2018-11-28 (11) SRR Agrmt CC&Rs (Lifestyle Hotel) DOC # 2018-0464678766 1712110
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
City of La Quinta
78-495 Calle Tampico
La Quinta, CA 92253
Attn: City Clerk
DOC # 2018-0464678
11/28/2018 03:02 PM Fees: $0.00
Page 1 of 28
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: TERESA #134
,)eCV-.e I" e4- GC :;tI`j 6
8 �x EXEMPT FROM RECORDER'S FEE PER GOV. CODE §2738S
A_ GREEMENT CONTAINING COVENANTS, CONDITIONS, AND RESTRICTIONS
AFFECTING REAL PROPERTY
(Lifestyle Hotel)
This AGREEMENT CONTAINING COVENANTS, CONDITIONS, AND RESTRICTIONS
AFFECTING REAL PROPERTY (the "Covenant Agreement") is entered into as of this -2Z day
of /l(W4'nAV 201f�'("Covenant Agreement Effective Date"), by and between the CITY OF
LA QUINTA, a California municipal corporation and charter city ("City"), and SILVERROCK
PHASE 1, 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"), Amendment No. 2 to Purchase, Sale, and Development Agreement dated
April 18, 2017 ("Amendment No. 2") and Amendment No. 3 to Purchase, Sale, and Development
Agreement dated Alu �� 2018 ("Amendment No. 3") (collectively and as may be
further amended, 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 Lifestyle 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 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
Operator"), who shall be responsible for the management and operation of the Hotel pursuant to
the terms of the Hotel Management Agreement.
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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 good and valuable consideration, the receipt and sufficiency of which is acknowledged
by both Parties, City and Owner hereby agree as follows:
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 and 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 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.
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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.
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 Operator" 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.
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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 all the 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 Operator 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 Operator and reimbursable by the
Owner 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, 0) all amounts payable to the Hotel Operator pursuant to the Hotel
Management Agreement including, without limitation, the management fee, (k) taxes,
(1) 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.
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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.
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 Operator 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 Operator 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
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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, or "seasonality"
which shall be confined to a temporary closure when one of the following conditions are present:
(a) one or more Approved Luxury Hotel Operator (as defined in Section 6.1.2 below and the
PSDA) in the Coachella Valley temporarily closes; or (b) industry standard for hotels similar to the
Luxury Hotel and located in the Coachella Valley allows for temporary closures based on
seasonality; provided, however such temporary closure only occurs for no more than sixty (60)
days and any temporary closure does not occur between the Friday immediately before Labor
Day in the United States (or the Friday before the first weekend in September) and the next
Monday immediately after the Fourth of July (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.
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 Operator 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 Operator 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 for support 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
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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 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) day 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
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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 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 -purchaser shall
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 "lifestyle hotel" operated by Hotel Operator 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 Operator'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
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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, member, 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 Operator with respect to
Owner's obligations under the Hotel Management Agreement.
3.8 Non -Discrimination. Owner shall cause the Hotel Operator 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.
3.10 Insurance Requirements.
3.10.1 Owner shall procure and maintain, at its sole cost and expense, in a form
and content reasonably satisfactory to the City Manager (as that term is described in Section 100
of the PSDA), the following policies of insurance:
(a) Commencing with the Covenant Agreement Effective Date and ending
on the earlier of the date this Covenant Agreement expires or is earlier terminated by the Parties
pursuant to the terms hereof, a policy of commercial general liability insurance written on a per
occurrence basis in an amount not less than Five Million Dollars ($5,000,000.00) per occurrence
and Five Million Dollars ($5,000,000.00) in the aggregate.
(b) Commencing on the date City issues a Release of Construction
Covenants for the Lifestyle Hotel and ending on the earlier of the date this Covenant Agreement
expires or is earlier terminated by the Parties pursuant to the terms hereof, an "All Risks" property
insurance policy on a replacement cost basis in an amount equal to the full replacement cost of
the Lifestyle Hotel and Conference and Shared Service Facility, as the same may change from
time to time and which shall not contain a coinsurance provision.
3.10.2 The following additional requirements shall apply to the insurance policies
required under subsection 3.10.1 above:
(a) Such policies shall be primary insurance and the commercial general
liability insurance shall name City and City's officers, officials, members, employees, agents and
representatives as additional insureds, using a pre-2004 additional insured endorsement (or
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equivalent). To the extent allowable by applicable law, the insurer shall waive all rights of
subrogation and contribution it may have against City and City's officers, officials, members,
employees, agents and representatives, and their respective insurers. All of said policies of
insurance shall provide that said insurance may not be materially amended or cancelled without
providing thirty (30) days' prior written notice to City. In the event any of said policy of insurance
are cancelled, Owner shall, prior to the cancellation date, submit new evidence of insurance in
conformance with this Section 3.10 to the City Manager. Owner shall provide City Manager with
Certificates of Insurance or appropriate insurance binders evidencing the above insurance
coverages and said Certificates of Insurance or binders shall be subject to the reasonable
approval of the City Manager.
(b) The policies of insurance required by this Covenant Agreement shall be
satisfactory only is issued by companies (i) licensed and admitted to do business in California,
rated "A" or better in the most recent edition of Best Rating Guide, The Key Rating Guide or in
the Federal Register, and only if they are of a financial category Class VII or better, or (ii)
authorized to do business in California, rated "A+" or better in the most recent edition of best
Rating Guide, The Key Rating Guide or in the Federal Register and only if they are of a financing
category Class XV. Notwithstanding the foregoing, in the event that the policies required
hereunder are not available from such insurers at commercially reasonable rates, the City
Manager shall have the authority, in his or her sole and absolute discretion, to waive one or more
of such requirements provided the proposed policies will adequately protect City's interests
hereunder.
(c) City may reasonably require coverage increases, provided that the
percentage increase in coverage shall not be required to exceed the percentage increase in the
Consumer Price Index published by the United States Department of Labor, Bureau of Labor
Statistics, for Urban Wage Earners and Clerical Workers, Los Angeles — Riverside — Orange
County Average, All Items (1984 = 100) or, if applicable to the Coachella Valley in Riverside
County, the Riverside -San Bernardino -Ontario are average (the "Index") from and after the date
of this Covenant Agreement, or, if said Index is discounted, such official index as may then be in
existence and which is most nearly equivalent to said Index (the "CPI Adjustment"). Unless
otherwise approved in advance by City Manager, the insurance to be provided by Owner may
provide for a deductible or self -insured retention of not more than Fifty Thousand Dollars
($50,000); provided, however, that the deductible or self -insured retention for the earthquake
coverage may be up to, but not exceed, ten percent (10%) of the replacement cost of the Lifestyle
Hotel and/or Conference and Shared Service Facility (as applicable).
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
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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 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:
(a) As soon as reasonably possible following the end of each Payment
Period, Owner shall deliver to City (1) a summary of profit and loss 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 (1)
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 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
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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 (1) 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 (1) 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 (1) 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 (1) 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 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 Dill above, and shall not be
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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 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
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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
(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; or (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
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0) 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.
(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,
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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 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; 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 deed of
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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 the exercise by such lender of its rights or remedies pursuant to the documents
evidencing or securing the financing for land acquisition, construction, and permanent
financing of the Hotel.
(d) The Transfer by Owner to an entity provided the entity owning the
Hotel after the Transfer is an entity (i) whose managing member, manager, or managing
general partner is RGC or is directly or indirectly controlled by 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 RGC.
6.1.2 Transfers of Operational Obligations. RGC La Quinta LLC and Montage
Hotels & Resorts, LLC, a Nevada limited liability company ("Montage") have entered into a Resort
Management Agreement ("RMA") dated March 1, 2017 with respect to the Hotel. Montage has
been approved by the City as the Hotel Operator for Hotel and the RMA has been approved as
the Hotel Management Agreement. Notwithstanding anything in Section 6.1.1 to the contrary,
until the earlier of (a) the date this Covenant Agreement expires or (b) this Covenant Agreement
is earlier terminated by the Parties pursuant to the terms hereof, if Montage is to be replaced
(such as in the case of a termination or cancellation of the RMA) or, to the extent Owner has a
right under the RMA to approve or consent to the same, an assignment by the Hotel Operator of
the Hotel Management Agreement or a change in ownership of the Hotel Operator is proposed
(a "Management Transfer"), Owner will not consent to such change unless City has provided to
Owner the City's consent to such change, such City consent not to be unreasonably withheld,
conditioned or delayed. Notwithstanding the foregoing, such City approval or consent shall not
be required with respect to the Hotel if the transfer or change in ownership is to any of the entities
approved by City to act as Lifestyle Hotel Operator, as set forth in Section 205.1(m) of the PSDA
(any of the foregoing, an "Approved Lifestyle Hotel Operator"). In connection with any required
City approval with respect to a change in operator of the Hotel to any entity that is not designated
as an Approved Lifestyle Hotel Operator, Owner or Owner's successor -in -interest shall
demonstrate that the proposed operator has the experience and reputation in operating lifestyle
hotels that is equivalent to the experience and reputation of an Approved Lifestyle Hotel Operator
(an "Experience Equivalent Lifestyle Hotel Operator"). .
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 substantially in the form attached to the PSDA as
Attachment No. 9 (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
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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 unless a copy of said notice of
default shall be given to Mortgagee pursuant to this Article 7. In the case 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:
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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 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 355M k�A Z*kdoes 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
nIQU, ZZ , 20jL'�, 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
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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 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- awn 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 Maieure. 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
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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 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: City of La Quinta
78-495 Calle Tampico
La Quinta, CA 92253
Attention: Frank J. Spevacek, City Manager
with a copy to: Rutan & Tucker, LLP
611 Anton Boulevard, Suite 1400
Costa Mesa, CA 92626
Attention: William H. Ihrke, City Attorney
If notice is to Owner: SilverRock Development Company, LLC
c/o The Robert Green Company
3551 Fortuna Ranch Road
Encinitas, CA 92024
Attention: Robert S. Green, Jr.
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8.9 City Approvals and Actions. City shall maintain authority of this Covenant
Agreement and the authority to implement this Covenant Agreement through the City Manager.
The City Manager shall have the authority to make approvals, issue interpretations, waive
provisions, negotiate and enter into amendments to this Covenant 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 rights
or 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.
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
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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
Covenant Agreement 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.
[End - Signature page follows]
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IN WITNESS WHEREOF, the Parties have executed this Covenant Agreement to be
effective as of the Covenant Agreement Effective Date.
"CITY"
CITY OF LA QUINTA, a
corporation and charter-riW
J. We44ek, City
ATTEST. -
By:
444--
MONIKA RADEVA, City tferk
City of La Quinta, California
APPROVED AS TO FORM:
RUTAN & TUCKER, LLP
William H. Ihrke, City Attorney
[Signature page continues next page]
lifornia municipal
nager
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"Owner'
SILVERROCK PHASE I, LLC,
a Delaware limited liability company
By: The Robert Green Company,
a California corporation
Its: Ma
7
Date: N��- 201` By:
Name: Robert S. Gree r.
Its: President and Chief Executive Officer
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DOC #2018-0464678 Page 26 of 28
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 RIVERSIDE
On ,"��%�NR- �before me V0W41#�
c (insert name and title of thb officer) V
personally appeared ` ?-N OK '3 • S? ""1441 , who proved to me
on the basis of satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/s 4e, executed the same in his/hef- authorized
capacity, and that by his/hw signature on the instrument the person, or the entity upon behalf of
which the person 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 m and d offici I seal. 'MN IKA RADEVa
Notary Public - California
i ;,-+ Riverside County z
Z Commission # 2168979 D
Signature My Comm. Expires Oct 22, 2020 (Seal)
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 RIVERSIDE
On before me ,
(insert name and title of the officer)
personally appeared , who proved to me
on the basis of satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of
which the person 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.
Signature
(Seal)
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DOC #2018-0464678 Page 27 of 28
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 RE-RStBE SAS D IE60 dti
On Y(L2►'Y1I�2Y 5c201 before me J l C�1'tdlr L• �-1h� -i l�Cr}�' U PuU, Cr
(insert name ariffiftle of the office
personally appeared X6bIPX-4 �, 6Yen',j r , who proved to me
on the basis of satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of
which the person 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. ., DIANAL. LYTLE
,.
,, • Notary Public California
�/l/ILIU Z = San Diego County >
Commission 1t 2160643
Signature °'"�w My Comm. Expires Aug 19, 2020 (Seal)
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 RIVERSIDE
On before me ,
(insert name and title of the officer)
personally appeared , who proved to me
on the basis of satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of
which the person 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.
Signature
(Seal)
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EXHIBIT NO. 1
LEGAL DESCRIPTION OF SITE
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:
Parcel 7 of Parcel Map 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.
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