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2016-05-17 CC Staff Rpt - SRR Implementation & Phase 1A AgrmtsBUSINESS SESSION ITEM NO. 6 City of La Quinta CITY COUNCIL MEETING: May 17, 2016 STAFF REPORT AGENDA TITLE: APPROVE IMPLEMENTATION AGREEMENT AND ASSOCIATED OPTION AGREEMENT FOR SILVERROCK RESORT RECOMMENDATION Staff recommends that the City Council: • Approve Implementation Agreement and Phase 1A Option Agreement for Silverrock Resort • Authorize the City Manager to (i) make minor revisions and additions as necessary that do not substantively change the business terms, and execute the agreements, and (ii) implement the agreements and other documents necessary. EXECUTIVE SUMMARY • SilverRock Development Company (SDC)'s development program locates a 140- room luxury hotel and spa on the Arnold Palmer Signature Golf Course; in order to accommodate the hotel/spa, existing golf holes must be realigned. • On January 19, 2016, Council approved the Golf Course Realignment Plan for the Palmer Course at SilverRock Resort. • Per the Schedule of Performance contained in the Purchase, Sale and Development Agreement (PSDA), SDC must perform golf course realignment work during the off- season (May through November) minimizing lost revenues to the City. • SDC desires to accelerate the construction schedule for the golf course realignment work, starting this June versus waiting an additional year. • SDC and Arnold Palmer Design Company (APDC) have completed improvement plans for the construction of the golf course realignment and SDC has retained contractors to construct these improvements. FISCAL IMPACT This project will reduce golf income because the back nine must be closed. However, this work was contemplated when the PSDA was approved in order to facilitate hotel development. BACKGROUND/ANALYSIS In November 2014, the City entered into a PSDA with SDC to construct a luxury hotel and spa, a conference center, a lifestyle hotel, luxury and lifestyle branded residential, resort and mixed use villages, and a permanent golf clubhouse. On January 19, 2016 when presenting refined site and golf realignment plans, SDC expressed interest in starting the golf realignment in the summer of 2016 to expedite development of the luxury hotel, spa and conference center. The Schedule of Performance contained in the PSDA provides SDC an outside completion date of November 2017 for course realignment. Per the PSDA, SDC is required to perform realignment work during the off-season (May through November) to minimize revenue loses. In addition, the PSDA schedules the realignment work to commence after the City has transferred Phase 1 land parcels (all project areas less lifestyle hotel and lifestyle branded residential) to SDC, currently slated for January 2017. In order to accelerate the schedule, the Implementation Agreement was crafted that: (1) permits SDC to accelerate the golf course realignment, and (2) creates Phase 1A property comprised of the luxury hotel and spa, luxury branded residential, and conference/shared services facility sites (PA2, PA3, and PA4). These sites, collectively known as Phase 1A, would be transferred to SDC upon completion of the golf course realignment work as security for the improvements and to facilitate rapid mobilization for development. DEAL POINTS FOR IMPLEMENTATION AGREEMENT • City permits SDC to accelerate golf course realignment work, to avoid any unnecessary delay. • City and SDC open escrow for SDC's funding of the golf realignment work and the ultimate transfer of Phase 1A property to SDC upon completion of realignment work. • City to approve realignment construction schedule and cost. • SDC to complete realignment work and have all 18 holes operational and available for play by November 2016. • SDC to be responsible for lost revenues the City incurs in the event construction is not completed on schedule, subject to delays caused by City, force majeure and unforeseen site conditions. • Option Agreement allowing City to repurchase Phase 1A property if SDC defaults. Purchase price would be 100% of the actual hard costs by SDC to construct the golf realignment. IMPLEMENTATION AGREEMENT PROCESS The PSDA provides the City Manager the authority to negotiate and enter into implementing agreements provided that the business terms are not materially or substantially changed. The aforementioned terms do represent a significant change, thus, the Council must approve the implementation and associated option agreement. Approving this Agreement will allow SDC to accelerate the golf realignment work and mobilize construction during the first week of June. Upon completion of the golf realignment work, the Phase 1A land will transfer to SDC so they may rapidly move forward with the luxury hotel development. ALTERNATIVE The Council may elect to not approve the Implementation Agreement thereby not allowing SDC to construct the golf course realignment this year. Prepared by: Jon McMillen, City Economist Approved by: Frank Spevacek, City Manager Attachment: 1. Implementation and Phase 1A Option Agreement ATTACHMENT 1 IMPLEMENTATION AGREEMENT FOR PURCHASE, SALE, AND DEVELOPMENT AGREEMENT THIS IMPLEMENTATION AGREEMENT FOR PURCHASE, SALE, AND DEVELOPMENT AGREEMENT ("Implementation Agreement") is made and entered into as of May , 2016 ("Implementation Agreement Effective Date"), by and between the CITY OF LA QUINTA, a California municipal corporation and charter city (the "City"), and SILVERROCK DEVELOPMENT COMPANY, LLC, a Delaware limited liability company ("Developer"). RECITALS: A. City and Developer entered into that certain Purchase, Sale, and Development Agreement dated November 19, 2014 (the "Original PSDA"), pursuant to which City agreed to sell to Developer that certain real property located at the southwest intersection of Jefferson Street and Avenue 52, in the City of La Quinta, California (the "Property"), and Developer agreed to purchase the Property from City and to thereafter construct, complete, and operate thereon a commercial project containing a luxury resort hotel and spa and associated branded luxury residential units, a lifestyle hotel and associated lifestyle branded residential units, a conference and shared service facility, a permanent clubhouse for the SilverRock Resort's Arnold Palmer Classic Course, a mixed use village, a resort residential village, and associated amenities, all as further described therein. Unless otherwise specifically defined herein, all terms used herein shall have the meanings ascribed to such terms in the Original PSDA. B. City and Developer entered into that certain Amendment No. 1 to Purchase, Sale, and Development Agreement dated October 29, 2015 ("Amendment No. 1"), to, among other things, update the Site Map and various timeframes within the Original PSDA, including certain timeframes within the Schedule of Performance. The Original PSDA, as modified by Amendment No. 1, is hereinafter referred to as the "PSDA." C. The PSDA requires that the Golf Course Realignment occur during the Summer or late Spring, when play at the Golf Course is at a minimum. Developer desires to accelerate the Golf Course Realignment, to avoid any unnecessary delay of the Project. D. To finance and provide security for the Golf Course Realignment, Developer must acquire fee title to certain portions of the Phase 1 Property prior to the satisfaction of all of City's Conditions Precedent to the Closing and Developer's Conditions Precedent to the Closing for the Phase 1 Escrow. E. City has agreed to permit Developer to accelerate the Golf Course Realignment pursuant to the terms and conditions set forth herein. 882/015610-0065 9571013.4 a05/12/16 AGREEMENT: NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows: 1. Phase 1A; Phase 1A Property. There is hereby established a new Phase, referred to herein as "Phase 1A." The portion of the Property included in Phase 1A (the "Phase 1A Property") shall be the Planning Areas identified on the Site Map as "PA 2," "PA 3," and "PA 4." 2. Commencement of Golf Course Realignment. Developer may commence the Golf Course Realignment on satisfaction of the following requirements: 2.1 City Approval of Plans and Permits. Developer shall have obtained approval from City, acting in its governmental capacity, of Developer's plans for the Golf Course Realignment, and Developer shall have obtained all permits and approvals required by City and any other governmental entity with jurisdiction over the Golf Course and/or Golf Course Realignment, to enter upon the Golf Course and perform the Golf Course Realignment, including, without limitation, an entry permit. With respect to City approval of plans and issuance of permits, City agrees to review and respond to any submittals by Developer pursuant to this Implementation Agreement within three (3) Business Days after receipt thereof. 2.2 Opening of Phase 1A Escrow; Deposit and Disbursement of Golf Course Realignment Funds. City and Developer shall have opened an escrow with Escrow Agent for City's conveyance of the Phase 1A Property to Developer (the "Phase 1A Escrow") and Developer shall have deposited into the Phase IA Escrow ($ ) (the "Golf Course Realignment Funds"), and City, Developer, and Escrow Agent shall have entered into a disbursement agreement (the "Golf Course Realignment Funds Disbursement Agreement") that provides for Escrow Agent to release portions of the Golf Course Realignment Funds to contractors performing portions of the Golf Course Realignment work upon (i) Developer's submittal to City and City's approval of invoices, conditional lien releases, and any other supporting documentation reasonably required by City that evidences Developer's completion of the work and the cost thereof, and (ii) City's determination that (i) the Golf Course Realignment work for which disbursement is requested has been satisfactorily performed, and (ii) the cost for such Golf Course Realignment work does not exceed the amount for such Golf Course Realignment work as set forth in the budget attached hereto and incorporated herein as Exhibit "A" (the "Golf Course Realignment Budget"); provided, however, that if funds remain in the "contingency" line of the Golf Course Realignment Budget, such funds, or such funds as may be necessary to cover the cost of the portion of the Golf Course Realignment work for which a disbursement is requested, may be reallocated to such costs. The Golf Course Realignment Funds Disbursement Agreement shall further provide that all Golf Course Realignment Funds remaining in the Phase 1A Escrow shall be released to Developer upon (a) Developer's satisfactory completion of the Golf Course Realignment, as evidenced by City 882/015610-0065 9571013.4 a05/12/16 2 acceptance of the same, and (b) the lapse of any time period during which a lien could be filed by a contractor performing any portion of the Golf Course Realignment. Within five (5) calendar days after the opening of the Phase 1A Escrow, City and Developer shall execute, three (3) grant deeds substantially in the form of the Grant Deed, one (1) of which shall include the legal description for the Planning Area identified on the Site Map as "PA 3" (the "PA 3 Grant Deed"), and the other two (2) of which shall not include a legal description (the "PA 2/PA 4 Grant Deeds," and collectively with the PA 3 Grant Deed, the "Holding Grant Deeds"). 2.3 Construction Contract for Golf Course Realignment. Developer shall have submitted to City for approval and City shall have approved Developer's construction contract(s) for the Golf Course Realignment. 2.4 No Developer Default. Developer shall not be in default of any of its obligations under the terms of the PSDA and all representations and warranties of Developer contained in the PSDA shall be true and correct in all material respects. 3. Performance of and Completion of Golf Course Realignment. 3.1 Performance of Golf Course Realignment. Developer shall perform the Golf Course Realignment in accordance with all applicable requirements of the PSDA, and in accordance with the schedule attached hereto and incorporated herein as Exhibit "B" (the "Golf Course Realignment Schedule"). 3.2 Completion of Golf Course Realignment. Developer shall complete the Golf Course Realignment by the time set forth in the Golf Course Realignment Schedule. 3.3 Developer's Failure to Timely Complete Golf Course Realignment. If Developer fails to complete the Golf Course Realignment by the time set forth in the Golf Course Realignment Schedule, Developer shall be required to reimburse City for all revenue City would have received had the Golf Course Realignment been timely completed. In determining such amount, City shall utilize City's golf play records from the same time period in 2015, with the amount adjusted to reflect the average increase in play during that same time period over the last three (3) years, and further adjusted to take into account any price adjustments that have occurred since the same time period in 2015. 4. Disposition of Phase 1A Property. Developer agrees to purchase the Phase 1A Property from City, and City agrees to sell the Phase 1A Property to Developer, in accordance with and subject to all of the terms, covenants, and conditions of this Implementation Agreement. The Purchase Price for each Planning Area to be conveyed to Developer in Phase 1A is One Dollar ($1.00). 4.1 Costs of Phase 1A Escrow. Developer shall pay all of the costs of the Phase 1A Escrow, including, without limitation, (i) all costs and charges attributable to the "Phase 1A Title Policy" (as that term is defined below), (ii) the documentary transfer taxes, if any, due with respect to the conveyance of the Phase 1A Property, and (iii) all 882/015610-0065 9571013.4 a05/12/16 3 other fees, charges, and costs which arise from the Phase 1A Escrow. Due to City's status as a public entity, the Parties do not anticipate that any recording fees will be charged in connection with the Phase 1A Escrow. Notwithstanding the foregoing, however, to the extent recording fees are charged or imposed, Developer shall pay all of such fees. As used herein, the term "Phase 1A Title Policy" shall mean and refer to an ALTA (or CLTA, as elected by Developer in its sole discretion) owner's or lender's policy of title insurance, together with such endorsements as are requested by Developer, issued by the Title Company insuring that the title to the Phase 1A Property is vested in Developer in the Condition of Property Title approved by Developer pursuant to Section 203 of the PSDA. Developer shall pay all costs and charges for the Phase 1A Title Policy, and the costs for preparation of a current survey of the Phase 1A Property, if requested by Developer. The Title Company shall provide City with a copy of the Phase 1A Title Policy. 4.2 Payment of Purchase Price. On or before 5:00 p.m. on the Business Day preceding the "Phase 1A Closing Date" (as that term is defined in Section 4.5 below) (or such earlier time as required by Escrow Agent), Developer shall deposit with Escrow Agent such funds as may be required to meet the closing costs as hereinafter provided. 4.3 Escrow Instructions. This Implementation Agreement constitutes the joint escrow instructions of Developer and City for the Phase 1A Escrow, and the Escrow Agent to whom instructions are delivered is hereby empowered to act under this Implementation Agreement. All funds received in the Phase 1A Escrow shall be deposited with other escrow funds in a general escrow account(s) and may be transferred to any other such escrow trust account in any State or National Bank doing business in the State of California. All disbursements shall be made by check from such account. If in the opinion of either Party or Escrow Agent it is necessary or convenient in order to accomplish the Phase 1A Closing, such Party may require that the Parties sign supplemental escrow instructions; provided that if there is any inconsistency between this Implementation Agreement and the supplemental escrow instructions, then the provisions of this Implementation Agreement shall control. The Parties agree to execute such other and further documents as may be reasonably necessary, helpful or appropriate to effectuate the provisions of this Implementation Agreement. Escrow Agent is instructed to release City's and Developer's escrow closing statements to the respective Parties. 4.4 Authority of Escrow Agent. At the "Phase 1A Closing" (as that term is defined in Section 4.5 below), Escrow Agent is authorized to, and shall: (a) Pay and charge Developer for the costs for the Phase 1A Title Policy, including all endorsements required by Developer. (b) Pay and charge Developer for all escrow fees, charges, and costs payable under Section 4.1 of this Implementation Agreement. 882/015610-0065 9571013.4 a05/12/16 4 (c) At the Phase 1A Closing, disburse funds and record (i) a grant deed substantially in the form of the Grant Deed that includes all of the Phase 1A Property (the "Phase 1A Grant Deed"), (ii) an option agreement substantially in the form of the option agreement attached hereto and incorporated herein as Exhibit "C" (the "Phase 1A Option Agreement"), and (iii) a covenant agreement substantially in the form of the TOT Covenant Agreement that includes the Planning Area identified on the Site Map as "PA 2" (the "Phase 1A TOT Covenant Agreement"). (d) Do such other actions as necessary, including obtaining the Phase 1A Title Policy, to fulfill its obligations under this Implementation Agreement. (e) Within the discretion of Escrow Agent, direct City and Developer to execute and deliver any instrument, affidavit and statement, and to perform any act reasonably necessary to comply with the provisions of the Foreign Investment in Real Property Transactions Act ("FIRPTA") and any similar state act and regulation promulgated thereunder. City agrees to execute a Certificate of Non -Foreign Status by individual transferor and/or a Certification of Compliance with Real Estate Reporting Requirement of the 1986 Tax Reform Act as may be required by Escrow Agent, on the form to be supplied by Escrow Agent. (f) Prepare and file with all appropriate governmental or taxing authorities a uniform settlement statement, closing statement, tax withholding forms including an IRS 1099-S form, and be responsible for withholding taxes, if any such forms are provided for or required by law. (g) Deliver the recorded Phase 1A Option Agreement and Phase 1A TOT Covenant Agreement to City, and deliver copies of the aforementioned recorded documents together with the recorded Phase 1A Grant Deed to Developer. 4.5 Phase 1A Closing. The "Phase 1A Closing" (as that term is defined below) shall occur within thirty (30) days after the Parties' satisfaction of all of "City's Conditions Precedent to the Phase 1A Closing" and all of "Developer's Conditions Precedent to the Phase 1A Closing" as set forth in Section 5 below, but in no event shall the Phase 1A Closing occur later than December 30, 2016 (the "Outside Date for Phase 1A Closing"). Subject to the provisions in this Section 4.5, the Phase 1A Closing shall occur at a time reasonably agreed on by the Parties. The "Phase 1A Closing" shall mean the time and day the Phase 1A Grant Deed is recorded in the Official Records. The "Phase 1A Closing Date" shall mean the day on which the Phase 1A Closing occurs. 4.6 Termination. If the Phase 1A Escrow is not in condition to close by the Outside Date for Phase 1A Closing, then on or before the Outside Date for Phase 1A Closing either Party which is not then in default of any of its obligations under this Implementation Agreement may, in writing, provide the other Party with a written notice 882/015610-0065 9571013.4 a05/12/16 5 (any such notice, an "Escrow Extension Request") requesting that the Phase 1A Escrow be extended for ten (10) calendar days to allow the Parties to satisfy any of City's Conditions Precedent to the Phase 1A Closing or Developer's Condition's Precedent to the Phase 1A Closing that remain unsatisfied. If neither Party timely transmits an Escrow Extension Request, or a Party timely transmits an Escrow Extension Request but at the expiration of the ten (10) day extension period Escrow is still not in condition to close, then either Party which is not then in default of any of its obligations under this Implementation Agreement may, in writing, demand the return of money, documents, or property and terminate the Phase 1A Escrow. If either Party makes such a written demand for return of money, documents or property, the Phase 1A Escrow shall not terminate until ten (10) Business Days after Escrow Agent shall have delivered copies of such demand to the other Party at the respective addresses shown in the PSDA. If any objections are raised within said ten (10) Business Day period, Escrow Agent is authorized to hold all monies, papers and documents until instructed by a court of competent jurisdiction or by mutual written instructions of the Parties. Termination of the Phase 1A Escrow shall be without prejudice as to whatever legal rights either Party may have against the other arising from this Implementation Agreement and/or the PSDA. If no demands are made, Escrow Agent shall proceed with the Phase 1A Closing as soon as possible. 4.7 Closing Procedure. Escrow Agent shall close the Phase 1A Escrow as follows: (a) (i) Record, in the following order, the Phase 1A Grant Deed, Phase 1A Option Agreement, and Phase 1A TOT Covenant Agreement, and (ii) deliver conformed copies of each of the documents listed in clause (i) above, showing recording information to City and Developer; (b) Provide for the delivery of (i) the original recorded Phase 1A Option Agreement and Phase 1A TOT Covenant Agreement to City, together with a copy of the Phase 1A Grant Deed, and (ii) the original recorded Phase 1A Grant Deed to Developer, together with copies of the Phase 1A Option Agreement and Phase 1A TOT Covenant Agreement to Developer; (c) Deliver the Phase 1A Title Policy and Phase 1A Grant Deed to Developer, (d) File any informational reports required by Internal Revenue Code Section 6045(e), as amended and any other applicable requirements; and (e) Deliver the FIRPTA Certificate, if any, to Developer; and (f) Forward to both Developer and City a separate accounting of all funds received and disbursed for each Party and copies of all executed and recorded or filed documents deposited into the Phase 1A Escrow, with such recording and filing date and information endorsed thereon. 882/015610-0065 9571013.4 a05/12/16 6 In the event at as of the Phase 1A Closing the conditions in Section 7.6 below occur because one (1) or more of the parcels comprising the Phase 1A Property does not constitute a legal parcel, then Escrow Agent is hereby instructed to utilize and record one or more of the Holding Deeds (provided that for each of the deeds comprising the "PA 2/PA 4 Grant Deeds" a legal description has been attached), as necessary to accomplish the purpose and intent of Section 7.6. 5. Conditions of Phase 1A Closing. The Phase 1A Closing is conditioned upon the satisfaction of the following terms and conditions within the times designated below: 5.1 City's Conditions of Phase 1A Closing. City's obligation to proceed with the Phase 1A Closing is subject to the fulfillment, or waiver by City, of each and all of the conditions precedent (a) through (i), inclusive, described below ("City's Conditions Precedent to the Phase 1A Closing"), which are solely for the benefit of City, and which shall be fulfilled or waived by the time periods provided for herein: (a) No Default. As of the close of the Phase 1A Escrow, neither Developer nor any entity that has assumed Developer's obligations hereunder with respect to the development and/or operation of one or more Project Components shall be in default of any of its obligations under the terms of this Implementation Agreement and/or the PSDA, and all representations and warranties of Developer contained herein and in the PSDA shall be true and correct in all material respects. (b) Execution of Documents. Developer shall have executed and delivered into the Phase 1A Escrow the Phase 1A Grant Deed, Phase 1A Option Agreement, and Phase 1A TOT Covenant Agreement, and any other documents required hereunder. (c) Payment of Funds. Prior to the Phase 1A Closing, Developer shall have paid all of its required costs thereof into the Phase 1A Escrow in accordance with Section 4.1 hereof. (d) Insurance. Developer shall have provided proof of insurance as required by Section 304 of the PSDA and City shall have approved of the same, provided such approval shall not be unreasonably withheld, conditioned or delayed. (e) Environmental. Developer shall have approved the environmental condition of the Property and shall not have elected to terminate the PSDA with respect to the Property pursuant to Section 207.2 of the PSDA. (f) Hotel Management Agreement Letter of Intent. Developer shall have submitted to City and City shall have approved, an executed Hotel Management Agreement Letter of Intent from a Hotel Operator for the Luxury Hotel. 882/015610-0065 9571013.4 a05/12/16 7 (g) Dust Control Program. Developer shall have submitted to City and City shall have approved a Dust Control Program for the Phase 1A Property, which approval shall not be unreasonably withheld, conditioned or delayed. (h) Preliminary Budget. Developer shall have submitted to City and City shall have approved, in its reasonable discretion, a preliminary Budget. (i) Notice of Intent. Developer shall have filed a Notice of Intent and/or any other documentation required by SWRCB that notifies the SWRCB that Developer is the legally responsible party for complying with the GC Permit with respect to the Phase 1A Property. (j) Golf Course Realignment. Developer shall have completed the Golf Course Realignment, as evidenced by City's acceptance of the same. 5.2 Developer's Conditions of Closing. Developer's obligation to proceed with the purchase of the Phase 1A Property is subject to the fulfillment, or waiver by Developer, of each and all of the conditions precedent (a) through (f), inclusive, described below ("Developer's Conditions Precedent to the Phase 1A Closing"), which are solely for the benefit of Developer, and which shall be fulfilled or waived by the time periods provided for herein: (a) No Default. As of the Phase 1A Closing Date, City shall not be in default of any of its obligations under the terms of this Implementation Agreement and/or the PSDA, and all representations and warranties of City contained herein shall be true and correct in all material respects. (b) Execution of Documents. City shall have executed and delivered into the Phase 1A Escrow, the Phase 1A Grant Deed, Phase 1A Option Agreement, and Phase 1A TOT Covenant Agreement, and any other documents required hereunder. (c) Review and Approval of Title. Developer shall have reviewed and approved the condition of the title to the Property, as provided in Section 203 of the PSDA. (d) Title Policy. The Title Company shall be irrevocably committed to issue to Developer, upon receipt of payment of Title Company's regularly scheduled premium, the Phase 1A Title Policy at the Phase 1A Closing, in accordance with Section 4.1 hereof. (e) Environmental. Developer shall have approved the environmental condition of the Property and shall not have elected to terminate the PSDA with respect to the Property pursuant to Section 207.2 of the PSDA. (f) Preliminary Budget. City shall have approved an updated Preliminary Budget. 882/015610-0065 9571013.4 a05/12/16 8 (g) Hotel Management Agreement Letter of Intent. City shall have approved a Hotel Management Agreement Letter of Intent executed by a Hotel Operator for the Luxury Hotel. (h) Legal Parcels. Each of the parcels comprising the Phase 1A Property shall constitute a legal parcel. 6. City Access Rights to Phase 1A Property. Developer acknowledges that the cart barn and a portion of the public parking lot servicing the Golf Course (the "Phase 1A Property Golf Course Amenities") are located on the Phase 1A Property. Until such time as (i) Developer and City relocate the Phase 1A Property Golf Course Amenities to a location mutually acceptable to City and Developer, each in their sole and absolute discretion, or (ii) Developer completes construction of the Permanent Golf Clubhouse pursuant to the terms of the PSDA, City and members of the general public shall have the right of ingress and egress onto the Phase 1A Property for purposes of accessing the Golf Course Amenities. 7. Effect of Implementation Agreement. 7.1 PSDA in Full Force and Effect. Except as otherwise expressly provided in this Implementation Agreement, and subject to the terms of this Section 7, all of the terms and conditions of the PSDA shall remain in full force and effect. 7.2 Termination Prior to Phase 1A Closing. Section 503 of the PSDA shall be automatically modified to provide that (i) all references therein to the "Phase 1 Escrow" shall refer to the "Phase 1A Escrow," (ii) the reference therein to the "Developer's Conditions Precedent to the Closing for the Phase 1 Escrow" shall refer to the "Developer's Conditions Precedent to the Phase 1A Closing" set forth in Section 5.2 above, and (iii) the reference therein to the "City's Conditions Precedent to the Closing for the Phase 1 Escrow" shall refer to the "City's Conditions Precedent to the Phase 1A Closing" set forth in Section 5.1 above. 7.3 Effect of Phase 1A Closing. Upon the Phase 1A Closing, the PSDA shall be automatically modified to provide that all provisions in the PSDA regarding the Phase 1 Escrow, including the actual closing of the Phase 1 Escrow, shall no longer include the Phase 1A Property; provided, however, that all other provisions in the PSDA that relate to the Phase 1 Property and Phase 1 Closing including, without limitation, Section 207.3, Section 207.4, and Section 207.5, shall continue to be read and interpreted to include the Phase 1A Property. 7.4 Termination Prior to Phase 1 Closing. (a) Termination by Developer. In the event that, after the close of the Phase 1A Escrow but prior to the Phase 1 Closing (a) one or more of Developer's Conditions Precedent to the Closing for the Phase 1 Escrow is not fulfilled on or before the time set forth in the Schedule of Performance and such failure is not caused by Developer, or (b) any default of City under the PSDA prior to the Phase 1 Closing is not cured within the time set forth in Section 501 882/015610-0065 9571013.4 a05/12/16 9 of the PSDA, after written demand by Developer, then the PSDA with respect to the Phase 1 Escrow and Phase 2 Escrow may, at the option of Developer, be terminated by written Notice thereof to City. From the date of the written Notice of termination of the PSDA by Developer to City, the PSDA shall be deemed terminated with respect to the Phase 1 Escrow and Phase 2 Escrow and there shall be no further rights or obligations between the Parties with respect to the Phase 1 Escrow Property and Phase 2 Property by virtue of or with respect to the PSDA, except for Developer's limited right to recover from City its out-of-pocket costs pursuant and subject to Section 502 of the PSDA. (b) Termination by City. In the event that, after the close of the Phase 1A Escrow but prior to the close of the Phase 1 Escrow (a) Developer (or any successor in interest) assigns the PSDA or any rights therein or in any portion of the Property or a Project Component in violation of the PSDA, or assigns the Development Agreement or any rights therein; or (b) one or more of City's Conditions Precedent to the Closing for the Phase 1 Escrow is not fulfilled on or before the Outside Date for Phase 1 Closing (as it may be extended) and such failure is not caused by City; or (c) Developer is otherwise in default of the PSDA and fails to cure such default within the time set forth in Section 501 thereof, after written demand by City; or (d) Developer is the subject of a bankruptcy proceeding, whether voluntarily or involuntarily commenced, then the PSDA with respect to the Phase 1 Escrow and Phase 2 Escrow shall, at the option of City, be terminated by City by written Notice thereof to Developer. From the date of the written Notice of termination of the PSDA by City to Developer, the PSDA with respect to the Phase 1 Escrow and Phase 2 Escrow shall be deemed terminated and there shall be no further rights or obligations between the Parties with respect to the Phase 1 Property and Phase 2 Property by virtue of or with respect to the PSDA, except for City's right to recover from Developer damages pursuant to Section 502 thereof, and except further that City shall have any and all rights available to City as set forth in Section 505 and Section 506 thereof. 7.5 Termination of Phase 1A Option Agreement; Form of Option Agreement for Phase 1 Closing. Pursuant to the terms of the Phase 1A Option Agreement, the Phase 1A Option Agreement shall be terminated upon the Phase 1 Closing. The option agreement to be recorded against the Phase 1 Property (including the Phase 1A Property) at the Phase 1 Closing shall be substantially in the form of the Option Agreement, but modified to reflect the earlier transfer of the Phase 1A Property pursuant to this Implementation Agreement. 7.6 Status of Phase 1A Property. City and Developer shall cooperate in good faith to satisfy the Developer's Conditions Precedent to the Phase 1A Closing in Section 5.2(h) that each parcel comprising the Phase 1A Property constitute a legal parcel. If at the time scheduled for the Phase 1A Closing one or more of the parcels comprising the Phase 1A Property does not constitute a legal parcel, this Implementation Agreement shall be automatically revised to create a Phase 1B and, if necessary, a Phase 1 C, and all provisions herein applicable to Phase 1A and the Phase 1A Escrow shall be similarly applicable to Phase 1B and (if applicable) Phase 1 C; provided, however, that at either 882/015610-0065 9571013.4 a05/12/16 10 Party's written request to the other Party, the Party's shall prepare an implementation agreement with terms similar to the applicable terms of this Implementation Agreement. 7.7 Commencement of Site Work. In the event that prior to the Phase 1 Closing Developer desires to commence any work on the Phase 1A Property, including, without limitation, grading activities and/or commencement of Master Site Infrastructure Improvements, Developer and City shall prepare an implementation agreement that addresses any additional conditions and/or requirements of City that would have been applicable to the commencement of such work in the absence of this Implementation Agreement, including, without limitation, satisfaction of any of City's Conditions Precedent to the Closing that were not required pursuant to this Implementation Agreement to be satisfied in connection with the Phase 1A Closing. 7.8 Interpretation. The PSDA and this Implementation Agreement shall be read and interpreted in a comprehensive, integrated manner, and in a manner that best implements the provisions of this Implementation Agreement. In the event the terms of this Implementation Agreement result in ambiguity, the Parties will meet and confer to attempt to resolve the ambiguity, each in their reasonable discretion. 8. Enforced Delay; Extension of Times of Performance. In addition to specific provisions of this Implementation Agreement, performance by either City of Developer hereunder shall not be deemed to be in default, and all performance and other dates specified in this Implementation Agreement shall be extended, where delays or defaults are due to causes beyond the control or without the fault of the party claiming an extension of time to perform, which may include the following (each, a "Force Majeure"): war; insurrection; acts of terrorism; strikes; lockouts; riots; floods; earthquakes; fires; casualties; acts of God; acts of the public enemy; epidemics; quarantine restrictions; freight embargoes; lack of transportation; governmental restrictions or priority; litigation; unusually severe weather; inability to secure necessary labor, materials or tools; delays of any contractor, subcontractor or supplier; acts or omissions of the other party; or acts or failures to act of any public or governmental agency or entity (other than the acts or failures to act of City which shall not excuse performance by City). Notwithstanding anything to the contrary in this Implementation Agreement, an extension of time for any such cause shall only be for the period of the enforced delay and shall commence to run from the time of the commencement of the cause, if notice by the party claiming such extension is sent to the other party within thirty (30) days of the commencement of the cause. Times of performance under this Implementation Agreement may also be extended in writing by the mutual agreement of City and Developer. Notwithstanding any provision of this Agreement to the contrary, Developer is not entitled pursuant to this Section 8 to an extension of time to perform because of past, present or future difficulty in obtaining suitable construction or permanent financing to commence or complete the Project or any Project Component or because of economic or market conditions. To the extent that City has an obligation to act within a certain time period under this Implementation Agreement including, without limitation in connection with City's review and approval of submittals received from Developer, and City fails to respond appropriately to Developer within such time period, 882/015610-0065 9571013.4 a05/12/16 11 then any deadline for Developer's performance impacted by such delay by City shall be extended by one day for each and every day that City's response is delayed. 9. Attorney's Fees. In the event of any action between City and Developer seeking enforcement of any of the terms and conditions to this Implementation Agreement, the prevailing party in such action shall be awarded, in addition to damages, injunctive or other relief, its reasonable costs and expenses, including without limitation its expert witness fees and reasonable attorney's fees. 10. Interpretation. This Implementation Agreement shall be construed according to its fair meaning, as if prepared by both parties hereto, and in. 11. Governing Law. This Implementation Agreement shall be governed by the internal laws of the State of California and any question arising hereunder shall be construed or determined according to such law. The Superior Court of the State of California in and for the County of Riverside, or such other appropriate court in such county, shall have exclusive jurisdiction of any litigation between the parties concerning this Implementation Agreement. Service of process on City shall be made in accordance with California law. Service of process on Developer shall be made in any manner permitted by California law and shall be effective whether served inside or outside California. 12. Time is of Essence. Time is of the essence of this Implementation Agreement and of each and every term and provision hereof. 13. Waiver. A waiver of a provision hereof, or modification of any provision herein contained, shall be effective only if said waiver or modification is in writing, and signed by both City and Developer. No waiver of any breach or default by any party hereto shall be considered to be a waiver of any breach or default unless expressly provided herein or in the waiver. 14. Counterparts. This Implementation Agreement may be executed in counterparts, each of which, when this Implementation Agreement has been signed by all of the parties hereto, shall be deemed an original, and such counterparts shall constitute one and the same instrument. 15. Representations. The person(s) executing this Implementation Agreement on behalf of each of the parties hereto represent and warrant that (i) such party is duly organized and existing, (ii) they are duly authorized to execute and deliver this Implementation Agreement on behalf of said party, (iii) by so executing this Implementation Agreement such party is formally bound to the provisions of this Implementation Agreement, and (iv) the entering into this Implementation Agreement does not violate any provision of any other agreement to which such party is bound. 16. City Approvals and Actions. City shall maintain authority of this Implementation Agreement and the authority to implement this Implementation 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 882/015610-0065 9571013.4 a05/12/16 12 Implementation 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 Implementation Agreement or the uses or development permitted on the Property, 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 as specified in the Golf Course Realignment Schedule. All other material and/or substantial interpretations, waivers, or amendments shall require the consideration, action and written consent of the City Council. Wherever the approval of the City is required under this Implementation Agreement, other than approvals required of the City acting in its governmental capacity, such approval shall not be unreasonably withheld, conditioned or delayed, unless expressly stated to the contrary in this Implementation Agreement. [End of Implementation Agreement — Signature page follows] 882/015610-0065 9571013.4 a05/12/16 13 IN WITNESS WHEREOF, City and Developer have executed this Implementation Agreement as of the date set forth above. "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 corporation Its: Manager Date: May , 2016 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 By: The Robert Green Company, a California corporation Its: Manager Date: May , 2016 By: Name: Robert S. Green, Jr. Its: President and Chief Executive Officer [Signatures continued on next page] 882/015610-0065 9571013.4 a05/12/16 "CITY" CITY OF LA QUINTA, a California municipal corporation and charter city Date: May , 2016 By: Frank J. Spevacek Its: City Manager ATTEST: Susan Maysels, City_Clerk APPROVED AS TO FORM: RUTAN & TUCKER, LLP By: William H. Ihrke, City Attorney 882/015610-0065 9571013.4 a05/12/16 2 EXHIBIT "A" GOLF COURSE REALIGNMENT BUDGET 882/015610-0065 9571013.4 a05/12/16 1 EXHIBIT "B" GOLF COURSE REALIGNMENT SCHEDULE 882/015610-0065 9571013.4 a05/12/16 1 EXHIBIT "C" PHASE 1A OPTION AGREEMENT [See following document] 882/015610-0065 9571013.4 a05/12/16 1 FREE RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: City of La Quinta 78-495 Calle Tampico La Quinta, CA 92253 Attn: City Manager Space Above This Line for Recorder's Use (Exempt from Recording Fee per Gov't Code § 6103 and 27383) PHASE 1A OPTION AGREEMENT THIS PHASE 1A OPTION AGREEMENT ("Phase 1A Option Agreement") is made this day of , 2016 (the "Phase 1A Option Agreement Effective Date"), by and between SILVERROCK DEVELOPMENT COMPANY, LLC, a Delaware limited liability company ("Developer"), and the CITY OF LA QUINTA, a California municipal corporation and charter city ("City"). City and Developer are hereinafter sometimes referred to individually as a "Party" and collectively as the "Parties." RECITALS A. Developer has entered into a Purchase, Sale, and Development Agreement dated November 19, 2014 (the "PSDA"), pursuant to which City agreed to convey to Developer approximately one hundred forty-five (145) acres of real property located at the southwest intersection of Avenue 52 and Jefferson Street in the City of La Quinta, County of Riverside, State of California (the "PSDA Property"), in two (2) phases, referred to in the PSDA as "Phase 1" or the "Phase 1 Property" and "Phase 2" or the "Phase 2 Property." The PSDA Property is legally described in Exhibit "A", which is attached hereto and incorporated herein by this reference. Unless otherwise expressly defined in this Phase 1A Option Agreement, capitalized terms used in this Phase 1A Option Agreement shall have the meanings ascribed thereto in the PSDA. B. Pursuant to the PSDA, Developer has agreed to construct on the PSDA Property a commercial development that consists of a luxury resort hotel and spa and associated branded luxury residential units, a lifestyle hotel and associated lifestyle branded residential units, a permanent clubhouse for the SilverRock Resort's Arnold Palmer Classic Course, a mixed use village, a resort residential village, and associated amenities (collectively, the "Project"). C. The PSDA requires that in connection with City's conveyance of the Phase 1 Property and Phase 2 Property to Developer, Developer is required to grant to City (i) an option to repurchase the Phase 1 Property or Phase 2 Property (as applicable), or certain portions thereof, from Developer on the occurrence of certain events. D. Phase 1 of the Project includes the Golf Course Realignment. The PSDA requires the Golf Course Realignment to be completed during Summer or late Spring, 882/015610-0065 9490862.2 a05/12/16 when play at the Golf Course is at a minimum. Pursuant to that certain Implementation Agreement entered into between City and Developer on or about May _, 2016 (the "Implementation Agreement"), City agreed (i) to permit Developer to perform the Golf Course Realignment work prior to the Phase 1 Closing, and (ii) upon Developer's completion of the Golf Course Realignment, to convey to Developer as security for Developer's financing for the Golf Course Realignment the portions of Phase 1 commonly referred to as "PA 2" (Luxury Hotel site), "PA 3" (Luxury Branded Residential Development site), and "PA 4" (Conference and Shared Service Facility site) (collectively, the "Phase 1A Property"), all prior to the time Developer satisfies all of City's Conditions Precedent to the Closing for Phase 1. E. The Implementation Agreement requires that in connection with City's conveyance of the Phase 1A Property to Developer, Developer is required to enter into this Phase 1A Option Agreement for purposes of granting to City (i) an option to repurchase the Phase 1A Property from Developer if Developer (a) fails to satisfy all of City's Conditions Precedent to the Closing for Phase 1 and acquire the balance of the Phase 1 Property (e.g., the Phase 1 Property less the Phase 1A Property (the "Remaining Phase 1 Property")) by the Outside Date for Phase 1 Closing, or (b) transfers the Phase 1A Property, or any portion thereof, in violation of the terms of the PSDA; and (ii) a right of first offer to purchase the Phase 1A Property, or any portion thereof, if (I) City's option under (i)(a) or (i)(b) above has been triggered, (II) City did not timely exercise the applicable option, (III) the default which gave rise to City's option has not been cured, and (IV) Developer has determined to sell or otherwise transfer the Phase 1A Property. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and incorporating the above Recitals and all of the terms and conditions contained in the Implementation Agreement and PSDA, Developer hereby grants to City the following repurchase options: 1. Option I - Failure to Satisfy City's Conditions Precedent to the Closing for Phase 1 and Acquire Remaining Phase 1 Property Developer hereby grants to City an exclusive option to repurchase all, but not less than all, of the Phase 1A Property ("Option I"), if Developer fails to satisfy all of City's Conditions Precedent to the Closing for Phase 1 and acquire the Remaining Phase 1 Property by the Outside Date for Phase 1 Closing. In the event of Developer's failure to satisfy all of City's Conditions Precedent to the Closing for Phase 1 and acquire the Remaining Phase 1 Property by the Outside Date for Phase 1 Closing, and such failure is not cured within the cure period provided for under Sections 4(b) and 4(c) below, then City shall be entitled to exercise, but is not obligated to exercise, the foregoing option for a period of sixty (60) days following the expiration of such cure period (the "Option I Period"). (a) Exercise of Option City shall exercise Option I by giving written notice to Developer ("City's Notice of Option 1 Exercise"), in accordance with Section 5 of this Phase 1A Option 882/015610-0065 9490862.2 a05/12/16 -2- Agreement, prior to the expiration of the Option I Period. Failure of City to exercise Option I shall constitute a waiver of City's right to exercise Option I, but shall not constitute a waiver by City of Developer's breach of its obligation to satisfy all of City's Conditions Precedent to the Closing for Phase 1 and acquire the Remaining Phase 1 Property by the Outside Date for Phase 1 Closing or of any remedies City may have under the terms of the PSDA or under any other agreement for Developer's failure to satisfy all of City's Conditions Precedent to the Closing for Phase 1 and acquire the Remaining Phase 1 Property by the Outside Date for Phase 1 Closing. (b) Repurchase Price - Option I City's repurchase price for the Phase 1A Property ("Option I Repurchase Price"), shall be the sum of (i) one hundred percent (100%) of "Developer's Golf Course Realignment Construction Costs," and (ii) the cost of any Plans City elects to purchase pursuant to Section 4(i) below with respect to (a) the Master Site Infrastructure Improvements, and/or (b) any Project Components comprising the Project. For purposes of this Phase 1A Option Agreement, the term "Developer's Golf Course Realignment Construction Costs" shall mean the construction costs actually incurred by Developer for construction of the Golf Course Realignment, as determined by an independent audit (the "Golf Course Realignment Cost Audit"), performed by [insert before the Phase 1A Closing the name of a third party, independent auditor who shall be selected by City and be a partner at a nationally recognized firm of accountants with experience in auditing large-scale, mixed use construction projects (the "Auditor"), which costs shall consist only of: (I) the amount(s) paid by Developer to the contractor or contractors performing the construction, (II) reasonable inspection, supervision, and testing costs paid by Developer to independent third party engineers, architects, or consultants in conjunction with said construction, and (III) any amounts paid by Developer to material suppliers and equipment suppliers in connection with the construction (but, subject to the immediately preceding paragraph, not including any so-called "soft costs" incurred in the planning, environmental review, or design of the Golf Course Realignment, or any costs, fees, charges, or profits allocated to Developer's own internal administrative, payroll, or overhead expenses or to any person or entity affiliated with Developer). Developer shall promptly provide City and the Auditor with all records and documentation necessary for the Auditor to perform the Golf Course Realignment Cost Audit. 2. Option II - Transfer of the Phase 1A Property, or Portion Thereof, Prior to Transfer of Remaining Phase 1 Property to Developer Developer hereby grants to City an exclusive option ("Option II") to repurchase all, but not less than all, of the Phase 1A Property if, prior to the time (i) Developer satisfies all of City's Conditions Precedent to the Closing for Phase 1, (ii) City transfers the Remaining Phase 1 Property to Developer, and (iii) this Phase 1A Option Agreement is terminated, Developer transfers or suffers an involuntary transfer of the Phase 1A Property or any portion thereof in violation of the terms of the PSDA. In the event of Developer's transfer of the Phase 1A Property or any portion thereof in violation of the PSDA (an "Unauthorized Transfer"), City shall be entitled to 882/015610-0065 9490862.2 a05/12/16 -3- exercise, but is not obligated to exercise, the foregoing option for sixty (60) days following the later of (a) the date of the Unauthorized Transfer that gives rise to City's option under this Section 2, or (b) City's discovery of the Unauthorized Transfer that gives rise to Option II ("Option II Period"). (a) Exercise of Option City shall exercise Option II by giving written notice to Developer ("City's Notice of Option IV Exercise"), in accordance with Section 5 of this Phase 1A Option Agreement, prior to the expiration of the Option II Period. Failure of City to exercise Option II shall constitute a waiver by City of City's right to exercise Option II only with respect to the specific Unauthorized Transfer that gave rise to Option II, but shall not constitute a waiver by City of Developer's breach of the transfer provisions in the PSDA or pursuant to this Phase 1A Option Agreement, or of any remedies City may have under the terms of the PSDA or under any other agreement for Developer's transfer or sufferance of an involuntary transfer of the Phase 1A Property or any portion thereof. (b) Repurchase Price - Option II City's repurchase price for the Phase 1A Property ("Option II Repurchase Price") shall be the sum of (i) one hundred percent (100%) of Developer's Golf Course Realignment Construction Costs, and (ii) the cost of any Plans City elects to purchase pursuant to Section 4(i) below with respect to (a) the Master Site Infrastructure Improvements, and/or (b) any Project Components comprising the Project. 3. City's Right of First Offer Developer hereby grants to City a right of first offer ("City's Right of First Offer") to purchase all, but not less than all, of the Phase 1A Property, in accordance with the terms and conditions in this Section 3, in the event that (i) City has had the right to exercise Option I or Option II and has failed to exercise or has elected not to exercise Option I or Option II (as applicable) in accordance with the terms of this Phase 1A Option Agreement and Developer's default that gave rise to Option I or Option II (as applicable) has not been cured, and (ii) Developer has determined to sell or otherwise transfer the Phase 1A Property or portion thereof. (a) Developer's Notice to City; City's Election In the event that the circumstances described in clauses (i) and (ii) of the immediately preceding paragraph exist, then prior to entering into any transaction with a third party concerning the sale of any of the Phase 1A Property, Developer shall provide City with written notice of Developer's intent to sell such Phase 1A Property, and Developer's proposed sale price for the same ("Developer's Sale Notice"). City shall have sixty (60) days after receiving Developer's Sale Notice to notify Developer, in writing, of City's election to exercise City's Right of First Offer to acquire the Phase 1A Property, at the lesser of (1) the price noted in Developer's Sale Notice, or (2) the sum of one hundred percent (100%) of Developer's Golf Course Realignment Construction Costs ("City's Election to Exercise"), regardless of whether Developer's proposed sale or transfer included all of the Phase 1A Property. 882/015610-0065 9490862.2 a05/12/16 -4- (b) City's Failure to Exercise City's failure to deliver to Developer City's Election to Exercise within such sixty (60) day period shall be deemed City's election not to exercise City's Right of First Offer and, except as provided below, City's Right of First Offer with respect to the Phase 1A Property shall then terminate and City shall have no further right of first offer with respect to the Phase 1A Property. If City elects not to exercise (or is deemed to have elected not to exercise) City's Right of First Offer then Developer may sell the Phase 1A Property or portion thereof to a third party purchaser; provided, however, that in the event Developer determines to sell the Phase 1A Property or portion thereof at a price that is less than the price set forth in Developer's Sale Notice (determined on a proportional basis if the portion of the Phase 1A Property differs from the prior Developer's Sale Notice), Developer shall provide City with a written notice of Developer's intent to sell the Phase 1A Property or portion thereof, with Developer's new proposed sale price for the same ("Developer's Second Sale Notice"), and City's Right of First Offer shall again apply with respect to the Phase 1A Property, in accordance with the process outlined in subparagraph (a) above and this subparagraph (b). (c) Transfer Restrictions of PSDA Notwithstanding the foregoing, nothing herein is intended to or shall have the effect of waiving the transfer restrictions set forth in the PSDA, and any proposed sale or transfer by Developer shall be effected in accordance with the same. 4. Additional Terms Applicable to the Repurchase Options The following additional terms shall apply to Option I, Option II, and City's Right of First Offer: (a) Successors and Assigns. Option I, Option II, and City's Right of First Offer created hereby shall be irrevocable by Developer and shall be binding upon the successors and assigns of Developer and on the Phase 1A Property. (b) Developer's Right to Cure Certain Defaults. Notwithstanding anything in this Phase 1A Option Agreement to the contrary, City shall not be entitled to exercise Option I until City has provided a written notice to Developer regarding Developer's failure to satisfy all of City's Conditions Precedent to the Closing for Phase 1 and acquire the Remaining Phase 1 Property (the "Option Triggering Event"), and Developer has not, within sixty (60) days after receipt of such notice, cured, corrected, or remedied such Option Triggering Event or, if Developer cannot reasonably cure, correct or remedy such Option Triggering Event within sixty (60) days, commenced to cure, correct or remedy such Option Triggering Event within said sixty (60) day period, and diligently prosecute the same to completion. (c) Notice of Default to Mortgagee or Deed of Trust Holders; Right to Cure. With respect to any mortgage or deed of trust granted by Developer, whenever City may deliver any notice or demand to Developer with respect to an Option Triggering Event, City shall at the same time deliver a copy of such notice or demand to 882/015610-0065 9490862.2 a05/12/16 -5- each holder of record of any mortgage or deed of trust which has previously requested such notice in writing. Each such holder shall (insofar as the rights granted by City are concerned) have the right, at its option, within sixty (60) days after the receipt of the notice, to cure or remedy or commence to cure or remedy and thereafter to pursue with due diligence the cure or remedy of any such default and to add the cost thereof to the mortgage debt and the lien of its mortgage. It is understood that a holder shall be deemed to have satisfied the sixty (60) day time limit set forth above for commencing to cure or remedy a Developer default which requires title and/or possession of the Phase 1A Property (or portion thereof) if and to the extent any such holder has within such sixty (60) day period commenced proceedings to obtain title and/or possession and thereafter the holder diligently pursues such proceedings to completion and cures or remedies the default. (d) No City Obligation. Notwithstanding any covenant, term, or provision in this Section 4 to the contrary, City shall not be obligated to exercise Option I, Option II, or City's Right of First Offer. (e) Termination of Phase 1A Option Agreement. City agrees to execute a termination of this Phase 1A Option Agreement at such time as (i) Developer has satisfied all of City's Conditions Precedent to Phase 1 Closing, (ii) Developer has acquired fee title to the Remaining Phase 1 Property, and (iii) City and Developer have executed and recorded against the Phase 1 Property (including the Phase 1A Property) an option agreement substantially in the form of the option agreement attached to the PSDA as Attachment No. 7, but modified to reflect the earlier transfer of the Phase 1A Property pursuant to the Implementation Agreement. (f) City's and City's Assignee's Investigation of Phase 1A Property. i) City shall have a period of forty-five (45) days, commencing on the date of an event that triggers City's ability to exercise any of Option I, Option II, or City's Right of First Offer, to enter upon the Phase 1A Property to conduct any tests, inspections, investigations, or studies of the condition of the Phase 1A Property (the "Phase 1A Option Agreement Tests and Investigations"). Developer shall permit City access to the Phase 1A Property for such purposes. City's obligation to close "Escrow" (as that term is defined in Section 7(g) below) shall be subject to City's approval of any environmental and other site testing conducted by City in City's discretion. City shall indemnify, defend, and hold harmless Developer and its officers, directors, shareholders, employees, agents, and representatives from and against all claims, liabilities, or damages, and including expert witness fees and reasonable attorney's fees and costs, arising out of any such testing, inspection, or investigatory activity on the Phase 1A Property. ii) In the event City assigns its rights under this Phase 1A Option Agreement, City's assignee shall have the right to enter upon the Phase 1A Property during the period commencing on the date of City's assignment of this Phase 1A Option Agreement to said assignee and ending on the "Closing Date" (as that term is defined in Section 4(g) below) to conduct any Phase 1A Option Agreement Tests and Investigations elected by the assignee. Developer shall permit City's assignee access to the Phase 1A Property for such purposes, provided that, prior to any entry upon the 882/015610-0065 9490862.2 a05/12/16 -6- Phase 1A Property by such assignee or its employees, agents, representatives or consultants, City shall cause such assignee to provide Developer with evidence that it has a liability insurance policy that names Developer as an additional insured, which policy shall have limits of coverage and be on terms reasonably acceptable to Developer. City's obligation to close "Escrow" (as defined in Section 4(g) below) shall be subject to City's assignee's approval of any environmental and other site testing conducted by said assignee in said assignee's discretion. City shall cause said assignee to indemnify, defend, and hold harmless Developer and its officers, directors, shareholders, employees, agents, and representatives from and against all claims, liabilities, or damages, and including expert witness fees and reasonable attorney's fees and costs, arising out of any such testing, inspection, or investigatory activity on the Phase 1 A Property. (g) Escrow Provisions. i) Within five (5) business days after City has exercised Option I, Option II, or City's Right of First Offer (as applicable), or as soon thereafter as reasonably practicable, an escrow shall be opened ("Escrow") with an escrow company selected by City ("Escrow Holder") for the reconveyance to City of the Phase 1A Property. Escrow shall be deemed opened on the date that a fully executed copy of this Phase 1A Option Agreement and a notice of exercise of option prepared by City are delivered to Escrow Holder ("Opening of Escrow"). Escrow Holder shall notify Developer and City in writing of the date of the Opening of Escrow promptly following the opening of the Escrow. ii) Escrow shall close on or before the date that is six (6) months after occurrence of the event giving rise to City's exercise of Option I, Option II, or City's Right of First Offer ("Close of Escrow" or "Closing Date"). The terms "Close of Escrow" and "Closing Date" shall mean the date the grant deed conveying fee title to City ("City Grant Deed") is recorded in the Official Records. Possession of the Phase 1A Property shall be delivered to City at the Close of Escrow. iii) This Phase 1A Option Agreement, together with any standard instructions of Escrow Holder, shall constitute the joint escrow instructions of Developer and City to Escrow Holder as well as an agreement between Developer and City. In the event of any conflict between the provisions of this Phase 1A Option Agreement and Escrow Holder's standard instructions, this Phase 1A Option Agreement shall prevail. iv) The Escrow shall be subject to City's approval of a then - current preliminary title report. Any monetary lien(s) or encumbrance(s) shown on such preliminary title report that is (are) created concurrent with or after the close of escrow that conveyed the Phase 1A Property from City to Developer shall be removed by Developer at its sole expense prior to the Close of Escrow pursuant to this Section 7(g) unless such exception(s) is (are) accepted by City in its sole discretion; provided, however, that City shall accept the following exceptions to title: (i) current taxes not yet delinquent, (ii) matters affecting title existing on the date of recordation of the grant deed to the Phase 1A Property (substantially in the form of Attachment No. 4 to the PSDA), 882/015610-0065 9490862.2 a05/12/16 -7- and (iii) matters shown as printed exceptions in the standard form ALTA policy of title insurance. v) On or before 1:00 p.m. on the last business day preceding the scheduled Closing Date, City shall deposit in Escrow (i) the applicable of the Option I Repurchase Price, the Option II Repurchase Price, the price noted in Developer's Sale Notice or Developer's Second Sale Notice (as applicable) (the "Right of First Offer Repurchase Price"); (ii) one-half (1/2) of the escrow fees; (iii) the portion of the title insurance premium attributable to any extra or extended coverages, or any additional charge resulting from City's request that the amount of insurance be higher than the applicable of the Option I Repurchase Price, the Option II Repurchase Price, or the Right of First Offer Repurchase Price; and (iv) any and all additional instruments or other documents required from City (executed and acknowledged if appropriate) as may be necessary in order to effect the transfer of the Phase 1A Property to City. On or before 1:00 p.m. on the last business day preceding the scheduled Closing Date, Developer shall deposit in Escrow (i) the City Grant Deed, executed and acknowledged; (ii) one-half (1/2) of the escrow fees; and (iii) any and all additional instruments or other documents required from Developer (executed and acknowledged if appropriate) as may be necessary in order to effect the transfer of the Phase 1A Property to City. Developer shall also be required to pay for documentary tax stamps and recording fees, if any, and for an ALTA standard form owner's policy of title insurance in the amount of the Option I Repurchase Price, the Option II Repurchase Price, or the Right of First Offer Repurchase Price (as applicable), showing title vested in City free and clear of all liens and encumbrances except those permitted by subparagraph iv) above (the "Title Policy"). City's receipt of the Title Policy shall be a condition to the Close of Escrow. Any other costs and expenses shall be allocated between the Parties in the manner customary for a commercial property conveyance in Riverside County. vi) If, on or before the Closing Date, Escrow Holder has received all of the documents and funds listed in subparagraph (v) above, and Escrow Holder is in a position to cause the Title Policy to be issued to City, and provided City has approved of the condition of the Phase 1A Property, Escrow Holder shall close the Escrow by taking the following actions: (a) recording the City Grant Deed in the Official Records, and delivering the recorded City Grant Deed to City; (b) causing the Title Policy to be issued to City; and (c) delivering the applicable of the Option I Repurchase Price, the Option II Repurchase Price, or the Right of First Offer Repurchase Price to Developer. (h) City's Right to Acquire the Phase 1A Property. Notwithstanding anything herein to the contrary, upon City's exercise of Option I, Option II, or City's Right of First Offer, Developer's commencement to cure the default that led to City's exercise shall not affect City's right to close the Escrow and acquire the Phase 1A Property. (i) City's Right to Purchase Plans. At the time City exercises any of Option I, Option II, or City's Right of First Offer, City shall also have the right, which City may exercise in its sole and absolute discretion, to purchase from Developer for the actual cost Developer incurred in preparing the same, any of the plans, blueprints, drawings, sketches, specifications, tentative or final subdivision maps, landscape plans, 882/015610-0065 9490862.2 a05/12/16 -8- utilities plans, soils reports, noise studies, environmental assessment reports, grading plans and any other materials (collectively, the "Plans") relating to (i) all of the Master Site Infrastructure Improvements designated pursuant to the PSDA to be constructed on the Property, and/or (b) all or any of the Project Components designated pursuant to the PSDA to be constructed on the Property, together with copies of all of the Plans, as have been prepared for the development of the Property to date of City's exercise of Option I, Option II, or City's Right of First Offer (as applicable). Notwithstanding the foregoing, however, Developer does not covenant to convey to City the copyright or other ownership rights of third parties. City's acquisition or use of the Plans or any of them shall be without any representation or warranty by Developer as to the accuracy or completeness of any such Plans, and City shall assume all risks in the use of the Plans. (j) City's Repurchase Price Reflects Reasonable Approximation of Damages. City and Developer agree that City has the right to either proceed with its remedies under the PSDA or to exercise Option I or Option II. Notwithstanding anything to the contrary herein or in the PSDA, in the event City exercises either of Option I or Option II (as applicable) to acquire the Phase 1A Property, City shall be deemed to have elected to waive the remedies to which it would otherwise be entitled under the PSDA. City and Developer agree that City will incur damages by reason of the default that gave rise to City's ability to exercise Option I or Option II (as applicable), which damages shall be impractical and extremely difficult, if not impossible, to ascertain. City and Developer, in a reasonable effort to ascertain what City's damages would be in the event of such default by Developer, have agreed that considering all of the circumstances existing on the date of this Phase 1A Option Agreement, including the relationship of the sum to the range of harm to City that reasonably could be anticipated, including without limitation the potential loss of tax revenue to the City of La Quinta, and the anticipation that proof of actual damages would be costly or inconvenient, the exercise by City of Option I or Option II (as applicable), and the payment by City of the Option I Repurchase Price or the Option II Repurchase Price (as applicable) and the conveyance of the Phase 1A Property by Developer to City, is fair and reasonable. City and Developer agree that the Option I Repurchase Price or Option II Repurchase Price (as applicable) reflect a reasonable estimate of City's damages under the provisions of Section 1671 of the California Code of Civil Procedure and shall operate as liquidated damages to City if City exercises Option I or Option II (as applicable). If City does not exercise Option I or Option II, then City shall retain and may exercise all of its rights and remedies as set forth in any other agreement, including, but not limited to, the PSDA. 5. Notices, Demands and Communications Between the Parties Formal notices, demands, and communications between City and Developer shall be given either by (i) personal service, (ii) delivery by reputable document delivery service such as Federal Express that provides a receipt showing date and time of delivery, or (iii) mailing in the United States mail, certified mail, postage prepaid, return receipt requested, addressed to: 882/015610-0065 9490862.2 a05/12/16 -9- To City: With a copy to: To Developer: With a copy to: City of La Quinta 78-495 Calle Tampico La Quinta, California 92253 Attn: City Manager Rutan & Tucker, LLP 611 Anton Boulevard., Suite 1400 Costa Mesa, California 92626 Attn: William H. Ihrke, Esq. SilverRock Development Company, LLC c/o The Robert Greene Company 3551 Fortuna Ranch Road Encinitas, California 92024 Attn: Robert Green Clinton L. Bain, Attorney at Law 3990 Old Town Avenue, Suite B-101 San Diego, California 92110 Attn: Clinton Blain, Esq. Notices personally delivered or delivered by document delivery service shall be deemed effective upon receipt. Notices mailed in the manner provided above shall be deemed effective on the second business day following deposit in the United States mail. Such written notices, demands, and communications shall be sent in the same manner to such other addresses as either Party may from time to time designate by mail. 6. Applicable Law and Forum; Attorney's Fees The Superior Court of the State of California in the County of Riverside shall have the exclusive jurisdiction of any litigation between the Parties arising out of this Phase 1A Option Agreement. This Phase 1A Option Agreement shall be governed by, and construed under, the internal laws of the State of California, without regard to conflict of law principles. In addition to any other rights or remedies and subject to the restrictions otherwise set forth in this Phase 1A Option Agreement, including without limitation in this Section 6, either Party may take legal action, in law or in equity, to cure, correct, or remedy any default, to recover damages for any default, to compel specific performance of this Phase 1A Option Agreement, to obtain declaratory or injunctive relief, or to obtain any other remedy consistent with the purposes of this Phase 1A Option Agreement. City shall also have the right to pursue damages for Developer's defaults but in no event shall Developer be entitled to recover damages of any kind from City, including damages for economic loss, lost profits, or any other economic or consequential damages of any kind. The rights and remedies of the Parties are cumulative and the exercise by either Party of one or more of such rights or remedies shall not preclude the exercise by it, at the same or different times, of any other rights or remedies for the same default or any other default by the other Party. Service of process on City shall be made in the manner required by law for service on a public 882/015610-0065 9490862.2 a05/12/16 -10- entity. Service of process on Developer shall be made in any manner permitted by law and shall be effective whether served within or outside of California. If either Party to this Phase 1A Option Agreement is required to initiate or defend, or is made a party to, any action or proceeding in any way connected with this Phase 1A Option 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. 7. City Right to Assign In the event City has the right to exercise any of Option I, Option II, or City's Right of First Offer, City shall have the right to assign its rights hereunder upon providing prior written notice to Developer pursuant to Section 5 of this Phase 1A Option Agreement, and thereafter entering into an assignment and assumption agreement with such assignee. 8. City Approvals and Actions City shall maintain authority of this Phase 1A Option Agreement and the authority to implement this Phase 1A Option 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 Phase 1A Option 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 Phase 1A Option 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. 9. Nonliability of City Officials and Employees No officer, official, employee, agent, or representative of City shall be personally liable to Developer or any successor in interest, in the event of any default or breach by City, or for any amount which may become due to Developer or its successor, or for breach of any obligation of the terms of this Phase 1A Option Agreement. 10. Nondiscrimination Developer covenants for itself, its heirs, executors, assigns, and all persons claiming under or through them, that there shall be no discrimination against any person on account of race, color, creed, religion, sex, marital status, national origin, or ancestry with respect to this Phase 1A Option Agreement or use of the Phase 1A Property. 882/015610-0065 9490862.2 a05/12/16 -11- 11. Interpretation The terms of this Phase 1A Option Agreement shall be construed in accordance with the meaning of the language used and shall not be construed for or against either Party by reason of the authorship of this Phase 1A Option Agreement or any other rule of construction which might otherwise apply. The Section headings are for purposes of convenience only, and shall not be construed to limit or extend the meaning of this Phase 1A Option Agreement. 12. Entire Agreement This Phase 1A Option Agreement integrates all of the terms and conditions mentioned herein, or incidental hereto, and, with the exception of the PSDA and Implementation Agreement, supersedes all negotiations or previous agreements between the Parties with respect to all or any part of the subject matter hereof. All waivers of the provisions of this Phase 1A Option Agreement must be in writing and signed by the appropriate authorities of the Party to be charged, and all amendments and modifications hereto must be in writing and signed by the appropriate authorities of City and Developer. 13. Counterparts This Phase 1A Option Agreement may be executed in counterparts, each of which, after all the Parties hereto have signed this Phase 1A Option Agreement, shall be deemed to be an original, and such counterparts shall constitute one and the same instrument. 14. Severability In the event any section or portion of this Phase 1A Option Agreement shall be held, found, or determined to be unenforceable or invalid for any reason whatsoever, the remaining provisions shall remain in effect, and the Parties hereto shall take further actions as may be reasonably necessary and available to them to effectuate the intent of the Parties as to all provisions set forth in this Phase 1A Option Agreement. 882/015610-0065 9490862.2 a05/12/16 -12- IN WITNESS WHEREOF, the Parties have executed this Phase 1A Option Agreement as of the date first above written. Date: , 2016 "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 corporation Its: Manager 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 By: The Robert Green Company, a California corporation Its: Manager Date: , 2016 By: Name: Robert S. Green, Jr. Its: President and Chief Executive Officer Date: , 2016 ATTEST: Susan Maysels, City Clerk APPROVED AS TO FORM: RUTAN & TUCKER, LLP William H. Ihrke, City Attorney "CITY" CITY OF LA QUINTA a California municipal corporation and charter city By: Its: City Manager 882/015610-0065 9490862.2 a05/12/16 -13- 882/015610-0065 9490862.2 a05/12/16 -14- 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) Notary Public, personally appeared 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. Signature (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) Notary Public, personally appeared 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. Signature (Seal) 882/015610-0065 9490862.2 a05/12/16 EXHIBIT "A" LEGAL DESCRIPTION OF THE PHASE 1A PROPERTY [To be inserted] 882/015610-0065 9490862.2 a05/12/16 EXHIBIT "A"