lessor shall have no obligation to mitigate damage following the occurrence of an Event of Default. 16.3 Waiver. Lessee hereby waives, to the extent permitted by applicable law, (a) any right to a trial by jury in the event of summary or other proceedings to enforce the remedies set forth in this Article 16; (b) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt; (c) any equity of redemption; and (d) except as provided herein, any presentations, demands for payment or for performance, or notice of non-performance. If this Lease is terminated pursuant to Section 16.1, Lessee waives, to the extent permitted by applicable law, (i) any right to a trial by jury in the event of summary proceedings to enforce the remedies set forth in this Article XVI, and (ii) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt and Lessor waives any right to "pierce the corporate veil" (included limited liability resulting from LLC status) of Lessee other than to the extent funds shall have been inappropriately paid any Affiliate of Lessee following a default resulting in an Event of Default. 16.4 Application of Funds. Any payments received by Lessor under any of the provisions of this Lease during the existence or continuance of any Event of Default shall, to the extent permitted by applicable law, be applied to Lessee's obligations in the order that Lessor may determine, at Lessor's discretion. 16.5 Surrender. If an Event of Default occurs (and the event giving rise to such Event of Default has not been cured within the curative period relating thereto as set forth in Section 16.1) and is continuing, whether or not this Lease has been terminated pursuant to Section 16.1, Lessee shall, if requested by Lessor to do so, immediately surrender to Lessor the Leased Property including, without limitation, any and all books, records, files, licenses, permits and keys relating thereto, and quit the same and Lessor may enter upon and repossess the Leased Property by reasonable force, summary proceedings, ejectment or otherwise, and may remove Lessee and all other persons and any and all personal property from the Leased Property, subject to rights of any hotel guests and to any requirement of law. Lessee hereby waives any and all requirements of applicable law for service of notice to reenter the Leased Property. Lessor shall be under no obligation to, but may if it so chooses, relet the Leased Property or any part thereof or otherwise mitigate Lessor's damages. -62- 68 ARTICLE XVII Exculpation. In the event of (a) a sale or transfer of all or any part of the Leased Property (by operation of law or otherwise), (b) the making of a lease of all or substantially all of the Leased Property or (c) a sale or transfer (by operation of law or otherwise) of the leasehold estate under any such lease, (i) the seller, transferor or lessor, as the case may be, shall be and hereby is automatically and entirely released and discharged, from and after the date of such sale, transfer or lease, of all liability in respect of the performance of any of the terms of this Lease on the part of Lessor thereafter to be performed and (ii) the term "Lessor" shall thereafter mean only the purchaser, transferee or lessee, as the case may be, and the covenants and agreements of Lessor shall thereafter be binding upon such purchaser, transferee or lessee. Lessee shall look solely to Lessor's estate and interest in the Leased Property for the satisfaction of any right of Lessee for the collection of a judgment or other judicial process or arbitration award requiring the payment of money by Lessor, and no other property or assets of Lessor. Lessor's agents, incorporators, subscribers, shareholders, officers, directors, members, partners, principals (disclosed or undisclosed) and affiliates, whether directly or through Lessor or through any receiver, assignee, trustee in bankruptcy or through anyone else, shall not be subject to levy, lien, execution, attachment, or other enforcement procedure for the satisfaction of Lessee's rights and remedies under or with respect to or arising from or in connection with this Lease. ARTICLE XVIII 18.1 Certain Covenants to Protect REIT and MLP Status. As a material inducement to Lessor to enter into this Lease, Lessee agrees that: (a) Personal Property Limitation. Anything contained in this Lease to the contrary notwithstanding, the average of the adjusted tax bases of the items of personal property that are leased to Lessee under this Lease at the beginning and at the end of any Fiscal Year shall not exceed fifteen percent (15%) of the average of the aggregate adjusted tax bases of the Leased Property at the beginning and at the end of such Fiscal Year. If such an event would occur, Lessee shall purchase personal property items from Lessor or from third parties (instead of Lessor purchasing such items), as appropriate, and the parties shall arrive at an appropriate -63- 69 adjustment of Rent by negotiating in good faith or by using arbitrators or appraisers, if necessary. This Section 18.1(a) is intended to ensure that the Rent qualifies as "rents from real property," within the meaning of Section 856(d) of the Code, or any similar or successor provisions thereto, and shall be interpreted in a manner consistent with such intent. (b) Sublease Rent Limitation. Anything contained in this Lease to the contrary notwithstanding, Lessee shall not sublet the Leased Property on any basis such that the rental to be paid by the 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 or successor provisions thereto. 18.2 Sublease Lessee Limitation. Anything contained in this Lease to the contrary notwithstanding, Lessee shall not sublease the Leased Property to any Person in which Lessor or the direct or indirect owner of Lessor owns, directly or indirectly, a ten percent (10%) or more interest, within the meaning of Section 856(d)(2)(B) of the Code (or, if applicable, a five percent (5%) or more interest as set forth in Section 7704 of the Code), or any similar or successor provisions thereto. 18.3 Lessee Ownership Limitation. Anything contained in this Lease to the contrary notwithstanding, neither Lessee or an Affiliate of Lessee shall acquire, directly or indirectly, a ten percent (10%) or more interest in Lessor or the direct or indirect owner of Lessor, within the meaning of Section 856(d)(2)(B) of the Code (or, if applicable, a five percent (5%) or more interest as set forth in Section 7704 of the Code), nor any similar or successor provisions thereto. ARTICLE XIX Holding Over. If Lessee for any reason remains in possession of the Leased Property or any part thereof after the expiration or earlier termination of the Term, such possession shall be as a tenant at sufferance during which time Lessee shall pay as rental each month the aggregate of one hundred five percent (105%) of (a) one-twelfth (1/12th) of the aggregate Base Rent and Percentage Rent payable with respect to the last Fiscal Year of the Term, (b) all Additional Charges accruing during the applicable month and (c) all other sums, if any, payable by Lessee under this Lease with respect to the Leased Property. During such period, -64- 70 Lessee shall be obligated to perform and observe all of the terms, covenants and conditions of this Lease, but shall have no rights hereunder other than the right, to the extent given by law to tenants at sufferance, to continued occupancy and use of the Leased Property. Nothing contained herein shall constitute the consent, express or implied, of Lessor to the holding over of Lessee after the expiration or earlier termination of this Lease. ARTICLE XX Risk of Loss. During the Term, the risk of loss or of decrease in the enjoyment and beneficial use of the Leased Property or any part thereof in consequences of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise, or in consequences of foreclosures, attachments, levies or executions is retained by Lessor, and, in the absence of negligence, misconduct or breach of this Lease by Lessee, Lessee shall in no event be answerable or accountable therefor. ARTICLE XXI Indemnification. Notwithstanding the existence of any insurance provided for in Article XIII, and without regard to the policy limits of any such insurance, Lessee will protect, indemnify, hold harmless and defend any Lessor Indemnified Party from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses), to the extent permitted by law, imposed upon or incurred by or asserted against any Lessor Indemnified Party by reason of: (a) any accident, injury to or death of persons or loss of or damage to property occurring on or about the Leased Property or adjoining sidewalks, including without limitation any claims under liquor liability, "dram shop" or similar laws, (b) any past, present or future use, misuse, non- use, condition, management, maintenance or repair of the Leased Property or Lessee's Personal Property or negligence by Lessee, its agents, invitees, employees or guests, or any other person other than Lessor, or any litigation, proceeding or claim by governmental entities or other third parties to which Lessor is made a party or participant related to such use, misuse, non-use, condition, management, maintenance, or repair thereof by Lessee, including Lessee's failure to perform obligations (other than Condemnation proceedings), (c) any Impositions, (d) any failure on the part of Lessee to perform or comply with any of the terms of this Lease, (e) the nonperformance of any of the terms and provisions of any and -65- 71 all existing and future subleases of the Leased Property or any portion thereof to be performed by the landlord thereunder, (f) the sale of or consumption of alcoholic beverages on or in the Leased Property, and (g) claims of Manager. Any amounts that become payable by Lessee under this Article shall be paid within ten (10) days after demand therefor by Lessor, and if not timely paid, shall bear a late charge (to the extent permitted by law) at the Overdue Rate from the expiration of such ten (10) day period to the date of payment. Lessee, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against any Lessor Indemnified Party or may compromise or otherwise dispose of the same as Lessee sees fit; provided, that prior to any compromise or disposition, all Lessor Indemnified Parties involved therein are Released from all liability. Nothing herein shall be construed as indemnifying any Lessor Indemnified Party against its own grossly negligent acts or omissions or willful misconduct. Lessor shall indemnify and hold any Lessee Indemnified Party from and against any and all liabilities, losses, interest, damages, costs or expenses (including, without limitation, reasonable attorneys' fees) assessed against, levied upon or collected from any Lessee Indemnified Party arising out of the negligence, misconduct or breach of this Lease by Lessor. Lessee's and Lessor's liability under the provisions of this Article shall survive any termination of this Lease. ARTICLE XXII 22.1 Subletting and Assignment. Except as expressly permitted herein, Lessee shall not mortgage, assign, sublet, or otherwise transfer its interest in the Facility and, subject to the provisions of Article XVIII and Section 22.2 and any other express conditions or limitations set forth herein, Lessee may, but only with the prior written consent of Lessor, which may be granted or withheld in Lessor's sole and absolute discretion, assign this Lease or sublet all or any part of the Leased Property; provided, however, Lessee may sublet any retail or restaurant portion of the Leased Improvements, without prior written consent of Lessor, in the normal course of the Primary Intended Use; provided, further, that any subletting to any party other than an Affiliate of Lessee shall not individually as to any one such subletting, or in the aggregate, materially diminish the actual or potential Rent payable under this Lease. In the case of a subletting, the sublessee shall comply with the provisions of Section 22.2, and in the case of an assignment, the assignee -66- 72 shall assume in writing and agree to keep and perform all of the terms of this Lease on the part of Lessee to be kept and performed and shall be, and become, jointly and severally liable with Lessee for the performance thereof. An original counterpart of each such sublease and assignment and assumption, duly executed by Lessee and such sublessee or assignee, as the case may be, in form and substance satisfactory to Lessor, shall be delivered promptly to Lessor. In case of either an assignment or subletting made during the Term, Lessee shall remain primarily liable, as principal rather than as surety, for the prompt payment of the Rent and for the performance and observance of all of the covenants and conditions to be performed by Lessee hereunder. Notwithstanding anything in this Lease to the contrary, Lessee will not enter into any lease that violates Section 18.1(b). 22.2 Attornment. Lessee shall insert in each sublease that is entered into after the Commencement Date and permitted under Section 22.1 provisions to the effect that (a) such sublease is subject and subordinate to all of the terms and provisions of this Lease and to the rights of Lessor hereunder, (b) if this Lease terminates before the expiration of such sublease, the sublessee thereunder will attorn to Lessor and waive any right the sublessee may have to terminate the sublease or to surrender possession thereunder as a result of the termination of this Lease, and (c) in the event this Lease terminates, Lessor shall not disturb any sublessee who entered into a sublease pursuant to this Lease. All rentals received from the sublessee by Lessor or Lessor's assignees, if any, as the case may be, shall be credited against the amounts owing by Lessee under this Lease. 22.3 Management Agreement. Notwithstanding anything contained in this Article XXII to the contrary, Lessee may enter into any agreement ("Management Agreement") with any third party to assign responsibility for the management and/or operation of all or any part of the Leased Property, including any retail or restaurant portion of the Leased Improvements; provided, that the Manager must subordinate payment of all compensation and other remuneration (including, without limitation, franchise, royalty, management and other fees and charges) payable under the Management Agreement or otherwise in connection with the operation of the Leased Property to all Rent and Additional Charges payable under this Lease for such Fiscal Year or Partial Fiscal Year, unless otherwise agreed to in writing by Lessor. Notwithstanding the above, Lessee shall remain primarily liable, as principal rather than as surety, for the prompt payment of the Rent and for the performance and observance of all of the covenants and conditions to be performed by Lessee hereunder. -67- 73 ARTICLE XXIII 23.1 Officers' Certificates; Financial Statements; Lessor's Estoppel Certificates and Covenants. (a) At any time and from time to time upon not less than twenty (20) days Notice by Lessor, Lessee will furnish to Lessor an Officer's Certificate certifying that this Lease is unmodified and in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications), the date to which the Rent has been paid, whether to the knowledge of Lessee there is any existing default or Event of Default hereunder by Lessor or Lessee, and such other information as may be reasonably requested by Lessor or Lessor's lender. Any such certificate furnished pursuant to this Article may be relied upon by Lessor, any lender and any prospective purchaser of the Leased Property. (b) Lessee will furnish the following statements to Lessor: (1) on or before the twentieth (20th) day of each month, a detailed profit and loss statement for the Leased Property detailed by Facility for the preceding month, a balance sheet for the Leased Property detailed by Facility as of the end of the preceding month, and a detailed accounting of revenues for the Leased Property detailed by Facility for the preceding month, and such other information as may be requested by Lessor or required by Lessor's lender, each in form acceptable to Lessor; and (2) the most recent Consolidated Financials of Lessee within thirty (30) days after each quarter of any Fiscal Year (or, in the case of the final quarter in any Fiscal Year, the most recent Audited Consolidated Financials of Lessee within sixty (60) days after such final quarter; and (3) any financial statements received by Lessee from Lessee's Manager. (c) At any time and from time to time upon not less than twenty (20) days notice by Lessee, Lessor will furnish to Lessee or to any person designated by Lessee an estoppel certificate certifying that this Lease is unmodified and in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications), the date to which Rent has been paid, whether to the knowledge of Lessor there is any existing default or Event of Default on -68- 74 Lessee's part hereunder, and such other information as may be reasonably requested by Lessee. 23.2 Lessee's Financial Covenants. Lessee shall not make any distributions to its members, except in the amount necessary for such members or their direct or indirect owners to pay their respective federal, state and local income taxes to the extent such taxes are allocable to Lessee's taxable income and reportable as such on such members' tax returns, until such time as Lessee has fully complied with the terms and provisions of Section 8.4. Lessee shall not incur any indebtedness (other than ordinary trade payables) unless required (i) to pay Rent, (ii) to maintain and repair the Leased Property in accordance with Article IX, or (iii) to make Alterations in accordance with Article X, provided that Lessee shall thereafter retire such indebtedness prior to making any dividend payments to its shareholders except to the extent needed to pay federal, state or local income tax on their respective shares of Lessee's taxable income. ARTICLE XXIV Books and Records; Lessor's Right to Inspect. Lessee shall keep full and adequate books of account and other records reflecting the results of operation of each Facility on an accrual basis, all in accordance with the Uniform System and generally accepted accounting principles. The books of account and all other records relating to or reflecting the operation of each Facility shall be kept either at the Facility or at Lessee's offices in Cleveland, Ohio, and shall be available to Lessor and its representatives and its auditors or accountants, at all reasonable times for examination, audit, inspection and transcription, provided that any such examination, audit, inspection or transcription shall be (i) at Lessor's expense, (ii) performed during normal business hours, and (iii) limited in scope and content to the Leased Property. All of such books and records pertaining to each Facility including, without limitation, books of account, guest records and front office records, at all times shall be the property of Lessee but shall not be removed from the Facility or Lessee's offices by Lessee without Lessor approval. Lessee shall permit Lessor and its authorized representatives as frequently as reasonably requested by Lessor to inspect the Leased Property and Lessee's accounts and records pertaining thereto and make copies thereof, during usual business hours upon reasonable advance notice, subject only to any business confidentiality requirements reasonably requested by Lessee. -69- 75 ARTICLE XXV No Waiver. No failure by Lessor or Lessee to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no acceptance of full or partial payment of Rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term. To the extent permitted by law, no waiver of any breach shall affect or alter this Lease, which shall continue in full force and effect with respect to any other then existing or subsequent breach. ARTICLE XXVI Remedies Cumulative. To the extent permitted by law, each legal, equitable or contractual right, power and remedy of Lessor or Lessee now or hereafter provided either in this Lease or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Lessor or Lessee of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Lessor or Lessee of any or all of such other rights, powers and remedies. ARTICLE XXVII Acceptance of Surrender. No surrender to Lessor of this Lease or of the Leased Property or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Lessor and no act by Lessor or any representative or agent of Lessor, other than such a written acceptance by Lessor, shall constitute an acceptance of any such surrender. ARTICLE XXVIII No Merger of Title. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same person or entity may acquire, own or hold, directly or indirectly: (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate and (b) the fee estate in the Leased Property. -70- 76 ARTICLE XXIX Intentionally Omitted. ARTICLE XXX Quiet Enjoyment. So long as Lessee pays all Rent as the same becomes due and complies with all of the terms of this Lease and performs its obligations hereunder, in each case within the applicable grace periods, if any, Lessee shall peaceably and quietly have, hold and enjoy the Leased Property for the Term hereof, free of any claim or other action by Lessor or anyone claiming by, through or under Lessor, but subject to all liens and encumbrances of record of the date hereof or hereafter consented to by Lessee or provided for herein and subject to the Ground Leases and Approved Mortgages. Notwithstanding the foregoing, Lessee shall have the right by separate and independent action to pursue any claim it may have against Lessor as a result of a breach by Lessor of the covenant of quiet enjoyment contained in this Section. ARTICLE XXXI Notices. All notices, demands, requests, consents, approvals and other communications ("Notice" or "Notices") hereunder shall be in writing and personally served, mailed (by registered or certified mail, return receipt requested and postage prepaid) or sent by facsimile transmission, addressed to Lessor at Red Lion Inns Limited Partnership, c/o Red Lion Hotels, Inc., 410 North 44th Street, Suite 700, Phoenix, Arizona 85008 with a copy to, prior to March 1, 1998, 50 Public Square, Suite 1500, Cleveland, Ohio 44113, Attention: Robert W. Boykin, and after March 1, 1998, Guildhall Building, 45 West Prospect Avenue, Suite 1500, Cleveland, Ohio 44115, Attention: Robert W. Boykin, and addressed to Lessee, prior to March 1, 1998, at 50 Public Square, Suite 1500, Cleveland, Ohio 44113, Attention: Ronald A. Cook, and from and after March 1, 1998, Guildhall Building, 45 West Prospect Avenue, Suite 1500, Cleveland, Ohio 44115, Attention: Ronald A. Cook, or to such other address or addresses as either party may hereafter designate. Notice by personal delivery or facsimile transmission shall be effective upon receipt, and Notice given by mail shall be complete at the time of deposit in the U.S. Mail system, but any prescribed period of Notice and any right or duty to do any act or make any response within any prescribed period or on a date certain after the service of such Notice given by mail shall be extended five days. -71- 77 ARTICLE XXXII 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 obligations (the parties hereby agree that if any Hotel is sold by Lessor, such $120,000,000 limitation shall be reduced by the amount of debt allocated to the Hotel that is sold), (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 the loan qualifying under this subsection (ii) shall be reduced by the amount of the debt allocated to the Hotel that is sold), 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 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 -72- 78 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 shall be allocated to the Hotels 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 shall be allocated to the Hotels 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 Maximum Principal Amount. (c) Lessee agrees, at the election of the holder of any interest superior to this Lease pursuant to the terms hereof (Holder") to fully and completely attorn to, from time to time, and to recognize Holder or any person, or such person's successors or assigns, who acquires the interest of Lessor under this Lease as Lessee's lessor under this Lease (collectively, "Successor Landlord") upon the then executory terms of this Lease. The foregoing provisions of this paragraph shall inure to the benefit of any such Successor Landlord, shall apply notwithstanding that, as a matter of law, the Lease may automatically terminate, shall be self-operative upon any such demand, and no further instrument shall be required to give effect to said provisions. Lessee, however, upon demand of any such Successor Landlord agrees to execute, from time to time, leases or any instruments to evidence and confirm the provisions of this paragraph, satisfactory to Lessor or any such Successor Landlord. Upon -73- 79 such attornment and the acceptance thereof in writing by such Successor Landlord, this Lease shall continue. (d) Subordination. Lessee agrees that this Lease shall be subject and subordinate to any Approved Mortgage. (e) Rights of Mortgagee. If Lessor or any Approved Mortgagee shall have furnished to Lessee the name and address of such Approved Mortgagee, then so long as any Facility, or any part thereof or any interest therein, shall be subject to the Approved Mortgage, the following shall be applicable: 1. Lessee shall, simultaneously with the giving to Lessor of any Notice of default of this Lease, send a copy of such Notice to such Approved Mortgagee in the manner provided in Article XXXI for the giving of Notices, and no Notice of default given by Lessee to Lessor shall be effective unless a copy of such Notice shall have been sent as herein provided. 2. If, under Section 32.3, a default by Lessor shall have occurred, Lessee shall not be entitled to terminate this Lease so long as no other default shall have occurred and be continuing (other than those which are being cured as provided for in this Lease), if within thirty (30) days after Lessee has 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. 3. Upon reasonable advance notice from such Approved Mortgagee, Lessee shall accord to it and its agents the right to enter upon any part of the Leased Property at any reasonable time during the term of this Lease for the purpose of examining, inspecting or making extracts from the books and records of any Facility. 4. If such Approved Mortgagee or any person or entity shall become the owner of any Facility as a result of any foreclosure or a bona fide conveyance in lieu of foreclosure, Lessee shall have no right or power to terminate this Lease, and shall recognize such Approved Mortgagee or such other person or entity as Lessor hereunder to the same extent as though it or they had been Lessor hereunder as of the execution of this Lease; provided, however, that such Approved Mortgagee or such other person or entity shall agree in writing with Lessee to be bound by the terms and provisions of this Lease to the same extent as if such Approved Mortgagee or such other person or entity had been an original Party hereto. -74- 80 (f) Estoppel Certificates. Lessee agrees, at any time and from time to time, upon not less than fifteen (15) days prior written notice by Lessor or an Approved Mortgagee, to execute, acknowledge and deliver to Lessor or such Approved Mortgagee a statement in writing certifying that this Lease 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 Lessee, there exists any default by Lessor under this Lease, and if so, specifying each such default of which Lessee may have knowledge. Upon similar notice, Lessee shall be entitled to a similar certificate from Lessor. 32.2 Lessee's Right to Cure. Subject to the provisions of Section 32.3, if Lessor breaches any covenant to be performed by it under this Lease, Lessee, after Notice to and demand upon Lessor, within waiving or releasing any obligation hereunder, and in addition to all other remedies available to Lessee, may (but shall be under no obligation at any time thereafter to) make such payment or perform such act for the account and at the expense of Lessor. All sums so paid by Lessee and all costs and expenses (including, without limitation, reasonable attorneys' fees) so incurred, together with interest thereon at the Overdue Rate from the date on which such sums or expenses are paid or incurred by Lessee, shall be paid by Lessor to Lessee on demand or, following (i) entry of a final, nonappealable judgment against Lessor for such sums and (ii) all Approved Mortgages are satisfied, may be offset by Lessee against the Base Rent payments next accruing or coming due. The rights of Lessee hereunder to cure and to secure payment from Lessor in accordance with this Section 32.2 shall survive the termination of this Lease with respect to the Leased Property. 32.3 Breach by Lessor. It shall be a breach of this Lease if Lessor fails to observe or perform any term, covenant or condition of this Lease on its part to be performed and such failure continues for a period of thirty (30) days after Notice thereof from Lessee, unless such failure cannot with due diligence be cured within a period of thirty (30) days, in which case such failure shall not be deemed to continue if Lessor, within such thirty (30) day period, proceeds promptly and with due diligence to cure the failure and diligently completes the curing thereof. The time within which Lessor shall be obligated to cure any such failure also shall be subject to extension of time due to the occurrence of any Unavoidable Delay. 32.4 Lessee's Cooperation. In connection with the termination of this Lease due to the expiration of the Term or -75- 81 otherwise, Lessee shall cooperate with Lessor in transferring possession of the Leased Property to Lessor or a new tenant, including, without limitation, cooperating with the transfer of any licenses or permits necessary for the operation of any Facility. ARTICLE XXXIII 33.1 Miscellaneous. Anything contained in this Lease to the contrary notwithstanding, all claims against, and liabilities of, Lessee or Lessor arising prior to any date of termination of this Lease shall survive such termination. If any term or provision of this Lease or any application thereof is invalid or unenforceable, the remainder of this Lease and any other application of such term or provision shall not be affected thereby. If any late charges or any interest rate provided for in any provision of this Lease are based upon a rate in excess of the maximum rate permitted by applicable law, the parties agree that such charges shall be fixed at the maximum permissible rate. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated except by a written instrument in recordable form signed by Lessor and Lessee. All the terms and provisions of this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The headings in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. This Lease shall be governed by and construed in accordance with the laws of the State, but not including its conflicts of laws rules. 33.2 Transition Procedures. Upon the expiration or termination of the Term of this Lease, for whatever reason, Lessor and Lessee shall do the following (and the provisions of this Section 33.2 shall survive the expiration or termination of this Lease until they have been fully performed) and, in general, shall cooperate in good faith to effect an orderly transition of the management of each Facility. (a) Transfer of Licenses. Upon the expiration or earlier termination of the Term, Lessee shall use its reasonable efforts (i) to transfer to Lessor or Lessor's nominee, to the extent assignable or transferable, any liquor licenses, and all other licenses, operating permits and other governmental authorizations and all contracts, including contracts with governmental or quasi-governmental entities, that may be necessary for the operation of any Facility (collectively, "Licenses"), or (ii) if such transfer is prohibited by law or Lessor otherwise elects, to cooperate -76- 82 with Lessor or Lessor's nominee in connection with the processing by Lessor or Lessor's nominee of any applications for all Licenses; provided, in either case, except in the case of a termination resulting from an Event of Default by Lessee, that the costs and expenses of any such transfer or the processing of any such application shall be paid by Lessor or Lessor's nominee. (b) Leases and Concessions. Lessee shall assign to Lessor or Lessor's nominee simultaneously with the termination of this Lease, and the assignee shall assume any and all subleases and concession agreements in effect with respect to any Facility. (c) Books and Records. Any and all books, records files and keys for any Facility kept by Lessee pursuant to this Lease or otherwise shall be delivered promptly to Lessor or Lessor's nominee, simultaneously with the termination of this Agreement, but such books and records shall thereafter be available to Lessee at all reasonable times at Lessee's expense for inspection, audit, examination, and transcription for a period of three (3) years and Lessee may retain (on a confidential basis) copies or computer records thereof. (d) Transition Adjustments. Lessee shall pay all accounts payable and accrued expenses relating to the Leased Property as of the date of termination of this Lease, to the extent such accounts payable and accrued expenses are required to be paid by Lessee under this Lease, and Lessee shall be entitled to receive and retain all accounts receivable, and an amount equal to all prepaid expenses paid by Lessee, as of the date of this termination. All advance bookings deposits and credits shall be paid to Lessor. (e) The provisions of this Section 33.2 shall survive the termination or expiration of this Lease. 33.3 Change of Franchise. Lessee may change the existing franchise covering each Facility with the prior written consent of Lessor, which consent may be withheld in the sole and absolute discretion of Lessor. 33.4 Waiver of Presentment, Etc. Lessee waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance and waives all notices of the existence, creation or incurring of new or additional obligations, except as expressly granted herein. -77- 83 ARTICLE XXXIV Memorandum of Lease. Lessor and Lessee shall promptly upon the request of either enter into a short form memorandum of this Lease, in form suitable for recording under the laws of the State in which reference to this Lease, and all options contained herein, shall be made. Lessee shall pay all costs and expenses of recording such memorandum of this Lease. ARTICLE XXXV 35.1 Springfield Ground Lease Premises. Lessee understands that under the Ground Lease dated June 1, 1973 between Charles F. Larson, Jr., as lessor (the "Springfield Lessor"), and James McClory, as lessee (the "Springfield Ground Lease"), Lessor leases a parcel of unimproved land (the "Springfield Leased Land") which abuts on the east the Hotel located in Springfield, Oregon (the "Springfield Hotel") and which is used primarily as the main access to the Springfield Hotel from Gateway Street. Lessee further understands that under the terms of the Springfield Ground Lease, Lessor may not have the right to sublease the Springfield Leased Land to Lessee without first obtaining the prior written consent of the Springfield Lessor. Lessor shall use best efforts from and after the date hereof to obtain the written consent of the Springfield Lessor to the subletting of Springfield Leased Land pursuant to the terms of this Lease (the "Consent"). Lessee agrees to cooperate with Lessor in Lessor's efforts to obtain the Consent and, in connection therewith, to provide the Springfield Lessor with such information concerning Lessee as the Springfield Lessor may reasonably require. If on the date of this Lease Lessor has not obtained the Consent, then the following provisions shall apply: (a) Notwithstanding anything to the contrary set forth in this Lease, including, without limitation, Section 1.1, Exhibit B attached hereto and Exhibit G attached hereto, until and unless the Consent has been obtained, the Springfield Leased Land shall not be included in or be part of the Land or the Leased Property, and shall not be subleased by Lessor to Lessee pursuant to the terms of this Lease. (b) If Lessor has not obtained the Consent on or before February 2, 1998, then Lessor and Lessee shall negotiate in good faith to determine the reduction, if any, that should be made in the Base Rent and the Percentage Rent formulas set forth in this Lease so that they constitute Fair Market REIT Rent after taking into account the fact that the Springfield Leased Land does not constitute part of the Land or the Leased Premises; and if Lessor and Lessee have not -78- 84 agreed upon such reduction on or before February 27, 1998, then the determination shall be made by appraisal as provided in Section 1.2. (c) If Lessor obtains the Consent, then from and after the date of the Consent, and without any further act on the part of Lessor or Lessee, the Springfield Leased Land shall become part of the Land and the Leased Premises and shall be subleased by Lessor to Lessee pursuant to the terms of this Lease. If and when the Consent is obtained by Lessor, (i) any negotiation or appraisal shall be in progress pursuant to Subsection 35.1(b) above, such negotiation or appraisal shall be terminated or (ii) any reduction in the Base Rent and Percentage Rent formulas shall have been agreed to or determined pursuant to subsection 35.1(c), such reduction shall cease to be effective as of the date of the Consent. 35.2 Termination of Sublease of Springfield Leased Land. If the Consent is obtained, so that the Lease constitutes, in part, a sublease of the Springfield Leased Land, then notwithstanding anything to the contrary set forth in Section 1.2, the sublease of the Springfield Leased Land effected by this Lease shall terminate and expire twenty-four (24) hours prior to the date on which the Springfield Ground Lease terminates. Upon such termination, the provisions of subsection 35.1(c) shall become applicable, except that Lessor and Lessee shall commence their negotiations on the date of such termination and resort shall be had to appraisal If Lessor and Lessee have not reached agreement within thirty (30) days thereafter. ARTICLE XXXVI Lessor's Option to Terminate Lease with Respect to Hotel upon Sale of a Facility. In the event Lessor enters into a bona fide contract to sell any Facility, Lessor may terminate this Lease with respect to each such Facility by giving not less than thirty (30) days prior Notice to Lessee of Lessor's election to terminate this Lease with respect to each such Facility effective upon the closing under such contract. In the event a closing under such contract does not occur, this Lease shall continue to be in full force and effect as to each such Facility. Effective upon such closing, this Lease shall terminate and be of no further force and effect as to any obligations of the parties existing as of such date relating to each such Facility. As compensation for the early termination of its leasehold estate under this Article XXXVI, Lessor shall, within ninety (90) days of such closing, pay to Lessee the Fair Market Value of the Leasehold Estate. -79- 85 IN WITNESS WHEREOF, the parties have executed this Lease under seal by their duly authorized officers as of the date first above written. "LESSOR" RED LION INNS OPERATING L.P. By: Red Lion Properties, Inc., Its General Partner By: /s/ Anupam Narayan -------------------------------- Anupam Narayan Title: VP/Sec/Treas ----------------------------- "LESSEE" WESTBOY LLC By: Boykin Management Company Limited Liability Company, Its Sole Member By: /s/ Ronald A. Cook -------------------------------- Title: President ----------------------------- -80- 86 STATE OF __________ ) ) SS: COUNTY OF _________ ) The foregoing instrument was acknowledged before me this ___________ day of ________________________, 1997, by _________________________ as ____________________________ of ___________________________, a _____________ _______________________________. My commission expires: ______________________. ______________________________ Notary Public STATE OF __________ ) ) SS: COUNTY OF _________ ) The foregoing instrument was acknowledged before me this _____ day of ____________, 1997, by _________________ as _______________ of ___________________________, a _____________ _______________________________. My commission expires: ______________________. ______________________________ Notary Public -81- 87 Exhibit A LIST OF 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 Doubletree Hotel Lloyd Center 1000 N.E. Multnomah Portland, Oregon -82- EX-99.3 5 EXHIBIT 99.3 1 EXHIBIT 99.3 TERMINATION OF MANAGEMENT AGREEMENT This Agreement is made as of this 31st day of December, 1997, by and between Red Lion Hotels Operating L.P. ("Owner") and Red Lion Hotels, Inc., successor-in-interest to RL Acquisition Company ("Manager"). I. BACKGROUND Reference is made to the following: 1.1 Owner and Manager are parties to a Management Agreement dated April 6, 1987, as amended by a First Amendment to Management Agreement dated as of June 9, 1997 (collectively "Management Agreement"), with respect to ten hotels ("Hotels"). 1.2 Owner has entered into a Percentage Lease Agreement ("Lease") of even date herewith of the Hotels with Westboy LLC ("Lessee"), Lessee has entered into a new management agreement ("New Management Agreement") of even date herewith with Manager, relating to the Hotels and Owner and Manager have entered into an Owner's Agreement ("Owner Agreement") of even date herewith with Manager, relating to the Hotels, each of which commences upon the termination of the Management Agreement. 1.3 Owner is to be acquired by [BCo] Company, an Ohio corporation ("Parent"), pursuant to a Merger Agreement ("Merger Agreement") of even date herewith by and among [RCo] Limited Partnership, Owner, L.P., [RCo] Properties, Inc., Parent, and others. 1.4 Owner acknowledges that any Incentive Management Fees ("Outstanding Incentive Management Fees") that have accrued and are outstanding through December 31, 1997, will be payable by Owner to Manager pursuant to the Management Agreement upon the consummation of the merger pursuant to the Merger Agreement. 1.5 Manager is willing to agree to the early termination of the Management Agreement on the terms and conditions hereinafter set forth in order to facilitate the lease of the Hotels pursuant to the Lease. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 2. TERMINATION OF MANAGEMENT AGREEMENT The parties hereby agree that the term of the Management Agreement is terminated effective as of 12:00 midnight on December 31, 1997. 3. TRANSFER OF OWNER'S PROPERTY PURSUANT TO THE LEASE 2 The parties acknowledge that, as set forth in the Lease, Owner has retained its interest in the furniture, fixtures and equipment of the Hotels and that, Owner has, as of the commencement of the term of the Lease, transferred its interest in the accounts receivable, working capital, operating supplies and inventory of the Hotels in consideration for a payment equal to Owner's cost for such items. 4. LIABILITY OF OWNER FOR OUTSTANDING OBLIGATIONS 4.1 If the merger occurs in accordance with the Merger Agreement, then the Owner shall, at the time of the merger, pay to Manager the entire amount of the Outstanding Incentive Management Fees. 4.2 If the merger does not occur pursuant to the Merger Agreement, then Owner shall remain liable to Manager for the entire amount of the Outstanding Incentive Management Fees, and Owner shall pay to Manager such fees when and if such fees would have been payable to Manager as if the Management Agreement had not been terminated pursuant to this Agreement. 4.3 Owner shall, notwithstanding the termination of the Management Agreement, hold harmless, indemnify and remain responsible to Manager for all obligations and liability of Owner under the Management Agreement which arose or accrued prior to December 31, 1997, to the extent that the same have not been satisfied as of the time of termination. 5. LIABILITY OF MANAGER FOR OUTSTANDING OBLIGATIONS Manager shall, notwithstanding the termination of the Management Agreement, hold harmless, indemnify and remain responsible to Owner for all obligations and liability of Manager under the Management Agreement which arose or accrued prior to December 31, 1997, to the extent that the same have not been satisfied as of the time of termination. 6. TERMINATION OF THE LEASE PRIOR TO OCCURRENCE OF THE MERGER OR IN THE EVENT THAT THE MERGER DOES NOT OCCUR The parties agree that if, for any reason the Lease is terminated prior to the occurrence of the merger in accordance with the Merger Agreement, or if the merger does not occur pursuant to the Merger Agreement and the Lease is thereafter 3 terminated, then, notwithstanding anything to the contrary contained in this Agreement or the Owner Agreement: 6.1 Effective as of any such termination of the Lease, the Management Agreement shall be reinstated and shall be in full force and effect for the balance of the term of the Management Agreement, as it may be extended; and 6.2 The parties acknowledge that, as set forth in the Lease, effective upon any such termination of the Lease, Lessee will immediately transfer its interest in the accounts receivable, working capital, operating supplies and inventory of the Hotels in consideration for a payment from Owner equal to Lessee's cost for such items. 6.3 Upon such reinstatement of the Management Agreement, the Owner Agreement and this Agreement shall thereafter be void and without further force effect. EXECUTED UNDER SEAL as of the date first above written. OWNER: RED LION INNS OPERATING L.P. By RED LION PROPERTIES, INC., Its General Partner By /s/ Anvpam Narayan --------------------------- (Name) Anvpam Narayan (Title) VP/Treas/Sec Hereunto Duly Authorized Date Signed: ----------------- MANAGER: RED LION HOTELS, INC. By /s/ Anvpam Narayan --------------------------- (Name) Anvpam Narayan (Title) VP/Treas/Sec Hereunto Duly Authorized Date Signed: ----------------- EX-99.4 6 EXHIBIT 99.4 1 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 2 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
-i- 3 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
-ii- 4 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
-iii- 5 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 6 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. -2- 7 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 -3- 8 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 -4- 9 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. -5- 10 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. -6- 11 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 -7- 12 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. -8- 13 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; -9- 14 (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 -10- 15 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. -11- 16 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 -12- 17 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, -13- 18 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. -14- 19 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. -15- 20 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 -16- 21 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 -17- 22 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 -18- 23 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 -19- 24 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. -20- 25 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 -21- 26 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. -22- 27 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 -23- 28 (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: -24- 29 (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 -25- 30 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 -26- 31 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 -27- 32 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 -28- 33 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: -29- 34 (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 -30- 35 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); -31- 36 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) -32- 37 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: -33- 38 (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 -34- 39 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: -35- 40 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. -36- 41 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. -37- 42 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. -38- 43 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. -39- 44 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 -40- 45 (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 -41- 46 (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, -42- 47 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 -43- 48 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 -44- 49 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 -45- 50 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 -46- 51 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. -47- 52 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 -48- 53 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"). -49- 54 (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. -50- 55 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 -51- 56 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 -52- 57 Doubletree Hotel Lloyd Center 1000 N.E. Multnomah Portland, Oregon -53- 58 EXHIBIT B TERMINATION OF MANAGEMENT AGREEMENT (attached) -54- 59 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 -55- 60 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. -56- 61 EXHIBIT D OWNER AGREEMENT (attached) -57- 62 EXHIBIT E LICENSE AGREEMENT (attached) -58- EX-99.5 7 EXHIBIT 99.5 1 EXHIBIT 99.5 OWNER AGREEMENT THIS OWNER AGREEMENT (this "Agreement") is entered into as of the 1st day of January, 1998, by and among RED LION INNS OPERATING L.P., a Delaware limited partnership ("Owner"), WESTBOY LLC, an Ohio limited liability company ("Lessee"), and RED LION HOTELS, INC., a Delaware corporation ("Manager"). W I T N E S S E T H: WHEREAS, Lessee, as tenant, and Owner, as landlord, have entered into a Lease Agreement as of the date hereof pursuant to which Owner has leased the hotels listed on Schedule A (as amended from time to time to reflect sales, dispositions and substitutions in accordance with this Agreement) (the "Hotels") to Lessee (the "Lease Agreement"); WHEREAS, Manager has previous experience managing the Hotels and Lessee has decided to hire Manager as of the date hereof to manage the hotels pursuant to a management agreement (the "Management Agreement") and Lessee has been informed by Manager that Lessee would be entitled to certain more favorable management terms if Owner is willing to sign this Agreement; WHEREAS, Owner has agreed to sign this Agreement because Owner believes that the hiring of Manager by Lessee will help Lessee maximize the gross revenues at the Hotels and therefore will help maximize the lease payments to be received by Owner, as landlord, from Lessee under the Lease Agreement. NOW, THEREFORE, in consideration of the premises, the parties agree as follows: 1. Notices of Default or Termination. Manager shall deliver to Owner a copy of any Notice of Default (capitalized terms not defined herein shall have the meanings set forth in the Management Agreement) delivered to Lessee pursuant to the Management Agreement concurrently with delivery to Lessee. By such notice, Manager shall give Owner the opportunity to cure or cause to be cured such default. Owner shall have the same cure periods provided to Lessee under the Management Agreement, plus an additional sixty (60) days. Manager shall also deliver to Owner a copy of any Notice of Termination delivered to Lessee pursuant to the Management Agreement concurrently with delivery to Lessee, and Owner shall have (i) the same additional sixty (60) day cure rights described above with respect to such termination, and (ii) the right to cause the Hotels to be leased to an Interim Tenant as set forth below. Further, if the Manager terminates the Management Agreement pursuant to this Section 1, then the provisions of Section 3 below shall apply. 2. Default under the Management Agreement. If Lessee defaults under the Management Agreement, and Owner does not cause to be cured such default 2 within the cure periods set forth herein, then Owner shall be required to and shall immediately terminate the Lease Agreement. Owner's obligation to terminate the Lease Agreement shall be absolute and shall not be affected or limited by the commencement of voluntary or involuntary proceedings affecting Lessee pursuant to the provisions of the federal Bankruptcy Act or similar creditor protection laws or the fact that, under the local real estate law applicable to any Hotel, termination of the Lease Agreement with respect to such Hotel is one of several remedies available to Owner. Owner represents and warrants to Manager that, under the local real estate law applicable to each Hotel, Owner has the right, under applicable law and the Lease Agreement, to terminate the Lease Agreement as required by this Section 2 with respect to such Hotel. 3. Termination of the Lease Agreement. A. In the event the Lease Agreement or any substitute Lease Agreement with an Approved Substitute Tenant terminates for any reason prior to the expiration of the term of this Agreement, whether as a result of the expiration of the term of the Lease Agreement (as it may be extended), the early termination of the Lease Agreement on account of Owner's exercise of its remedies thereunder, including pursuant to Section 2 hereof, or for any other reason (the date of the termination of the Lease being referred to as the "Termination Date"), Owner shall immediately cure any defaults of Owner that may exist pursuant to Owner's obligations under the Lease Agreement and shall on the Termination Date (i) take possession of the Hotels in compliance with the REIT Rules (defined below) or (ii) immediately lease the Hotels to an interim tenant ("Interim Tenant") of Owner's choosing, and then (subject to the right of first offer set forth in Paragraph C below) use its best efforts to as promptly as is practicable lease the Hotels to an Approved Substitute Tenant for a term identical to the remaining term of the current Lease Agreement (including the extension provisions thereof). Any Interim Tenant shall be a Bankruptcy Remote Entity (defined below). If the Interim Tenant defaults in any manner (including by the commencement of voluntary or involuntary bankruptcy proceedings) and such Interim Tenant does not cure such default upon receipt of written notice thereof, Owner shall, within five (5) days of receipt of written notice thereof, (i) cause such default to be cured or (ii) terminate the lease agreement with the Interim Tenant and take possession of the Hotels in compliance with the REIT Rules (defined below). If Owner directly assumes the obligations of the Lessee under the Management Agreement, the Management Agreement shall be conformed to reflect the fact that the Owner is the fee owner (or ground lessee) of the Hotels rather than a tenant. In each case, the party in possession of the Hotels (i.e., Owner, Interim Tenant, or Approved Substitute Tenant) shall as of the Termination Date take assignment of and shall assume in writing on a prospective basis all of the rights and obligations of Lessee under the Management Agreement. Manager shall recognize such party as the substitute or successor to Westboy LLC under the Management Agreement and shall satisfy all of its obligations and duties as Manager under the Management Agreement in favor of such party. Under no -2- 3 circumstances shall Owner, Interim Tenant, or Approved Substitute Tenant be required to cure any prior defaults of Lessee under the Management Agreement which occurred prior to the applicable Termination Date. Any Interim Tenant or Approved Substitute Tenant shall execute a counterpart of this Agreement, and shall thereby agree to be bound by the provisions hereof applicable to the Lessee. This Agreement shall continue in full force and effect, the term "Lease Agreement" shall mean such new lease entered into with the Interim Tenant or Approved Substitute Lessee, and the term "Management Agreement" shall mean the Management Agreement as assumed by the Owner, Interim Tenant, or the Approved Substitute Tenant, as the case may be, and the term "Lessee" shall mean the "Interim Tenant" or the "Approved Substitute Tenant", as the case may be. For the purposes of this Agreement, the REIT Rules shall mean the rules in Sections 856-860 of the Internal Revenue Code which would effectively disqualify Owner as a Real Estate Investment Trust for federal income tax purposes if the Owner continues in possession of the Hotels (currently for a period in excess of two (2) years), subject to the Management Agreement but without Owner's having entered into a lease with an Interim Tenant or Approved Substitute Tenant. Notwithstanding any provision of this Agreement to the contrary, the Owner shall have no obligation to continue in possession of the Hotels for a period which would effectively disqualify Owner or any of Owner's direct or indirect Owners as a REIT, and may at any time up to and including such expiration date lease the Hotels to an Interim Tenant or Approved Substitute Tenant. However, if Owner does not lease the Hotels to an Interim Tenant or Approved Substitute Tenant by the time the Owner is no longer permitted to operate the Hotels without violating the then applicable REIT Rules, Owner shall be in breach under this Agreement and Manager shall be entitled to all remedies at law or in equity. Lastly, if the Owner leases the Hotels to an Interim Tenant and such Interim Tenant defaults (including the commencement of voluntary or involuntary bankruptcy proceedings) and Owner does not (i) cause such default to be cured within five (5) days or (ii) terminate the lease agreement with the Interim Tenant and take possession of the Hotels in compliance with the REIT Rules, Owner shall be in breach of this Agreement and Manager shall be entitled to all remedies available at law or in equity. B. An "Approved Substitute Tenant" shall mean an individual or entity identified by Owner which in Owners and Manager's reasonable credit judgment is (i) financially capable of fully satisfying the requirements of the Lease Agreement and the Management Agreement (and satisfies the conditions of the next sentence), (ii) is a Bankruptcy Remote Entity (defined below), and (iii) provides Owner and Manager with all information which Manager may reasonably request in order to make an appropriate evaluation of such tenant. Owner acknowledges that trade secrets and other confidential information and materials are, in the normal course of business, delivered by Manager to its hotel owners and lessees, and Manager will, therefore, be under no obligation to approve a substitute tenant which is engaged in the ownership or operation of hotels which either directly compete with Manager or evidence lesser standards of operation than the standards of Manager. The fact that a candidate substitute tenant is then currently an owner or lessee of a hotel or hotels -3- 4 operated by Manager or its affiliates or is otherwise operating a lodging product bearing a trade name of Doubletree shall be evidence of acceptability but, shall not, standing alone, be construed to mean that such candidate shall be acceptable to Manager as an Approved Substitute Tenant. "Bankruptcy Remote Entity" shall mean an entity whose organizational documents (i) allow Manager to appoint a member of the Board of Directors, (ii) requires unanimous approval of all members of the Board of Directors to file voluntary bankruptcy, (iii) state that no Board member shall be guilty of breaching its fiduciary duties to owners of the entity by virtue of voting to prevent the entity from voluntarily filing bankruptcy, and (iv) state that the Board members shall not solicit creditors to force the entity into bankruptcy. Owner and Lessee hereby represent that Westboy LLC is a Bankruptcy Remote entity. C. If Owner is willing to enter into a new lease of the Hotels with an Approved Substitute Tenant (the "New Lessee"), then Owner shall, if a Lease Agreement is terminated by Owner, prior to entering into any Lease Agreement with any Approved Substitute Tenant, give Manager the opportunity to lease the Hotels by giving Manager a written Request for Proposal. The Request for Proposal shall set forth the model ("Model") for rental payments desired by Owner. Manager may, within ten (10) business days of its receipt of the Request for Proposal, submit to Owner an offer ("Offer") to lease the Hotels which is based upon the Model. If the Offer is acceptable to the Owner, then Manager and Owner shall enter into a lease which shall be upon the terms set forth in the Offer and otherwise upon the same terms set forth in the then current Lease Agreement to the extent not inconsistent with the Offer. If the Owner does not accept the Offer, then the Owner may solicit other potential Acceptable Substitute Tenants, who will submit an offer ("New Tenant's Offer") to lease the Hotels which is based upon the Model. If the Owner receives a New Tenant's Offer which it is willing to accept, the Owner shall promptly give Manager a copy of the New Tenant's Offer and the following shall apply: If the New Tenant's Offer is one hundred five percent (105%) or more of the Offer, then the Owner may accept the New Tenant's Offer, subject to the terms and provisions of this Agreement. If the New Tenant's Offer is less than one hundred five percent (105%) of the Offer, then the Manager shall have the right within ten (10) days to enter into a lease of the Hotels either, at Manager's sole election, on the terms of the Offer or on the terms of the New Tenant's Offer. If the Owner desires to enter into a lease based upon a different model ("Substitute Model"), then, prior to entering into any lease, the Owner shall give Manager a new Request for Proposal based upon the Substitute Model, and the Manager shall again have a right to submit an Offer to Lease the Hotels based upon -4- 5 the Substitute Model, pursuant to this provision, as if such Request for Proposal were the initial Request for Proposal. If the Manager does not thereafter within ten (10) days submit an Offer in response to a Request for Proposal, then the Owner shall be free to enter into a lease with an Acceptable Substitute Tenant subject to the provisions of this Agreement, but without further restriction pursuant to this provision, unless and until the Lease Agreement with such Acceptable Substitute Tenant is terminated. D. Reference is made to the fact that, prior to the date of this Agreement, Manager managed the Hotels for the Owner pursuant to a Management Agreement ("Prior Agreement") and that Owner may be acquired by an entity controlled, directly or indirectly, by Boykin Lodging Company, an Ohio corporation, pursuant to a Merger Agreement (the "Merger") dated December ___, 1997. Notwithstanding anything to the contrary herein contained, if the Merger does not occur pursuant to the Merger Agreement and the Lease is thereafter terminated, then, notwithstanding anything to the contrary contained in this Agreement, (i) effective as of any such termination of the Lease, the Prior Agreement shall be reinstated and shall be in full force and effect, and (ii) upon reinstatement of the Prior Agreement, this Agreement shall thereafter be void and without further force or effect. 4. Subordination. Manager agrees that this Agreement and the Management Agreement shall be subject to and subordinate to any Approved Mortgage (as defined on Exhibit A attached hereto). Owner covenants and agrees to comply with its obligations set forth in Exhibit A. 5. Operation of the Hotels. The Hotels shall be operated under the Doubletree brand name in accordance with the terms of the Management Agreement. 6. Provisions of Any Lease Agreement. Owner covenants with Manager that it will not amend the Lease Agreement (or any substitute lease) in any manner which materially adversely affects Manager's economic interest, without the prior written approval of Manager, provided however, that Manager agrees that an amendment revising the formulas of Base Rent and Percentage Rent (as defined in the Lease Agreement) so that such formulas reflect the prevailing rents under leases by REITs of similar properties, as agreed to by Owner and the lessee in good faith, will not constitute a materially adverse effect on Manager's economic interest. Owner further covenants with Manager that, unless Owner obtains the prior written approval of Manager, all substitute leases shall be in the same form as the Lease Agreement, except for such revisions as do not materially adversely affect Manager's economic interest, provided, however, that Manager agrees that a substitute lease which has different formulas of Base Rent and Percentage Rent (as defined in the Lease) which reflect the prevailing rents under leases by REITs of similar properties, as agreed to by -5- 6 Owner and the lessee in good faith, will not constitute a materially adverse effect on Manager's economic interest. 7. Surrender by the Lessee. Upon the occurrence of any event described herein for the replacement of Lessee as occupant of any Hotel, Lessee shall surrender its rights and interest in the Management Agreement to Manager and peaceably turn over possession of the Hotels to Owner, an Interim Tenant, an Approved Substitute Tenant, or Manager as Lessee. 8. Term. The term of this Agreement shall commence on January 1, 1998 and terminate on April 5, 2012. Manager shall have the right to extend the term of this Agreement by not less than six months' prior written notice to Owner and Lessee during the then current term for up to ten consecutive extended terms of five (5) years each. An extension of the Management Agreement shall automatically extend this Agreement. 9. Restriction on Certain Actions of Owner. A. Owner shall not take any action that results in, or would be reasonably likely to result in, Lessee commencing bankruptcy or insolvency proceedings with respect to itself, and Owner agrees that it shall not participate in the commencement of any involuntary bankruptcy proceeding or similar insolvency proceeding. B. Owner shall at all times comply with all loan agreements, mortgages, indentures or other instruments under which there may be issued or by which there may be secured any lien or other security interest with respect to any of the Hotels. C. If the Lessee is in material default under the Lease, Owner agrees that it will not extend the term of the Lease without Manager's consent unless, before or as part of such extension, such default is cured, or with respect to monetary defaults, otherwise waived. The parties agree that, for purposes of this Paragraph C, the commencement of any voluntary or involuntary bankruptcy shall be deemed to be an incurable default by Lessee. 10. Destruction; Condemnation. Owner and Westboy agree to fully enforce their respective rights and perform all of their obligations under Article VII of the Management Agreement and Article XIV of the Lease Agreement. 11. Notices. Notices under this Agreement shall be delivered by U.S. certified mail, return receipt requested as to certified mail, or by recognized reliable overnight delivery service to the parties as follows: -6- 7 If to Manager: Red Lion Hotels, Inc. 410 North 44th Street, Suite 700 Phoenix, Arizona 85008 Attn: Anupam Narayan If to Lessee: Westboy LLC Terminal Tower 50 Public Square, Suite 1500 Cleveland, Ohio 44113-2258 Attn: Ronald Cook If to Owner: Red Lion Inns Operating L.P. Terminal Tower 50 Public Square, Suite 1500 Cleveland, Ohio 44113-2258 Attn: Robert W. Boykin With a copy to: West Doughboy LLC Terminal Tower 50 Public Square, Suite 1500 Cleveland, Ohio 44113-2258 Attn: Andrew C. Alexander and shall be effective three (3) business days after being deposited with the U.S. Postal Service or other delivery service. Any party may change its address for notices by giving notice as provided under this Section 11. 12. Litigation Costs. The prevailing party in any litigation under this Agreement shall be entitled to recover from the other party(ies) its reasonable attorney fees and costs incurred in connection with such dispute. 13. Memorandum. At Manager's request, Owner shall prepare, execute, acknowledge and deliver to Manager, in recordable form, a brief document referencing the existence 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. 14. Successors and Assigns. This Agreement shall run to the benefit of and be binding upon the parties hereto and their respective permitted successors and assigns. 15. Doubletree License Agreement; Joinder by Doubletree. Doubletree Corporation ("Doubletree") represents and warrants to Westboy that a -7- 8 License Agreement in the form of Exhibit ___ to the Management Agreement 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 (including extensions hereof) with respect to any Hotel, they will not, without Owner's and Westboy's consent (which may be withheld in Owner's or Westboy's sole discretion), (a) amend or waive any provision of the License Agreement that would limit the ability of Owner or Westboy to use the Hotel names listed on Exhibit A or the names that may become substituted pursuant to the terms of this Agreement or the Management Agreement, or (b) terminate the License Agreement. 16. Right of First Refusal on Sale of Hotels. A. If at any time, or from time to time, during the term of this Agreement, Owner receives and is willing to accept a bona fide offer from a third party to purchase all or any portion of Owner's interest in one or more Hotels, or if Owner offers to sell all or any portion of its interest in one or more Hotels to any third party, in each case, other than an offer or sale incidental to the exercise of any remedy by an Approved Mortgagee and other than an offer or sale following Manager's delivery of a Notice of Termination with respect to the affected Hotel or Hotels (any such offer to or from a third party is herein called a "Third Party Offer"), Owner shall promptly transmit to Manager its written offer to sell its interest in the Hotel or Hotels described in the Third Party Offer to Manager upon the terms and conditions set forth in the Third Party Offer, together with a true copy of such offer, and shall give Manager thirty (30) days to accept such offer. If Manager accepts such offer by written notice to Owner within such time, Owner and Manager shall duly perform their obligations under such agreement. If Manager fails to accept such offer in accordance with this paragraph, then Owner shall be free, within one hundred eighty (180) days of Manager's failure to accept such offer, to sell its interest in the Hotel or Hotels described in the Third Party Offer to such third party upon the terms and conditions contained in such offer. B. Upon, and as a condition to, any sale, assignment, conveyance or other transfer of a Hotel or Hotels by Owner, Manager and the new Owner of the Hotel or Hotels shall enter into a new Management Agreement on all of the terms and conditions of this Agreement, except that (A) the Current Priority Amount shall be equal to the Current Priority Amount hereunder multiplied by a fraction, the numerator -8- 9 of which is the Adjusted Gross Operating Profit for the immediately preceding calendar year for the Hotel which has been sold and the denominator of which is the Adjusted Gross Operating Profit of all of the Hotels managed under this Agreement immediately before such sale for such period, and (B) the Operating Profit Target under the new agreement shall be equal to the Operating Profit Target existing under this Agreement immediately before the sale of the Hotel or Hotels to be managed under the new agreement multiplied by a fraction, the numerator of which is the Adjusted Gross Operating Profit for the immediately preceding calendar year of the Hotel or Hotels sold and the denominator of which is the Adjusted Gross Operating Profit of all of the Hotels managed under this Agreement immediately before such sale for such period. 17. Sale of Hotels. A. Subject to Manager's rights pursuant to Section 16 of this Agreement, so long as no default attributable to Owner shall have occurred under this Agreement and be continuing, and subject to Paragraph B of this Section 17, Owner shall have the right, without Manager's approval, to assign, transfer or convey all or any part of its right, title and interest in any Hotel or any interest therein (which assignment must include (subject to the assignee's option under Paragraph 16B of this Agreement and subject to Paragraph C below) the Management Agreement (to the extent appropriate), and, if the assignee will be taking subject to a lease, this Agreement (to the extent appropriate), and all assets of Owner (and lessee of the Hotels, if applicable) related to the operation of such Hotel(s), including, without limitation, all of the issued and outstanding capital stock of any liquor license holding corporation). B. Any assignment, transfer or conveyance under Paragraph A above 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 the Management Agreement or, at the assignee's option, (B) agree to a management agreement in the same form as the Management 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 owned by Owner, 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 owned by Owner; (ii) the delivery to Manager of an executed counterpart of the instrument of assignment and assumption of rights and obligations; and (iii) the assignee shall be 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 -9- 10 of Manager and does not have any material ownership interest in a competitor of Manager. C. This Paragraph C shall apply only to the Hotels located in Spokane, Yakima, and Bellevue, Washington, and Springfield, Oregon. In the event that Owner 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 or Lessee, provided that there is offered to be to substituted to Manager therefor (whether under this Agreement or another management agreement with Manager), a full service hospitality property owned (or otherwise controlled by Owner) and leased to a tenant of 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 one hundred eighty (180) days after the transfer of the prior hotel, then Owner and Westboy (or any subsequent lessee) shall pay monthly, on a joint and several basis, the cumulative amount set forth in clause B of the preceding sentence. If by the one year anniversary of the termination of such one hundred eighty (180) day period, such substitute hotel is not opened and operated as a Doubletree hotel, Owner and Westboy (or any subsequent lessee) shall pay to Manager on demand, on a joint and several basis, a cumulative amount (the "Substitute Hotel Damages") 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 the Management Agreement after such Disposition (assuming all extension options are exercised), and the expected gross fees which would have been payable to Manager under the Management Agreement (assuming all extension options are exercised) had the Hotel not been subject to a Disposition; provided, however, that in such event, the maximum amount in the aggregate recoverable by the Manager from Owner and Westboy (or any other lessee) under this Paragraph C and Section 9.2(c) of the Management Agreement shall not exceed the Substitute Hotel Damages. D. In the event that Owner shall assign, transfer or convey its right, title and interest in any Hotel under Paragraphs A or B hereof, then Owner shall not be liable for any obligation arising under this Agreement after the date of such assignment, transfer or conveyance. In the event that Owner shall assign, transfer or convey its right, title and interest in a Hotel pursuant to Paragraph C hereof, then Owner shall not be liable for any obligation under this Agreement with respect to the -10- 11 Hotel which has been affected by such assignment, transfer or conveyance, after the date of such assignment, transfer or conveyance, provided however, that nothing herein shall relieve Owner of its obligations to Manager under Paragraph C hereof. E. Except as set forth in this Section 17, Owner shall have no right to transfer, assign, or convey its interest in the Hotels. 18. Other Provisions. The statements set forth in the recitals are incorporated herein as a substantive part of this Agreement. To the extent any provision of this Agreement is inconsistent with any provision of the Lease Agreement or the Management Agreement, the provisions of this Agreement shall control. It is not intended by the parties that the Manager recover duplicative damages from Lessee and Owner by instituting separate actions under the Management Agreement and this Agreement, and the provisions of this Agreement and the Management Agreement shall not be interpreted separately to allow for duplicative recoveries. [This space intentionally left blank] -11- 12 IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to execute this Agreement as of the date first above mentioned. RED LION INNS OPERATING L.P., a Delaware limited partnership By: /s/ Anupam Narayan -------------------------------------- Anupam Narayan Title: VP/Treas/Sec ----------------------------------- WESTBOY LLC, an Ohio limited liability company By: /s/ Ronald A. Cook -------------------------------------- Title: President ----------------------------------- By: /s/ John E. Boykin -------------------------------------- Title: ----------------------------------- RED LION HOTELS, INC., a Delaware corporation By: /s/ Anupam Narayan -------------------------------------- Anupam Narayan Title: VP/Treas/Sec ----------------------------------- JOINDER BY DOUBLETREE FOR PURPOSES OF SECTIONS 5 AND 15 OF THIS AGREEMENT: DOUBLETREE CORPORATION, a Delaware corporation By: /s/ David L. Stivers -------------------------------------- Title: Senior Vice President ----------------------------------- -12- 13 SCHEDULE A LIST OF 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 Doubletree Hotel Lloyd Center 1000 N.E. Multnomah Portland, Oregon -13- 14 EXHIBIT A 1. Limitation on Mortgages. Except as set forth in this Section 1, Owner shall have no right to place any mortgage on the Hotels. Manager hereby consents to and approves the Existing Indebtedness and the Existing Mortgages. Owner shall have the right to grant to any subsequent lender lending funds to Owner, a mortgage lien or encumbrance on all or any part of the Owner's right, title and interest in and to the Hotels (collectively the "Collateral"); provided, however that either (i) the aggregate principal amount of all loans secured by the Collateral does not exceed, One Hundred 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 Owner, such One Hundred Twenty Million and no/100 Dollars ($120,000,000.00) 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 Manager, 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 (as defined in the Lease) 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 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, or (iii) the loan is secured by a lien or encumbrance ("Nondisturbance Mortgage") and the lender lending funds to Owner executes a nondisturbance agreement ("Nondisturbance Agreement"), in form reasonably acceptable to Manager, in favor of Manager (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 Owner has not delivered to Manager a commitment for the refinancing of the loan secured by the Existing Mortgage or any loan secured by an Approved Mortgage within sixty (60) days of the scheduled maturity of such loan, Manager shall have the right, on behalf of Owner, to seek such a commitment and to place such a loan, on arm's-length terms with an institutional lender regularly making real property secured loans, in an amount equal to the then outstanding principal balance of the existing loan together with reasonable closing costs, including any commitment fee. Owner shall execute any and all documents reasonably requested by Manager in connection with such placement of a new loan. Any mortgage securing such a loan obtained by Manager on behalf of -14- 15 Owner shall be an Approved Mortgage. Manager shall have no obligation to place such a loan on behalf of Owner. 2. 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 Mortgage shall have the right to terminate this Agreement with respect to any Hotel(s). Manager further agrees that any Incentive Fees payable under the Management Agreement are subject and subordinate to, at the option of Westboy or Owner, as the case may be, 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 Eleven Million Six Hundred Eight Thousand and no/100 Dollars ($11,608,000.00). 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 1 of this Exhibit A, 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 any accrual or limitation based upon Cash Flow Available for Incentive Fee). The provisions of Section 3.2(e) of the Management Agreement shall apply to any Approved Mortgage. b. If there is no Approved Mortgage on the Hotels and if Owner desires to increase the Annual Debt Service Priority Amount in connection with an unsecured loan ("Unsecured Loan") entered into by Owner, then Owner and 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 to 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 Owner and Westboy request 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) of the Management Agreement, be considered to be the proceeds of loan secured by an Approved Mortgage, and (ii) simultaneously with the giving of such notice Westboy -15- 16 agrees to pay 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 fifty-four percent (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 Twenty-three Million Two Hundred Seventeen Thousand and no/100 Dollars ($23,217,000.00). -16- EX-99.6 8 EXHIBIT 99.6 1 EXHIBIT 99.6 [RED LION INNS LIMITED PARTNERSHIP LETTERHEAD] NEWS FOR IMMEDIATE RELEASE Contact: Red Lion Inns Limited Partnership Boykin Lodging Company Anupam Narayan Raymond P. Heitland Senior Vice President & Treasurer Chief Financial Officer Phone: (602) 681-3544 Phone: (216) 241-6375 David Trumble Paul O'Neil Director, Corporate Communications Treasurer Phone: (602) 220-6822 Phone: (216) 241-6375 BOYKIN LODGING COMPANY AND RED LION INNS LIMITED PARTNERSHIP ANNOUNCE A DEFINITIVE AGREEMENT TO MERGE PHOENIX, December 30, 1997 -- Boykin Lodging Company (NYSE: BOY) has agreed to acquire Red Lion Inns Limited Partnership (AMEX: RED) and its subsidiary partnership in a transaction valued, including assumed liabilities, at approximately $272 million. With this acquisition, Boykin will acquire ten full-service Doubletree branded hotels managed by Doubletree. The transaction is conditioned upon the approval of Red Lion's unitholders and Boykin's stockholders and is expected to close in March 1998. Under the terms of the agreement, Boykin will pay approximately $35.3 million in cash and issue 3.1 million shares for all of the outstanding partnership interests in Red Lion's subsidiary partnership in a taxable transaction. Based upon Tuesday's closing price for Boykin's stock, the aggregate equity consideration equals $115.4 million, or $26.37 for each limited partner unit in Red Lion. The allocation of amounts between the general partner and the limited partners of Red Lion are based on a formula contained in the Red Lion partnership agreement. Because the number of shares of Boykin stock to be issued in the transaction is fixed, and because of the general partner's interest, the total value of the consideration to be received by the limited partners will be based upon the price of Boykin's stock at closing. The cash portion of the purchase price is expected to be funded with proceeds from Boykin Lodging's $150 million credit -more- 410 NORTH 44TH STREET, SUITE 700 * PHOENIX, ARIZONA 85008 * (602) 220-6666 2 Red Lion Inns, L.P. Page 2 facility and/or new senior debt secured by the Red Lion properties. Boykin Lodging plans to invest $10 million in capital expenditures for renovation and improvement of the properties. Red Lion intends to pay its regularly scheduled distribution for the quarter ended December 31, 1997. The merger agreement also provides that Red Lion will pay a special distribution immediately prior to the closing of the transaction in an amount such that the special distribution plus the accrued dividend on the Boykin stock to be received by the unitholders will equal to Red Lion Inns existing distribution rate prorated to the closing. "We are very pleased to announce our plans to acquire Red Lion Inns Limited Partnership," said Robert W. Boykin, chairman, president and chief executive office of Boykin Lodging Company. "This acquisition represents a tremendous growth opportunity for us. The ten hotels that we are acquiring give us a powerful presence in strong and expanding commercial markets in growing western cities such as Seattle, Portland, Sacramento, Boise, Colorado Springs and Omaha. We believe that the hotels will benefit significantly from Doubletree's superior management team, sales and marketing capabilities, and national brand recognition. Looking forward to 1998, we expect this transaction to be accretive to our Funds From Operations as these properties as the reflagging hits stride and REVPAR grows." "This transaction is mutually beneficial to both of our companies," said Richard M. Kelleher, president of Red Lion Properties, Inc., the general partner of Red Lion Inns Limited Partnership. "The special committee of the general partner board evaluated several proposals for the sale of the assets of the Red Lion Inns Limited Partnership and has presented us with an opportunity that maximizes value for our unitholders." Mr. Boykin continued, "In addition to adding ten very strong, profitable full-service hotels to our portfolio, this acquisition represents an opportunity for us to develop a meaningful strategic relationship with Promus Hotel Corporation, one of the nation's largest and most respected lodging companies. The company owns, operates or franchises more than 1,200 hotels, with approximately 177,000 rooms throughout the United States, Canada, Mexico and Latin America. It is the franchisor and operator of the Doubletree Hotels and Guest Suites, Embassy -more- 3 Red Lion Inns, L.P. Page 3 Suites, Homewood Suites, Club Hotels by Doubletree, Hampton Inn, Hampton Inn & Suites, Embassy Vacation Resorts and Hampton Vacation Resorts brands. We look forward to working with the company to maximize the profitability of our newest hotels and pursuing opportunities that will enhance our portfolio of Doubletree branded properties." In May 1997, Red Lion Properties, Inc. created a special committee to evaluate strategic alternatives in light of the upcoming changes in the Red Lion Inns tax status as a master limited partnership effective January 1, 1998. In July 1997, the special committee recommended a sale of Red Lion Inns, and was authorized to pursue a sale. The special committee and the Board of Directors of Red Lion Properties have both unanimously approved the sale, and have recommended adoption and approval of the sale by Red Lion Inns' unitholders. Red Lion's hotel portfolio comprises ten upscale, full-service hotel properties that range in size from 208 rooms to 476 rooms and contain a total of 3,062 rooms. The hotels, which operated as "Red Lion Hotels" or "Red Lion Inns," were reflagged in June 1997 to operate as "Doubletree Hotels." They are located in growing commercial markets in Portland, Oregon (476 rooms at Lloyd Center and 235 rooms downtown), Springfield, Oregon (234 rooms), Sacramento, California (448 rooms), Boise, Idaho (304 rooms), Spokane Valley, Washington (237 rooms), Bellevue, Washington (208 rooms), Yakima, Washington (208 rooms), Colorado Springs, Colorado (299 rooms), and Omaha, Nebraska (413 rooms). The hotels are situated in major traffic arteries that are near airports, commercial centers and tourist sites. Each of the hotels offers full-service accommodations, including meeting space, lounges, and banquet facilities, and most have at least two restaurants. The hotels typically offer valet service, swimming pools, health and fitness centers, concierge services, business centers and complimentary airport shuttle services. Boykin Lodging Company is a multi-tenant real estate investment trust which focuses on the ownership of full-service, premium-branded commercial and resort hotels. Boykin Lodging currently owns 17 commercial and resort properties containing 4,566 rooms, located in California, Florida, Indiana, New York, North Carolina, Minnesota, Maryland, Missouri and Ohio. -more- 4 Red Lion Inns, L.P. Page 4 Red Lion Inns Limited Partnership is the owner of ten hotels managed by Doubletree as part of the Doubletree system of 258 hotels. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: The statements contained in this release which are not historical facts, such as those concerning future financial performance and growth, are forward looking statements that are subject to change based on various factors which may be beyond Boykin's control. Accordingly, the future performance and financial results may differ materially from those expressed or implied in any such forward looking statements. Such factors include, but are not limited to, those described in Red Lion's filings with the Securities and Exchange Commission, as well as various factors related to the transaction described in this release. ### -----END PRIVACY-ENHANCED MESSAGE-----