2017 SR Dev Co - CC&R Agreement, Luxury Hotel DOC # 2017-0463952Recording Requested by:
FNTG Builder Services
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
City of La Quinta
78-495 Calle Tampico
La Quinta, CA 92253
Attn: City Clerk
DOC # 2017-0463952
11/06/2017 02:08 PM Fees: $0.00
Page 1 of 31
Recorded in Official Records
County of Riverside
Peter Aldana
Assessor -County Clerk -Recorder
**This document was electronically submitted
to the County of Riverside for recording**
Receipted by: MARY #420
ZSTIDGs7v Z"S
[SPACE ABOVE FOR RECORDER.]
EXEMPT FROM RECORDER'S FEE PER GOV. CODE §27383
AGREEMENT CONTAINING COVENANTS, CONDITIONS, AND RESTRICTIONS
AFFECTING REAL PROPERTY
(Luxury Hotel)
This AGREEMENT CONTAINING COVENANTS, CONDITIONS, AND
RESTRICTIONS AFFECTING REAL PROPERTY (the "Covenant Agreement") is
entered into as of this 3"A day of MA.1 , 2017 ("Covenant Agreement Effective
Date"), by and between the CITY OF LA QUINTA, a California municipal corporation and
charter city ("City"), and SILVERROCK DEVELOPMENT COMPANY, LLC, a Delaware
limited liability company ("Owner") (individually a "Party" and collectively the "Parties").
RECITALS
A. City is the owner of that certain real property located in the City of La Quinta,
County of Riverside, State of California, which is more particularly described in the legal
description attached hereto as Exhibit No. 1 and incorporated herein by this reference
(the "Site").
B. City has agreed to sell to Owner the Site pursuant to that certain Purchase,
Sale, and Development Agreement dated November 19, 2014 ("Original PSDA"), as
amended by Amendment No. 1 to Purchase, Sale; and Development Agreement dated
October 29, 2015 ("Amendment No. 1") and by Amendment No. 2 to Purchase, Sale,
and Development Agreement dated on or about April 18, 2017 ("Amendment No. 2")
(collectively, the "PSDA".). The PSDA sets forth the terms and conditions for City to sell
to Owner the Site and certain adjacent real property (collectively, the "Development
Property"), and for Owner to thereafter develop and operate on the Development
Property a commercial project containing hotels and associated amenities, branded
residential units, a mixed use village, and a resort residential village (the "Development
Project").
C. Pursuant to the PSDA, Owner has agreed to develop on the Site a portion
of the Development Project consisting of the hotel defined in the PSDA as the Luxury
Hotel (the "Hotel").
D. Pursuant to the PSDA, Participant is required to enter into a hotel
management agreement and all ancillary agreements, including, without limitation, a
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technical services agreement, hotel brand licensing agreement, and use and access
development agreement. (collectively, a "Hotel Management Agreement"), with a City -
approved hotel operator (the "Hotel Manager"), who shall be responsible for the
management and operation of the Hotel pursuant to the terms of the Hotel Management
Agreement.
E. Concurrently. herewith, City and Owner have entered into that certain
unrecorded Agreement to Share Transient Occupancy Tax Revenue (the "Agreement")
which provides for the recordation of this Covenant Agreement against the Site.
F. In consideration for Owner's rights and obligations set forth in the
Agreement and within this Covenant Agreement, City has agreed to make certain
payments to Owner, the amount of which are measured by the "Transient Occupancy
Tax" (as that term is defined below) generated by the operation of the Hotel on the Site.
City and Owner have agreed that the portion of Transient Occupancy Tax required to be
paid by City to Owner hereunder during each "Payment Period" of the "Operating Period"
(as those terms are defined below) provided for herein is a fair exchange for the
consideration to be furnished by Owner to City in that Payment Period.
COVENANTS
Based upon the foregoing Recitals, which are incorporated herein by this
reference, and for other goodand valuableconsideration; the receipt and sufficiency of
which is acknowledged by both Parties, City and Owner hereby agree as follows:
1. DEFINED TERMS.
In addition to the terms that may be defined elsewhere in this Covenant,
Agreement, the following terms when used in this Covenant Agreement shall have the
meanings set forth below:
The term "Affiliate" shall mean any corporation, partnership, limited liability
company or other organization or entity which is Controlled by, Controlling or under
common Control with (directly or indirectly) Owner.
The term "Aggregate Preopening Expenses" shall mean all hard and soft costs
actually incurred by Owner in connection with the Hotel prior to the Commencement Date
including, without limitation, (i) permit fees and other entitlement costs, (ii) professional
fees and costs paid to architects, engineers, lawyers and accountants, (iii) all horizontal
and vertical construction costs including grading,, excavation, demolition, construction and.
landscaping, (iv) general and administrative development expenses, (v) development
fees, (vi) insurance premiums, (vi) property taxes, (vii) costs associated with procuring
construction financing and interest paid in connection with such construction financing,
(viii) the cost to purchase and install all furniture, fixtures and equipment including, without
limitation, all information systems hardware and software, (ix) license fees, (x) costs to
install and use utilities including electricity, water, gas, telephone, internet and cable or
satellite television, (xi) wages Jand other costs associated with hiring and training
employees prior to the opening of the Hotel to the public, and (xii) the cost of all movable
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personal property and inventory required to open the Hotel for business on the
Commencement Date including, without limitation, linen, bathroom supplies, food and
beverages.
The term "Agreement" shall have the meaning ascribed to it in Recital E of this
Covenant Agreement.
The term "Auditor" shall have the meaning ascribed to it in Section 4.1.3 of this
Covenant Agreement.
The term "Budgeted Preopening Expenses" shall mean all hard and soft costs
estimated to be incurred by Owner in connection with the Hotel prior to the,
Commencement Date, as set forth in the Hotel Budget.
The term "Business Day" shall mean a calendar day which is not a weekend day
or a Federal or State holiday, and a day upon which the City is open for business.
The term "Commencement Date" shall mean the first day of the first full calendar
month following the date upon which the Hotel opens for business and accepts its first
paying overnight guest.
The term "Control", "Controlled" or "Controlling" shall mean the possession,
directly or. indirectly, of; the power to direct or cause the direction of the management or
policies of an entity or person, whether through the ability to exercise voting power, by
contract or otherwise.
The term "Covenant Agreement" shall mean this Agreement Containing
Covenants, Conditions, and Restrictions Affecting Real Property.
The term "Covenant Payments" shall mean the amounts to be paid by City to
Owner with respect to each Payment Period during the Operating Period.
The term "Default" shall have the meaning ascribed to it in Section 5.1 of this
Covenant Agreement.
The term "Default Notice" shall have the meaning ascribed to it in Section 2 of this
Covenant Agreement.
The term "Estimated NOI Notice" shall have the meaning ascribed to it in Section
4.1.2(a) of this Covenant Agreement.
The term "Gross Revenue" shall mean, for each Payment Period or Operating
Year (as applicable) during the Operating Period, all revenue generated by the Hotel from
all sources during such Payment Period or Operating Year (as applicable) including,
without limitation, room rentals, food and beverage sales, parking charges, television
charges, telephone charges and sundry services.
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The term "Hotel" shall have the meaning ascribed to it in Recital C of this Covenant
Agreement.
The term "Hotel Budget" shall mean the budget of all hard and soft costs to be
incurred by Owner in connection with the development and opening of the Hotel (including
costs of the type included within the definition of Aggregate Preopening Expenses), which
budget shall be prepared by Owner and delivered to City for review and approval, which
approval shall not be unreasonably withheld, prior to the commencement of construction
of the Hotel and which budget may be revised from time to time subject to the reasonable
approval of City.
The term "Hotel Management Agreement" shall have the meaning ascribed to it
in Recital D of this Covenant Agreement.
The term "Hotel Manager" shall have the meaning ascribed to it in Recital D of
this Covenant Agreement.
The term "Improvements" shall mean and include all buildings, structures,
fixtures, parking, sidewalks, pedestrian lighting, landscaping, irrigation of landscaping,
and other improvements of whatsoever character to be constructed or performed by
Owner on the Site.
The term "Mortgage" shall mean any mortgage, deed of trust, pledge (including a.
pledge of equity interests in Owner), hypothecation, charge, encumbrance or other
security interest granted to a lender, made in good faith and for fair value, encumbering
all or any part of Owner's interest in (i) this Covenant Agreement, (ii) the Site, (iii) the
Improvements, or (iv) any equity interest in Owner.
The term "Mortgagee" shall mean any mortgagee or beneficiary under any
Mortgage.
The term "Municipal Code" shall mean the La Quinta Municipal Code.
The term "Net Operating Income" shall mean, for each Payment Period or
Operating Year (as applicable) during the Operating Period, the Gross Revenue
generated by the Hotel during such Payment Period or Operating Year (as applicable),
less the Operating Expenses incurred in connection with the Hotel during such Payment
Period or Operating Year (as applicable).
The term "Operating Expenses" shall mean, for each Payment Period or
Operating Year (as applicable) during the Term, all ordinary expenses actually incurred
by Owner during such Payment Period or Operating Year (as applicable) and relating to
the operation and/or maintenance of allthe facilities of the Hotel determined in
accordance with generally accepted accounting principles, including, without limitation,
(a) centralized sales and marketing expenses, (b) charges related to programs
implemented by the Hotel Manager and chargeable to the Owner, whether such programs
are optional or required under the Hotel Management Agreement (e.g., a loyalty rewards
program), (c) expenses incurred by the Hotel Manager and reimbursable by the Owner
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pursuant to the Hotel Management Agreement, (d) hotel personnel expenses including,
without limitation, salaries, benefits and severance payments, (e) repair costs, (f)
maintenance costs, (g) utility charges, (h) administrative expenses, (i) costs of
advertising, marketing and business promotion, (j) all amounts payable to the Hotel
Manager pursuant to the Hotel Management Agreement including, without limitation, the
management fee, (k) taxes, (I) insurance premiums and deductibles, (m) capital
expenditures, (n) expenditures on furniture, fixtures and equipment, (o) funding of
reserves required under the Hotel Management Agreement, (p) "asset management"
costs and expenses incurred by Owner's personnel in relation to the Hotel, provided such
costs and expenses do not exceed one percent (1 %) of Gross Revenue for the applicable
Payment Period or Operating Year (as applicable), (q) professional fees and costs
including fees paid to attorneys, accountants, auditors and appraisers, provided that the
types and amounts of such fees ,and costs shall be reasonable and consistent with the
industry standard for such fees and costs, (r) capital and equipment leases expenses, (s)
costs of all goods and services provided to guests and patrons in the normal course of
business for all departments of the Hotel (t) permit and license fees; provided, however,
"Operating Expenses" expressly excludes (i) principal and interest on any third party debt,
(ii) capital expenditures, and (iii) depreciation.
The term "Operating Period" refers to the period commencing upon the
Commencement Date and ending upon the Termination Date.
The term "Operating Year" shall mean a period of twelve (12) consecutive months,
the first of which shall commence upon the Commencement Date, with each subsequent
Operating Year commencing upon the day immediately following the expiration of the
preceding Operating Year.
The term "Payment Date" shall mean the date that is thirty (30) days after the later
to occur of (i) City's receipt of an Estimated NOI Notice, or (ii) if applicable, the Auditor's
final determination of the Net Operating Income for the applicable Payment Period
pursuant to Section 4.1.3 below.
The term "Payment Period" shall mean a period of three (3) consecutive calendar
months during the Operating Period, with the first Payment Period commencing upon the
Commencement Date and each successive Payment Period commencing upon the first
day immediately following the expiration of the immediately preceding Payment Period.
The term "PSDA" shall have the meaning ascribed. to it in Recital B of this
Covenant Agreement.
The term "Required Annual Return" means, for each Operating Year during the
Term, an amount equal to eleven percent (11%) of the lesser of (i) the Aggregate
Preopening Expenses, or (ii) the Budgeted Preopening Expenses.
The term "RGC" means The Robert Green Company, a California corporation.
The term "Site" shall have the meaning ascribed to it in Recital A of this Covenant
Agreement.
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The term "Term" shall mean the term of this Covenant Agreement, which shall be
the. period commencing on the Commencement Date and ending on the Termination
Date.
The term "Termination Date" shall mean the date that is the earlier of (i) the
fifteenth (15th) anniversary of the Commencement Date; or (ii) the date upon which this
Covenant Agreement is terminated pursuant to Section 5.2 or Section 5.3.
The term "Transient Occupancy Tax" means, for each Payment Period, or part
thereof, during the Operating Period, that portion of transient occupancy taxes remitted
by Owner or the Hotel Manager to City pursuant to Chapter 3.24 of the Municipal Code
(and any amendments or replacements to the Municipal Code) and are generated from
the use and occupancy of hotel guest rooms in the Hotel. If said Municipal Code Section
is amended or repealed during the Operating Period such that Transient Occupancy
Taxes are no longer payable to City, then, for the purposes of this Agreement, the term
"Transient Occupancy Tax" shall include any substitute, tax imposed upon occupants of
hotel guest rooms and payable to the City of La Quinta.
Notwithstanding anything herein to the contrary, Transient Occupancy Tax shall
not include any interest or penalty that has been paid by Owner or the Hotel Manager
pursuant to Chapter 3.24 of the Municipal Code, and any costs City incurs during a
particular Payment Period in enforcing Chapter 3.24 of the Municipal Code or any
provision of this Covenant Agreement shall be deducted from the amount of the Covenant
Payment payable by City to Owner for such Payment Period.
2. CONDITION TO OWNER'S RIGHT TO RECEIVE COVENANT PAYMENTS.
City's obligation to make the Covenant Payments pursuant to Section 4.1 of this
Covenant Agreement for any Payment Period (or portion thereof) during the Operating
Period shall be contingent and conditional upon Owner's performance of its obligations
set forth in Section 3 of this Covenant Agreement during such Payment Period. If Owner
is in Default under this Covenant Agreement and City has provided written notice of the
commencement of the Default to Owner (a "Default Notice"), then the amount of •the
Covenant Payment(s) due to Owner shall be reduced in accordance with Section 4.1.2(d)
below, but City shall remain obligated to pay all Covenant Payments due to Owner
pursuant to Section 4.1.2 for those periods prior to Owner's receipt of a Default Notice
and for those periods subsequent to Owner's cure of such Default.
3. OWNER'S OBLIGATIONS.
,3:1 Continuous Operation. During the Operating Period, Owner covenants and
agrees to cause the Hotel to be continuously operated on the Site, subject to temporary
and reasonable interruptions for casualty losses, repairs, labor unrest, "acts of God", and
the like (each, a "Permitted Closure").
3.2 Use Restriction. During the Operating Period, the Site shall not be put to
any use other than the operation of the Hotel and uses ancillary thereto, and such use
shall qualify as a transient occupancy use under Chapter 3.24 of the Municipal Code.
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3.3 Maintenance and Repair of Site and Hotel; Landscaping.
(a) During the Operating Period, Owner, at its sole cost and expense,
shall keep and maintain the Site and the Improvements thereon and all facilities
appurtenant thereto in good condition and repair, in accordance with the "Maintenance
Standards" (as that term is hereinafter defined).
(b) To comply with the maintenance obligations set forth in this Section
3.3, Owner shall cause the Hotel Manager to either staff or contract with and hire licensed
and qualified personnel to perform the maintenance work, including the provision of labor,
equipment, materials, support facilities, and any and all other items necessary to comply
with the requirements of this Covenant Agreement.
(c) Owner shall, or shall cause the Hotel Manager and its/their
maintenance staff, contractors or subcontractors to comply with the following standards
("Maintenance Standards"):
1. Landscape maintenance shall include, but not be limited to:
watering/irrigation; fertilization; mowing; edging; trimming of grass; tree and shrub
pruning; trimming and shaping of trees and shrubs to maintain a healthy, natural
appearance, safe road conditions, including visibility, and irrigation coverage;
replacement, as needed, of all plant materials; control of weeds in all planters,
shrubs, lawns, ground covers, or other planted areas; and staking forsupport of
trees.
2. Clean-up maintenance shall include, but not be limited to:
maintenance of all sidewalks, paths and other paved areas in clean and weed -free
condition; maintenance of all such areas clear of dirt, mud, trash, debris or other
matter which is unsafe or unsightly; removal of all trash, litter and other debris from
improvements and landscaping prior to mowing; clearance and cleaning of all
areas maintained prior to the end of the day on which the maintenance operations
are performed to ensure that all cuttings, weeds, leaves and other debris are
properly disposed of by maintenance workers.
3. All maintenance work shall conform to all applicable federal
and state Occupational Safety and Health Act standards and regulations for the
performance of maintenance.
4. Any and all chemicals, unhealthful substances, and pesticides
used in and during maintenance shall be applied in strict accordance with all
governing regulations. Precautionary measures shall' be employed recognizing
that all areas are open to public access.
5. The Site and Hotel shall be maintained in conformance and in
compliance with the approved Site construction and architectural plans and design
scheme, and reasonable commercial development maintenance standards for
similar projects, including but not limited to: painting and cleaning of all exterior
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surfaces and other exterior facades comprising all private improvements and
public improvements to the curbline.
6. The Site shall be maintained as required by this Section in
good condition.
(d) During the Operating Period, Owner shall not abandon any portion
of the Site or leave the Site unguarded or unprotected, and shall not otherwise act
or fail to act in such a way as to unreasonably increase the risk of any damage to
the Site or of any other impairment of City's interest set forth in this Covenant
Agreement.
3.4 Failure to Maintain Site and Hotel. In the event Owner does not maintain
the Site or the Hotel, or otherwise cause the Site or the Hotel to be maintained, in the
manner set forth herein and in accordance with the Maintenance Standards, City shall
have the right, but not the obligation, to maintain such private and/or public improvements,
or to 'contract for the correction of such deficiencies, in accordance with the provisions of
this Section 3.4. City shall notify Owner in writing if the condition of said improvements
do not meet with the Maintenance Standards and to specify the deficiencies and the
actions required to be taken by Owner to cure the deficiencies. Subject to the following
sentence, upon notification of any maintenance deficiency, Owner shall have thirty (30)
days within which to correct, remedy or cure the deficiency, provided that if the deficiency
cannot reasonably be cured within thirty (30) days and Owner provides written notification
to City of the time reasonably required by Owner to correct, remedy or cure the deficiency,
then Owner shall have up to but not exceeding ninety (90) days within which to correct,
remedy or cure the deficiency so long as Owner commences to correct, remedy or cure
the deficiency within said thirty (30) period and diligently prosecutes the correction,
remedy or cure to completion. If the written notification states the problem is urgent
relating to the public health and safety .of City, then Owner shall have forty-eight (48)
hours to correct, remedy, or cure the problem.
In the event Owner or any person or entity acting on behalf of Owner fails to
correct, remedy, or cure after notification and after the period of correction has lapsed [or,
for deficiencies that cannot reasonably be corrected, remedied, or cured within such
period, if Owner or any person or entity acting on behalf of Owner has not commenced
correcting, remedying or curing such maintenance deficiency within such period and
diligently pursued such correction, remedy or cure to completion], then City shall have the
right to maintain such improvements. Owner agrees to reimburse City for its actual costs
reasonably incurred in connection with such maintenance performed by City pursuant to
this Section. Until so paid, City shall have a lien on the Site for the amount of such unpaid
reimbursement, which lien shall be perfected by the recordation of a "Notice of Claim of
Lien" against the Site. Upon recordation of a Notice of a Claim of Lien against the Site,
such lien shall constitute a lien on the fee estate in and to the Site prior and superior to
all other monetary liens except: (i) all taxes, bonds, assessments, and other levies which,
by law, would be superior thereto; (ii) the lien or charge of any mortgage, deed of trust,
or other security interest then of record made in good faith and for value, it being
understood that the priority of any such lien for costs incurred to comply with this
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Covenant Agreement shall date from the date of the recordation of the Notice of Claim of
Lien. Any lien .in favor of City created or claimed hereunder is expressly made subject
and subordinate to the lien of any mortgage or deed of trust made in good faith and for
value, recorded as of the date of the recordation of the Notice of Claim of Lien describing
such lien as aforesaid, and no such lien shall in any way defeat, invalidate, or impair the
obligation or priority of any such mortgage or deed of trust, unless the mortgage or
beneficiary thereunder expressly subordinates his interest, of record, to such lien. Upon
foreclosure of any mortgage or deed of trust made in good faith and for value and
recorded prior to the recordation of any unsatisfied Notice of Claim of Lien, the
foreclosure-purchasershall take title to the Site free of any lien imposed by City that has
accrued up to the time of the foreclosure sale, and upon taking title to the Site, such
foreclosure -purchaser shall only be obligated to pay costs associated with this Covenant
Agreement accruing after the foreclosure -purchaser acquires title to the Site. Owner
acknowledges and agrees City may also pursue any and all other remedies available in
law or equity as a result of a maintenance deficiency by Owner hereunder. Owner shall
be liable for any and all reasonable attorneys' fees, and other legal costs or fees incurred
in collecting said maintenance costs.
3.5 Level of Service. During the Term, Owner shall cause the Hotel to be
operated as a hotel offering luxury amenities, full service accommodations, on-site full.
service restaurants and a level of personalized ' and professional service by Hotel
Manager or such other hotel operator approved by City pursuant to the terms of the
PSDA, and in accordance with the terms of the Hotel Management Agreement. Subject
to Owner's and the Hotel Manager's right to use their commercially reasonable business
judgment in the day-to-day operation of the Hotel, Owner shall use its best efforts to cause
the Hotel to be operated in a manner that maximizes the generation of Transient
Occupancy Tax to be remitted to City.
3.6 Compliance with Laws. During the Operating Period, Owner shall cause
the Hotel to be operated on the Site (i) in conformity with all valid and applicable federal,
state (including without limitation the California Civil Code, the California Government
Code, the California Health & Safety Code, the California Labor Code, the California
Public Resources Code, and the California Revenue & Taxation Code), and local laws,
ordinances, and regulations, provided that Owner does not waive its right to challenge
the validity or applicability thereof to Owner or the Site, and (ii) in compliance with all of
the requirements of the PSDA and any discretionary permits issued by City for the Hotel,
including, without limitation, all of the conditions of approval issued in connection
therewith, if any.
Nothing herein constitutes a representation or warranty by City that the
construction of the Hotel is not or will not be a "public work" or otherwise subject to
California Health and Safety Code Sections 33423 through 33426, or Chapter 1 of Part 7
of the California Labor Code (commencing with section 1720), and all applicable statutory
and regulatory- provisions related thereto, and Owner expressly waives any right of
reimbursement for any "increased costs" under California Labor Code Section 1781 or
otherwise with respect to the Hotel or Owner's development thereof. Owner shall
indemnify, defend, and hold City and City's representatives, volunteers, officers, officials,
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members, employees, and agents harmless, including, but not limited to, litigation costs,
expert witness fees, and reasonable attorneys' fees, from and against any and all claims.
pertaining to the payment of wages in connection with Owner's development of the Hotel
on the Site or failure to comply with federal or state labor laws, regulations, or standards.
3.7 Compliance with Hotel Management Agreement. Owner shall comply with
all of Owner's obligations under the Hotel Management Agreement. Owner shall promptly
provide City with copies of any notices of default received by Owner from the Hotel
Manager with respect to Owner's obligations under the Hotel Management Agreement.
3.8 Non -Discrimination. Owner shall cause the Hotel Manager to open and
operate the Hotel in a manner that does not violate applicable laws that prohibit
discrimination against any person or class of person by reason of gender, marital status,
sexual orientation, race, color, creed, mental or physical disability, religion, age, ancestry,
or national origin.
3.9 Indemnification of City. Owner shall defend, indemnify, assume all
responsibility for, and hold City, and City's representatives, volunteers, officers, officials,
members, employees and agents, harmless from any and all claims, demands, damages,
defense costs or liability of any kind (including reasonable attorneys' fees and costs), that
arise from Owner's operation of the Hotel on the Site or which may be caused by any acts
or omissions of the Owner under this Covenant Agreement, whether such activities or
performance thereof be by Owner or by anyone directly or indirectly employed or
contracted with by Owner and whether such damage shall accrue or be discovered before
or after termination of this Covenant Agreement.
4. OBLIGATIONS OF CITY.
4.1 Covenant Payments to Owner.
4.1.1 Determination of Required Annual Return. As soon as reasonably
possible following the Commencement Date, Owner shall ,deliver to City written notice
(the "Annual Return Notice") of Owner's determination of the Aggregate Preopening
Expenses and the Required Annual Return, together with a line item summary of each
category of costs included in the Aggregate Preopening Expenses and reasonable
backup to substantiate that all such costs were actually incurred. Within thirty (30) days
following City's receipt of the Annual Return Notice, City shall have the right to either
accept or reject Owner's determination of the Required Annual Return; provided,
however, if City rejects such determination, then it shall provide Owner with a reasonably
detailed explanation for its rejection (the "City's Rejection Notice"). If the Parties are
not able to reach agreement on the amount of the Required Annual Return within thirty
(30) days following Owner's receipt of City's Rejection Notice, then the Parties shall jointly
engage a certified public accountant (the "Auditor") to review Owner's books and records
and determine the amount of the Required Annual Return. If the Parties cannot agree
upon a choice of the Auditor within forty-five (45) days following Owner's receipt of City's
Rejection Notice, then (i) each Party shall engage, at its sole cost, an auditor, provided
each such auditor must be a certified public accountant with a nationally recognized firm
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and with at least ten (10) years of experience auditing hotel developers and operators. If
said auditors' determinations of. Required Annual Return differ by less than ten percent
(10%), then the final determination of Required Annual Return shall be the average of
amounts determined by said two auditors. If said auditors' determinations of Required
Annual Return differ by ten percent (10%) or more, then the Parties shall instruct said
auditors to engage a third auditor with the qualifications described above and the final
determination of Required Annual Return shall be the average of the two auditors'
determinations that are closest in value. The fees of such third auditor, if required, shall
be paid by the Parties in equal fifty percent (50%) shares. The determination of the
Required Annual Return pursuant to this Section shall be final and binding on the Parties
for all purposes under this Covenant Agreement.
4.1.2 Amount of Covenant Payments. In consideration for Owner's
undertakings pursuant to this Covenant Agreement, City shall make payments
(each, a "Covenant Payment") to Owner on each Payment Date during the
Operating Period The amount of each Covenant Payment shall be calculated as
follows:
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(a) As soon as reasonably possible following the end of each
Payment Period, Owner shall deliver to City (1) a summary of profit and Toss
reports for the Hotel for the Payment Period, and (2) a written notice in the
form of the sample attached hereto as Exhibit No. 2 '(each, an "Estimated
NOI Notice") that includes all of the following information:
(i) The actual Net Operating Income for such . Payment
Period and for all previous Payment Periods during the applicable
Operating Year, and in the Estimated NOI Notice for the fourth (4th)
Payment Period during the applicable Operating Year, the actual Net
Operating Income for such Operating Year;
(ii) In the Estimated NOI Notice for the first three (3)
Payment Periods during the applicable Operating Year, Owner's.
reasonable estimate of (I) the Net Operating Income for each of the
Payment Periods remaining in such Operating Year, and (II) the
annual Net Operating Income for such Operating Year;
(iii) In the Estimated NOI Notice for the first three (3)
Payment Periods during the applicable Operating Year, the
percentage of the estimated annual Net Operating Income for the
applicable Operating Year that is represented by the actual or
estimated (as applicable) Net Operating Income for each Payment
Period, which percentages are referred to on Exhibit No. 2 as the
"Percentage of estimated annual NOI". In the Estimated NOI Notice
-for the fourth (4th) Payment Period during the applicable Operating
Year, the percentage of the actual annual Net'Operating Income for
the applicable Operating Year that is represented by the actual Net
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Operating Income for each Payment Period, which percentages are
referred to on Exhibit No. 2 as the "Percentage of actual annual NOI;
(iv) the estimated or actual (as applicable) amount of
revenue that Owner needs to receive during the applicable Operating
Year that, when added to the estimated or actual (as applicable) Net
Operating Income for the applicable Operating Year, will achieve the
Required Annual Return for such Operating Year, which amount
shall be (I) the difference between the Required Annual Return and
the estimated or actual (as applicable) Net Operating Income for
such Operating Year, and (II) apportioned and attributed to each of
the Payment Periods in the amount of the "Percentage of estimated
annual NOI" or "Percentage of actual annual NOI" (as applicable)
attributed to such Payment Periods as of the applicable Payment
Date. Such amounts are referred to on Exhibit No. 2 as the "Amount
needed to achieve Required Annual Return";
(v) the amount 'of Transient Occupancy Taxes actually
paid to City for the applicable Payment Period. Such amount is
referred to on Exhibit No. 2 as the "TOT paid to City"; and
(vi) the amount available for rebate by City for the
applicable Payment ,Period, which shall be the amount of the
Transient Occupancy Taxes actually paid to City for such Payment
Period, multiplied by (I) ninety-five percent (95%) if such Payment
Period is within the first ten (10) years of the Operating Period, or (II)
seventy-five percent (75%) if such Payment Period is within the last
five (5) years of the Operating Period, which amounts are referred to
on Exhibit No. 2 as the "Amount available for rebate".
(b) On each Payment Date, City shall pay to Owner the difference
between (I) the amount that is the lesser of (1) the aggregate of the "Amount
needed to achieve Required Annual Return" attributable to the applicable
Payment Period and all prior Payment Periods during that Operating Year,
(2) the aggregate of the "Amount available for rebate" attributable to the
applicable Payment Period and all prior Payment Periods during that
Operating Year, and (3) the "Amount needed to achieve Required Annual
Return," and (II) the aggregate of the Covenant Payments previously paid
to Owner for such Operating Year. Notwithstanding anything to the contrary
in this Covenant Agreement, if upon the fourth Payment Date for any
Operating Year, the calculation of the difference between clause (I) and (II)
in this subparagraph (b) results in a negative number, then on such
Payment Date Owner shall pay the amount of such difference to City.
(c) The Parties hereby acknowledge and agree that the above
calculations will rely on estimates that will be updated by Owner following
the end of each Payment Period; accordingly, any estimated amounts
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included in a previously submitted Estimated NOI Notice may be adjusted
as reasonably necessary to provide for the Hotel's actual performance in
prior Payment Periods and for the Owner's reasonable expectations that
the Hotel's future performance may be negatively or positively impacted by
factors that would warrant an adjustment in the estimated Net Operating
Income for the Hotel during the applicable Operating Year.
(d) Notwithstanding anything to the contrary in this Covenant
Agreement, if Owner is in Default, then upon Owner's receipt of a Default
Notice from City, all Transient Occupancy Taxes paid to City for the period
of time commencing upon the date that Owner receives the Default Notice
from City and continuing through and until the date that Owner cures such
Default (each, a "Default Period"), shall be excluded from the amounts
included in the Estimated NOI Notice as "TOT paid to City" and "Amount
available for rebate" pursuant to Subsections 4.1.2(a)(v) and (vi) above, and
shall not be considered for purposes of calculating the amount of a Payment
Period. For example, if Owner pays to City Transient Occupancy Taxes in
the amount of $300,000 for a particular Payment Period, but $50,000 of
such Transient Occupancy Taxes were generated during a Default Period,
the amount included in the Estimated NOI Notice for such Payment Period
as "TOT paid to City" shall be $250,000, and the amount included in the
Estimated NOI Notice for such Payment Period as "Amount available for
rebate" (during the first ten years of the Operating Period) shall be
$237,500.
4.1.3 Determination of Net Operating Income. Within thirty (30) days
following City's receipt of an Estimated NOI Notice, City shall have the right to review the
books and records of the Hotel to determine the accuracy of the Estimated NOI Notice
and to either accept or reject Owner's determination of the estimated and/or actual (as
applicable) Net Operating Income in such Estimated NOI Notice; provided, however, if
City rejects any of such determinations, then it shall provide Owner with a reasonably
detailed explanation for its rejection (a "City's NOI Rejection Notice"). If the Parties are
not able to reach agreement on the amount of the estimated and/or actual (as applicable)
Net Operating Income in dispute within thirty (30) days following Owner's receipt of a
City's NOI Rejection Notice, then the Parties shall jointly engage a certified public
accountant (the "Auditor") to review Owner's books and records and determine the
amount of the estimated and/or actual (as applicable) Net Operating Income in dispute.
If the Parties cannot agree upon a choice of the Auditor within forty-five (45) days following
Owner's receipt of City's NOI Rejection Notice, then (i) each Party shall engage, at its
sole cost, an auditor, provided each such Auditor must be a certified public accountant
with a nationally recognized firm and with at least ten (10) years of experience auditing
hotel operators. If said auditors' determinations of the estimated and/or actual (as
applicable) Net Operating Income in dispute differ by less than ten percent (10%), then
the final determination of estimated and/or actual (as applicable) Net Operating Income
in dispute shall be the average of the two amounts determined by said two auditors. If
said auditors' determinations of the estimated and/or actual (as applicable) Net Operating
Income in dispute differ by ten percent (10%) or more, then the Parties shall instruct said
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auditors to engage a third ,auditor with the qualifications described above and the final
determination of the estimated and/or actual (as applicable) Net Operating, Income in
dispute shall be the average of the two auditors' determinations that are closest in value.
The fees of such third auditor, if required, shall be paid by the Parties in equal fifty percent
(50%) shares.
4.2 Source of Payments. The Covenant Payments shall be payable from any
source of funds legally available to City. In this regard, it is understood and agreed that
the Transient Occupancy Tax is being used merely as a measure of the amount of the
Covenant Payments that are periodically owing by City to Owner, and that City is not
pledging any portion of the actual Transient Occupancy Tax generated from the Site to
Owner.
4.3 Books and Records. Upon the written request of either Party, the other
Party shall make available for inspection (at City Hall in the event of a review of City
records and at Owner's place of business in ,La Quinta in the event of a review of Owner's
records) such of its books and records as the requesting Party may reasonably determine
must be reviewed in order to determine whether the correct amount of Covenant
Payments have been made or are being made hereunder. Notwithstanding the foregoing,
City shall not be required to produce any books or records that it is prohibited from
producing by law and Owner shall not be required to produce information that violates the
statutorily prescribed privacy rights of individual customers.
4.4 No Acceleration. It is acknowledged by the, Parties that any payments by
City provided for in this Covenant Agreement are in consideration for the performance by
Owner during the time period(s) for which payments are due. Therefore, City's failure to
timely make any payments or City's failure to perform any of its other obligations
hereunder shall not cause the acceleration of any anticipated future Covenant Payments
by City to Owner.
5. DEFAULTS AND REMEDIES.
5.1 Defaults. Subject to Section 8.7 of this Covenant Agreement, the
occurrence of any of the following shall constitute a "Default":
(a) the failure by either Party to perform any obligation of such Party for
the payment of money under this Covenant Agreement if such failure is not cured within
ten (10) calendar days following receipt of written notice of default; or
(b) the failure by either Party to perform any of its obligations (other than
obligations described in clause (a) of this Section 5.1) set forth in this Covenant
Agreement, if such failure is not cured within thirty (30) days following receipt of written
notice of default, or, if such failure is of a nature that cannot reasonably be cured within
thirty (30) days and the non-performing Party provides written notification to the `other
Party thereof, the failure by the non-performing Party to commence such cure within such
thirty (30) days and thereafter diligently prosecute such cure to completion; or
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(c) any representation or warranty by a Party set forth in this Covenant
Agreement proves to have been incorrect in any material respect when made; or
(d) Owner closes the Hotel, except for a Permitted Closure; or
(e) Owner defaults under the Hotel Management Agreement or. the
PSDA and has not cured the default within the applicable cure period (if any); or
(f) the Hotel is materially damaged or destroyed by fire or other casualty
during the Operating Period and Owner fails to commence restoration of the
improvements within a reasonable time or thereafter fails to diligently proceed to complete
such restoration in accordance with this Covenant Agreement; or
(g) Owner concludes a "Transfer" (as defined below) without the prior
written approval of City, except for a "Permitted Transfer" (as defined below); or
(h) Owner, or any constituent member of Owner (1) is the subject of an
order for relief for a bankruptcy court, or is unable or admits its inability to pay its debts
as they mature, or makes an assignment for the benefit of creditors; (2) applies for or
consents to the appointment of any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer for it or any part of its property; pr (3) institutes or consents
to any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
.dissolution, custodianship,conservatorship, liquidation, rehabilitation or similar
proceeding relating to it or any part of its property, or any similar proceeding is instituted
without the consent of Owner and continues undismissed or unstayed for ninety (90)
days; or
(i) any receiver, trustee, custodian, conservator, liquidator, rehabilitator
or similar 'officer is appointed without the application or consent of Owner, and the
appointment continues undischarged or unstayed for ninety (90) days; or any judgment,
writ, warrant of attachment or execution, or similar process is issued or levied against the
Site and is not released, vacated, or fully bonded within ninety (90) days after its issue or
levy; or
(j) Owner is enjoined or otherwise prohibited by any governmental
agency from occupying the Site at any time during the Operating Period and such
injunction or prohibition continues unstayed for ninety (90) days or more for any reason.
5.2 City's Remedies Upon Default by Owner. Upon the occurrence of any
Default by Owner, and after Owner's receipt of a Default Notice, City may, at its option:
(a) Deduct the amount of Transient Occupancy Tax generated during
any Default Period from the "TOT paid to City" and the "Amount available for rebate" for
purposes of determining the amount of any Covenant Payment. Notwithstanding
anything in this Covenant Agreement to the contrary, any Transient Occupancy Tax
generated during a Default Period shall never be considered in determining the amount
of a Covenant Payment, regardless of whether Owner subsequently cures the Default.
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(b) if the Default continues uninterrupted for a period of six (6) months
following Owner's receipt of written notice thereof, City may terminate this Covenant.
Agreement, in which case City's obligation to make payments to Owner for any period of
time after the occurrence of the Default shall be finally terminated and discharged.
5.3 Owner's Remedies Upon Default by City. Upon the occurrence of any
Default by City, Owner may terminate this Covenant Agreement by written notice to City
and/or seek whatever legal or equitable remedies may be available to Owner, subject to
the provisions of this Section 5.3, Section 4.4 (No Acceleration) and Section 8.4 (Legal
Actions). Notwithstanding the foregoing, in no event shall Owner be entitled to recover
damages of any kind from City, except for damages up to, but not exceeding, the amount
that Owner would have received under this Covenant Agreement but for City's default of
its covenants under this Covenant Agreement, but excluding damages for economic loss,
lost profits, or any other economic or consequential damages of any kind.
5.4 Cumulative Remedies; No Waiver. Except as expressly provided herein,
the nondefaulting Party's rights and remedies hereunder are cumulative and in addition
to all rights and remedies provided by law from time to time and .the exercise by the
nondefaulting Party of any right or remedy shall not prejudice such Party in the exercise
of any other right or remedy. None of the provisions of this Covenant Agreement shall be
considered waived by either Party except when such waiver is delivered in writing. No
waiver of any Default shall be implied from any omission by City to take action on account
of such Default if such Default persists or is repeated. No waiver of any Default shall
affect any Default other than the Default expressly waived, and any such waiver shall be
operative only for the time and to the extent stated. No waiver of any provision of this
Covenant Agreement shall be`construed as a waiver of any subsequent breach of the
same provision. A Party's consent to or approval of any act by the other Party requiring
further consent or approval shall not be deemed to waive or render unnecessary the
consenting Party's consent to or approval of any subsequent act. A Party's acceptance
of the late performance of any obligation shall not constitute a waiver by such Party of the
right to require prompt performance of all further obligations. A Party's acceptance of any
performance following the sending or filing of any notice of Default shall not constitute a
waiver of that Party's right to proceed with the exercise of its remedies for any unfulfilled
obligations. A Party's acceptance of any partial performance shall not constitute a waiver
by that Party of any rights relating to the unfulfilled portion of the applicable obligation.
5.5 Limitations on City's Liability. Owner acknowledges and agrees that: (i) this
Covenant Agreement shall not be deemed or construed as creating a partnership, joint
venture, or similar association between Owner and City, the relationship between Owner
and City pursuant to this Covenant Agreement is and shall remain solely that of
contracting Parties, that the operation of the Hotel is a private undertaking, and City
neither undertakes nor assumes any responsibility pursuant to this Covenant Agreement
with respect to the operation of the Hotel on the Site other than as expressly provided for
herein, and Owner shall rely entirely on its own judgment with respect to such matters;
provided, that nothing herein is intended to release City from whatever obligations it may
have pursuant to applicable laws independent of this Covenant Agreement; (ii) by virtue
of this Covenant Agreement, City shall not be directly or indirectly liable or responsible
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for any loss or injury of any kind to any person or property resulting from any occupancy
or use of the Site, whether arising from: (a) any defect in any building, grading,
landscaping, or other onsite or offsite improvement; (b) any act or omission of Owner or
any of Owner's agents, employees, independent contractors, licensees, lessees, or
invitees; or (c) any accident on the Site or any fire or other casualty or hazard thereon,
and (iii) by accepting or approving anything required to be performed or given to City
under this Covenant Agreement, including any certificate, NOI Notice, or insurance policy,
City shall not be deemed to have warranted or represented the sufficiency or legal effect
of the same, and no such acceptance or approval shall 'constitute a warranty or
representation by City to anyone.
6. ASSIGNMENT AND TRANSFER.
6.1 Transfers of Interest in Site or Covenant Agreement. The qualifications and
identity of Owner as the developer and operator of high quality commercial resort
developments are of particular concern to City. Furthermore, the Parties acknowledge
that City has negotiated the terms of this Covenant Agreement in contemplation of the
development and operation of the Hotel on the Site and the property tax and Transient
Occupancy Tax revenues to be generated by the operation of the Hotel on the Site.
6.1.1 Transfers of Interest in Site or Covenant Agreement Prior to City's
Issuance of a Release of Construction Covenants. Except as provided in this Section
6.1.1, until the date City issues a Release of Construction Covenants for the Hotel (the
"Fee Transfer Release Date"), (1) no voluntary successor in interest of Owner shall
acquire any rights or powers under this Covenant Agreement with respect to the Hotel;
(2) Owner shall not make any total or partial sale, transfer, conveyance, assignment, or
lease of the whole or any part of the Hotel or Site; and, (3) no changes shall occur with
respect to the ownership and/or control of Owner, including, without limitation,stock
transfers, sales of issuances, or transfers, sales or issuances of membership or
ownership interests, or statutory conversions (any of the above, a "Transfer"). Prior to
the Fee Transfer Release Date, City may approve or disapprove a proposed Transfer in
its sole and absolute discretion; provided, however, City agrees to reasonably consider a
Transfer to a transferee that has substantial experience in developing and operating
developments comparable in all material respects to the Hotel, and the financial capability
to develop and operate the Hotel, as determined pursuant to the factors set forth in
Section 311.1 of the PSDA
Notwithstanding the foregoing, City approval of a Transfer prior to the Fee
Transfer Release Date shall not be required in connection with any of the following:
(a) The conveyance or dedication of any portion of the Site to an
appropriate governmental agency, or the granting of easements or permits to facilitate
construction of the Hotel.
(b) Any assignment for financing purposes (subject to such
financing being permitted pursuant to Section 311 of the PSDA), including the grant of a
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deed of trust to secure the funds necessary for land acquisition, construction, and
permanent financing of the Hotel.
(c) The Transfer to a lender who has provided financing to Owner
(subject to such financing being permitted pursuant to Section 311 of the PSDA) as a
result of foreclosure by such lender of the deed of trust securing funds necessary for land
acquisition, construction, and permanent financing of the Hotel.
(d) The Transfer by Owner to an entity (i) whose managing
member, manager, or managing general partner is (A) Owner, or (B) an entity which is at
least fifty-one percent (51 %) owned and controlled by Owner or RGC, and (ii) which
engages as the project/development manager for the Hotel an entity which is at least fifty-
one percent (51 %) owned and controlled by Owner or RGC.
6.1.2 Transfers of Operational Obligations. Notwithstanding anything in
Section 6.1.1 to the contrary, until the expiration of the Operating Period, neither Owner
nor the Hotel Manager (or any permitted successor in interest) shall make any Transfer
of the operational and/or managerial control, including, but not limited to, financial and
managerial decision-making, of the Hotel; and (ii) no changes shall occur with respect to
the ownership and/or control of Owner or RGC, including, without limitation, stock
transfers, sales of issuances, or transfers, sales or issuances of membership or
ownership • interests, or statutory conversions (either of the above, a "Management
Transfer") without the prior written approval of City, which approval, with respect to a
Management Transfer described in clause (i) above, shall be made in City's sole and
absolute discretion, and which approval, with respect to a Management Transfer
described in clause .(ii) above, shall be\made in City's reasonable discretion; provided,
however, that transfers of the stock, ownership and/or membership interests of Owner, or
RGC may be made so long as such transfers do not result in the transfer, on a cumulative
basis, of more than forty-nine percent (49%) of the outstanding and voting stock, -
ownership, and/or membership interests of Owner or RGC. Notwithstanding the
foregoing, City approval shall not be required for a Management Transfer of the Hotel to
any of the entities approved by City to act as Luxury Hotel Operator, as set forth in Section
100 of the PSDA (any of the foregoing, an "Approved Luxury, Hotel Operator"). Except
as provided below in this Section 6.1.2, any proposed Management Transfer to an entity
that is not designated as an Approved Luxury Hotel Operator shall be approved by the
City Council of City, in its sole and absolute discretion. In connection with any proposed
Management Transfer of the Luxury Hotel to any entity that is not designated as an
Approved Luxury Hotel Operator, Owner or Owner's successor in interest shall
demonstrate that the proposed operator has experience and reputation for operating
luxury hotels that is equivalent to the experience and reputation of an Approved Luxury
Hotel 'Operator (an "Experience Equivalent Luxury Hotel Operator"). Notwithstanding
anything in this Section 6.1.2 to the contrary, at any time after the Luxury Hotel has been \
opened for business and has commenced operations by an Approved Luxury Hotel
Operator, City approval shall not be unreasonably withheld for a Management Transfer
of the Luxury Hotel to an Experience Equivalent Luxury Hotel Operator. To the extent
that the operating character or quality of any Approved Luxury Hotel Operator
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substantially changes'between the date of this Covenant Agreement and the date of the
proposed Management Transfer, Owner. or Owner's successor in interest shall
demonstrate that the Approved Luxury Hotel Operator satisfies the requirements to
qualify as an Experience Luxury Hotel Operator. Owner or Owner's successor in interest
shall provide such information as may be reasonably requested by City to enable City to
review and approve (or disapprove) any proposed operator, and shall reimburse City for
City's costs incurred in considering any such request.
6.1.3 Assignment and Assumption of Obligations. Any Transfer (including
Transfers not requiring prior City approval) by Owner of any interest in the Site or of any
interest in this Covenant Agreement and all Management Transfers shall require the
execution of an assignment and assumption of obligations in a form approved by the City
Attorney (an "Assignment and Assumption Agreement"). Transfers of Owner's rights
and/or obligations under this Covenant Agreement made without an executed
Assignment and Assumption Agreement are null and void. The requirement for the
provision to City of an executed Assignment and Assumption Agreement shall apply
regardless of whether City approval is required for the Transfer. Owner agrees that (a)
at least thirty (30) days prior to any Transfer it shall give written notice to City of such
proposed Transfer; and (b) within five (5) days after any Transfer it shall provide City with
a copy of the fully executed Assignment and Assumption Agreement evidencing that the
assignee has assumed in writing all applicable obligations under this Agreement. A Party
proposing to assign its obligations under this Agreement (i) shall remain liable for the
obligations until and unless City has received a fully executed Assignment and
Assumption Agreement, and (ii) shall remain liable for any default hereunder that
occurred prior to the effective date of the assignment. Owner or Owner's successor in
interest shall reimburse City for any costs (other than staff time) City incurs in reviewing
any Assignment and Assumption Agreement required hereunder.
6.2 Binding Effect. This Covenant Agreement shall run with the land and shall
be binding on, and inure to the benefit of the Parties hereto and their respective
successors and assigns, as limited by this Section 6. In the event of any assignment that
is consented to in writing by City, the references in this Covenant Agreement to "Owner"
shall be deemed to refer to the assignee.
7. MORTGAGEE PROTECTIONS.
7.1 No Termination. No action by Owner or City to cancel or surrender this
Covenant Agreement or to materially modify the terms of this Covenant Agreement shall
be binding upon a Mortgagee without its prior written consent, which such Mortgagee
shall not unreasonably withhold, condition or delay, unless (solely with respect to
cancelling or surrendering this Covenant Agreement) such Mortgagee shall have failed
to cure a default within the time frames set forth in this Article 7.
7.2 Notices. If City shall give any notice of default to Owner hereunder, City
shall simultaneously give a copy of such notice of default to any Mortgagee that has filed
or recorded a request for such notice, at the address theretofore designated by it. No
notice of default given by City to Owner shall be binding upon or affect said Mortgagee
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unless a copy of said notice of default shall be given to Mortgagee pursuant to this Article
7. In thecase of an assignment of such Mortgage or change in address of such
Mortgagee, said assignee or Mortgagee, by written notice to . City, may change the
address to which such copies of notices of default are to be sent. City shall not be bound
to recognize any assignment of such Mortgage unless and until City shall be given written
notice thereof, a copy of the executed assignment, and the name and address of the
assignee. Thereafter, such assignee shall be deemed to be the Mortgagee hereunder
with respect to the Mortgage being assigned. If such Mortgage is held by more than one
person, corporation or other entity, no provision of this. Covenant Agreement requiring
City to give notices of default or copies thereof to said Mortgagee shall be binding upon
City unless and until all of said holders shall designate in writing one of their number to
receive all such notices of default and copies thereof and shall have given to City an
original executed counterpart of such designation.
7.3 Performance of Covenants. Mortgagee shall have the right (but not the
obligation) to perform any term, covenant or condition and to ,remedy any default by
Owner hereunder within the time periods specified herein, and City shall accept such
performance with the same force and effect as if furnished by Owner; provided, however,
that said Mortgagee shall not thereby or hereby be subrogated to the rights of City.
Notwithstanding the foregoing, nothing herein shall be deemed to permit or authorize
such Mortgagee (or its designee) to undertake or continue the construction or completion
of the Improvements without first having expressly assumed Owner's obligations
hereunder, under the PSDA, and under any other agreements between City and OWner
that relate to the Hotel, to City or its designee by written agreement satisfactory to City.
7.4 Default by Owner. In the event of a default by Owner, City agrees not to
terminate this Covenant Agreement (1) unless and until Owner's and Mortgagee's notice
and cure periods have expired, and (2) as long as:
7.4.1 In the case of a default which cannot practicably be cured by a
Mortgagee without taking possession of the Improvements, said Mortgagee shall proceed
diligently to obtain possession of the Improvements as Mortgagee (including possession
by receiver) and, upon obtaining such possession, shall proceed diligently to cure such
default; or
7.4.2 In the case of a default which is not susceptible to being cured by a
Mortgagee, said' Mortgagee shall institute foreclosure proceedings and diligently
prosecute the same to completion (unless in the` meantime it shall acquire Owner's right,
title and interest hereunder, either in its own name or through a nominee, by assignment
in lieu of foreclosure) and upon such completion of acquisition or foreclosure such default
shall be deemed to have been cured.
7.5 No Obligation to Cure. Mortgagee shall not have any obligation or duty
pursuant to the terms set forth in this Covenant Agreement to perform the obligations of
Owner or other affirmative covenants of Owner hereunder, or to guarantee such
performance and nothing herein contained shall require any Mortgagee to cure any
default of Owner referred to above. However, in the event that Mortgagee elects not to
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cure any default susceptible of being cured, City's obligation to further fund any Covenant
Payments shall be suspended until such time as the default is cured (or such earlier time
that Mortgagee cures the default).
7.6 Separate Agreement. City may, upon request, execute, acknowledge and
deliver to each Mortgagee, an agreement prepared at the sole cost and expense of
Owner, in form satisfactory to each Mortgagee, between City, Owner and the Mortgagees,
agreeing to all of the provisions hereof.
7.7 Form of Notice. Any Mortgagee shall be entitled to receive the notices
required to be delivered to it hereunder provided that such Mortgagee shall have delivered
to City a notice substantially in the following form:
"The undersigned, whose address is , does hereby certify that
it is the Mortgagee (as such term is defined in that certain Agreement to
Share Transient Occupancy Tax Revenue ("TOT Agreement") dated as of
, 2014 between [XXXX] and the City of La Quinta, of the parcel
of land described on Exhibit A attached hereto. In the event that any notice
shall be given of a default of Owner under the TOT Agreement, a copy
thereof shall be delivered to the undersigned who shall have the rights of a
Mortgagee to cure the same, as specified in the TOT Agreement. Failure
to deliver a copy of such notice shall in no way affect the validity of the notice
to Owner, but no such notice shall be effective as it relates to the rights of
-the undersigned under the TOT Agreement with respect to the Mortgage,
including the commencement of any cure periods applicable to the
undersigned, until actually received by the undersigned."
All notices to be provided by Mortgagee to City shall be provided in
accordance with Section 8.8 below.
7.8 Further Assurances. City and Owner agree to cooperate in including in this
Covenant Agreement, by suitable amendment, any provision which may be reasonably
requested by any Mortgagee or any proposed Mortgagee for the purpose of (i) more fully
or particularly implementing the mortgagee protection provisions contained herein, (ii)
adding mortgagee protections consistent with those contained herein and which are
otherwise commercially reasonable, (iii) allowing such Mortgagee reasonable means to
protect or preserve the security interest of such mortgagee in the collateral, including its
lien on the Site and the collateral assignment of this Covenant Agreement, and/or (iv)
clarifying terms or restructuring elements of the transactions contemplated.. hereby;
provided, however, in no event shall City be obligated to materially and adversely modify
any of Owner's obligations or City's rights under this Covenant Agreement in any manner
not already contemplated in this Article 7.
8. GENERAL PROVISIONS.
8.1 Integration and Amendment. This Covenant Agreement, the PSDA, and
the Agreement constitute the entire agreement by and between the Parties pertaining to
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the subject matter hereof, and supersede all prior agreements and understandings of the
Parties with respect thereto. This Covenant Agreement may not be modified, amended,
supplemented, or otherwise changed except by a writing executed by both Parties.
8.2 Captions. Section headings used in this Covenant Agreement are for
convenience of reference only and shall not affect the construction of any provisions of
this Covenant Agreement.
8.3 Counterparts. This Covenant Agreement may be executed in two or more
counterparts, each of which when so executed and delivered shall be deemed an original
and all of which, when taken together, shall constitute one and the same instrument.
8.4 Legal Actions. This Covenant Agreement shall be governed by and
construed in accordance with the internal laws of the State of California without regard to
conflict of law principles.
8.5 Attorney's Fees. If either Party to this Covenant Agreement is required to
initiate or defend, or is made a party to, any action or proceeding in any way connected
with this Covenant Agreement, the Party prevailing in the final judgment in such action or
proceeding, in addition to any other relief which may be granted, shall be entitled to
reasonable attorney's fees. Attorney's fees shall include reasonable costs for
investigating such action, conducting discovery, retaining expert witnesses, and all other
necessary costs the court allows which are incurred in such litigation.
8.6 Effect of Violation of the Terms and Provisions of this Covenant_Agreement.
The covenants established in this Covenant Agreement shall, without regard to technical
classification and designation, be binding for the benefit and in favor of City, its
successors and assigns, as to those covenants which are for its benefit. The covenants
contained in this Covenant Agreement shall remain in effect for the periods of time
specified therein. City is deemed the beneficiary of the terms and provisions of this
Covenant Agreement and of the covenants running with the land, for and in its own rights
and for the purposes of protecting the interests of the community and other parties, public
or private, in whose favor and for whose benefit this Covenant Agreement and the
covenants running with the land have been provided. This Covenant Agreement and the
covenants shall run in favor of City, without regard to whether City has been, remains, or
is an owner of any land or interest in the Site. City shall have the right, if the Covenant
Agreement or covenants are breached, to exercise all rights and remedies, and to
maintain any actions or suits at law or in equity or other proper proceedings to enforce
the curing of such breaches to which it or any other beneficiaries of this Covenant
Agreement and covenants may be entitled.
8.7 Force ,Majeure. Notwithstanding any other provision set forth in this
Covenant Agreement to the contrary, in no event shall a Party be deemed to be in Default
of its obligations set forth herein where delays or failures to perform are caused by
circumstances without the fault and beyond the reasonable control of such Party, which
circumstances shall include, without limitation, fire/casualty losses; strikes; litigation;
unusually severe weather; inability to secure necessary labor, materials, or tools; delays
698/015610-0065
10896492.2 a05/04/17
-22-
DOC #2017-0463952 Page 23 of 31
of any contractor, subcontractor, or supplier; unjustified acts or failure to act by City or
other governmental . agency; litigation by third parties challenging the .validity or
enforceability of the Agreement or this Covenant Agreement; and acts of God
(collectively, "force majeure"). Adverse market conditions or Owner's inability to obtain
financing or approvals to operate the Hotel shall not constitute events of force majeure.
In the event of a force majeure, the Party so delayed' shall notify the other Party of the
circumstances and cause of the delay within a reasonable time period after
commencement of the delay, it shall keep the other Party informed at reasonable intervals
upon request regarding the status of its efforts to overcome said delay, and it shall
exercise commercially reasonable diligence to perform as soon as practicable thereafter.
8.8 Notices. Notices to be given by City or Owner hereunder may be delivered
personally or may, be delivered by certified. or registered mail, postage prepaid, or by
reputable overnight delivery service providing a delivery confirmation receipt with time
and date of delivery, with mailed notices to be addressed to the appropriate address(es)
hereinafter set forth or to such other address(es) that a Party may hereafter designate by
written notice. If served by overnight delivery service or certified mail, service will be
considered completed and binding on the Party served on the date set forth in the
confirmation or certification receipt: If delivered personally, service will be considered
completed and binding on the Party served on the date of such personal delivery.
If notice is to City:
with a copy to:
If notice is to Owner:
with a copy to:
8.9 City Approvals and
Agreement and the authority to
Manager. The City, Manager
interpretations, waive provisions;
698/015610-0065
10896492.2 a05/04/17
City of La Quinta
• 78-495 Calle Tampico
La Quinta,, CA 92253
Attention: Frank J. Spevacek, City Manager
Rutan & Tucker, LLP
611 Anton Boulevard, Suite 1400
Costa Mesa, CA 92626
Attention: William H. Ihrke, City Attorney
SilverRock Development Company, LLC
c/o The Robert Green Company
3551 Fortuna Ranch Road
Encinitas, CA 92024
Attention: Robert S. Green, Jr.
Clinton L. Blain, Attorney at Law
3990 Old Town Avenue, Suite B-101
San Diego, California 92110
Phone: 619-584-1600 •
Attention: Clinton Blain, Esq.
Actions. City' shall maintain authority of this Covenant
implement this Covenant Agreement through the City
shall have the authority to make approvals, issue
negotiate and enter into amendments to this Covenant
-23-
. DOC #2017-0463952 Page 24 of 31
Agreement and/or negotiate and enter into implementing agreements or documents on
behalf of City so long as such actions do . not materially or substantially change the
business terms of this Covenant Agreement, or materially or substantially add to the costs
incurred or to be incurred by City as specified herein. Such approvals, interpretations,
waivers, amendments, and/or implementing agreements or documents may include
extensions of time to perform. All other material and/or substantial interpretations,
waivers, or amendments shall require the consideration, action and written consent of the
City Council.
8.10 Further Acts. Each Party agrees to take such further actions and to execute
such other documents as may be reasonable and necessary in the performance of its
obligations hereunder; reserving to City, however, its lawful discretionary and police
power authority. Without limiting the generality of the foregoing, upon the expiration or
termination of the Operating Period, City will execute and deliver such instruments as
may be prepared by Owner at Owner's expense to release the cloud upon title to the Site
created by this Covenant Agreement; provided, however, that any such document shall
be in a form reasonably acceptable to the City Attorney of City.
8.11 Third Party Beneficiaries. With the exception of the specific provisions set
forth in this Covenant Agreement for the benefit of Mortgagees, there are no intended
third party beneficiaries under this Covenant Agreement and no such other third parties
shall have any rightsor obligations hereunder.
8.12. Estoppel Certificates. Either Party to this Covenant Agreement shall,
promptly (but under all circumstances within ten (10) days) following the request of the
other Party, execute, acknowledge and deliver to or for the benefit of such other Party, a
certificate certifying: (i) that this Covenant Agreement is unmodified and in full force and
effect (or, if there have been modifications, that this Covenant Agreement is in full force
and effect, as modified, and stating the modifications), (ii) whether there are then existing
any defaults on the part of the party requesting the certificate known to the Party delivering
the certificate in the performance or observance of any agreement, covenant or condition
hereof to be performed or observed and whether any notice has been given of any default
which has not been cured (and, if so, specifying the same), and (iii) such other matters
as may be reasonably requested. In the event City is requested to provide more than
one such certificate in any twelve (12) month period, Owner shall reimburse City for all
reasonable fees and costs City incurs from attorneys and consultants in the preparation
of the same.
8.13 Inspection of Books and Records. Not more than once per calendar
quarter, City has the right at all reasonable times during normal business hours and
following at least ten (10) Business Days prior written notice to Owner to inspect, on a
confidential basis, the books, records and all other documentation of Owner pertaining to
its obligations under this Covenant Agreement. Not more than once per year, Owner also
has the right at all reasonable times during normal business hours and upon ten (10)
Business Days prior written notice to inspect the books, records and all other
documentation of City pertaining to its obligations under this Covenant Agreement.
698/015610-0065
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-24-
DOC #2017-0463952 Page 25 of 31
. 8.14 Severability. If any term, provision, covenant or condition of this Covenant
Agreement is held in a final disposition by a court of competent jurisdiction to be invalid,
void or unenforceable, the remaining provisions shall continue in full force and effect
unless the rights and obligations of the Parties have been materially altered or abridged
by such invalidation, voiding or unenforceability.
8.15 Standard of Approval. Any consents or approvals required or permitted
under this CovenantAgreement shall not be unreasonably delayed, conditioned or
withheld, except where it is specifically provided that a sole discretion standard applies.
8.16 Time of the Essence. Time is of the essence for each provision of this
Covenant Agreement of which time is an element.
698/015610-0065
10896492.2 a05/04/17
[End — Signature page follows]
-25-
DOC #2017-0463952 Page 26 of 31
IN WITNESS WHEREOF, City and Developer hereby execute this Covenant
Agreement as set forth herein.
Date:
ATTEST:
CITY:
CITY OF LA QUINTA, a California municipal
cor.ora-ion and c . • - •' .
1111 41111
diii,
, 2017 B
City Clerk
Susan Maysels
APPROVED AS TO FORM:
RUTAN & TUCKER, LLP
&.„
William H. Ihrke
City Attorney
[signatures continue on next page]
698/015610-0065
10896492.2 a05103117
-26-
anager
Frank J. Spevacek
Date: , 2017
Date: , 2017
698/015610-0065
10896492.2 a05/04/17
DOC #2017-0463952 Page 27 of 31
"DEVELOPER"
SILVERROCK DEVELOPMENT COMPANY,
LLC, a Delaware limited liability company
By: RGC La Quinta II, LLC,
a Delaware limited liability company
Its: Co -Manager
By: The Robert Green Company,
a California cor..ration
Its: Manag 411-5170r#1°.
By:
Name: Robert S. Green, Jr.
Its: President and Chief
Executive Officer
By: RGC La Quinta, LLC,
a Delaware limited liability company
Its: Co -Manager
-27-
By: The Robert Green Company,
a California corporation
Its: Jl4ariager
By:
Name: Robert S. Green, Jr.
Its: President and Chief
Executive Officer
DOC #2017-0463952 Page 28 of 31
A notary public or other officer completing this certificate verifies only the
identity of the individual who signed the document to which this certificate is
attached, and not the truthfulness, accuracy, or validity of that document.
STATE OF CALIFORNIA
COUNTY OF R iviers;ae . )
On nilay 3 , o?O/ % before me,
ereS R Tiomp Sor , Notary Public, personally appeared
Frank Z: Sp.evaz.ek , who proved to me on the basis of
satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify UNDER PENALTY OF PERJURY under the laws of the State of
California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
TERESA THOMPSON•
Commission # 2030796 z
Notary Public - California z
"�� Riverside County
3_ _ _ My Comm. Expires Jun 24,2017 t
698/015610-0065
10896492.2 a05/03/17
Name: "T -C2 ESA "n40 M Pyo t�
Notary Public
DOC #2017-0463952 Page 29 of 31
A notary public or other officer completing this certificate verifies only the
identity of the individual who signed the document to which this certificate is
attached, and not the truthfulness, accuracy, or validity of that document.
STATE OF CALIFORNIA )
)
COUNTY OF on it� rn IO
Ori, , before me,
N(1 I VI „S 19-amo Notary Public, personally appeared
(Ztj/je(•(' I(• , who proved to me on the basis of
satisfactory evidence to be the person(s). whose name(s) is/afe subscribed to the within
instrument and acknowledged to me that he/she/they executed the same in his/lief/their
authorized capacity(ies), and that by his/her/their signatures} on the instrument the
person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify UNDER PENALTY OF PERJURY under the laws of the State of
California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
'::Y:.Y.Y.•.•.Y: Y•:Y.:Yh• •.YhtiY.Y.•.•.tiY.Y.SM1•.'h•:.Y: ��` Qj V Ct
Naomi Benavides Ramos
l'tirN
COMM.#2085787 ame: 1441)M1 1'1Gi -Gi.?_C i)S
` 6 NOTARY PUBLIC • CALIFORNIA v Notary Public
..�y� SAN DIEGO COUNTY ^�
. • :: = Commission Expires -Nov 8, 2018
698/015610-0065
10896492.2 a05/04/17
DOC #2017-0463952 Page 30 of 31
EXHIBIT NO. 1
TO AGREEMENT CONTAINING COVENANTS, CONDITIONS, AND RESTRICTIONS
AFFECTING REAL PROPERTY
(LUXURY HOTEL)
LEGAL DESCRIPTIONS OF PARCELS
Page 1 of 1
PHASE '!A PROPERTY:
Those portions of Sections 5, 6 and 8 Township 6 South, Range 7 East, San Bernardino
Meridian, in the City of La Quinta, County of Riverside, State of California, described as
follows:
Parcels 3 and 4 of Parcel Map No. 37207 per map filed in Book 242, Pages 72 through
87 inclusive, of Parcel Maps, in the office of the County Recorder of Riverside County,
State of California.
This legal description was prepared by me or under my directions in conformance with
the. requirements of the Professional Land Surveyors Act.
Christopher L. Alberts, P.L.S. 8508
Date: /f/ / Za
DOC #2017-0463952 Page 31 of 31
)(1-/,6,7 /0'
j Gs 111= � /7 /�/ /%/7C6
Estimated Annual NOI Notice
Date:
Required Annual Retum:
Estimated Annual NOl with Payment Period Actuals or Estimates
1/15/2018
$ 9,350,000
1st Payment Period NOI notice
Payment Period
2nd quarter
3rd quarter
1st
2nd
3rd
4th
annual
Actual or estimated NOl
$ 1,500,000
$ 1,750,000
$ 2,900,000
$ .2,500,000
$ 8,650,000
Percentage of estimated annual NOl
17.34%
20.23%
33.53%
28.90%
100.00%
Amount needed to achieve Required Annual Retum
$ 121,387
$ 141,618
$ 234,682
$ 202,312
$ 700,000
TOT paid to City Reflects Delault
$, 300,000
$ 200,000
$ 600,000
'-_$,,' 285,000,
$ 190,000
Amount available for rebate (95% of TOT paid to City)
s$.,_ _285,000
$ 190,000
$ 570,000
$ 700,000
Amount needed to achieve Required Annual Retum (Payment Period 1)
$ 121,387
Aggregate amount available for rebate (Payment Periods 1-4)
!$'1;561,325'
Amount available for rebate (Payment Period 1)
,$ 285000
Amount needed to achieve Required Annual Return
$ 700,000
Amount needed to achieve Required Annual Return
$ 700,000
Total Covenant Payment for Payment Periods 1-4 is lesser of above
$ 700,000
Covenant Payment is lesser of the above
$ 121,387
Less 1st Payment Period Covenant Payment
$ 121,387
2nd Payment Period NOI notice
3rd
Payment Period
2nd quarter
3rd quarter
1st
2nd
3rd
4th
annual
Actual or estimated NOl
$ 1,500,000
$ 1,200,000
$ 1,600,000
$ 2,000,000
$ 6,300,000
Percentage of estimated annual NOl
23.81%
19.05%
25.40%
31.75%
100.00%
Amount needed to achieve Required Annual Return
$ 726,190
$ 580,952
$ 774,603
$ 968,254
$ 3,050,000
TOT paid to City
$ 300,000'
$ 200,000
$ 600,000
'-_$,,' 285,000,
$ 190,000
Amount available for rebate (95% of TOT paid to City)
.$...1.,..285,000.•
$ 190,000
$ 570,000
$ 700,000
Aggregate amount needed to achieve Required Annual Retum (Payment Periods 182)
$ 1,307,143
Aggregate amount available for rebate (Payment Periods 1-4)
!$'1;561,325'
Aggregate amount available for rebate (Payment Periods 1&2)
"CT 475,000
Amount needed to achieve Required Annual Return
$ 700,000
Amount needed to achieve Required Annual Return
$ 3,050,000
Total Covenant Payment for Payment Periods 1-4 is lesser of above
$ 700,000
Total Covenant Payment for Payment Periods 1&2 is lesser of above
$,475;000 '
Less 1st Payment Period Covenant Payment
$ 121,387
Less 1st Payment Period Covenant Payment
$ 121,387
Less 2nd Payment Period Covenant Payment
:$_...'353,,813,
Covenant Payment due 2nd Payment Period
-$7'35-3,61-3-
"353,613
Less 3rd Payment Period Covenant Payment
$ 324;390'
3rd Payment PeriodNO1 notice
Payment Period
2nd quarter
3rd quarter
1st quarter
2nd quarter
3rd quarter
4th quarter
annual
Actual or estimated NOl
$ 1,500,000
$ 1,200,000
$ 3,000,000
$ 2,500,000
$ 8,200,000
Percentage of estimated annual NOl
18.29%
14.63%
36.59%
30.49%
100.00%
Amount needed to achieve Required Annual Retum
$ 210,366
$ 168,293
$ 420,732
$ 350,610
$ 1,150,000
TOT paid to City
':$ 300,000
$ 200,000
$ 600,000
'-_$,,' 285,000,
$ 190,000
Amount available for rebate (95% of TOT paid to City)
-_-$ . _285,000.
$ 190,000
$ 570,000
$ 700,000
Aggregate amount needed to achieve Required Annual Return (Payment Periods 1-3)
$ 799,390
Aggregate amount available for rebate (Payment Periods 1-4)
!$'1;561,325'
Aggregate amount available for rebate (Payment Periods 1-3)
$7,045,000+
Amount needed to achieve Required Annual Return
$ 700,000
Amount needed to achieve Required Annual Return
$ 1,150,000
Total Covenant Payment for Payment Periods 1-4 is lesser of above
$ 700,000
Total Covenant Payment for Payment Periods 1-3 is lesser of above
$ 799,390
Less 1st Payment Period Covenant Payment
$ 121,387
Less 1st Payment Period Covenant Payment
$ 121,387
Less 2nd Payment Period Covenant Payment
:$_...'353,,813,
Less 2nd Payment Period Covenant Payment
'$ 75-0:01Y
Less 3rd Payment Period Covenant Payment
$ 324;390'
Covenant Payment due 3rd Payment Period
$ . 324,390
Covenant Payment due 4th Payment Period (Annual)
$ (99,390)
4th Payment Period NOI notice (Annual
Payment Period
actual amounts to be filled in
.estimated amounts to be filled in
all other values self calculate
1st quarter
2nd quarter
3rd quarter
4th quarter
annual
Actual NOI
$ 1,500,000
$ 1,200,000
$ 3,000,000
$ 2,950,000
$ 8,650,000
Percentage of actual annual NOl
17.34%
13.87%
34.68%
34.10%
100.00%
Amount needed to achieve Required Annual Retum
$ 121,387
$ 97,110
$ 242,775
$ 238,728
$ 700,000
TOT paid to City
$'M 300;000
$ 200,000
$ 600,000
$ 543,500
Amount available for rebate (95% of TOT paid to City)
'-_$,,' 285,000,
$ 190,000
$ 570,000
$ 516,325
Aggregate amount needed to achieve Required Annual Retum (Payment Periods 1-4)
$ 700,000
Aggregate amount available for rebate (Payment Periods 1-4)
!$'1;561,325'
Amount needed to achieve Required Annual Return
$ 700,000
Total Covenant Payment for Payment Periods 1-4 is lesser of above
$ 700,000
Less 1st Payment Period Covenant Payment
$ 121,387
Less 2nd Payment Period Covenant Payment
:$_...'353,,813,
Less 3rd Payment Period Covenant Payment
$ 324;390'
Covenant Payment due 4th Payment Period (Annual)
$ (99,390)
actual amounts to be filled in
.estimated amounts to be filled in
all other values self calculate