Lease Agreement

The City of Portland, a municipal corporation hereinafter called the “City,” and RedTail Inc., hereinafter called the “lessee,” enter into the following agreement effective July 1, 2002.

Recitals

1)  Since 1972, RedTail Inc. (formerly known as Double Eagle Golf Inc.) and its predecessor, Par 4 Inc., have done business with the City under Agreement 13306, a lease agreement under which Par 4 Inc. constructed and RedTail Inc. now operates a golf clubhouse, restaurant, driving range, and related facilities at what is now known as RedTail Golf Course (formerly Progress Downs Golf Course).

2)  Agreement 13306 has been amended many times over the past thirty years.

3)  In June 1999, the City and RedTail Inc. entered into a lease addendum that extended the lease term, revised the compensation, resolved past disputes, and required each party to make significant capital improvements to its facilities. The City has since made its required capital improvements; RedTail Inc. has not yet made its required capital improvements.

4)  The June 1999 lease addendum called for both parties to enter into a replacement agreement, in order to clearly compile in a single document the currently relevant sections of the original agreement and its long trail of amendments. That is the primary purpose of this agreement.

5)  This replacement agreement is also an opportune time to make other changes, mutually agreed upon, in order to facilitate the capital improvements required of the lessee under the 1999 lease addendum.

6)  Among the changes that will facilitate the lessee’s required capital improvements is the addition of new financial partners to the lessee. Accordingly, this replacement agreement authorizes the assignment of the lease to a new limited liability company, RedTail LLC, which will be 50% owned by the current owners of RedTail Inc. and 50% owned by additional investors consisting of Gregory Daniels and/or Realvest Corporation. This assignment will be effective when RedTail LLC is legally created; until that time, the provisions of this lease are binding upon RedTail Inc.

Therefore, the City and lessee agree as follows:

Section I: City Obligations

1)  Ground Lease and Concession Rights

The City hereby leases the land area at RedTail Golf Course identified by the map and legal description in Exhibit A to the lessee in accordance with the terms and conditions contained in this lease agreement. With this ground lease, the lessee has the responsibility and the exclusive right to collect greens fees for the City and operate a pro shop, driving range, restaurant, and related businesses at RedTail Golf Course that serve the golfers.

2)  City Compensation to Lessee

The City will pay the lessee 11% of the greens fees including tournament fees, advance reservation fees, or other fees charged by the City for the use of the course. This payment is in consideration for services provided by the lessee in collecting greens fees, making reservations, providing starters and marshals for the course, and representing the City to golf course customers. The City, at its discretion, may either pay the lessee within 20 days after the close of each month or authorize the lessee to withhold its share of the greens fees from each month’s collections.

3)  City Maintenance of the Golf Course

The City will maintain RedTail Golf Course in good condition and continue it in operation as a first-class golf course during the lease term. The City shall also be responsible for mowing and turf maintenance (including water and fertilizing) on the driving range landing area, including the berm between the landing area and the first fairway, beginning ten feet from the tee facility and cart barn structures.

4)  Periodic Evaluation of Golf Course

In 2005 and every five years thereafter through the term of this agreement, the City shall request a United States Golf Association (USGA) Turf Advisory Service rating of the RedTail course, with a request that the USGA rank the course as “top 15 percentile,” “top 30 percentile,” “top 50 percentile,” or “bottom 50 percentile” among the daily-rate public courses within the USGA’s Western region. If the RedTail course receives a rating of less than “top 15 percentile,” the City shall ask the USGA to recommend actions that would put the RedTail course into the top 15 percentile. Those recommendations that are changes in maintenance practices only will be immediately implemented by the City. Those recommendations that would require additional capital improvements will be implemented by the City in a reasonable period of time, as rapidly as funds are available. As long as the City follows this procedure, it will be deemed in compliance with its obligation to operate and maintain a first-class golf course.

Section II: Lessee Obligations

1)  Lessee Compensation to City - Rent

Beginning July 1, 2002, the lessee will pay rent to the City as follows:

a)  From the driving range, the City shall receive 20% of the gross receipts.

b)  From restaurant, bar, and food operations, including vending machines outside the pro shop, the City shall receive 2% of gross receipts.

c)  The City shall receive 100% of the City charge (or “trail fee”) imposed on the use of powered golf carts on the golf course. This charge is at the time of this agreement $2.00 per nine-hole round and $4.00 per 18-hole round, but it is subject to change by the City at its sole discretion.

d)  From merchandise sales and “pro shop” operations (including vending machines in the pro shop), putting course fees, rentals of push carts, clubs, lockers and other facilities rented to patrons of the golf course or to users of lessee’s facilities, and from any other business operated on or from the premises with the exception of golf lessons and power cart rentals, the City shall receive 2.5% of the gross receipts.

e)  Beginning July 1, 2022, the percentage of driving range gross income paid by lessee as rent shall change to 34% of all driving range gross receipts. All other rent percentages shall remain the same.

f)  Except as limited below under section III “Lessee’s Master Plan Option,” subsection (4), the lessee may deduct the following amounts from the sum of the rent payments:

◻  Ad valorem taxes for land, improvements, local improvement assessments and quasi-municipal assessments, if any, paid by lessee during the preceding year; and

◻  Insurance premiums paid during the previous year for fire and extended coverage for the structures within the leasehold. Insurance premiums for other kinds of insurance, such as liability insurance or property insurance for golf carts, are not deductible from the rent payments.

In no event shall any deductions from the rent payments be cumulative, nor may they be carried over for credit against another year’s rent.

g)  The lessee’s rent payments shall be paid on a monthly basis, with each month’s payment due not more than 20 days after the end of the month.

2)  Definition of “Gross Receipts”

General definition: except as modified in the following provisions, the term “gross receipts” shall be held to include the sales price of all merchandise of every sort whatsoever sold, and the total charges for all services performed for which charge is made by the lessee or sublessees or licensees in, upon, or from any part of the leased premises, and shall include merchandise sold or services performed either for cash or for credit, regardless of collections in the case of the latter.

a)  When the lessee contracts with a sub-lessee or licensee to carry out any part of the business on its leasehold, the “gross receipts” upon which payments to the City shall be calculated refers to the gross amount received by the sub-lessee, not the amount received by the lessee from the sub-lessee.

b)  Receipts from off-site sales (including internet sales and off-site catering income for the restaurant) that make use of the RedTail name or logo, or that make use of computer networks, mailing lists, or access to wholesale goods derived from lessee’s position as the clubhouse operator for RedTail Golf Course, or that make use of equipment or storage space for goods that is located at RedTail Golf Course shall be included within “gross receipts.” The rent attributable to off-site sales of food and beverage (such as off-site catering income for the restaurant) shall follow the same percentage as for food and beverage served on-site, and the rent attributable to all other off-site sales shall follow the same percentage used for pro shop sales.

c)  There shall be excluded from gross sales and charges:

◻  The amount added to or included in the sale price or charges on account of any tax now or hereafter imposed upon or in respect of the purchase or sale of said merchandise or services, or the receipts therefrom, by any governmental body, and collected by the lessee or its sublessees or licensees merely as collecting agent for said governmental body.

◻  Any cash or credit refunds made upon any sale where the merchandise sold or part of it is returned by purchaser and accepted by the lessee or its sublessees or licensees.

◻  Income from golf lessons taught by RedTail staff.

◻  Insurance reimbursements for losses incurred by the lessee.

◻  Returns to suppliers or manufacturers.

◻  Sales of fixtures of other capital assets which are not a part of the stock in trade of the lessee or its sublessees or licensees.

d)  For video poker machines, the “gross receipts” upon which payments to the City shall be calculated refers to the net amount received by the lessee (or sublessee, if applicable) after deducting the State’s percentage share. For Automatic Teller Machines (ATMs), the “gross receipts” upon which payments to the City shall be calculated refers to the amount received by the lessee, not the amount of cash withdrawn by the customer.

e)  If golf merchandise is sold at or below cost to another pro shop as a professional courtesy, then the amount of these sales may be excluded from the “gross receipts” upon which payments to the City shall be calculated. Otherwise, wholesale sales are to be included within “gross receipts.”

3)  Lessee Capital Improvements

The lessee shall construct at its own expense the following improvements: a new and expanded driving range (including lights, the range structure, and all other construction costs except the grading, irrigation, drainage and seeding of the landing area which the City has already constructed), a new and enlarged pro shop, new men’s and women’s club meeting rooms, restrooms, a cart barn, additional paved parking, and a remodeling of the existing pro shop building to create an expanded restaurant with banquet and small group capacity. Except for the remodeling of the existing pro shop building, these capital improvements shall be substantially in compliance with the summary plans attached as Exhibit B.

a)  Lessee is responsible for all costs of the improvements within the leasehold area, including any costs arising from requirements of the land use or permitting process and the cost of demolishing and removing any structures that are to be replaced.

b)  All of the required improvements listed above except the remodeling of the existing pro shop shall be constructed and open to the public not later than May 1, 2003. The remodeling of the existing pro shop building to create an expanded restaurant with banquet and small group capacity shall be constructed within the following deadlines:

◻  If the lessee does not submit a master plan under the provisions of section III “Lessee’s Master Plan Option,” the remodeling of the existing pro shop building shall begin not later than October 1, 2003.

◻  If the lessee submits a master plan under the provisions of section III “Lessee’s Master Plan Option” and the City decides not to approve the additional development proposed by the lessee in the Master Plan, the remodeling of the existing pro shop building shall begin not later than one year after the City notifies the lessee in writing that the proposed additional development is not approved.

◻  If the lessee submits a master plan under the provisions of section III “Lessee’s Master Plan Option” and the City decides to approve part or all of the additional development proposed in the Master Plan, a larger restaurant with banquet and small group capacity shall be incorporated into the plans for additional development. In that event, the existing pro shop building may be either remodeled or replaced entirely as part of a larger development. In either case, the larger restaurant with banquet and small group capacity shall be completed and open to the public within 30 months after the City notifies the lessee in writing that all or part of the proposed additional development is approved, except for delays that may be caused by the timing of land use reviews. If the lessee fails to receive the necessary land use approvals for additional development, or the conditions of approval turn out to be so onerous as to make the additional development economically infeasible, then the existing pro shop building shall be remodeled to create an expanded restaurant with banquet and small group capacity within 30 months of the City’s approval.

c)  At its option, the lessee may also construct at its own expense a small restaurant with an adjacent putting green at the turn between the 9^th and 10^th holes, and a putting course to the north and west of the new clubhouse.

d)  Throughout the term of this lease, the City’s Golf Manager or other appropriate City representative must review and approve plans for any permanent improvements to be constructed by lessee before such improvements are constructed. Any substantial revisions to the plans or direction to the construction contractors that is different from the plans must likewise be approved by the City's representative. For the improvements required above in subsection II (3), the City’s approval of plans shall not be unreasonably withheld. The City will cooperate in obtaining building and signage permits from Washington County and other involved jurisdictions. If either party disputes the reasonableness of building plans or requirements, a golf course director will be selected, agreed upon by both parties and funded equally by both parties, to arbitrate the dispute in a timely fashion.

e)  At any time during the lease period, the City may require the lessee to construct, at the lessee’s expense, driving range netting for safety or liability reasons.

4)  Lessee Operation and Maintenance of Leasehold Improvements

The lessee and/or its sublessees shall use the leased premises for legitimate purposes incident to carrying on the business of operating a golf course, including pro shop, driving range, restaurant, bar and related recreational facilities. The lessee shall be responsible for the full cost of operating and maintaining all improvements within the leasehold boundary, except for the turf maintenance of the driving range landing area referred to in subsection I (3) “City Maintenance of the Golf Course.” These costs include but are not limited to utilities, repairs, custodial costs, insurance, and periodic capital renovations necessary to keep the leasehold improvements in good condition.

a)  Service shall be provided to the public and the patrons of RedTail Golf Course in a manner that reflects favorably upon the City. All members of the public will be served courteously and fairly. The lessee and its sublessees shall maintain a high standard of quality in the services offered, the food served, and the merchandise to be sold. The principal restaurant operated on the premises (the restaurant currently known as “The Stockpot”) shall continue to be a Grade A restaurant.

b)  The lessee, after receiving the consent of the City, may at its own cost make such corrections, rearrangements, or changes in the construction of the premises as may be required in connection with the business which will be conducted upon the leased premises. Upon termination of the lease, any improvements and additions to the leased premises and fixtures germane to the operation of the facility shall become the property of the City. It is agreed, however, that furniture, furnishings and other personal property shall remain the property of the lessee. Upon such termination, the City shall have the option of purchasing such personal property at a price arrived at by the provision in subsection IV (6) “Default and Lease Termination.”

c)  The lessee shall pay any and all real property taxes and assessments upon land and improvements which shall be constructed upon the leased premises, and shall pay for all heat, light, water (except to irrigate the driving range landing area), power and other services or utilities used in connection with the leased premises during the term of this lease. The lessee will provide meters or submeters on those utilities that are customarily metered and pay for any necessary utility connection costs, unless the City agrees in writing that the allocation of utility costs from a joint meter is acceptable. In general, it is the intention of the parties that the lessee bear costs related to the leased premises (except for the turf maintenance of the driving range landing area) and that the City bear costs related to the operation of the golf course, plus the turf maintenance of the driving range landing area.

d)  The lessee shall maintain to the satisfaction of the City’s Director of Parks & Recreation (or his designee) the leased premises, including the buildings, furniture and fixtures thereon, in a good and sanitary order, condition and repair. The lessee further agrees that if it defaults upon this provision, and such default remains after sixty days written notice from the City to the lessee (and, if applicable, after the conclusion of arbitration), that in addition to other legal remedies available to the City, the City may at its option enter onto the premises and remedy such default and charge such costs to the lessee in addition to the rent provided for in subsection II (1) “Lessee Compensation to the City-Rent.”

e)  The lessee shall be responsible for providing janitorial services for the clubhouse, driving range, and other facilities within the leasehold, and the entire leased premises shall be kept in a clean and orderly condition.

f)  The lessee shall be responsible for ensuring that the operation and maintenance of the facilities within the leased premises is consistent with any requirements that may be imposed by Washington County or other jurisdictions as a result of land use requirements.

g)  The lessee, or its sublessees, shall obtain all necessary licenses required for its business and comply with all laws and ordinances pertaining thereto. Neither the lessee nor its sublessees shall use or display any sign without approval of the Director of Parks & Recreation. The lessee may use whatever advertising and promotional material as may be reasonably necessary for proper and successful patronage of the facilities. The provisions of this paragraph shall not be construed as to require prior approval for printed menus, telephone book listings, and listings in trade publications distributed to residents of the City and visitors to the City.

h)  The lessee shall not permit any gambling activity on the premises operated by the lessee or its sublessees, except that the lessee or its sublessees may, to the extent permitted by the Oregon Lottery Commission, operate games of the Oregon Lottery in the restaurant and bar premises now known as “The Stock Pot”. No such games shall be operated in any other part of the leased premises without written approval from the Director of Parks & Recreation.

i)  The lessee shall not foster nor permit any illegal activity on the concession premises or on the golf course. No illegal activity or disorderly activity that may reflect to the discredit of the City will be tolerated. The lessee shall have the right under authority provided by the City to cause unruly persons or those under the influence of intoxicants to be expelled from the golf course premises, as well as uncooperative individuals causing undue delay on the golf course.

j)  The lessee agrees to maintain efficient operators on the premises and to operate the same in a manner of good repute. If there are more than three incidents in any six-month period involving one or more arrest for violation of law, the arrests being made on the premises or for acts committed on the premises, which are found by the City to result from inefficiency or lack of control by the operators or employees of the lessee or sublessee, this experience shall be proof of violation of this paragraph.

5)  Required Bonds

For the faithful and punctual performance of this lease, the lessee agrees to the following requirements.

a)  If required by state statue, the lessee agrees to furnish to the City a construction bond in the required amount until the initial construction of the required capital improvements referred to in subsection II (3) “Lessee Capital Improvements” is completed. If the City Attorney determines that the City has the authority to waive this requirement within Oregon statutes, then this requirement is waived.

b)  Upon completion of the required capital improvements, the lessee shall purchase a performance bond for a minimum term of one year in the amount of $25,000 to be approved by the City Attorney, conditioned that the lessee shall faithfully and punctually comply with all the provisions of this agreement, including payment of monies to the City under terms of this agreement. Such a bond shall be kept in effect during the entire term of this lease. A renewal bond shall be filed with the City no less than 30 days prior to November 1 of each year. The lessee shall fully secure and pay the just claims of all persons, if any there be, furnishing labor or materials to the leased premises, and not to permit any lien and claim to be filed or prosecuted against the City on account of any labor or materials.

c)  The lessee shall obtain and maintain in effect during the terms of this lease fidelity bonds, with a corporate surety or sureties qualified to do business in Oregon, for all employees of the lessee who handle funds for the City. Such bonds shall be conditioned upon the due accounting to the City for all monies collected in its behalf and the bond shall afford coverage to each such employee in an amount of not less than $25,000.

6)  Required Insurance

a)  The lessee agrees to maintain and keep in force such public liability and property damage insurance, including product liability, as will protect the lessee and the City from all claims for damage to property or personal injury, including death, which may arise from operations under this lease or in connection therewith. Such insurance shall provide coverage of not less than $250,000 for bodily injury to each person, $50,000 for property damage, and $750,000 aggregate for a combination of all claims for bodily injury and property damage growing out of any one occurrence. Such insurance shall be without prejudice to coverage otherwise existing and shall name as additional insureds the City of Portland, its officers, agents and employees, and shall further provide that this policy shall not terminate or be canceled prior to completion of this lease without 30 days prior written notice to the Director of Parks & Recreation and the Director of Risk Management for the City of Portland. Certificates evidencing such insurance shall be subject to the approval of the City Attorney as to adequacy and sufficiency of protection.

b)  The lessee is to maintain fire and extended coverage insurance on the structures. The amount shall be to the full value of the structures, replacement-type insurance, and the proceeds from such insurance are to be used solely for replacement in the event of total or partial destruction of the structures.

c)  If the lessee should fail to keep such bonds and insurance as is referred to in subsections II (5) “Required Bonds” and II (6) “Required Insurance” in full force and effect at all times, the lessee agrees to hold the City harmless and save the City free from all damages that occur as a result of such insurance not being in force. In addition, the lessee agrees that, if it fails to keep such bonds and insurance in force after notice and opportunity to cure, then in addition to any other legal remedies available to the City and notwithstanding any arbitration proceedings that may be underway, the City may secure such insurance in behalf of the lessee and the City, and that any and all costs incurred by the City in so doing, the City may charge to the lessee in addition to the rent referred to in subsection II (1) “Lessee Compensation to the City-Rent.”

7)  Periodic Evaluation of Lessee Capital Improvements

During the years 2010, 2020, and 2030, the lessee agrees to survey and report to the City the condition of all buildings and improvements constructed by the lessee pursuant to this lease and, upon approval from the City, agrees to replace, refurbish, refinish, remodel, and construct improvements as may be necessary or appropriate so as to renovate, modernize, and improve the buildings and improvements for an extended useful life.

8)  Lessee Services to Golf Course

The lessee assumes the following responsibilities in connection with the operation of golf-related facilities.

a)  The lessee shall employ a full-time clubhouse manager who is on site for a minimum of forty hours per week (except for reasonable allowance for vacation, sick leave, etc.). The clubhouse manager shall also have at least 5% ownership interest in the financial performance of the golf operations. The clubhouse manager shall devote full-time skill, labor and attention to duties in the operation of the clubhouse, driving range, and other golf-related activities. The clubhouse manager shall have demonstrated expertise in golf clubhouse management and shall not be affiliated, either financially or operationally, with any other golf course or its clubhouse.

b)  The lessee shall provide service to meet seasonal public demand, and shall keep the golf clubhouse open each day that the golf course is open for play, and at other reasonable hours as prescribed by the Director of Parks and Recreation. The lessee shall operate the golf shop and cart concessions subject to such reasonable rules and regulations as may be made by the Director of Parks. While the lessee may use the premises for ancillary revenue-producing activities, the lessee shall make golf operations activities its highest priority.

c)  The lessee shall keep an adequate selection of golf equipment and supplies on hand at the clubhouse to meet the demands of golf patrons for rentals and for purchases, and shall maintain an adequate supply of motorized golf carts for rental. The lessee shall have the exclusive privilege of selling and renting such equipment, supplies and golf carts for use on RedTail Golf Course.

d)  The lessee shall hire qualified professional golf instructors in sufficient numbers to meet the public demand for such instruction at RedTail Golf Course and shall have the exclusive privilege of giving such instruction.

e)  The lessee shall be totally responsible for the operation of the driving range and shall have qualified personnel in attendance during the hours of its operation. The City shall exercise its best efforts to protect the lessee from interference with the normal operation of the driving range on the part of property owners in the area. The lessee shall at its expense install and maintain screens and lighting, do whatever is reasonably necessary to prevent the lighting of the driving range from constituting a nuisance to the property owners in the area. The driving range will not be open later than 10:00 p.m. each night, or until such later time as the Director of Parks & Recreation may prescribe.

f)  The lessee shall provide food and beverage service during all hours of golf course operation, and may operate a mobile food and beverage cart on the golf course during hours when it is open.

g)  The lessee is responsible for scheduling tee times, collecting greens fees or other charges for the City, and providing starters and marshals for the golf course. In carrying out this responsibility, the lessee shall in all circumstances protect the interests of the City and the public. The lessee shall in no circumstances deviate from the established rates or permit free use of the golf facilities except as authorized in writing by the City.

h)  The lessee shall establish and promulgate rules and regulations as approved by the Director of Parks and Recreation relating to the use of the golf course and to the conduct of the players and other persons while on the premises.

i)  The lessee shall answer and handle all complaints and shall supervise a public relations program. It shall be responsible to provide the news media with all appropriate information to the end that patronage of the golf facilities may be as extensive as possible. In dealing with the public, the lessee shall always act as the City’s representative, and will not speak toward City policies or decisions in a derogatory manner. The lessee shall also cooperate in any golf promotion programs that may be established by the City.

j)  The lessee shall support the non-economic objectives of the City’s golf program, such as promotion of golf to youth, workforce diversity, responsible environmental stewardship, and being a good neighbor and positive community asset. The lessee shall actively assist the City in achieving its affirmative action goals as specified in City’s current Affirmative Action Plan and Portland Parks & Recreation’s most recent Affirmative Action Compliance Plan.

k)  The lessee may schedule golf tournaments, both adult and youth tournaments, subject to any limitations or requirements of the City.

l)  The lessee shall hire qualified personnel in sufficient numbers to permit courteous and efficient service to the public and to permit collection of fees and charges upon request by the City with a minimum of delay to the patrons using the golf facilities. The employees of the lessee shall be neatly and suitably attired and shall treat the public courteously.

m)  Lessee shall consult with City’s Golf Course Superintendent to determine when weather conditions or maintenance needs render the golf course, putting greens, or driving range landing area unsatisfactory for normal use. Depending on weather conditions or maintenance needs, the City’s Golf Course Superintendent may direct that part or all of the golf course be closed, the putting green be restricted, and/or the operation of the driving range picker be restricted. Lessee shall refuse rental of motorized golf carts, if, in the opinion of the City’s Golf Course Superintendent, the carts might cause damage to the golf course itself. In the event that the City determines that scheduled maintenance requires that all or a portion of the course should be restricted from normal use, the Golf Course Superintendent shall coordinate such closing with the lessee prior to actual closing. The lessee shall give verbal notice and shall post notification of closing in a conspicuous place, in order to maintain proper customer relations.

n)  The lessee shall promptly pay all bills, wages, and other expenses in connection with services or other matters covered by this lease agreement.

o)  The lessee, its subcontractors, agents and employees are not City employees.

Section III: Lessee’s Master Plan Option

1)  Master Plan Submission

The lessee may prepare a master plan for the City’s consideration, showing additional development that lessee would be willing to construct, maintain, and operate at its own expense, on City-owned land including and contiguous to the RedTail Golf Course site.

a)  For the purposes of this section, “additional development” means proposed development beyond the improvements referred to in paragraph II (3) “Lessee Capital Improvements,” including paragraph II (3) (c).

b)  To be considered by the City, the additional development may not be on land that is used for the 18-hole golf course.

c)  To be considered relevant to this section, the master plan must be submitted by November 1, 2002.

d)  The City recognizes that the master plan proposals may, in order to be carried out, require further adjustments to the lease term and/or leasehold boundary.

2)  City Discretion to Accept or Reject Master Plan Proposals

The City may, at its sole and unlimited discretion, accept or reject any or all of the additional development proposals shown in the master plan.

3)  Compensation to City for Additional Development Shown in Master Plan

For that portion of the Master Plan additional development that is approved by the City and constructed at lessee’s expense before May 1, 2010, the lessee may operate and earn income from those improvements during the lease term. The City shall receive 2% of the gross receipts as rent from the additional development.

a)  If the operation of these improvements involves a sublessee, the “gross receipts” upon which the 2% rent payment is calculated shall be the gross amount received by the sublessee, not the amount that the lessee receives from the sublessee.

b)  The 2% rent payment to the City shall be in addition to any reimbursement the City may receive if the lessee chooses to have the City maintain part or all of these improvements.

4)  Property Tax and Fire Insurance Deductions

The property tax and fire insurance deductions from lessee’s additional rent (referred to in subsection II (1) “Lessee’s Compensation to City-Rent,” paragraph (f)) are allowed only for lessee improvements that are:

◻  Currently existing improvements, including future renovations;

◻  Improvements required in subsection II (3) “Lessee Capital Improvements,” including future renovations; or

◻  The optional lessee capital improvements referred to in subsection II (3) “Lessee Capital Improvements,” paragraph (c), including future renovations, provided that they are constructed at the same time as the required improvements.

a)  The property tax and fire insurance deductions described in subsection II (1) “Lessee’s Compensation to City-Rent,” paragraph (f) do not apply to other lessee improvements made under the “Lessee’s Master Plan Option” provision, nor to other future lessee improvements.

b)  If lessee improvements are constructed that are not eligible for the property tax and fire insurance deductions, the annual deduction for property taxes and fire insurance will be prorated according to the accounting book value (after depreciation) of the lessee’s total improvements. The book value of those improvements eligible for the property tax and fire insurance deductions shall be divided by the total book value of all of the lessee’s improvements, and this percentage shall be applied to the previous year’s property tax and fire insurance expenses in order to arrive at the deductible amount. In determining the pro rata allocation of the property tax and fire insurance deductions, a consistent depreciation schedule shall be used for all of the lessee’s capital improvements.

5)  City Retains Development Rights

This “Lessee’s Master Plan Option” section applies only to development proposals initiated by lessee through the master planning process. Nothing stated here is intended to restrict the City from carrying out additional development on its own, provided that such development does not materially interfere with lessee’s existing improvements or approved master plan developments. Prior to July 1, 2003, the City will not carry out additional development projects other than golf course improvements.

Section IV: General Provisions

1)  Lease Term

Unless the lease term is extended by mutual agreement or shortened by default (in accordance with subsection IV (6) “Default and Lease Termination”), the lease shall terminate on June 30, 2042.

2)  Immediate Assignment of Lease

This lease shall be assigned to RedTail LLC, a limited liability company owned 50% by the current owners of RedTail Inc. and 50% by additional investors consisting of Gregory W. Daniels and/or Realvest Corporation. If RedTail LLC is not legally created until after the effective date of this lease, the rights and responsibilities of this lease shall remain with RedTail Inc. RedTail LLC shall notify the City in writing when RedTail LLC is a legal entity that accepts the assignment of this lease.

3)  Lessee Borrowing for Initial Capital Improvements

The lessee shall be privileged to assign or mortgage its leasehold estate or interest and all rents, issues and profits derived therefrom as security for financing the original construction of the improvements referred to in subsection II (3) “Lessee Capital Improvements,” including paragraph (c). Rent payments to the City will be subordinate to scheduled debt service payments to this assignee or mortgagee (hereafter referred to as “the lender”). The loan used to finance the improvements referred to in subsection II (3) “Lessee Capital Improvements” will be recorded in first position on the property until the loan is retired.

a)  In the event of lessee default, the City shall notify both the lessee and the lender via certified mail, and either one shall have the right to cure the default within sixty days from the date of notification.

b)  In the event of lessee default, the lender shall have the right at its option to enter into and upon the leased premises and take possession thereof and to collect said rents, issues, income and profits therefrom and require any tenants or occupants of said premises to make payments to the bank of rental or other charges arising out of the use and occupancy of said premises, provided that the lender is bound by all the terms and conditions of this lease. In this event, the lender may also assign the lease to another entity for performance of the lease obligations, subject to the City’s approval, such approval not to be unreasonably withheld.

c)  The City will sign documents requested by the lender, provided that they are consistent with this lease and approved by the City Attorney.

d)  The lessee may, at its option and at its expense, record this lease or memorandum of this lease.

4)  City Right to Approve Future Assignment of Lease

Except for the immediate assignment of this lease referred to in subsection IV (2) “Immediate Assignment of Lease” and the assignment to secure financing referred to in subsection IV (3) “Lessee Borrowing for Initial Capital Improvements,” and except for the lender’s right to re-assign the lease for the performance of lease obligations (referred to in paragraph IV (3) (b)), this lease may not be assigned, a controlling interest voluntarily sold, nor a voluntary merger with another corporation undertaken without the written consent of the City Council.

a)  This is not intended to prevent normal trading of minority shares of stock, if such stock trading is applicable to the lessee’s form of ownership. It is also not intended to restrict the lessee from changing the form of its business entity or redistributing the ownership interests among the current owners, as long as a controlling interest is not transferred.

b)  Subject to such written consent of the City Council, this lease agreement shall inure to the benefit of and be binding upon the successors and assigns of the lessee.

5)  Non-competition

The City will not allow other restaurant, clubhouse or driving range facilities to be constructed upon properties owned by it within a two-mile radius of the leased parcel of RedTail Golf Course during the term of this lease or any extension thereof, and the lessee agrees that it will not engage in the operation of or construction of any of the above-described activities within the same above-described area.

6)  Default and Lease Termination

In case default shall be made in the performance of any covenant or agreement herein contained on the part of the lessee, and any such default shall continue for sixty days after receipt by the lessee of written notice thereof given by the City, then in such event the City may, at its option and without prejudice to other legal remedies, upon written notice, except as limited by subsection IV (10) “Binding Arbitration,” declare the term of this lease ended and may reenter upon said premises, either with or without process of law, and remove all persons therefrom without prejudice to any other remedies provided by law.

a)  In the event the lease is terminated, the City shall partially reimburse the lessee for its costs in constructing the improvements to be made hereunder, and costs incurred for additions and fixtures germane to the operation of the facility. Furniture, furnishings and other personal property of the lessee or its sublessees may be purchased on the same basis. Such reimbursement shall be made by the City in accordance with the following formula:

◻  The original cost of the realty improvements shall be reduced by one-fifteenth for each year the lease has been in force prior to termination;

◻  The reimbursement by the City for furnishings and other personal property shall be on the basis of original cost thereof less one-fifth for each year the lease has been in force prior to termination;

b)  In the event the original cost has been incurred by the lessee subsequent to the first year of effectiveness of this lease, the computation for reimbursement shall be made from the date of such investment by the lessee.

c)  The City may assume or pay off any mortgage loan, conditional sales contract or other indebtedness of the lessee for realty improvement and personal property, and in that event the reimbursement to the lessee shall be reduced by the total of such assumptions.

d)  It is expressly understood between the parties and binding upon any assigns or successors or mortgagees of this agreement that if the City elects to pay off, the City shall not be subject to any prepayment penalty because of such election.

e)  The lessee shall make such assignments and conveyances as are appropriate to facilitate such assumptions and to clothe the City with necessary indicia of title.

f)  The City shall have the period that would have remained under this lease after such termination to complete such reimbursement to the lessee and shall reimburse the lessee on the basis of equal annual payments after such termination at the end of each annual period.

g)  After the expiration of fifteen years from the date of the investment, all realty improvements become the property of the City if the lease is terminated for any reason.

7)  Financial Reporting

The lessee shall furnish to the City accurate and timely financial reports, as follows.

a)  During such time as the lessee provides the collection of greens fees for the City, the lessee shall account for all receipts on behalf of the City and shall turn over such receipts and reports to the City daily for audit and transmission to the Treasurer of the City. The lessee shall keep accurate and complete records of all its business transactions, such records to be available for inspection by any authorized representative of the City at all reasonable times.

b)  In addition, the lessee shall provide to the City, before March 1 of each year during the period of this contract, a financial statement of income and expenses from the several operations conducted during the prior calendar year, certified by a certified public accountant.

c)  At the completion of construction of the improvements referred to in subsection II (3) “Lessee Capital Improvements,” including paragraph (c), the lessee shall furnish to the City a final accounting of the total cost of the project. If the lessee makes future capital improvements at its own cost, with approval from the City, the lessee shall furnish a final accounting of the total cost of those improvements to the City. The lessee shall maintain a record that shows all approved capital improvements made by the lessee at its own expense, along with their capital cost and year of completion, and an update of this record shall be submitted to the City along with the annual income and expense statement referred to in paragraph (b) above.

d)  The lessee agrees to furnish the City on or before September 1 following each lease year (i.e., July 1 through June 30) a statement in writing, sworn to by the clubhouse manager, showing the amount of all sales during the previous lease year which enter into the determination of the rents agreed to be paid hereunder. The lessee further agrees with respect to business done by it on or from said leased premises to keep true and accurate accounts, records, books, and data showing all reports of goods supplied to the leased premises and sales made and services performed, for cash, on credit, or otherwise (without regard to whether paid or not), and also the gross receipts of said business and the aggregate amount of all sales, services, and orders, and of all the lessee’s business done upon, within, or from the leased premises. Records of such business shall be kept under such form and system as to provide a proper accounting procedure and check to the end that each and every sale be properly recorded and maintained (and retained for a reasonable period), all in manner and form consistent with good accounting practices. Upon written request of the City, all the foregoing accounts, records, books, data, and information shall be made available for inspection during regular business hours to a Certified Public Accountant representing the City. Said information shall be maintained by the City as strictly confidential.

e)  The lessee agrees to require that its sublessees provide the same information to the City, with the same level of verifiability, as is described in paragraphs (b) and (d) above.

8)  Periodic Reviews of Lease Performance

Starting in 2005 and continuing at 5-year intervals throughout the term of the lease, the City and lessee will jointly participate in a performance review relating to each party’s lease obligations, with written documentation. The dates on which the lessee is required to report on the capital condition of the lessee facilities and make needed improvements (as described in subsection II (7) “Periodic Evaluation of Lessee Capital Improvements”) and the dates of the USGA reviews of the golf course (referred to in subsection I (4) “Periodic Evaluation of Golf Course”) will be scheduled so that the information from them can be used in the periodic reviews of lease performance, and so that any follow-up capital renovations can be readily coordinated between the lessee and the City.

9)  Mediation

In the event a dispute arises that is not settled within 30 days of written notice, either party may request that the dispute be submitted to mediation, and the parties shall enter into mediation with the Neighborhood Mediation Center (or any equivalent agency). The costs for the mediator’s services shall be borne equally by both parties.

10)  Binding Arbitration

Any dispute arising out of or in connection with the Agreement, which is not settled by mutual agreement between the City and lessee within 60 days notice from either party, shall be finally resolved by binding arbitration before an arbitrator mutually agreed upon by both parties. In the event the parties cannot agree on an arbitrator, then the arbitrator shall be appointed by the Presiding Judge (Civil) of the Circuit Court of the State of Oregon for the County of Multnomah. The arbitrator shall be selected within thirty days of the invocation of this provision. The arbitration shall be conducted in Portland, Oregon. The applicable arbitration rules for the Multnomah County courts shall apply unless the parties agree in writing to other rules. The cost of the arbitrator’s services for arbitrating disputes under this agreement shall be divided equally between the parties. The arbitrator shall have the discretion to award the prevailing party its share of the arbitrator’s fee. Except for breach of the Lessee’s obligation to pay rent under Section II(1), to provide bonds under Section II(5), to maintain insurance under Section II(6), or to provide services to the golf course under Section II(8), the City agrees that it will not exercise its right to terminate this Lease for default under Section IV(6) without first giving Lessee the opportunity to initiate arbitration under this Section.

11)  Privatization

If the City decides to contract with a private firm to maintain any of its golf courses that had previously been maintained by City employees, RedTail Golf Course will be the first City golf course (or among the first, if there are more than one) to change to contracted maintenance. The lessee will have the right to bid on the privatization of maintenance at RedTail Golf Course. Privatization does not change the City’s or the lessee’s obligations under the lease.

12)  Two-way First Rights

If the City decides to sell its interest in the RedTail Golf Course or the lessee decides to sell, transfer, or assign its controlling interest in the leasehold, the non-selling party will have “first rights” to purchase the selling party’s interest, as defined below.

a)  If the selling party has received a bona fide offer from a third party to buy its interest and intends to sell at that price, the non-selling party will have a right of first refusal—that is, the right to match the offered price and purchase the interest in place of the third party. The selling party will submit the third party’s offer to the non-selling party in writing. The non-selling party will then have 30 business days in which to elect to purchase the selling party’s interest upon the identical terms set forth in the offer and a reasonable time thereafter to close the sale. If the non-selling party does not elect to purchase the selling party’s interest within the 30-day period after receiving notice of the offer, the selling party may sell its interest to the third party at the price and on the identical terms stated in the offer.

b)  If the selling party has announced its desire to sell but does not have a prospective third-party buyer, then the non-selling party has the right to a 60-day exclusive negotiating period during which the two parties will exercise a good faith effort to arrive at a mutually acceptable price.

c)  In the event that the process described by paragraph (b) above does not result in a purchase/sale agreement between the parties, each party retains its rights under paragraph (a) above to meet any subsequent bona fide offer from any third party.

d)  The right of first refusal referred to in paragraph (a) above does not apply to a one-time exchange of RedTail Golf Course for Glendoveer Golf Course, provided that the owner of Glendoveer agrees to abide by all the terms and conditions of this lease.

e)  Regardless of the City’s decision to exercise or not exercise its “first rights” as described above, and notwithstanding any other provision of this Section, the City’s rights under subsection IV (4) “City Right to Approve Future Assignment of Lease” remain in full force and effect.

f)  This subsection does not apply to the transfer of minority interests or other transactions described in paragraph IV (4) (a).

13)  Entire Agreement

As of July 1, 2002, this lease document entirely substitutes for Agreement No. 13306, including its amendments and addendum, and all future dealings between the City and lessee shall be governed only by this lease agreement. By entering into this replacement agreement, the City and lessee mutually release, discharge, hold harmless, and covenant not to sue one another for and from any and all claims of whatever nature whatsoever that either party may have against the other as of July 1, 2002, whether or not such claims are known or knowable as of the date of this release. Any future disputes between the parties as to the interpretation of or performance under this agreement will be resolved using the mediation and arbitration procedures described in this document, and any damages or other remedies will apply only to compensate or grant relief for any act or omission occurring on or after the effective date of this lease agreement. The parties agree to perform their obligations under this agreement in good faith.

14)  ADA Compliance

Notwithstanding anything else in this lease to the contrary, this paragraph applies to all issues related to compliance with the Americans with Disabilities Act (“ADA”). In the event of any conflict between the rest of the lease and this subsection, this subsection will control.

a)  Any remodeling, construction, reconstruction, installation of improvements, or other work done to the premises must be done in compliance with ADA requirements, at the expense of the party who is performing the work. Both parties covenant with one another to cooperate reasonably to comply with ADA requirements in the least expensive and most reasonable manner, and to create as little disruption as possible to the business operations of the parties to this lease.