<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-22725
CRESCENT OPERATING, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2701931
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
306 West 7th Street, Suite 1000
Fort Worth, Texas 76102
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 339-2200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Number of shares of Common Stock, $.01 par value, outstanding as of
May 12, 2000: 11,414,963
<PAGE> 2
CRESCENT OPERATING, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets........................................................................................3
Consolidated Statements of Operations..............................................................................4
Consolidated Statement of Changes in Shareholders' Equity (Deficit)................................................5
Consolidated Statements of Cash Flows..............................................................................6
Notes To Consolidated Financial Statements (Unaudited).............................................................7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................14
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................................25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................................25
Item 2. Change in Securities and Use of Proceeds..........................................................................25
Item 3. Defaults Upon Senior Securities...................................................................................26
Item 4. Submission of Matters to a Vote of Security Holders...............................................................26
Item 5. Other Information.................................................................................................26
Item 6. Exhibits and Reports on Form 8-K..................................................................................26
</TABLE>
2
<PAGE> 3
CRESCENT OPERATING, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 36,973 $ 39,017
Accounts receivable, net 60,288 51,638
Inventories 57,509 47,442
Real estate 117,415 121,412
Prepaid expenses and other current assets 12,804 14,714
-------------- --------------
Total current assets 284,989 274,223
-------------- --------------
PROPERTY AND EQUIPMENT, NET 208,604 215,764
-------------- --------------
INVESTMENTS 86,768 80,470
-------------- --------------
OTHER ASSETS
Real estate 87,931 83,147
Intangible assets, net 90,670 92,077
Other assets 50,998 49,972
-------------- --------------
Total other assets 229,599 225,196
-------------- --------------
TOTAL ASSETS $ 809,960 $ 795,653
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 79,462 $ 80,396
Accounts payable - CEI 17,036 9,250
Current portion of long-term debt - CEI 7,352 8,000
Current portion of long-term debt 61,901 69,459
Deferred revenue 60,041 62,864
-------------- --------------
Total current liabilities 225,792 229,969
LONG-TERM DEBT - CEI, NET OF CURRENT PORTION 212,263 208,744
LONG-TERM DEBT, NET OF CURRENT PORTION 151,132 135,671
OTHER LIABILITIES 61,624 59,837
-------------- --------------
Total liabilities 650,811 634,221
-------------- --------------
MINORITY INTERESTS 182,598 181,954
-------------- --------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, 10,000 shares authorized,
no shares issued or outstanding -- --
Common stock, $.01 par value, 22,500 shares authorized,
11,415 shares issued 114 114
Additional paid-in capital 17,714 17,714
Deferred compensation on restricted shares (198) (198)
Accumulated comprehensive income (loss) (11,072) (10,127)
Retained deficit (25,701) (23,719)
Treasury stock at cost, 1,103 shares (4,306) (4,306)
-------------- --------------
Total shareholders' equity (deficit) (23,449) (20,522)
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 809,960 $ 795,653
============== ==============
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 4
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data, unaudited)
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
REVENUES
Equipment sales & leasing $ 36,247 $ 27,159
Hospitality 72,210 63,032
Land development 59,094 46,557
-------------- --------------
Total revenues 167,551 136,748
-------------- --------------
OPERATING EXPENSES
Equipment sales & leasing 35,771 26,650
Hospitality 53,781 46,996
Hospitality properties rent - CEI 16,264 13,526
Land development 52,790 44,861
Corporate general and administrative 972 420
-------------- --------------
Total operating expenses 159,578 132,453
-------------- --------------
INCOME FROM OPERATIONS 7,973 4,295
-------------- --------------
INVESTMENT INCOME 5,505 10,007
-------------- --------------
OTHER (INCOME) EXPENSE
Interest expense 8,014 6,185
Interest income (864) (808)
Other 91 (76)
-------------- --------------
Total other (income) expense 7,241 5,301
-------------- --------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTERESTS 6,237 9,001
INCOME TAX PROVISION 1,488 372
-------------- --------------
INCOME BEFORE MINORITY INTERESTS 4,749 8,629
MINORITY INTERESTS (6,731) (5,215)
-------------- --------------
NET INCOME (LOSS) $ (1,982) $ 3,414
============== ==============
EARNINGS (LOSS) PER SHARE
Basic $ (0.19) $ 0.32
============== ==============
Diluted $ (0.19) $ 0.31
============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 10,312 10,522
============== ==============
Diluted 10,312 11,151
============== ==============
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 5
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Amounts in thousands, unaudited)
<TABLE>
<CAPTION>
Common stock Treasury stock
----------------------------- ----------------------------- Additional
Shares Amount Shares Amount paid-in capital
------------ ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
BALANCE at December 31, 1999 11,415 $ 114 (1,103) $ (4,306) $ 17,714
Comprehensive income (loss):
Net loss -- -- -- -- --
Unrealized loss on Magellan warrants -- -- -- -- --
Comprehensive income (loss)
------------ ------------ ------------ ------------ ------------
BALANCE at March 31, 2000 11,415 $ 114 (1,103) $ (4,306) $ 17,714
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Deferred
compensation Accumulated
on restricted comprehensive Retained
shares income (loss) deficit Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE at December 31, 1999 $ (198) $ (10,127) $ (23,719) $ (20,522)
Comprehensive income (loss):
Net loss -- -- (1,982) (1,982)
Unrealized loss on Magellan warrants -- (945) -- (945)
------------
Comprehensive income (loss) (2,927)
------------ ------------ ------------ ------------
BALANCE at March 31, 2000 $ (198) $ (11,072) $ (25,701) $ (23,449)
============ ============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE> 6
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------ -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,982) $ 3,414
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 5,391 4,591
Amortization 2,620 3,195
Provision for deferred income taxes (1,018) (3,001)
Equity in income of unconsolidated subsidiaries (3,987) (8,201)
Minority interests 6,731 5,215
Gain on sale of property and equipment (892) (618)
Gain on sale of investments (1,518) (1,806)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable (8,649) (4,073)
Inventories 2,924 (5,708)
Prepaid expenses and current assets (4,411) 300
Real estate 612 (7,671)
Other assets (100) 384
Accounts payable and accrued expenses (7,733) (5,434)
Accounts payable - CEI 7,823 3,415
Deferred revenue, current and noncurrent 2,190 2,390
Other liabilities 4 761
-------------- --------------
Net cash used in operating activities (1,995) (12,847)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business interests, net of cash acquired (44) (15,489)
Acquisition of business interests by
Controlled Subsidiaries, net of cash acquired (550) (4,674)
Purchases of property and equipment (15,679) (6,741)
Proceeds from sale of investments 2,398 21,273
Proceeds from sale of property and equipment 8,342 4,135
Net proceeds from sale and collection of notes receivable 5,698 1,025
Net distributions from investments 1,055 504
Distributions from investments of Controlled Subsidiaries 21 5,690
Contributions to investments of Controlled Subsidiaries -- (234)
-------------- --------------
Net cash provided by investing activities 1,241 5,489
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of long-term debt 49,955 41,444
Payments on long-term debt (24,611) (29,328)
Proceeds of long-term debt - CEI -- 24,195
Payments on long-term debt - CEI (19,186) (36,584)
Capital contributions by minority interests 373 3,489
Distributions to minority interests (6,460) (5,537)
Purchase of treasury stock -- (1,399)
Other (1,361) (860)
-------------- --------------
Net cash used in financing activities (1,290) (4,580)
-------------- --------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (2,044) (11,938)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 39,017 42,810
-------------- --------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 36,973 $ 30,872
============== ==============
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE> 7
CRESCENT OPERATING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Crescent Operating, Inc. was formed on April 1, 1997 by Crescent Real Estate
Equities Company ("CEI" or "Crescent Equities") and its subsidiary Crescent Real
Estate Equities Limited Partnership ("Crescent Partnership"). Effective June 12,
1997, CEI distributed shares of Crescent Operating, Inc. common stock to
shareholders of CEI and unit holders of Crescent Partnership of record on May
30, 1997.
Crescent Operating, Inc. ("Crescent Operating" or "COPI") is a diversified
management company that, through various subsidiaries and affiliates
(collectively with Crescent Operating, the "Company"), currently operates
primarily in four business segments: Equipment Sales and Leasing, Hospitality,
Temperature Controlled Logistics (formerly Refrigerated Warehousing) and Land
Development. Through these segments, Crescent Operating does business throughout
the United States.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements should be read in conjunction
with the audited financial statements and related footnotes of the Company for
the fiscal year ended December 31, 1999 included in the Company's Form 10-K. In
management's opinion, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the consolidated
unaudited interim financial statements have been included and all significant
intercompany balances and transactions have been eliminated. Certain prior
period information has been reclassified to conform to current period
presentation. Due to acquisitions and seasonal fluctuations, operating results
for interim periods reflected are not necessarily indicative of the results that
may be expected for a full fiscal year.
The financial results of the Company include the following:
o Subsidiaries which are wholly owned and consolidated:
-- Crescent Machinery Company ("Crescent Machinery");
-- Rosestar Management LLC ("Rosestar"); and
-- COI Hotel Group, Inc. ("COI Hotel").
o Subsidiaries which are not wholly owned but the Company controls and
therefore consolidates ("Controlled Subsidiaries"):
-- A 5% economic interest in:
- The Woodlands Land Company, Inc. ("LandCo") which has a
42.5% general partner interest in The Woodlands Land
Development Company, L.P. ("Landevco");
- Desert Mountain Development Corporation ("Desert Mountain
Development") which consolidates its 93% general partner
interest in Desert Mountain Properties Limited Partnership
("DMPLP"); and
- CRL Investments, Inc. ("CRL"), which beneficially owns 60%
of CR Las Vegas, LLC ("CR Las Vegas") and 20% of CR License,
LLC ("CR License").
-- A 50% general partner interest in COPI Colorado, L.P. ("COPI
Colorado") which owns 10% of Crescent Development Management
Corp. ("CDMC"). The 10% interest in CDMC represents 100% of the
voting stock, and therefore, CDMC is consolidated into COPI
Colorado.
7
<PAGE> 8
o Subsidiaries which the Company reports on the equity method of
accounting:
-- A 52.5% interest (42.5% in 1999) in the Woodlands Operating
Company, L.P. ("TWOC");
-- A 40% interest in Vornado Crescent Logistics Operating
Partnership ("AmeriCold Logistics");
-- A direct 25% common membership interest in Charter Behavioral
Health Systems, LLC ("CBHS");
-- An indirect 65% common membership interest in CBHS held through a
limited partner interest in COPI CBHS Holdings, L.P.; and
-- A 1% interest in each of Crescent CS Holdings Corporation ("CS
I") and Crescent CS Holdings II Corporation ("CS II"),
(collectively, "Temperature Controlled Logistics Partnerships").
2. RECENT DEVELOPMENTS:
HOSPITALITY
Effective January 31, 2000, Houston Center Athletic Club Venture ("HCAC") sold
substantially all of its assets to an unrelated party. Through a wholly owned
subsidiary, the Company received proceeds from the sale of $2.4 million
resulting in an approximate $1.5 million gain which was recognized by Crescent
Operating in the first quarter of 2000.
Effective February 1, 2000, The Varma Asset Management Agreements were
terminated by mutual agreement of the parties; at the same time, Crescent
Operating and its hospitality subsidiaries entered into a Master Asset
Management and Administrative Services Agreement with Sonoma Management Company
("SMC") to manage the Company's hotel and resort properties (excluding Canyon
Ranch - Lenox, Canyon Ranch - Tucson, the Hyatt Regency Beaver Creek, the Sonoma
Mission Inn and Spa, the Sonoma Mission Inn Golf and Country Club and the
Ventana Inn and Spa). At the same time, the Company's hospitality subsidiaries
accepted assignment from the owners of the Sonoma Mission Inn and Spa, the
Sonoma Mission Inn Golf and Country Club and the Ventana Inn and Spa of its
property management agreements with SMC. The principals of SMC are Sanjay and
Johanna Varma and Crescent Equities is an equity owner in SMC. Payment of
obligations under the Master Asset Management and Administrative Services
Agreement are guaranteed by the Company. For each property for which it provides
asset management services, SMC will receive a base fee equal to 0.85% of gross
revenues of the property managed plus an incentive fee of 50% of actual net
income in excess of budgeted net income. For each property for which it provides
property management services, SMC will receive a base fee equal to 2.0% of gross
revenues of the property plus an incentive fee of 20% of net operating income in
excess of 12% annual return on investment to owner.
LAND DEVELOPMENT
In accordance with an agreement between Gerald Haddock and the Company, COPI
Colorado redeemed the limited partnership interest of Mr. Haddock, the Company's
former Chief Executive Officer and President, in January 2000. COPI Colorado
paid Mr. Haddock approximately $2.6 million for his approximate 16.67% limited
partner interest (determined from an independent appraisal of the value of COPI
Colorado). Mr. Haddock reserved the right to challenge the valuation performed
by the independent appraiser.
OTHER
On February 16, 2000, CBHS petitioned for relief under Chapter 11 of the United
States Bankruptcy Code. Under the protection of the bankruptcy court, CBHS
intends to sell and liquidate, in a controlled fashion, all of its ongoing
business. In conjunction with the filing by CBHS of the bankruptcy petition,
COPI Healthcare, Inc. ("COPI Healthcare"), a newly formed wholly owned
subsidiary of Crescent Operating, entered into an agreement with CBHS for the
acquisition by COPI Healthcare of CBHS' core business ("Asset Purchase
Agreement"), which consists of the assets used in the operation of 37 behavioral
healthcare facilities for, $24.5 million. The closing of the transactions
contemplated by the Asset Purchase Agreement was subject to bankruptcy court
approval and other conditions. The Asset Purchase Agreement terminated by its
own terms on April 16, 2000 because not all of the conditions precedent to
closing had been met by that date.
8
<PAGE> 9
Effective April 27, 2000, the Company's shares began trading on the OTC Bulletin
Board. The shares, which previously had been traded on The Nasdaq National
Market and had moved to The Nasdaq SmallCap Market effective April 6, 2000 but
did not meet the standards for continued listing in these markets, retained the
same trading symbol, COPI.
3. INVESTMENTS:
Investments consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Investment in Landevco .......................................... $ 46,561 $ 41,186
Investment in CDMC projects ..................................... 16,590 11,254
Investment in AmeriCold Logistics ............................... 9,299 11,791
Investment in CR Las Vegas ...................................... 8,356 8,356
Investment in CR License ........................................ 2,797 2,797
Investment in Temperature Controlled Logistics Partnerships ..... 2,546 3,068
Investment in Magellan warrants ................................. 1,429 2,374
Investment in HCAC .............................................. -- 864
Investment in TWOC .............................................. (810) (1,220)
-------------- --------------
$ 86,768 $ 80,470
============== ==============
</TABLE>
Investment income consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Equity in income of Landevco .................................... $ 5,375 $ 4,581
Gain on sale of HCAC ............................................ 1,518 --
Equity in income of CDMC Projects ............................... 942 3,355
Equity in income of TWOC ........................................ 920 275
Equity in income of Temperature Controlled
Logistics Partnerships ....................................... 24 61
Equity in income of HCAC ........................................ 8 67
Hicks-Muse income ............................................... -- 239
Gain on sale of CS I and CS II .................................. -- 1,493
Equity in loss of Transportal Network ........................... (790) --
Equity in loss of AmeriCold Logistics ........................... (2,492) (64)
-------------- --------------
$ 5,505 $ 10,007
============== ==============
</TABLE>
A summary of financial information for the Company's investment in AmeriCold
Logistics, which is a significant unconsolidated investment, is presented below
(amounts in thousands).
<TABLE>
<CAPTION>
AmeriCold Logistics
--------------------
Three months ended
March 31, 2000
--------------------
<S> <C>
Revenues ............................................ $ 164,276
Gross profit ........................................ $ 4,483
Net income (loss) ................................... $ (6,230)
Crescent Operating's equity
in income (loss) of subsidiary .................. $ (2,492)
</TABLE>
9
<PAGE> 10
4. INTANGIBLE ASSETS:
Intangible assets consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Goodwill, net - Crescent Machinery ............... $ 13,849 $ 13,925
Goodwill, net - RoseStar ......................... 1,363 1,417
Goodwill, net - COPI Colorado .................... 41,745 41,798
Membership intangible, net - DMPLP ............... 33,713 34,937
-------------- --------------
$ 90,670 $ 92,077
============== ==============
</TABLE>
5. LONG-TERM DEBT:
The Company's long-term debt facilities are composed of (i) corporate and
wholly-owned debt, and (ii) non wholly-owned debt. Corporate and wholly-owned
debt relates to debt facilities at the Crescent Operating level or owed by
entities which are owned 100% by Crescent Operating. Non wholly-owned debt
represents non-recourse debt owed by entities which are consolidated in the
Company's financial statements but are not 100% owned by the Company; the
Company's economic investment in these entities is 5% or less. Following is a
summary of the Company's debt financing (amounts in thousands):
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
----------------- -----------------
<S> <C> <C>
LONG-TERM DEBT - CORPORATE AND WHOLLY-OWNED SUBSIDIARIES
Equipment notes payable to various finance companies, weighted average
interest of 8.5% due 2000 through 2007 (Crescent Machinery) ................. $ 101,773 $ 102,539
Floor plan debt payable, three to twelve month terms at 0% interest
(Crescent Machinery) ........................................................ 24,437 21,556
Note payable to Crescent Partnership, interest at 9%, due May 2002 (COPI) ... 19,500 19,500
Line of credit in the amount of $17.2 million payable to Crescent
Partnership, interest at 12%, due May 2002 or five years after the last
draw (COPI) ................................................................. 17,200 17,200
Line of credit in the amount of $15.0 million payable to Bank of America,
interest at LIBOR plus 1%, due August 31, 2001 (COPI) ....................... 15,000 15,000
Note payable to Crescent Partnership, interest at 12%, due through May
2002 (COPI) ................................................................ 13,824 13,824
Note payable to Crescent Partnership, interest at 12%, due May 2002 (COPI) .. 9,000 9,000
Notes payable to the sellers of equipment companies, weighted average
interest of 7.8%, due 2000 through 2003 (COPI) .............................. 6,110 7,255
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
Notes payable to Crescent Partnership, weighted average interest of 10.1%,
due 2002 through 2006 (RoseStar/COI Hotel) .................................. 1,970 2,571
---------------- ----------------
Total debt - corporate and wholly-owned subsidiaries ............. 208,814 208,445
---------------- ----------------
LONG-TERM DEBT - NON WHOLLY-OWNED SUBSIDIARIES
Junior note payable to Crescent Partnership, interest at 14%, due December
2010 (DMPLP) ................................................................ 60,000 60,000
Construction loans for various East West Resort Development projects,
interest at 7.75% to 13.9%, due through 2005 (CDMC) ......................... 52,635 45,024
Line of credit in the amount of $56.2 million payable to Crescent
Partnership, interest at 11.5%, due August 2004 (CDMC) ...................... 46,187 49,357
Line of credit in the amount of $40.0 million payable to Crescent
Partnership, interest at 11.5%, due December 2006 (CDMC) .................... 20,642 14,459
Line of credit in the amount of $22.9 million payable to Crescent
Partnership, interest at 12%, due January 2003 (CDMC) ....................... 17,378 16,418
Line of credit in the amount of $45.0 million payable to National Bank of
Arizona, interest at prime to prime plus 1%, due June 2000 (DMPLP) .......... 13,077 13,756
Line of credit in the amount of $7.0 million payable to Crescent
Partnership, interest at 12%, due August 2003 (CRL) ......................... 5,666 5,666
Term loan in the amount of $5.6 million payable to Crescent Partnership,
interest ranging from 12% to 15%, due March 2001 (CDMC) ..................... 5,600 -
Note payable to Crescent Partnership, interest at 12%, due June 2005 (CDMC).. 2,649 2,649
Senior note payable to Crescent Partnership, interest at 10%, due December
2005 (DMPLP) ................................................................ - 6,100
---------------- ----------------
Total debt - non wholly-owned subsidiaries ........................ 223,834 213,429
---------------- ----------------
Total long-term debt .............................................. $ 432,648 $ 421,874
================ ================
Current portion of long-term debt - CEI ..................................... $ 7,352 $ 8,000
Current portion of long-term debt ........................................... 61,901 69,459
Long-term debt - CEI, net of current portion ................................ 212,263 208,744
Long-term debt, net of current portion ...................................... 151,132 135,671
---------------- ----------------
Total long-term debt .............................................. $ 432,648 $ 421,874
================ ================
</TABLE>
11
<PAGE> 12
6. OTHER LIABILITIES
Other liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Deferred revenue ....................... $ 54,129 $ 50,964
Deferred hospitality rent .............. 4,701 4,698
Other .................................. 2,794 4,175
-------------- -----------------
$ 61,624 $ 59,837
============== =================
</TABLE>
7. EARNINGS PER SHARE:
Earnings per share ("EPS") is calculated as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
Three months ended March 31, 2000 Three months ended March 31, 1999
--------------------------------- ---------------------------------
Net Wtd Avg. Per Share Net Wtd. Avg. Per Share
Income Shares Amount Income Shares Amount
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS ......................... $ (1,982) 10,312 $ (0.19) $ 3,414 10,522 $ 0.32
EFFECT OF DILUTIVE SECURITIES:
Stock Options ..................... -- -- -- 629
-------- -------- -------- --------
DILUTED EPS ....................... $ (1,982) 10,312 $ (0.19) $ 3,414 11,151 $ 0.31
======== ======== ======== ======== ======== ========
</TABLE>
The Company had 1,342,392 and 70,600 options for its common stock outstanding at
March 31, 2000 and 1999, respectively, which were not included in the
calculation of diluted EPS as they were anti-dilutive.
8. INCOME TAXES:
The table below shows the reconciliation of the federal statutory income tax
rate to the effective tax rate.
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 2000 March 31, 1999
---------------- ----------------
<S> <C> <C>
Federal statutory income tax rate ..................... 35.0% 35.0%
State income taxes, net of federal tax benefit ........ 5.0 5.0
Minority interests .................................... (15.5) (2.0)
Change in valuation allowance ......................... -- (30.2)
Other, net ............................................ (0.6) (3.7)
---------------- ----------------
Effective tax rate ........................ 23.9% 4.1%
================ ================
</TABLE>
12
<PAGE> 13
9. BUSINESS SEGMENT INFORMATION:
Crescent Operating's assets and operations are located entirely within the
United States and are comprised of four business segments: (i) Equipment Sales
and Leasing, (ii) Hospitality, (iii) Temperature Controlled Logistics and (iv)
Land Development. In addition to these four business segments, the Company has
grouped its investment in Magellan warrants, investment in Hicks-Muse (sold in
March 1999), investment in CBHS, interest expense on corporate debt and general
corporate overhead costs such as legal and accounting costs, insurance costs
and corporate salaries as "Other" for segment reporting purposes. The Company
has written off its entire investment and has no obligation or commitment to
fund CBHS' ongoing operations. As a result of the write-off, the Company does
not anticipate that it will recognize any additional CBHS losses for accounting
purposes, and no longer reports its operations related to CBHS as a separate
segment. The Company does incur costs of ownership related to the CBHS
investment, such as legal and accounting costs, and COPI Healthcare incurred
costs related to due diligence on the assets it had offered to purchase out of
bankruptcy. The Company uses net income as the measure of segment profit or
loss.
Business segment information is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
----------------------------------------
March 31, 2000 March 31, 1999
---------------- -----------------
<S> <C> <C>
Revenues:
Equipment Sales and Leasing ......... $ 36,247 $ 27,159
Hospitality ......................... 72,210 63,032
Temperature Controlled Logistics .... -- --
Land Development .................... 59,094 46,557
Other ............................... -- --
---------------- -----------------
Total revenues ...................... $ 167,551 $ 136,748
================ =================
Net income (loss):
Equipment Sales and Leasing ......... $ (1,184) $ (447)
Hospitality ......................... 2,191 1,536
Temperature Controlled Logistics .... (1,966) 894
Land Development .................... 728 133
Other ............................... (1,751) 1,298
---------------- -----------------
Total net income (loss) ............. $ (1,982) $ 3,414
================ =================
March 31, 2000 December 31, 1999
---------------- -----------------
Identifiable assets:
Equipment Sales and Leasing ......... $ 188,930 $ 184,964
Hospitality ......................... 46,723 44,805
Temperature Controlled Logistics .... 14,310 16,337
Land Development .................... 543,927 535,911
Other ............................... 16,070 13,636
---------------- -----------------
Total identifiable assets ........... $ 809,960 $ 795,653
================ =================
</TABLE>
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information in this Item 2 should be read in conjunction with the interim
consolidated financial statements and the accompanying notes presented in Item 1
to this Form 10-Q. The financial statements include all adjustments which
management believes are necessary to reflect a fair statement of the financial
results for the interim periods presented. All such adjustments are of a normal
and recurring nature. The information contained in this Item 2 should also be
read in conjunction with the more detailed information included in the Company's
Form 10-K for the year ended December 31, 1999. Capitalized terms used but not
otherwise defined in this Item 2 have the meanings given to them in the notes to
the financial statements included in Item 1.
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Although the Company believes that the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, the Company's actual results could differ materially
from those the Company expects to achieve. Some of the factors that might cause
such a difference include:
o the impact of changes in the industries in which the Company's
businesses and investments operate and the economic, demographic and
other competitive conditions affecting those industries, the Company's
cash flows and the value of the Company's investments,
o the relatively high levels of debt that the Company maintains and the
Company's ability to generate revenue sufficient to meet debt service
payments and other operating expenses,
o the possibility that the Company's outstanding debt (some of which
requires "balloon" payments of principal) may be refinanced at higher
interest rates or otherwise on terms less favorable to the Company,
o the availability of equity and debt financing that may be necessary or
advantageous to expand or maintain the Company's operations and
investments,
o the underperformance or non-performance of the Company's existing
business investments,
o any resolution of issues that relate to the bankruptcy petition of
CBHS that is unfavorable to the Company, including, but not limited
to, judgments against the Company in respect of lawsuits instituted in
connection with the activities of CBHS prior to its bankruptcy filing,
o the Company's inability to identify or pursue suitable business or
investment opportunities,
o the extreme sensitivity to changes in operations or business
activities of certain of the Company's investments due to their high
levels of debt and rental payments and
o the effect of the REIT Modernization Act upon future opportunities
under the Intercompany Agreement with Crescent Partnership (the
"Intercompany Agreement"), pursuant to which the Company and Crescent
Partnership have agreed to provide the other with rights to
participate in certain transactions.
Given these uncertainties, readers are cautioned not to place undue reliance on
such statements. The Company is not obligated to update these forward-looking
statements to reflect any future events or circumstances.
14
<PAGE> 15
OVERVIEW
Crescent Operating is a diversified management company that, through various
subsidiaries and affiliates, currently operates primarily in four business
segments: (i) Equipment Sales and Leasing, (ii) Hospitality, (iii) Temperature
Controlled Logistics (formerly Refrigerated Warehousing) and (iv) Land
Development. Within these segments the Company owned the following:
o THE EQUIPMENT SALES AND LEASING SEGMENT consisted of a wholly owned
interest in Crescent Machinery Company ("Crescent Machinery"), a
construction equipment sales, leasing and service company with 18
locations in seven states.
o THE HOSPITALITY SEGMENT consisted of (i) the Company's lessee
interests in Business Class Hotels which include the Denver Marriott
City Center, the Hyatt Regency Albuquerque, the Four Seasons Hotel in
Houston, Texas and the Renaissance Hotel in Houston, Texas; lessee
interests in Luxury Spa Resorts which include the Hyatt Regency Beaver
Creek, the Ventana Inn and Spa and the Sonoma Mission Inn and Spa
(including the Sonoma Mission Inn Golf and Country Club); and lessee
interests in Destination Fitness Resorts and Spas which include Canyon
Ranch-Tucson and Canyon Ranch-Lenox (collectively, the "Hospitality
Properties"), (ii) a two-thirds interest in the Houston Center
Athletic Club Venture (see Hospitality Segment - Recent Developments)
and (iii) a 5% economic interest in CRL Investments, Inc. ("CRL"),
which has an investment in the Canyon Ranch Day Spa in the Venetian
Hotel in Las Vegas, Nevada and participates in the future use of the
"Canyon Ranch" name.
o THE TEMPERATURE CONTROLLED LOGISTICS SEGMENT consisted primarily of a
40% interest in the operations of Vornado Crescent Logistics Operating
Partnership ("AmeriCold Logistics"), which currently operates 104
refrigerated storage properties with an aggregate storage capacity of
approximately 533 million cubic feet, and a 1% interest in Crescent CS
Holdings Corporation ("CS I") and Crescent CS Holdings II Corporation
("CS II", and together with CS I, the "Temperature Controlled
Logistics Partnerships").
o THE LAND DEVELOPMENT SEGMENT consisted of (i) a 4.65% economic
interest in Desert Mountain, a master planned, luxury residential and
recreational community in northern Scottsdale, Arizona, (ii) a 52.5%
general partner interest in The Woodlands Operating Company, L.P.
("Woodlands Operating"), (iii) a 2.125% economic interest in The
Woodlands Land Development Company L.P. ("Landevco") and (iv) a 50%
economic interest in COPI Colorado, LP ("COPI Colorado"), a company
that has a 10% economic interest in Crescent Development Management
Corp. ("CDMC").
The Company has previously written off its entire investment and has no
obligation or commitment to fund CBHS ongoing operations. As a result of the
write-off, the Company does not anticipate that it will recognize any
additional CBHS losses for accounting purposes, and no longer reports its
operations related to CBHS as a separate segment. The Company does incur
costs of ownership related to the CBHS investment, such as legal and accounting
costs, and COPI Healthcare incurred costs related to due diligence on the
assets it had offered to purchase out of bankruptcy. See Other - Recent
Developments.
15
<PAGE> 16
EQUIPMENT SALES AND LEASING SEGMENT
FINANCIAL ACTIVITY
<TABLE>
<CAPTION>
(in thousands) Three months ended March 31,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenue:
New and used equipment ................... $ 21,870 $ 16,177
Rental equipment ......................... 7,315 5,169
Parts, service and supplies .............. 7,062 5,813
------------ ------------
Total revenue ............................... 36,247 27,159
Expenses:
Cost of sales:
New and used equipment .............. 18,947 13,794
Rental equipment .................... 4,771 3,398
Parts, service and supplies ......... 4,266 3,313
------------ ------------
Total cost of sales ...................... 27,984 20,505
Gross profit ............................. 8,263 6,654
Operating expenses ....................... 7,787 6,145
------------ ------------
Income from operations ...................... $ 476 $ 509
============ ============
EBITDA ...................................... $ 4,160 $ 3,767
============ ============
</TABLE>
Equipment sales and leasing revenue increased $9.0 million, or 33.1% to $36.2
million for the three months ended March 31, 2000, compared with $27.2 million
for the three months ended March 31, 1999. Net loss for the three months ended
March 31, 2000 was $1.2 million as compared with a loss of $0.5 million for the
three months ended March 31, 1999.
Earnings before interest expense, income taxes, depreciation and amortization
("EBITDA") for the Equipment Sales and Leasing segment for the three months
ended March 31, 2000 was $4.2 million as compared to $3.8 million for the three
months ended March 31, 1999. Management believes that EBITDA can be a meaningful
measure of operating performance, cash generation and the ability to service
debt. However, EBITDA should not be considered as an alternative to: (i) net
income (determined in accordance with GAAP); (ii) operating cash flow
(determined in accordance with GAAP); or (iii) liquidity. There can be no
assurance that the Company's EBITDA is comparable to similarly titled items
reported by other companies.
The Company believes that the loss for the quarter ended March 31, 2000 is not
necessarily indicative of the operating results expected for the full year, due
to the seasonality of the business. Historically, revenue is lower in the first
quarter due to the effect of the winter season on the construction industry.
HOSPITALITY SEGMENT
RECENT DEVELOPMENTS
Effective January 31, 2000, HCAC sold substantially all of its assets to an
unrelated party. Through a wholly owned subsidiary, the Company received
proceeds from the sale of $2.4 million resulting in an approximate $1.5 million
gain which was recognized by Crescent Operating in the first quarter of 2000.
Effective February 1, 2000, The Varma Asset Management Agreements were
terminated by mutual agreement of the parties; at the same time, Crescent
Operating and its hospitality subsidiaries entered into a Master Asset
Management and Administrative Services Agreement with Sonoma Management Company
("SMC") to manage the Company's hotel and resort properties (excluding Canyon
Ranch - Lenox, Canyon Ranch - Tucson, the Hyatt Regency Beaver Creek, the Sonoma
Mission Inn and Spa, the Sonoma Mission Inn Golf and Country Club and the
Ventana Inn and Spa). At the same time, the Company's hospitality subsidiaries
accepted assignment from the owners of the Sonoma Mission Inn and Spa, the
Sonoma Mission Inn Golf and Country Club and the Ventana Inn and Spa of its
property management agreements with SMC. The principals of SMC are Sanjay and
Johanna Varma and Crescent Equities is an equity owner in SMC. Payment of
obligations under the Master Asset Management and Administrative Services
Agreement are guaranteed by the Company. For each property for which it provides
asset management services, SMC will receive a base fee equal to 0.85% of gross
16
<PAGE> 17
revenues of the property managed plus an incentive fee of 50% of actual net
income in excess of budgeted net income. For each property for which it provides
property management services, SMC will receive a base fee equal to 2.0% of gross
revenues of the property plus an incentive fee of 20% of net operating income in
excess of 12% annual return on investment to owner.
FINANCIAL ACTIVITY
The following table sets forth certain information about the Hospitality
Properties for the three months ended March 31, 2000 and 1999. The information
for the Hospitality Properties is based on available rooms, except for Canyon
Ranch-Tucson and Canyon Ranch Ranch-Lenox, which are destination health and
fitness resorts that measure performance based on available guest nights.
<TABLE>
<CAPTION>
For the three months ended March 31,
Average
Occupancy Rate
Rooms 2000 1999
----- ---- ----
<S> <C> <C> <C>
Business Class Hotels:
- ----------------------
Denver Marriott City Center .......................... 613 79% 79%
Hyatt Regency Albuquerque ............................ 395 62 68
Four Seasons Hotel Houston ........................... 399 74 68
Renaissance Houston .................................. 389 75 69
----- ---- ----
Total/Weighted Average ........................... 1,796 73% 72%
===== ==== ====
Luxury Spa Resorts:
- -------------------
Hyatt Regency Beaver Creek ........................... 276 85% 82%
Sonoma Mission Inn & Spa ............................. 198(1) 67 75
Ventana Inn & Spa .................................... 62 68 79
----- ---- ----
Total/Weighted Average ........................... 536 76% 79%
===== ==== ====
Guest
Nights
------
Destination Fitness Resorts and Spas:
- -------------------------------------
Canyon Ranch-Tucson .................................. 250(2)
Canyon Ranch-Lenox ................................... 212(2)
----- ---- ----
Total/Weighted Average ........................... 462 91%(3) 92%(3)
===== ==== ====
Grand Total/Weighted Average ......................... 77% 77%
==== ====
</TABLE>
<TABLE>
<CAPTION>
For the three months ended March 31,
Average Daily Revenue Per
Rate Available Room
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Business Class Hotels:
- ----------------------
Denver Marriott City Center .......................... $ 114 $ 121 $ 90 $ 96
Hyatt Regency Albuquerque ............................ 104 107 64 73
Four Seasons Hotel Houston ........................... 206 193 152 131
Renaissance Houston .................................. 98 96 73 66
------ ------ ------ ------
Total/Weighted Average ........................... $ 130 $ 129 $ 95 $ 92
====== ====== ====== ======
Luxury Spa Resorts:
- -------------------
Hyatt Regency Beaver Creek ........................... $ 417 $ 400 $ 353 $ 327
Sonoma Mission Inn & Spa ............................. 256 174 171 131
Ventana Inn & Spa .................................... 379 306 257 242
------ ------ ------ ------
Total/Weighted Average ........................... $ 361 $ 313 $ 275 $ 248
====== ====== ====== ======
Destination Fitness Resorts and Spas:
- -------------------------------------
Canyon Ranch-Tucson ..................................
Canyon Ranch-Lenox ...................................
------ ------ ------ ------
Total/Weighted Average ........................... $ 589(4) $ 544(4) 525(5) $ 483(5)
====== ====== ====== ======
Grand Total/Weighted Average ......................... $ 249 $ 232 $ 200 $ 186
====== ====== ====== ======
</TABLE>
(1) In January 2000, 20 rooms were returned to service, which previously were
taken out of commission for construction of a 30,000 square foot,
full-service spa, in connection with an approximately $21.0 million
expansion scheduled to be completed in the second quarter of 2000. The
expansion will also include the construction of 30 additional guest rooms.
Rates were discounted during the construction period, which resulted in a
lower average daily rate and revenue per available room in the first
quarter of 1999.
(2) Represents available guest nights, which is the maximum number of guests
that the resort can accommodate per night.
(3) Represents the number of paying and complimentary guests for the period,
divided by the maximum number of available guest nights for the period.
(4) Represents the average daily "all-inclusive" guest package charges for the
period, divided by the average daily number of paying guests for the
period.
(5) Represents the total "all-inclusive" guest package charges for the period,
divided by the maximum number of available guest nights for the period.
(6) The lease related to the Sonoma Mission Inn Golf and Country Club expires
in October 2008.
TEMPERATURE CONTROLLED LOGISTICS SEGMENT
FINANCIAL ACTIVITY
The Company has a 40% economic interest in AmeriCold Logistics and a 0.4%
interest in the Temperature Controlled Logistics Partnerships. Prior to the
restructuring on March 12, 1999, the Company's economic share of the operations
of the Temperature Controlled Logistics Partnerships for the three months ended
March 31, 1999 included a 2% economic interest for the period from January 1,
1999 through March 11, 1999 and a 0.4% economic interest for the period from
March 12, 1999 through March 31, 1999. The Company's economic share of the
17
<PAGE> 18
operations of AmeriCold Logistics for the three months ended March 31, 1999
includes a 40% economic interest for the period from March 12, 1999 through
March 31, 1999.
The Company's share of pre-tax loss from AmeriCold Logistics for the three
months ended March 31, 2000 was $2.5 million. The Company's share of net income
from the Temperature Controlled Logistics Partnerships for the three months
ended March 31, 2000 was less than $0.1 million. The Company believes that
AmeriCold Logistics' loss for the quarter ended March 31, 2000 is not
necessarily indicative of the operating results expected for the full year, due
to the seasonality of the business. Historically, revenue from transportation
management services and quarry operations are substantially lower in the first
quarter than the average of the quarters for the remainder of the year.
The Company's share of start-up costs for Transportal Network ("Transportal"),
which relate to market research, creating a business plan and related matters,
was $0.8 million for the quarter ended March 31, 2000. These costs are included
in the Company's consolidated statement of operations as "Investment Income
(Loss)" for the three months ended March 31, 2000. Although Transportal has not
commenced operations or finalized its business plan, the Company expects
Transportal to incur significant future losses and to require significant equity
investments. The Company anticipates that it may have to dilute its ownership in
Transportal to fund its share of Transportal's cash needs, which may be in
excess of $2.0 million. Transportal is actively seeking additional equity
investments from third parties, including venture capital firms. Early stage
internet companies, such as Transportal, with new and unproven business models,
frequently encounter financial and other significant business risks and there
can be no assurance that Transportal will be a successful business venture.
LAND DEVELOPMENT SEGMENT
RECENT DEVELOPMENTS
In accordance with an agreement between Gerald Haddock and the Company, COPI
Colorado redeemed the limited partnership interest of Mr. Haddock, the Company's
former Chief Executive Officer and President, in January 2000. COPI Colorado
paid Mr. Haddock approximately $2.6 million for his approximate 16.67% limited
partner interest (determined from an independent appraisal of the value of COPI
Colorado). Mr. Haddock reserved the right to challenge the valuation performed
by the independent appraiser.
FINANCIAL ACTIVITY
Net income for the Land Development Segment was $0.7 million for the three
months ended March 31, 2000. The Company's share of Desert Mountain
Development's net loss for the three months ended March 31, 2000 was $0.1
million. The Company's share of net income from both The Woodlands Land Company
and WOCOI Investment Company for the three months ended March 31, 2000 was $0.7
million. The Company's share of COPI Colorado's net income for the three months
ended March 31, 2000 was $0.1 million.
The following table sets forth certain information as of March 31, 2000 relating
to the residential development properties in which the Company owns an interest.
<TABLE>
<CAPTION>
Total
Lots/Units Total Average
Total Developed Lots/Units Closed Sale
Lots/Units Since Closed Price Per Range of Proposed
Land Development Planned Inception Since Inception Lot/Unit(1) Sale Prices Per Lot(2)
- ------------------------------ ------------- ------------- --------------- ------------- ----------------------
<S> <C> <C> <C> <C> <C>
Desert Mountain .............. 2,665 2,162 2,024 $ 533,000(3) $375,000 - $3,000,000(3)
The Woodlands ................ 36,385 22,303 21,284 $ 47,893 $13,600 - $500,000
CDMC ......................... 2,742 233 224 N/A $25,000 - $4,075,000
------------- ------------- -------------
Total Land Development ....... 41,792 24,698 23,532
============= ============= =============
</TABLE>
(1) Based on lots/units closed during the Company's ownership period.
(2) Based on existing inventory of developed lots and lots to be developed.
(3) Includes golf membership, which for 2000 is $175,000.
18
<PAGE> 19
OTHER
RECENT DEVELOPMENTS
On February 16, 2000, CBHS petitioned for relief under Chapter 11 of the United
States Bankruptcy Code. Under the protection of the bankruptcy court, CBHS
intends to sell and liquidate, in a controlled fashion, all of its ongoing
business. In conjunction with the filing by CBHS of the bankruptcy petition,
COPI Healthcare, Inc. ("COPI Healthcare"), a newly formed wholly owned
subsidiary of Crescent Operating, entered into an agreement with CBHS for the
acquisition by COPI Healthcare of CBHS' core business ("Asset Purchase
Agreement"), which consists of the assets used in the operation of 37 behavioral
healthcare facilities for, $24.5 million. The closing of the transactions
contemplated by the Asset Purchase Agreement was subject to bankruptcy court
approval and other conditions. The Asset Purchase Agreement terminated by its
own terms on April 16, 2000 because not all of the conditions precedent to
closing had been met by that date.
Effective April 27, 2000, the Company's shares began trading on the OTC Bulletin
Board. The shares, which previously had been traded on The Nasdaq National
Market and had moved to The Nasdaq SmallCap Market effective April 6, 2000 but
did not meet the standards for continued listing in these markets, retained the
same trading symbol, COPI.
19
<PAGE> 20
SEGMENT FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The following is a summary of Crescent Operating's financial information
reported by segment for the three months ended March 31, 2000:
<TABLE>
<CAPTION>
EQUIPMENT TEMPERATURE
SALES CONTROLLED LAND
AND LEASING HOSPITALITY LOGISTICS DEVELOPMENT OTHER TOTAL
----------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................................ $ 36,247 $ 72,210 $ -- $ 59,094 $ -- $ 167,551
Operating expenses .................................. 35,771 70,045 18 52,790 954 159,578
--------- --------- --------- --------- --------- ---------
Income (loss) from operations ....................... 476 2,165 (18) 6,304 (954) 7,973
--------- --------- --------- --------- --------- ---------
Investment income (loss) ............................ -- 1,526 (3,258) 7,237 -- 5,505
--------- --------- --------- --------- --------- ---------
Other (income) expense
Interest expense ............................... 2,378 228 -- 3,355 2,053 8,014
Interest income ................................ (13) (24) -- (737) (90) (864)
Other .......................................... 153 (4) -- (61) 3 91
--------- --------- --------- --------- --------- ---------
Total other (income) expense ........................ 2,518 200 -- 2,557 1,966 7,241
--------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes and minority interest .................... (2,042) 3,491 (3,276) 10,984 (2,920) 6,237
Income tax provision (benefit) ...................... (858) 1,397 (1,310) 3,428 (1,169) 1,488
--------- --------- --------- --------- --------- ---------
Income (loss) before minority interests ............. (1,184) 2,094 (1,966) 7,556 (1,751) 4,749
Minority interests .................................. -- 97 -- (6,828) -- (6,731)
--------- --------- --------- --------- --------- ---------
Net income (loss) ................................... $ (1,184) $ 2,191 $ (1,966) $ 728 $ (1,751) $ (1,982)
========= ========= ========= ========= ========= =========
Net income (loss) per share, basic and diluted....... $ (0.11) $ 0.21 $ (0.19) $ 0.07 $ (0.17) $ (0.19)
========= ========= ========= ========= ========= =========
EBITDA Calculation: (1)
Net income (loss) .............................. $ (1,184) $ 2,191 $ (1,966) $ 728 $ (1,751) $ (1,982)
Interest expense, net .......................... 2,365 43 110 135 1,963 4,616
Income tax provision (benefit) ................. (858) 1,462 (1,306) 518 (1,169) (1,353)
Depreciation and amortization .................. 3,837 285 851 358 (18) 5,313
--------- --------- --------- --------- --------- ---------
EBITDA .............................................. $ 4,160 $ 3,981 $ (2,311) $ 1,739 $ (975) $ 6,594
========= ========= ========= ========= ========= =========
</TABLE>
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. Amounts are calculated based on the Company's ownership
percentage of the EBITDA components. Management believes that EBITDA can be
a meaningful measure of the Company's operating performance, cash
generation and ability to service debt. However, EBITDA should not be
considered as an alternative to either: (i) net earnings (determined in
accordance with GAAP); (ii) operating cash flow (determined in accordance
with GAAP); or (iii) liquidity. There can be no assurance that the
Company's calculation of EBITDA is comparable to similarly titled items
reported by other companies.
20
<PAGE> 21
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000, COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1999
REVENUES
Total revenue increased $30.8 million, or 22.5%, to $167.6 million for the three
months ended March 31, 2000, compared with $136.8 million for the three months
ended March 31, 1999. The increase in total revenue is attributable to the
factors discussed in the following paragraphs.
Equipment Sales and Leasing Segment
Equipment sales and leasing revenue increased $9.0 million, or 33.1%, to $36.2
million for the three months ended March 31, 2000, compared with $27.2 million
for the three months ended March 31, 1999. Significant components of the overall
increase were:
o the Company's acquisitions of two significant locations after the first
quarter of 1999 and the opening of a new location on August 1, 1999
resulting in incremental revenue during the three months ended March 31,
2000; and
o an increase in same store revenue for the three months ended March 31,
2000, as compared to the same period in the prior year due to increased
rental revenue and new and used equipment sales.
Hospitality Segment
Hospitality revenue increased $9.2 million, or 14.6%, to $72.2 million for the
three months ended March 31, 2000, compared with $63.0 million for the three
months ended March 31, 1999. Significant components of the overall increase
were:
o revenue derived from the operations of the Renaissance Hotel in the amount
of $3.7 million, which was not leased by the Company during the three
months ended March 31, 1999; and
o increased average daily rates at certain of the Hospitality Properties
resulted in higher revenues during 2000 as compared to the corresponding
period in 1999.
Land Development Segment
Land Development revenue, which represents revenue from Desert Mountain
Development and COPI Colorado prior to the elimination of the Minority
Interests, increased $12.5 million, or 26.8%, to $59.1 million for the three
months ended March 31, 2000, compared with $46.6 million for the three months
ended March 31, 1999. Significant components of the overall increase were:
o a $4.9 million increase in revenue from Desert Mountain Development due to
a higher number of lots sold and a higher average sales price per lot
during the first quarter of 2000 as compared to the same period in 1999;
and
o a $7.6 million increase in revenue from COPI Colorado during the first
quarter of 2000 as compared to the same period in 1999, primarily due to
CDMC's consolidation of certain investments which previously had been
accounted for using the equity method.
OPERATING EXPENSES
Total operating expenses increased $27.1 million, or 20.5%, to $159.6 million
for the three months ended March 31, 2000, compared with $132.5 million for the
three months ended March 31, 1999. The increase in operating expenses is
attributable to the factors discussed in the following paragraphs.
21
<PAGE> 22
Equipment Sales and Leasing Segment
Equipment sales and leasing expenses increased $9.1 million, or 34.1%, to $35.8
million for the three months ended March 31, 2000, compared with $26.7 million
for the three months ended March 31, 1999. Significant components of the overall
increase were:
o the Company's acquisitions of two significant locations after the first
quarter of 1999 and the opening of a new location on August 1, 1999
resulting in incremental operating expenses during the three months ended
March 31, 2000; and
o increased costs incurred during the three months ended March 31, 2000,
consistent with the increase in equipment sales and leasing revenue that
are not attributable to acquisitions.
Hospitality Segment
Hospitality expenses increased $9.5 million, or 15.7%, to $70.0 million for the
three months ended March 31, 2000, compared with $60.5 million for the three
months ended March 31, 1999. Significant components of the overall increase
were:
o rent and expenses associated with the Renaissance Hotel in the amount of
$3.8 million, which was not leased by the Company during the three months
ended March 31, 1999; and
o additional rent for the three months ended March 31, 2000, resulting from
increased revenue generated by the Hospitality Properties.
Land Development Segment
Land development expenses, which primarily represent operating costs incurred by
Desert Mountain Development and COPI Colorado prior to the elimination of the
Minority Interests, increased $7.9 million, or 17.6%, to $52.8 million for the
three months ended March 31, 2000, compared with $44.9 million for the three
months ended March 31, 1999. Significant components of the overall increase
were:
o a $2.8 million increase in expenses incurred by Desert Mountain Development
is due primarily to higher costs associated with increased lot sales
during the first quarter of 2000 as compared to the same period in 1999;
and
o a $4.9 million increase in expenses incurred by COPI Colorado during the
first quarter of 2000 as compared to the same period in 1999, primarily due
to CDMC's consolidation of certain investments which previously had been
accounted for using the equity method.
Corporate General and Administrative Expenses
Corporate general and administrative expenses, totaled $1.0 million for the
three months ended March 31, 2000, as compared to $0.4 million for the three
months ended March 31, 1999. These expenses consisted of general corporate
overhead costs, such as legal and accounting costs, insurance costs and
corporate salaries. The increase compared to the same period in 1999 is
attributable to transaction costs of approximately $0.3 million incurred by the
Company in conjunction with the Asset Purchase Agreement entered into by COPI
Healthcare as well as other miscellaneous increases. See Other-Recent
Developments.
INVESTMENT INCOME
Investment income decreased $4.5 million or 45.0%, to $5.5 million for the three
months ended March 31, 2000, compared with $10.0 million for the three months
ended March 31, 1999. Significant components of the overall decrease were:
22
<PAGE> 23
o a decrease in equity in income of CDMC Projects in the amount of $2.4
million due to CDMC's consolidation of certain of these investments which
previously had been accounted for using the equity method;
o an increase in equity in loss of AmeriCold Logistics in the amount of $2.4
million which was acquired in March 1999; and
o a decrease in income due to the nonrecurring gain in March 1999 of $1.5
million on the sale of 80% of the Company's interest in the Temperature
Controlled Logistics Partnerships; which was offset by a gain in the amount
of $1.5 million on the sale of HCAC in the first quarter of 2000.
OTHER (INCOME) EXPENSE
Other (Income) Expense increased $1.9 million, or 35.8%, to $7.2 million for the
three months ended March 31, 2000, compared with $5.3 million for the three
months ended March 31, 1999. The increase is primarily attributable to:
o an increase in interest expense in the amount of $1.8 million for the three
months ended March 31, 2000, resulting from an increase in outstanding
indebtedness in connection with acquisitions and growth, partially offset
by a decrease in indebtedness at Desert Mountain Development.
MINORITY INTERESTS
Minority Interests increased $1.5 million, or 28.8%, to $6.7 million for the
three months ended March 31, 2000, compared to $5.2 million for the three months
ended March 31, 1999. Minority Interests consist of the non-voting interests in
the Land Development segment and in CRL Investments.
INCOME TAX PROVISION (BENEFIT)
Income tax provision of $1.5 million for the three months ended March 31, 2000
represents a change of $1.1 million from the three months ended March 31, 1999.
Income tax provision consisted of a $3.4 million provision for the Land
Development segment and a $1.4 million provision for the Hospitality segment,
partially offset by a $1.1 million benefit at the corporate level, a $1.3
million benefit for the Temperature Controlled Logistics segment and a $0.9
benefit for the Equipment Sales and Leasing segment.
The Company generally provides for taxes using a 40% effective rate on the
Company's share of income or loss. Management continues to evaluate the
realizability of the deferred tax assets quarterly by assessing the need for a
valuation allowance. Inability of the Company to execute business plans for
certain of the company's segments could affect the ultimate realization of the
deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Recognizing that cash flow from its assets would not be likely to provide the
Company with adequate capital to meet its requirements during 2000, the Company
during the first quarter of 2000 extended certain payment obligations by
reaching agreements with Crescent Equities to defer until 2001 payments on
certain of Crescent Operating's obligations to Crescent Equities otherwise
scheduled to be made in 2000. With these agreements, the Company believes that
it will be able to meet its capital requirements during 2000 from the recurring
cash flow of its assets. The Company believes that alternatives for funding its
long-term capital requirements include one or more restructuring transactions,
including, but not limited to, the sale of certain assets and public or private
issuances of equity to existing stockholders. There can be no assurances,
however, that any such transaction can be effected, or, if effected, that the
proceeds from the transaction would be sufficient to meet the Company's
long-term capital requirements.
For a listing of the Company's primary debt financing arrangements, see Note 5
to the Financial Statements included in Part I.
23
<PAGE> 24
CASH FLOWS
Cash and cash equivalents include amounts from all consolidated subsidiaries,
including subsidiaries not wholly-owned. Changes, therefore, do not necessarily
represent increases or decreases in cash directly available to the Company.
Cash and cash equivalents were $37.0 million and $39.0 million at March 31, 2000
and December 31, 1999, respectively. The 5.1% decrease is attributable to $2.0
million and $1.3 million of cash used in operating and financing activities,
respectively, offset by $1.2 million of cash provided by investing activities.
OPERATING ACTIVITIES
The Company's outflow of cash used in operating activities of $2.0 million was
primarily attributable to outflows from:
o net loss of $2.0 million;
o increase in accounts receivable of $8.6 million;
o decreases in accounts payable and accrued expenses of $7.7 million;
o equity in income from unconsolidated subsidiaries of $4.0 million; and
o increase in prepaid expenses and current assets of $4.4 million.
The outflow of cash used in operating activities was partially offset by
inflows from:
o non-cash depreciation and amortization of $8.0 million;
o minority interests of $6.7 million; and
o increase in accounts payable - CEI of $7.8 million.
INVESTING ACTIVITIES
The Company's inflow of cash provided by investing activities of $1.2 million
was primarily attributable to inflows from:
o proceeds from the sale of property and equipment of $8.3 million;
o net proceeds from sale and collection of notes receivable of $5.7 million;
and
o proceeds from the sale of investments of $2.4 million.
The inflow of cash provided by investing activities was partially offset by
outflows from:
o purchases of property and equipment of $15.7 million.
FINANCING ACTIVITIES
The Company's outflow of cash used in financing activities of $1.3 million was
primarily attributable to outflows from:
o payments of all long-term debt of $43.8 million; and
o distributions to Minority Interests of $6.5 million.
The outflow of cash used in financing activities was partially offset by inflows
from:
o proceeds of all long-term debt of $50.0 million.
24
<PAGE> 25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since December 31, 1999, there have been no material changes to the information
regarding market risk that was provided in the Company's Form 10-K for the year
ended December 31, 1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CBHS became the subject of Chapter 11 bankruptcy proceedings by filing a
voluntary petition on February 16, 2000, in United States Bankruptcy Court for
the District of Delaware. Although CBHS is not a subsidiary of Crescent
Operating, Crescent Operating does own a majority (90%) economic interest in
CBHS. Crescent Operating's claims against the estate of CBHS include (i) its
interests as a direct and indirect equity holder of CBHS and (ii) its claim for
indemnification or contribution against third party lawsuits and claims where
Crescent Operating is a named defendant with CBHS, such as lawsuits based upon
alleged WARN Act violations purported to have been committed by CBHS and/or its
subsidiaries in closing behavioral health care facilities in 1999 and 2000.
Prior to the May 1, 2000 bar date, Crescent Operating filed proofs of claim
against CBHS with regard to these claims.
Another claimant in the CBHS bankruptcy is expected to be Crescent Partnership
(either individually, or together with its parent, Crescent Equities), which is
the owner of certain facilities leased to and operated by CBHS and its
subsidiaries and is also the secured lender of $10 million to CBHS. CBHS has an
arrearage on its lease payments owed to Crescent Partnership accrued prior to
the commencement of bankruptcy. While the claims of Crescent Partnership against
CBHS are not necessarily adverse to the interests of Crescent Operating, the
interests of Crescent Partnership are separate, distinguishable and at least
nominally in conflict with the competing interests and claims of all other
interested parties in the bankruptcy, including Crescent Operating. To the
Company's knowledge, none of the directors, officers or security holders of
Crescent Operating has, in his or its individual capacity, an interest adverse
to Crescent Operating in connection with the CBHS bankruptcy; however, in their
capacities as directors, officers and/or security holders of Crescent
Partnership or Crescent Equities, certain persons may be deemed to hold
interests adverse to the Company's interest in connection with the CBHS
bankruptcy.
To date three lawsuits, all of which seek class action certification, have been
filed against CBHS alleging violations of the WARN Act in the closing of certain
healthcare facilities. All of those lawsuits also name Crescent Operating as a
defendant. Under the automatic stay provisions of federal bankruptcy law,
lawsuits against CBHS or its subsidiaries would be stayed unless otherwise
directed by the bankruptcy court, but the lawsuits against other defendants,
including Crescent Operating, would not be stayed automatically. It is
anticipated that those suits may be stayed because CBHS and its subsidiaries are
indispensable parties; however, plaintiffs in the three suits referenced above
have filed motions with the bankruptcy court seeking lifting of the stay, so
that the suits may proceed against all defendants. Conversely, in a separate
action in bankruptcy court, a motion has been filed on behalf of a putative
class of CBHS terminated employees in Texas, requesting permission for WARN
claims to be made before the bankruptcy court. The Company anticipates that
other similar lawsuits may be filed due to the closing of other facilities.
With respect to the pending suits and possible future claims against Crescent
Operating based on the closure by CBHS of facilities in 1999 and 2000, the
Company believes that such actions are without basis under the WARN Act and
should be dismissed; however, no assurance can be given that Crescent Operating
will prevail.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
Not Applicable
25
<PAGE> 26
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Effective April 27, 2000, the Company's shares began trading on the OTC Bulletin
Board. The shares, which previously had been traded on The Nasdaq National
Market and had moved to The Nasdaq SmallCap Market effective April 6, 2000 but
did not meet the standards for continued listing in these markets, retained the
same trading symbol, COPI.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Description
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
3.1 First Amended and Restated Certificate of Incorporation
(filed as Exhibit 3.3 to the Company's registration
statement on Form S-1 dated July 12, 1997 ("Form S-1")
and incorporated by reference herein)
3.2 First Amended and Restated Bylaws (filed as Exhibit 3.4
to Form S-1 and incorporated by reference herein)
3.3 Amendment of Article V of First Amended and Restated
Bylaws (filed as Exhibit 3.3 to the Company's June 30,
1998 Form 10-Q ("June 30, 1998 Form 10-Q") and
incorporated by reference herein)
3.4 Repeal of Amendment of Article V of First Amended and
Restated Bylaws (filed as Exhibit 3.4 to the Company's
September 30, 1998 Form 10-Q ("September 30, 1998 Form
10-Q") and incorporated by reference herein)
4.1 Specimen stock certificate (filed as Exhibit 4.1 to Form
S-1 and incorporated by reference herein)
4.2 Preferred Share Purchase Rights Plan (filed as Exhibit
4.2 to Form S-1 and incorporated by reference herein)
4.3 First Amendment to Preferred Share Purchase Rights
Agreement dated as of September 25, 1998, between
Crescent Operating, Inc. and Bank Boston, N.A., as
Rights Agent (filed as Exhibit 4.3 to September 30, 1998
Form 10-Q and incorporated by reference herein)
4.4 Second Amendment to Preferred Share Purchase Rights
Agreement dated as of March 4, 1999, between Crescent
Operating, Inc. and Bank Boston, N.A., as Rights Agent
(filed as Exhibit 4.4 to March 31, 1999 Form 10-Q
("March 31, 1999 Form 10-Q") and incorporated by
reference herein)
10.1 Amended Stock Incentive Plan (filed as Exhibit 10.1 to
Form S-1 and incorporated by reference herein)
26
<PAGE> 27
10.2 Intercompany Agreement between Crescent Operating, Inc.
and Crescent Real Estate Equities Limited Partnership
(filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1997 ("June
30, 1997 Form 10-Q") and incorporated by reference
herein)
10.3 Amended and Restated Operating Agreement of Charter
Behavioral Health Systems, LLC (filed as Exhibit 10.3 to
June 30, 1997 Form 10-Q and incorporated by reference
herein)
10.5 Amended and Restated Credit and Security Agreement,
dated as of May 30, 1997, between Crescent Real Estate
Equities Limited Partnership and Crescent Operating,
Inc., together with related Note (filed as Exhibit 10.5
to the Company's September 30, 1997 Form 10-Q
("September 30, 1997 Form 10-Q") and incorporated by
reference herein)
10.6 Line of Credit and Security Agreement, dated as of May
21, 1997, between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc., together with
related Line of Credit Note (filed as Exhibit 10.6 to
September 30, 1997 Form 10-Q and incorporated by
reference herein)
10.7 Acquisition Agreement, dated as of February 10, 1997,
between Crescent Real Estate Equities Limited
Partnership and Carter-Crowley Properties, Inc. (filed
as Exhibit 10.7 to Form S-1 and incorporated by
reference herein)
10.10 Security Agreement dated September 22, 1997 between COI
Hotel Group, Inc., as debtor, and Crescent Real Estate
Equities Limited Partnership, as lender, together with
related $1 million promissory note (filed as Exhibit
10.10 to September 30, 1997 Form 10-Q and incorporated
by reference herein)
10.11 Security Agreement dated September 22, 1997 between COI
Hotel Group, Inc., as debtor, and Crescent Real Estate
Equities Limited Partnership, as lender, together with
related $800,000 promissory note (filed as Exhibit 10.11
to September 30, 1997 Form 10-Q and incorporated by
reference herein)
10.12 Amended and Restated Asset Management dated August 31,
1997, to be effective July 31, 1997, between Wine
Country Hotel, LLC and The Varma Group, Inc. (filed as
Exhibit 10.12 to September 30, 1997 Form 10-Q and
incorporated by reference herein)
10.13 Amended and Restated Asset Management Agreement dated
August 31, 1997, to be effective July 31, 1997, between
RoseStar Southwest, LLC and The Varma Group, Inc. (filed
as Exhibit 10.13 to September 30, 1997 Form 10-Q and
incorporated by reference herein)
10.14 Amended and Restated Asset Management Agreement dated
August 31, 1997, to be effective July 31, 1997, between
RoseStar Management LLC and The Varma Group, Inc. (filed
as Exhibit 10.14 to September 30, 1997 Form 10-Q and
incorporated by reference herein)
10.15 Agreement for Financial Services dated July 1, 1997,
between Crescent Real Estate Equities Company and
Petroleum Financial, Inc. (filed as Exhibit 10.15 to
September 30, 1997 Form 10-Q and incorporated by
reference herein)
10.16 Credit Agreement dated August 27, 1997, between Crescent
Operating, Inc. and NationsBank of Texas, N.A. together
with related $15.0 million promissory note (filed as
Exhibit 10.16 to September 30, 1997 Form 10-Q and
incorporated by reference herein)
27
<PAGE> 28
10.17 Support Agreement dated August 27, 1997, between Richard
E. Rainwater, John Goff and Gerald Haddock in favor of
Crescent Real Estate Equities Company and NationsBank of
Texas, N.A. (filed as Exhibit 10.17 to September 30,
1997 Form 10-Q and incorporated by reference herein)
10.18 1997 Crescent Operating, Inc. Management Stock Incentive
Plan (filed as Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997
("December 31, 1997 Form 10-K") and incorporated by
reference herein)
10.19 Memorandum of Agreement executed November 16, 1997,
among Charter Behavioral Health Systems, LLC, Charter
Behavioral Health Systems, Inc. and Crescent Operating,
Inc. (filed as Exhibit 10.19 to December 31, 1997 Form
10-K and incorporated by reference herein)
10.20 Purchase Agreement dated August 31, 1997, by and among
Crescent Operating, Inc., RoseStar Management LLC,
Gerald W. Haddock, John C. Goff and Sanjay Varma (filed
as Exhibit 10.20 to December 31, 1997 Form 10-K and
incorporated by reference herein)
10.21 Stock Purchase Agreement dated August 31, 1997, by and
among Crescent Operating, Inc., Gerald W. Haddock, John
C. Goff and Sanjay Varma (filed as Exhibit 10.21 to
December 31, 1997 Form 10-K and incorporated by
reference herein)
10.22 Amended and Restated Lease Agreement, dated June 30,
1995 between Crescent Real Estate Equities Limited
Partnership and RoseStar Management LLC, relating to the
Denver Marriott City Center (filed as Exhibit 10.17 to
the Annual Report on Form 10-K of Crescent Real Estate
Equities Company for the Fiscal Year Ended December 31,
1995 (the "1995 CEI 10-K") and incorporated by reference
herein)
10.23 Lease Agreement, dated December 19, 1995 between
Crescent Real Estate Equities Limited Partnership and
RoseStar Management LLC, relating to the Hyatt Regency
Albuquerque (filed as Exhibit 10.16 to the 1995 CEI 10-K
and incorporated by reference herein)
10.24 Form of Amended and Restated Lease Agreement, dated
January 1, 1996, among Crescent Real Estate Equities
Limited Partnership, Mogul Management, LLC and RoseStar
Management LLC, relating to the Hyatt Regency Beaver
Creek (filed as Exhibit 10.12 to the 1995 CEI 10-K and
incorporated by reference herein)
10.25 Lease Agreement, dated July 26, 1996, between Canyon
Ranch, Inc. and Canyon Ranch Leasing, L.L.C., assigned
by Canyon Ranch, Inc. to Crescent Real Estate Equities
Limited Partnership pursuant to the Assignment and
Assumption Agreement of Master Lease, dated July 26,
1996 (filed as Exhibit 10.24 to the Quarterly Report on
Form 10-Q/A of Crescent Real Estate Equities Company for
the Quarter Ended June 30, 1997 (the "1997 CEI 10-Q")
and incorporated by reference herein)
10.26 Lease Agreement, dated November 18, 1996 between
Crescent Real Estate Equities Limited Partnership and
Wine Country Hotel, LLC (filed as Exhibit 10.25 to the
Annual Report on Form 10-K of Crescent Real Estate
Equities Company for the Fiscal Year Ended December 31,
1996 and incorporated by reference herein)
10.27 Lease Agreement, dated December 11, 1996, between Canyon
Ranch-Bellefontaine Associates, L.P. and Vintage
Resorts, L.L.C., as assigned by Canyon
Ranch-Bellefontaine Associates, L.P. to Crescent Real
Estate Funding VI, L.P. pursuant to the Assignment and
Assumption Agreement of Master Lease, dated December 11,
1996 (filed as Exhibit 10.26 to the 1997 CEI 10-Q and
incorporated by reference herein)
28
<PAGE> 29
10.28 Master Lease Agreement, dated June 16, 1997, between
Crescent Real Estate Funding VII, L.P. and Charter
Behavioral Health Systems, LLC and its subsidiaries,
relating to the Facilities (filed as Exhibit 10.27 to
the 1997 CEI 10-Q and incorporated by reference herein)
10.29 Form of Indemnification Agreement (filed as Exhibit
10.29 to December 31, 1997 Form 10-K and incorporated by
reference herein)
10.30 Purchase Agreement, dated as of September 29, 1997,
between Crescent Operating, Inc. and Crescent Real
Estate Equities Limited Partnership, relating to the
purchase of Desert Mountain Development Corporation
(filed as Exhibit 10.30 to December 31, 1997 Form 10-K
and incorporated by reference herein)
10.31 Lease Agreement dated December 19, 1997, between
Crescent Real Estate Equities Limited Partnership, as
Lessor, and Wine Country Hotel, as Lessee, for lease of
Ventana Inn (filed as Exhibit 10.31 to the Company's
March 31, 1998 Form 10-Q ("March 31, 1998 Form 10-Q")
and incorporated by reference herein)
10.32 Lease Agreement dated September 22, 1997, between
Crescent Real Estate Equities Limited Partnership, as
Lessor, and COI Hotel Group, Inc., as lessee, for lease
of Four Seasons Hotel, Houston (filed as Exhibit 10.32
to March 31, 1998 Form 10-Q and incorporated by
reference herein)
10.33 Asset Purchase Agreement dated December 19, 1997, among
Crescent Operating, Inc., Preco Machinery Sales, Inc.,
and certain individual Preco shareholders (filed as
Exhibit 10.33 to March 31, 1998 Form 10-Q and
incorporated by reference herein)
10.34 Asset Purchase Agreement dated April 30, 1998, among
Crescent Operating, Inc., Central Texas Equipment
Company, and certain individual Central Texas
shareholders (filed as Exhibit 10.34 to March 31, 1998
Form 10-Q and incorporated by reference herein)
10.35 Credit Agreement dated August 29, 1997 between Crescent
Real Estate Equities Limited Partnership, as lender, and
Desert Mountain Properties Limited Partnership, as
borrower, together with related Senior Note, Junior Note
and deed of trust (filed as Exhibit 10.35 to March 31,
1998 Form 10-Q and incorporated by reference herein)
10.36 Buy-Out Agreement dated April 24, 1998, between Crescent
Operating, Inc. and Crescent Real Estate Equities
Limited Partnership (filed as Exhibit 10.36 to March 31,
1998 Form 10-Q and incorporated by reference herein)
10.37 Stock Acquisition Agreement and Plan of Merger dated
June 4, 1998, among Machinery, Inc., Oklahoma Machinery,
Inc., Crescent Machinery Company, Crescent Operating,
Inc. and certain individual Machinery shareholders
(filed as Exhibit 10.37 to June 30, 1998 Form 10-Q and
incorporated by reference herein)
10.38 Master Revolving Line of Credit Loan Agreement
(Borrowing Base and Warehouse) dated May 14, 1998,
between Desert Mountain Properties Limited Partnership
and National Bank of Arizona (filed as Exhibit 10.38 to
June 30, 1998 Form 10-Q and incorporated by reference
herein)
10.39 1997 Management Stock Incentive Plan (filed as Exhibit
10.39 to June 30, 1998 Form 10-Q and incorporated by
reference herein)
10.40 Credit and Security Agreement, dated as of September 21,
1998, between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc., together with
related Note (filed as Exhibit 10.40 to September 30,
1998 Form 10-Q and incorporated by reference herein)
29
<PAGE> 30
10.41 First Amendment to Amended and Restated Pledge
Agreement, dated as of September 21, 1998, between
Crescent Real Estate Equities Limited Partnership and
Crescent Operating, Inc. (filed as Exhibit 10.41 to
September 30, 1998 Form 10-Q and incorporated by
reference herein)
10.42 First Amendment to Line of Credit and Security
Agreement, dated as of August 11, 1998, between Crescent
Real Estate Equities Limited Partnership and Crescent
Operating, Inc., together with related Note (filed as
Exhibit 10.42 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.43 First Amendment to Amended and Restated Credit and
Security Agreement, dated as of August 11, 1998, between
Crescent Real Estate Equities Limited Partnership and
Crescent Operating, Inc. (filed as Exhibit 10.43 to
September 30, 1998 Form 10-Q and incorporated by
reference herein)
10.44 Second Amendment to Amended and Restated Credit and
Security Agreement, dated as of September 21, 1998,
between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc. (filed as
Exhibit 10.44 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.45 Second Amendment to Line of Credit and Security
Agreement, dated as of September 21, 1998, between
Crescent Real Estate Equities Limited Partnership and
Crescent Operating, Inc. (filed as Exhibit 10.45 to
September 30, 1998 Form 10-Q and incorporated by
reference herein)
10.46 Agreement of Limited Partnership of COPI Colorado, L.P.
(filed as Exhibit 10.1 to that Schedule 13D Statement
dated September 28, 1998, filed by COPI Colorado, L.P.,
Crescent Operating, Inc., Gerald W. Haddock, John C.
Goff and Harry H. Frampton, III, and incorporated by
reference herein)
10.47 Contribution Agreement effective as of September 11,
1998, by and among Crescent Operating, Inc., Gerald W.
Haddock, John C. Goff and Harry H. Frampton, III (filed
as Exhibit 10.2 to that Schedule 13D Statement dated
September 28, 1998, filed by COPI Colorado, L.P.,
Crescent Operating, Inc., Gerald W. Haddock, John C.
Goff and Harry H. Frampton, III, and incorporated by
reference herein)
10.48 Agreement Regarding Schedules and Other Matters made as
of September 11, 1998, by and among Crescent Operating,
Inc., Gerald W. Haddock, John C. Goff and Harry H.
Frampton, III (filed as Exhibit 10.3 to that Schedule
13D Statement dated September 28, 1998, filed by COPI
Colorado, L.P., Crescent Operating Inc., Gerald W.
Haddock, John C. Goff and Harry H. Frampton, III, and
incorporated by reference herein)
10.49 Stock Purchase Agreement dated as of August 7, 1998 by
and among Western Traction Company, The Carlston Family
Trust, Ronald D. Carlston and Crescent Operating, Inc.
(filed as Exhibit 10.49 to September 30, 1998 Form 10-Q
and incorporated by reference herein)
10.50 Stock Purchase Agreement dated as of July 31, 1998 by
and among Harvey Equipment Center, Inc., L and H Leasing
Company, William J. Harvey, Roy E. Harvey, Jr., Betty J.
Harvey and Crescent Operating, Inc. (filed as Exhibit
10.50 to September 30, 1998 Form 10-Q and incorporated
by reference herein)
10.51 Credit Agreement dated as of July 28, 1998, between
Crescent Real Estate Equities Limited Partnership and
CRL Investments, Inc., together with the related Note
(filed as Exhibit 10.51 to September 30, 1998 Form 10-Q
and incorporated by reference herein)
10.52 Security Agreement dated as of July 28, 1998, between
Crescent Real Estate Equities Limited Partnership and
CRL Investments, Inc. (filed as Exhibit 10.52 to
September 30, 1998 Form 10-Q and incorporated by
reference herein)
30
<PAGE> 31
10.53 First Amendment to Credit Agreement effective as of
August 27, 1998, among Crescent Operating, Inc.,
NationsBank, N. A., and the Support Parties identified
therein (filed as Exhibit 10.53 to September 30, 1998
Form 10-Q and incorporated by reference herein)
10.54 Lease Agreement dated as of October 13, 1998, between
Crescent Real Estate Equities Limited Partnership and
Wine Country Golf Club, Inc., relating to Sonoma Golf
Club (filed as Exhibit 10.54 to September 30, 1998 Form
10-Q and incorporated by reference herein)
10.55 First Amendment to Lease Agreement effective December
31, 1998, between Canyon Ranch Leasing, L.L.C., and
Crescent Real Estate Equities Limited Partnership,
relating to Canyon Ranch - Tucson (filed as Exhibit
10.55 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 ("December 31, 1998
Form 10-K") and incorporated by reference herein)
10.56 First Amendment to Lease Agreement effective April 1,
1996; Second Amendment to Lease Agreement effective
November 22, 1996; Third Amendment to Lease Agreement
effective August 12, 1998; and Fourth Amendment to Lease
Agreement effective December 31, 1998 between RoseStar
Southwest, LLC, and Crescent Real Estate Funding II
L.P., relating to Hyatt Regency Albuquerque (filed as
Exhibit 10.56 to December 31, 1998 Form 10-K and
incorporated by reference herein)
10.57 First Amendment to Lease Agreement effective December
31, 1998, between Wine Country Hotel, LLC, and Crescent
Real Estate Equities Limited Partnership, relating to
Sonoma Mission Inn & Spa (filed as Exhibit 10.57 to
December 31, 1998 Form 10-K and incorporated by
reference herein)
10.58 First Amendment to Amended and Restated Lease Agreement
effective December 31, 1998, between RoseStar
Management, LLC, and Crescent Real Estate Equities
Limited Partnership, relating to Marriott City Center,
Denver (filed as Exhibit 10.58 to December 31, 1998 Form
10-K and incorporated by reference herein)
10.59 First Amendment to Lease Agreement effective December
31, 1998, between Wine Country Hotel, LLC, and Crescent
Real Estate Equities Limited Partnership, relating to
Ventana Inn (filed as Exhibit 10.59 to December 31, 1998
Form 10-K and incorporated by reference herein)
10.60 First Amendment to Amended and Restated Lease Agreement
effective April 1, 1996 and Second Amendment to Amended
and Restated Lease Agreement effective December 31,
1998, between RoseStar Southwest, LLC, and Crescent Real
Estate Funding II, L.P., relating to Hyatt Regency
Beaver Creek (filed as Exhibit 10.60 to December 31,
1998 Form 10-K and incorporated by reference herein)
10.61 First Amendment to Lease Agreement effective December
31, 1998, between COI Hotel Group, Inc. and Crescent
Real Estate Equities Limited Partnership, relating to
Four Seasons - Houston (filed as Exhibit 10.61 to
December 31, 1998 Form 10-K and incorporated by
reference herein)
10.62 First Amendment to Lease Agreement effective December
31, 1998, between Wine Country Hotel, LLC and Crescent
Real Estate Funding VI, L.P., relating to Canyon Ranch -
Lenox (filed as Exhibit 10.62 to March 31, 1999 Form
10-Q and incorporated by reference herein)
10.63 Master Guaranty effective December 31, 1998, by Crescent
Operating, Inc. for the benefit of Crescent Real Estate
Equities Limited Partnership, Crescent Real Estate
Funding II, L.P., and Crescent Real Estate Funding VI,
L.P., relating to leases for Hyatt Regency Albuquerque,
Hyatt Regency Beaver Creek, Canyon Ranch-Lenox, Sonoma
Mission Inn & Spa, Canyon Ranch - Tucson, and Marriott
City Center Denver (filed as Exhibit 10.63 to December
31, 1998 Form 10-K and incorporated by reference herein)
31
<PAGE> 32
10.64 Guaranty of Lease effective December 19, 1997, by
Crescent Operating, Inc. for the benefit of Crescent
Real Estate Equities Limited Partnership, relating to
Ventana Inn (filed as Exhibit 10.64 to December 31, 1998
Form 10-K and incorporated by reference herein)
10.65 Amended and Restated Guaranty of Lease effective
December 31, 1998, by Crescent Operating, Inc. for the
benefit of Crescent Real Estate Equities Limited
Partnership, relating to Four Seasons Hotel - Houston
(filed as Exhibit 10.65 to December 31, 1998 Form 10-K
and incorporated by reference herein)
10.66 Amended and Restated Guaranty of Lease effective
December 31, 1998, by Crescent Operating, Inc. for the
benefit of Crescent Real Estate Equities Limited
Partnership, relating to Sonoma Golf Club (filed as
Exhibit 10.66 to December 31, 1998 Form 10-K and
incorporated by reference herein)
10.67 Credit Agreement dated August 11, 1995, between Crescent
Development Management Corp., as borrower, and Crescent
Real Estate Equities Limited Partnership, as lender;
First Amendment to Credit Agreement dated as of April
15, 1997; Second Amendment to Credit Agreement dated as
of May 8, 1998; and related Note and Security Agreement
(filed as Exhibit 10.67 to December 31, 1998 Form 10-K
and incorporated by reference herein)
10.68 Credit Agreement dated January 1, 1998, between Crescent
Development Management Corp., as borrower, and Crescent
Real Estate Equities Limited Partnership, as lender, and
related Note and Security Agreement (filed as Exhibit
10.68 to December 31, 1998 Form 10-K and incorporated by
reference herein)
10.69 $3,100,000 Note dated February 29, 1996, made by
Crescent Development Management Corp. payable to
Crescent Real Estate Equities Limited Partnership (filed
as Exhibit 10.69 to December 31, 1998 Form 10-K and
incorporated by reference herein)
10.70 Credit Agreement dated January 1, 1999, between Crescent
Development Management Corp., as borrower, and Crescent
Real Estate Equities Limited Partnership, as lender, and
related Line of Credit Note and Security Agreement
(filed as Exhibit 10.70 to March 31, 1999 Form 10-Q and
incorporated by reference herein)
10.71 Amended and Restated Credit Agreement dated January 1,
1999, between Crescent Development Management Corp., as
borrower, and Crescent Real Estate Equities Limited
Partnership, as lender, and related Line of Credit Note
and Amended and Restated Security Agreement (filed as
Exhibit 10.71 to March 31, 1999 Form 10-Q and
incorporated by reference herein)
10.72 Purchase Agreement dated March 12, 1999, between
Crescent Operating, Inc. and Crescent Real Estate
Equities Limited Partnership, relating to sale of
interests in Crescent CS Holdings Corp., and Crescent CS
Holdings II Corp., and related Put Agreement of same
date (filed as Exhibit 10.72 to March 31, 1999 Form 10-Q
and incorporated by reference herein)
10.73 Second Amendment to Lease Agreement effective April 1,
1999, between Wine Country Hotel, LLC, and Crescent Real
Estate Funding VI, L.P., relating to Canyon Ranch-Lenox
(filed as Exhibit 10.73 to March 31, 1999 Form 10-Q and
incorporated by reference herein)
10.74 Master Revolving Line of Credit Loan Agreement
(Borrowing Base and Warehouse) dated May 14, 1998,
between Desert Mountain Properties Limited Partnership,
as borrower, and National Bank of Arizona, as lender;
Modification Agreement dated December 30, 1998; second
Modification Agreement dated March 31, 1999; and related
Promissory Note (Borrowing Base), Promissory Note
(Warehouse), Pledge Agreement, Deed of Trust, and
Amendment to Deed of Trust (filed as Exhibit 10.74 to
March 31, 1999 Form 10-Q and incorporated by reference
herein)
32
<PAGE> 33
10.75 Lease Agreement dated as of June 15, 1999, between
Crescent Real Estate Funding III, L.P. and COI Hotel
Group, Inc., relating to the Renaissance Houston Hotel
(filed as Exhibit 10.75 to June 30, 1999 Form 10-Q and
incorporated by reference herein)
10.76 Guaranty of Lease dated June 15, 1999, by Crescent
Operating, Inc. for the benefit of Crescent Real Estate
Funding III, L.P., relating to Renaissance Houston Hotel
(filed as Exhibit 10.76 to June 30, 1999 Form 10-Q and
incorporated by reference herein)
10.77 Asset Management Agreement dated as of January 1, 1999,
between Crescent Real Estate Equities Limited
Partnership and COI Hotel Group, Inc., relating to the
Omni Austin Hotel (filed as Exhibit 10.77 to June 30,
1999 Form 10-Q and incorporated by reference herein)
10.78 Agreement dated June 11, 1999, by and between Gerald W.
Haddock and Crescent Operating, Inc. and its
subsidiaries and affiliates (filed as Exhibit 10.78 to
June 30, 1999 Form 10-Q and incorporated by reference
herein)
10.79 Stock Purchase Agreement dated as of July 15, 1999, by
and among E. L. Lester & Company, Incorporated, E. L.
Lester, Jr., Howard T. Tellepsen II, Karen Tellepsen,
Tom Tellepsen II, Linda Lester Griffen, Crescent
Operating, Inc. and Crescent Machinery Company (filed as
Exhibit 10.79 to the Company's September 30, 1999 Form
10-Q ("September 30, 1999 Form 10-Q") and incorporated
by reference herein)
10.80 Stock Purchase Agreement dated as of July 8, 1999, by
and among Solveson Crane Rental, Inc., Solveson Family
Revocable Trust, and Crescent Machinery Company (filed
as Exhibit 10.80 to September 30, 1999 Form 10-Q and
incorporated by reference herein)
10.81 Second Amendment to Credit Agreement effective as of
August 27, 1999, among Crescent Operating, Inc., Bank of
America, N. A. (formerly NationsBank, N. A.), and the
Support Parties identified therein (filed as Exhibit
10.81 to September 30, 1999 Form 10-Q and incorporated
by reference herein)
10.82 First Amendment to 1997 Crescent Operating, Inc.
Management Stock Incentive Plan (filed as Exhibit 10.82
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 ("December 31, 1999 Form 10-K")
and incorporated by reference herein)
10.83 Form of Sales and Service Agreement between BLAW KNOX
Construction Equipment Corporation and certain of
Crescent Machinery Company and its subsidiaries (filed
as Exhibit 10.83 to December 31, 1999 Form 10-K and
incorporated by reference herein)
10.84 Form of Heavy Equipment Distributor Agreement between
Compaction America, Inc. and certain of Crescent
Machinery Company and its subsidiaries (filed as Exhibit
10.84 to December 31, 1999 Form 10-K and incorporated by
reference herein)
10.85 Form of Gradall Equipment Distributor Agreement between
The Gradall Company and certain of Crescent Machinery
Company and its subsidiaries (filed as Exhibit 10.85 to
December 31, 1999 Form 10-K and incorporated by
reference herein)
10.86 Form of Distributor Selling Agreement between
Ingersoll-Rand Company and certain of Crescent Machinery
Company and its subsidiaries (filed as Exhibit 10.86 to
December 31, 1999 Form 10-K and incorporated by
reference herein)
10.87 Form of JCB Dealership Agreement between JCB Inc. and
certain of Crescent Machinery Company and its
subsidiaries (filed as Exhibit 10.87 to December 31,
1999 Form 10-K and incorporated by reference herein)
10.88 Form of Distributor Agreement between LBX Company, LLC,
and certain of Crescent Machinery Company and its
subsidiaries (filed as Exhibit 10.88 to December 31,
1999 Form 10-K and incorporated by reference herein)
10.89 Form of Distributor Agreement between Liebherr
Construction Equipment Co. and certain of Crescent
Machinery Company and its subsidiaries (filed as Exhibit
10.89 to December 31, 1999 Form 10-K and incorporated by
reference herein)
10.90 Form of Distributor Agreement between Link-Belt
Construction Equipment Company and certain of Crescent
Machinery Company and its subsidiaries (filed as Exhibit
10.90 to December 31, 1999 Form 10-K and incorporated by
reference herein)
10.91 Form of Dealer Floor Plan Financing and Security
Agreement between General Electric Capital Corporation
and certain of Crescent Machinery Company and its
subsidiaries (filed as Exhibit 10.91 to December 31,
1999 Form 10-K and incorporated by reference herein)
10.92 Taxable REIT Subsidiary Election Agreement dated
December 17, 1999, among Crescent Real Estate Equities
Company, Crescent Real Estate Equities Limited
Partnership, Crescent Operating, Inc. and Crescent
Development Management Corp. (filed as Exhibit
10.92 to December 31, 1999 Form 10-K and incorporated by
reference herein)
10.93 Taxable REIT Subsidiary Election Agreement dated
December 17, 1999, among Crescent Real Estate Equities
Company, Crescent Real Estate Equities Limited
Partnership, Crescent Operating, Inc. and Crescent CS
Holdings II Corp. (filed as Exhibit 10.93 to December
31, 1999 Form 10-K and incorporated by reference herein)
10.94 Taxable REIT Subsidiary Election Agreement dated
December 17, 1999, among Crescent Real Estate Equities
Company, Crescent Real Estate Equities Limited
Partnership, Crescent Operating, Inc. and Crescent CS
Holdings Corp. (filed as Exhibit 10.94 to December 31,
1999 Form 10-K and incorporated by reference herein)
10.95 Taxable REIT Subsidiary Election Agreement dated
December 17, 1999, among Crescent Real Estate Equities
Company, Crescent Real Estate Equities Limited
Partnership, Crescent Operating, Inc. and Desert
Mountain Development Corp. (filed as Exhibit 10.95 to
December 31, 1999 Form 10-K and incorporated by
reference herein)
10.96 Taxable REIT Subsidiary Election Agreement dated
December 17, 1999, among Crescent Real Estate Equities
Company, Crescent Real Estate Equities Limited
Partnership, Crescent Operating, Inc. and The Woodlands
Land Company, Inc. (filed as Exhibit 10.96 to December
31, 1999 Form 10-K and incorporated by reference herein)
10.97 $19.5 Million Credit and Security Agreement effective as
of March 11, 1999, between Crescent Real Estate Equities
Limited Partnership and Crescent Operating, Inc. with
related Promissory Note (filed as Exhibit 10.97 to
December 31, 1999 Form 10-K and incorporated by
reference herein)
10.98 First Amendment to Credit and Security Agreement
effective as of March 11, 1999, between Crescent Real
Estate Equities Limited Partnership and Crescent
Operating, Inc. (filed as Exhibit 10.98 to December 31,
1999 Form 10-K and incorporated by reference herein)
10.99 Third Amendment to Amended and Restated Credit and
Security Agreement effective as of March 11, 1999,
between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc. (filed as
Exhibit 10.99 to December 31, 1999 Form 10-K and
incorporated by reference herein)
10.100 Third Amendment to Line of Credit Credit and Security
Agreement effective as of March 11, 1999, between
Crescent Real Estate Equities Limited Partnership and
Crescent Operating, Inc. (filed as Exhibit 10.100 to
December 31, 1999 Form 10-K and incorporated by
reference herein)
10.101 Agreements for Wholesale Financing (with Addendum)
between Deutsche Financial Services Corporation and,
respectively, Western Traction Company, Machinery Inc.,
Solveson Crane Rentals Inc., Harvey Equipment Center
Inc., and Crescent Machinery Company, with Guarantees
(filed as Exhibit 10.101 to December 31, 1999 Form 10-K
and incorporated by reference herein)
10.102 Master Security Agreements between Associates Commercial
Corporation and, respectively, Crescent Machinery
Company and Western Traction Company; Security Agreement
between Associates Commercial Corporation and Western
Traction Company; Addendum; and Continuing Guaranty by
Crescent Machinery Company (filed as Exhibit 10.102 to
December 31, 1999 Form 10-K and incorporated by
reference herein)
10.103 First Amendment to Amended and Restated Credit Agreement
dated as of December 20, 1999, between Crescent Real
Estate Equities Limited Partnership and Crescent
Development Management Corp. with related Line of Credit
Note and letter amendment to related security agreement
(filed as Exhibit 10.103 to December 31, 1999 Form 10-K
and incorporated by reference herein)
10.104 $5,600,000 Promissory Note dated February 28, 2000,
made by East West Resorts, LLC payable to Crescent Real
Estate Equities Limited Partnership (filed herewith)
10.105 Mutual Termination of Asset Management Agreement for
Omni Austin Hotel, Austin, Texas, effective January 31,
2000, between Crescent Real Estate Equities Limited
Partnership and COI Hotel Group, Inc. (filed herewith)
10.106 Master Asset Management and Administrative Services
Agreement dated February 1, 2000, by and among Sonoma
Management Corp. I, Crescent Operating, Inc. and each
of its subsidiaries identified therein (filed herewith)
10.107 Management Agreement effective February 1, 2000, between
Sonoma Management Corp. I, as Manager, and Crescent
Real Estate Funding VIII, L.P., as Owner and assignor
to the Company, relating to Ventana Inn & Spa (filed
herewith)
10.108 Management Agreement effective February 1, 2000, between
Sonoma Management Corp. I, as Manager, and Crescent
Real Estate Funding VIII, L.P., as Owner and assignor
to the Company, relating to Sonoma Mission Inn Golf and
Country Club (filed herewith)
10.109 Management Agreement effective February 1, 2000, between
Sonoma Management Corp. I, as Manager, and Crescent
Real Estate Funding VIII, L.P., as Owner and assignor
to the Company, relating to Sonoma Mission Inn and Spa
(filed herewith)
27 Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 15th day of May, 2000.
CRESCENT OPERATING, INC.
(Registrant)
By /s/ John C. Goff
--------------------------------------------
John C. Goff, President, Chief
Executive Officer and Vice-Chairman
(Principal Executive Officer)
By /s/ Richard P. Knight
--------------------------------------------
Richard P. Knight, Vice President
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
34
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
3.1 First Amended and Restated Certificate of Incorporation
(filed as Exhibit 3.3 to the Company's registration
statement on Form S-1 dated July 12, 1997 ("Form S-1")
and incorporated by reference herein)
3.2 First Amended and Restated Bylaws (filed as Exhibit 3.4
to Form S-1 and incorporated by reference herein)
3.3 Amendment of Article V of First Amended and Restated
Bylaws (filed as Exhibit 3.3 to the Company's June 30,
1998 Form 10-Q ("June 30, 1998 Form 10-Q") and
incorporated by reference herein)
3.4 Repeal of Amendment of Article V of First Amended and
Restated Bylaws (filed as Exhibit 3.4 to the Company's
September 30, 1998 Form 10-Q ("September 30, 1998 Form
10-Q") and incorporated by reference herein)
4.1 Specimen stock certificate (filed as Exhibit 4.1 to Form
S-1 and incorporated by reference herein)
4.2 Preferred Share Purchase Rights Plan (filed as Exhibit
4.2 to Form S-1 and incorporated by reference herein)
4.3 First Amendment to Preferred Share Purchase Rights
Agreement dated as of September 25, 1998, between
Crescent Operating, Inc. and Bank Boston, N.A., as
Rights Agent (filed as Exhibit 4.3 to September 30, 1998
Form 10-Q and incorporated by reference herein)
4.4 Second Amendment to Preferred Share Purchase Rights
Agreement dated as of March 4, 1999, between Crescent
Operating, Inc. and Bank Boston, N.A., as Rights Agent
(filed as Exhibit 4.4 to March 31, 1999 Form 10-Q
("March 31, 1999 Form 10-Q") and incorporated by
reference herein)
10.1 Amended Stock Incentive Plan (filed as Exhibit 10.1 to
Form S-1 and incorporated by reference herein)
</TABLE>
<PAGE> 36
<TABLE>
<S> <C>
10.2 Intercompany Agreement between Crescent Operating, Inc.
and Crescent Real Estate Equities Limited Partnership
(filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1997 ("June
30, 1997 Form 10-Q") and incorporated by reference
herein)
10.3 Amended and Restated Operating Agreement of Charter
Behavioral Health Systems, LLC (filed as Exhibit 10.3 to
June 30, 1997 Form 10-Q and incorporated by reference
herein)
10.5 Amended and Restated Credit and Security Agreement,
dated as of May 30, 1997, between Crescent Real Estate
Equities Limited Partnership and Crescent Operating,
Inc., together with related Note (filed as Exhibit 10.5
to the Company's September 30, 1997 Form 10-Q
("September 30, 1997 Form 10-Q") and incorporated by
reference herein)
10.6 Line of Credit and Security Agreement, dated as of May
21, 1997, between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc., together with
related Line of Credit Note (filed as Exhibit 10.6 to
September 30, 1997 Form 10-Q and incorporated by
reference herein)
10.7 Acquisition Agreement, dated as of February 10, 1997,
between Crescent Real Estate Equities Limited
Partnership and Carter-Crowley Properties, Inc. (filed
as Exhibit 10.7 to Form S-1 and incorporated by
reference herein)
10.10 Security Agreement dated September 22, 1997 between COI
Hotel Group, Inc., as debtor, and Crescent Real Estate
Equities Limited Partnership, as lender, together with
related $1 million promissory note (filed as Exhibit
10.10 to September 30, 1997 Form 10-Q and incorporated
by reference herein)
10.11 Security Agreement dated September 22, 1997 between COI
Hotel Group, Inc., as debtor, and Crescent Real Estate
Equities Limited Partnership, as lender, together with
related $800,000 promissory note (filed as Exhibit 10.11
to September 30, 1997 Form 10-Q and incorporated by
reference herein)
10.12 Amended and Restated Asset Management dated August 31,
1997, to be effective July 31, 1997, between Wine
Country Hotel, LLC and The Varma Group, Inc. (filed as
Exhibit 10.12 to September 30, 1997 Form 10-Q and
incorporated by reference herein)
10.13 Amended and Restated Asset Management Agreement dated
August 31, 1997, to be effective July 31, 1997, between
RoseStar Southwest, LLC and The Varma Group, Inc. (filed
as Exhibit 10.13 to September 30, 1997 Form 10-Q and
incorporated by reference herein)
10.14 Amended and Restated Asset Management Agreement dated
August 31, 1997, to be effective July 31, 1997, between
RoseStar Management LLC and The Varma Group, Inc. (filed
as Exhibit 10.14 to September 30, 1997 Form 10-Q and
incorporated by reference herein)
10.15 Agreement for Financial Services dated July 1, 1997,
between Crescent Real Estate Equities Company and
Petroleum Financial, Inc. (filed as Exhibit 10.15 to
September 30, 1997 Form 10-Q and incorporated by
reference herein)
10.16 Credit Agreement dated August 27, 1997, between Crescent
Operating, Inc. and NationsBank of Texas, N.A. together
with related $15.0 million promissory note (filed as
Exhibit 10.16 to September 30, 1997 Form 10-Q and
incorporated by reference herein)
</TABLE>
<PAGE> 37
<TABLE>
<S> <C>
10.17 Support Agreement dated August 27, 1997, between Richard
E. Rainwater, John Goff and Gerald Haddock in favor of
Crescent Real Estate Equities Company and NationsBank of
Texas, N.A. (filed as Exhibit 10.17 to September 30,
1997 Form 10-Q and incorporated by reference herein)
10.18 1997 Crescent Operating, Inc. Management Stock Incentive
Plan (filed as Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997
("December 31, 1997 Form 10-K") and incorporated by
reference herein)
10.19 Memorandum of Agreement executed November 16, 1997,
among Charter Behavioral Health Systems, LLC, Charter
Behavioral Health Systems, Inc. and Crescent Operating,
Inc. (filed as Exhibit 10.19 to December 31, 1997 Form
10-K and incorporated by reference herein)
10.20 Purchase Agreement dated August 31, 1997, by and among
Crescent Operating, Inc., RoseStar Management LLC,
Gerald W. Haddock, John C. Goff and Sanjay Varma (filed
as Exhibit 10.20 to December 31, 1997 Form 10-K and
incorporated by reference herein)
10.21 Stock Purchase Agreement dated August 31, 1997, by and
among Crescent Operating, Inc., Gerald W. Haddock, John
C. Goff and Sanjay Varma (filed as Exhibit 10.21 to
December 31, 1997 Form 10-K and incorporated by
reference herein)
10.22 Amended and Restated Lease Agreement, dated June 30,
1995 between Crescent Real Estate Equities Limited
Partnership and RoseStar Management LLC, relating to the
Denver Marriott City Center (filed as Exhibit 10.17 to
the Annual Report on Form 10-K of Crescent Real Estate
Equities Company for the Fiscal Year Ended December 31,
1995 (the "1995 CEI 10-K") and incorporated by reference
herein)
10.23 Lease Agreement, dated December 19, 1995 between
Crescent Real Estate Equities Limited Partnership and
RoseStar Management LLC, relating to the Hyatt Regency
Albuquerque (filed as Exhibit 10.16 to the 1995 CEI 10-K
and incorporated by reference herein)
10.24 Form of Amended and Restated Lease Agreement, dated
January 1, 1996, among Crescent Real Estate Equities
Limited Partnership, Mogul Management, LLC and RoseStar
Management LLC, relating to the Hyatt Regency Beaver
Creek (filed as Exhibit 10.12 to the 1995 CEI 10-K and
incorporated by reference herein)
10.25 Lease Agreement, dated July 26, 1996, between Canyon
Ranch, Inc. and Canyon Ranch Leasing, L.L.C., assigned
by Canyon Ranch, Inc. to Crescent Real Estate Equities
Limited Partnership pursuant to the Assignment and
Assumption Agreement of Master Lease, dated July 26,
1996 (filed as Exhibit 10.24 to the Quarterly Report on
Form 10-Q/A of Crescent Real Estate Equities Company for
the Quarter Ended June 30, 1997 (the "1997 CEI 10-Q")
and incorporated by reference herein)
10.26 Lease Agreement, dated November 18, 1996 between
Crescent Real Estate Equities Limited Partnership and
Wine Country Hotel, LLC (filed as Exhibit 10.25 to the
Annual Report on Form 10-K of Crescent Real Estate
Equities Company for the Fiscal Year Ended December 31,
1996 and incorporated by reference herein)
10.27 Lease Agreement, dated December 11, 1996, between Canyon
Ranch-Bellefontaine Associates, L.P. and Vintage
Resorts, L.L.C., as assigned by Canyon
Ranch-Bellefontaine Associates, L.P. to Crescent Real
Estate Funding VI, L.P. pursuant to the Assignment and
Assumption Agreement of Master Lease, dated December 11,
1996 (filed as Exhibit 10.26 to the 1997 CEI 10-Q and
incorporated by reference herein)
</TABLE>
<PAGE> 38
<TABLE>
<S> <C>
10.28 Master Lease Agreement, dated June 16, 1997, between
Crescent Real Estate Funding VII, L.P. and Charter
Behavioral Health Systems, LLC and its subsidiaries,
relating to the Facilities (filed as Exhibit 10.27 to
the 1997 CEI 10-Q and incorporated by reference herein)
10.29 Form of Indemnification Agreement (filed as Exhibit
10.29 to December 31, 1997 Form 10-K and incorporated by
reference herein)
10.30 Purchase Agreement, dated as of September 29, 1997,
between Crescent Operating, Inc. and Crescent Real
Estate Equities Limited Partnership, relating to the
purchase of Desert Mountain Development Corporation
(filed as Exhibit 10.30 to December 31, 1997 Form 10-K
and incorporated by reference herein)
10.31 Lease Agreement dated December 19, 1997, between
Crescent Real Estate Equities Limited Partnership, as
Lessor, and Wine Country Hotel, as Lessee, for lease of
Ventana Inn (filed as Exhibit 10.31 to the Company's
March 31, 1998 Form 10-Q ("March 31, 1998 Form 10-Q")
and incorporated by reference herein)
10.32 Lease Agreement dated September 22, 1997, between
Crescent Real Estate Equities Limited Partnership, as
Lessor, and COI Hotel Group, Inc., as lessee, for lease
of Four Seasons Hotel, Houston (filed as Exhibit 10.32
to March 31, 1998 Form 10-Q and incorporated by
reference herein)
10.33 Asset Purchase Agreement dated December 19, 1997, among
Crescent Operating, Inc., Preco Machinery Sales, Inc.,
and certain individual Preco shareholders (filed as
Exhibit 10.33 to March 31, 1998 Form 10-Q and
incorporated by reference herein)
10.34 Asset Purchase Agreement dated April 30, 1998, among
Crescent Operating, Inc., Central Texas Equipment
Company, and certain individual Central Texas
shareholders (filed as Exhibit 10.34 to March 31, 1998
Form 10-Q and incorporated by reference herein)
10.35 Credit Agreement dated August 29, 1997 between Crescent
Real Estate Equities Limited Partnership, as lender, and
Desert Mountain Properties Limited Partnership, as
borrower, together with related Senior Note, Junior Note
and deed of trust (filed as Exhibit 10.35 to March 31,
1998 Form 10-Q and incorporated by reference herein)
10.36 Buy-Out Agreement dated April 24, 1998, between Crescent
Operating, Inc. and Crescent Real Estate Equities
Limited Partnership (filed as Exhibit 10.36 to March 31,
1998 Form 10-Q and incorporated by reference herein)
10.37 Stock Acquisition Agreement and Plan of Merger dated
June 4, 1998, among Machinery, Inc., Oklahoma Machinery,
Inc., Crescent Machinery Company, Crescent Operating,
Inc. and certain individual Machinery shareholders
(filed as Exhibit 10.37 to June 30, 1998 Form 10-Q and
incorporated by reference herein)
10.38 Master Revolving Line of Credit Loan Agreement
(Borrowing Base and Warehouse) dated May 14, 1998,
between Desert Mountain Properties Limited Partnership
and National Bank of Arizona (filed as Exhibit 10.38 to
June 30, 1998 Form 10-Q and incorporated by reference
herein)
10.39 1997 Management Stock Incentive Plan (filed as Exhibit
10.39 to June 30, 1998 Form 10-Q and incorporated by
reference herein)
10.40 Credit and Security Agreement, dated as of September 21,
1998, between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc., together with
related Note (filed as Exhibit 10.40 to September 30,
1998 Form 10-Q and incorporated by reference herein)
</TABLE>
<PAGE> 39
<TABLE>
<S> <C>
10.41 First Amendment to Amended and Restated Pledge
Agreement, dated as of September 21, 1998, between
Crescent Real Estate Equities Limited Partnership and
Crescent Operating, Inc. (filed as Exhibit 10.41 to
September 30, 1998 Form 10-Q and incorporated by
reference herein)
10.42 First Amendment to Line of Credit and Security
Agreement, dated as of August 11, 1998, between Crescent
Real Estate Equities Limited Partnership and Crescent
Operating, Inc., together with related Note (filed as
Exhibit 10.42 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.43 First Amendment to Amended and Restated Credit and
Security Agreement, dated as of August 11, 1998, between
Crescent Real Estate Equities Limited Partnership and
Crescent Operating, Inc. (filed as Exhibit 10.43 to
September 30, 1998 Form 10-Q and incorporated by
reference herein)
10.44 Second Amendment to Amended and Restated Credit and
Security Agreement, dated as of September 21, 1998,
between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc. (filed as
Exhibit 10.44 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.45 Second Amendment to Line of Credit and Security
Agreement, dated as of September 21, 1998, between
Crescent Real Estate Equities Limited Partnership and
Crescent Operating, Inc. (filed as Exhibit 10.45 to
September 30, 1998 Form 10-Q and incorporated by
reference herein)
10.46 Agreement of Limited Partnership of COPI Colorado, L.P.
(filed as Exhibit 10.1 to that Schedule 13D Statement
dated September 28, 1998, filed by COPI Colorado, L.P.,
Crescent Operating, Inc., Gerald W. Haddock, John C.
Goff and Harry H. Frampton, III, and incorporated by
reference herein)
10.47 Contribution Agreement effective as of September 11,
1998, by and among Crescent Operating, Inc., Gerald W.
Haddock, John C. Goff and Harry H. Frampton, III (filed
as Exhibit 10.2 to that Schedule 13D Statement dated
September 28, 1998, filed by COPI Colorado, L.P.,
Crescent Operating, Inc., Gerald W. Haddock, John C.
Goff and Harry H. Frampton, III, and incorporated by
reference herein)
10.48 Agreement Regarding Schedules and Other Matters made as
of September 11, 1998, by and among Crescent Operating,
Inc., Gerald W. Haddock, John C. Goff and Harry H.
Frampton, III (filed as Exhibit 10.3 to that Schedule
13D Statement dated September 28, 1998, filed by COPI
Colorado, L.P., Crescent Operating Inc., Gerald W.
Haddock, John C. Goff and Harry H. Frampton, III, and
incorporated by reference herein)
10.49 Stock Purchase Agreement dated as of August 7, 1998 by
and among Western Traction Company, The Carlston Family
Trust, Ronald D. Carlston and Crescent Operating, Inc.
(filed as Exhibit 10.49 to September 30, 1998 Form 10-Q
and incorporated by reference herein)
10.50 Stock Purchase Agreement dated as of July 31, 1998 by
and among Harvey Equipment Center, Inc., L and H Leasing
Company, William J. Harvey, Roy E. Harvey, Jr., Betty J.
Harvey and Crescent Operating, Inc. (filed as Exhibit
10.50 to September 30, 1998 Form 10-Q and incorporated
by reference herein)
10.51 Credit Agreement dated as of July 28, 1998, between
Crescent Real Estate Equities Limited Partnership and
CRL Investments, Inc., together with the related Note
(filed as Exhibit 10.51 to September 30, 1998 Form 10-Q
and incorporated by reference herein)
10.52 Security Agreement dated as of July 28, 1998, between
Crescent Real Estate Equities Limited Partnership and
CRL Investments, Inc. (filed as Exhibit 10.52 to
September 30, 1998 Form 10-Q and incorporated by
reference herein)
</TABLE>
<PAGE> 40
<TABLE>
<S> <C>
10.53 First Amendment to Credit Agreement effective as of
August 27, 1998, among Crescent Operating, Inc.,
NationsBank, N. A., and the Support Parties identified
therein (filed as Exhibit 10.53 to September 30, 1998
Form 10-Q and incorporated by reference herein)
10.54 Lease Agreement dated as of October 13, 1998, between
Crescent Real Estate Equities Limited Partnership and
Wine Country Golf Club, Inc., relating to Sonoma Golf
Club (filed as Exhibit 10.54 to September 30, 1998 Form
10-Q and incorporated by reference herein)
10.55 First Amendment to Lease Agreement effective December
31, 1998, between Canyon Ranch Leasing, L.L.C., and
Crescent Real Estate Equities Limited Partnership,
relating to Canyon Ranch - Tucson (filed as Exhibit
10.55 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 ("December 31, 1998
Form 10-K") and incorporated by reference herein)
10.56 First Amendment to Lease Agreement effective April 1,
1996; Second Amendment to Lease Agreement effective
November 22, 1996; Third Amendment to Lease Agreement
effective August 12, 1998; and Fourth Amendment to Lease
Agreement effective December 31, 1998 between RoseStar
Southwest, LLC, and Crescent Real Estate Funding II
L.P., relating to Hyatt Regency Albuquerque (filed as
Exhibit 10.56 to December 31, 1998 Form 10-K and
incorporated by reference herein)
10.57 First Amendment to Lease Agreement effective December
31, 1998, between Wine Country Hotel, LLC, and Crescent
Real Estate Equities Limited Partnership, relating to
Sonoma Mission Inn & Spa (filed as Exhibit 10.57 to
December 31, 1998 Form 10-K and incorporated by
reference herein)
10.58 First Amendment to Amended and Restated Lease Agreement
effective December 31, 1998, between RoseStar
Management, LLC, and Crescent Real Estate Equities
Limited Partnership, relating to Marriott City Center,
Denver (filed as Exhibit 10.58 to December 31, 1998 Form
10-K and incorporated by reference herein)
10.59 First Amendment to Lease Agreement effective December
31, 1998, between Wine Country Hotel, LLC, and Crescent
Real Estate Equities Limited Partnership, relating to
Ventana Inn (filed as Exhibit 10.59 to December 31, 1998
Form 10-K and incorporated by reference herein)
10.60 First Amendment to Amended and Restated Lease Agreement
effective April 1, 1996 and Second Amendment to Amended
and Restated Lease Agreement effective December 31,
1998, between RoseStar Southwest, LLC, and Crescent Real
Estate Funding II, L.P., relating to Hyatt Regency
Beaver Creek (filed as Exhibit 10.60 to December 31,
1998 Form 10-K and incorporated by reference herein)
10.61 First Amendment to Lease Agreement effective December
31, 1998, between COI Hotel Group, Inc. and Crescent
Real Estate Equities Limited Partnership, relating to
Four Seasons - Houston (filed as Exhibit 10.61 to
December 31, 1998 Form 10-K and incorporated by
reference herein)
10.62 First Amendment to Lease Agreement effective December
31, 1998, between Wine Country Hotel, LLC and Crescent
Real Estate Funding VI, L.P., relating to Canyon Ranch -
Lenox (filed as Exhibit 10.62 to March 31, 1999 Form
10-Q and incorporated by reference herein)
10.63 Master Guaranty effective December 31, 1998, by Crescent
Operating, Inc. for the benefit of Crescent Real Estate
Equities Limited Partnership, Crescent Real Estate
Funding II, L.P., and Crescent Real Estate Funding VI,
L.P., relating to leases for Hyatt Regency Albuquerque,
Hyatt Regency Beaver Creek, Canyon Ranch-Lenox, Sonoma
Mission Inn & Spa, Canyon Ranch - Tucson, and Marriott
City Center Denver (filed as Exhibit 10.63 to December
31, 1998 Form 10-K and incorporated by reference herein)
</TABLE>
<PAGE> 41
<TABLE>
<S> <C>
10.64 Guaranty of Lease effective December 19, 1997, by
Crescent Operating, Inc. for the benefit of Crescent
Real Estate Equities Limited Partnership, relating to
Ventana Inn (filed as Exhibit 10.64 to December 31, 1998
Form 10-K and incorporated by reference herein)
10.65 Amended and Restated Guaranty of Lease effective
December 31, 1998, by Crescent Operating, Inc. for the
benefit of Crescent Real Estate Equities Limited
Partnership, relating to Four Seasons Hotel - Houston
(filed as Exhibit 10.65 to December 31, 1998 Form 10-K
and incorporated by reference herein)
10.66 Amended and Restated Guaranty of Lease effective
December 31, 1998, by Crescent Operating, Inc. for the
benefit of Crescent Real Estate Equities Limited
Partnership, relating to Sonoma Golf Club (filed as
Exhibit 10.66 to December 31, 1998 Form 10-K and
incorporated by reference herein)
10.67 Credit Agreement dated August 11, 1995, between Crescent
Development Management Corp., as borrower, and Crescent
Real Estate Equities Limited Partnership, as lender;
First Amendment to Credit Agreement dated as of April
15, 1997; Second Amendment to Credit Agreement dated as
of May 8, 1998; and related Note and Security Agreement
(filed as Exhibit 10.67 to December 31, 1998 Form 10-K
and incorporated by reference herein)
10.68 Credit Agreement dated January 1, 1998, between Crescent
Development Management Corp., as borrower, and Crescent
Real Estate Equities Limited Partnership, as lender, and
related Note and Security Agreement (filed as Exhibit
10.68 to December 31, 1998 Form 10-K and incorporated by
reference herein)
10.69 $3,100,000 Note dated February 29, 1996, made by
Crescent Development Management Corp. payable to
Crescent Real Estate Equities Limited Partnership (filed
as Exhibit 10.69 to December 31, 1998 Form 10-K and
incorporated by reference herein)
10.70 Credit Agreement dated January 1, 1999, between Crescent
Development Management Corp., as borrower, and Crescent
Real Estate Equities Limited Partnership, as lender, and
related Line of Credit Note and Security Agreement
(filed as Exhibit 10.70 to March 31, 1999 Form 10-Q and
incorporated by reference herein)
10.71 Amended and Restated Credit Agreement dated January 1,
1999, between Crescent Development Management Corp., as
borrower, and Crescent Real Estate Equities Limited
Partnership, as lender, and related Line of Credit Note
and Amended and Restated Security Agreement (filed as
Exhibit 10.71 to March 31, 1999 Form 10-Q and
incorporated by reference herein)
10.72 Purchase Agreement dated March 12, 1999, between
Crescent Operating, Inc. and Crescent Real Estate
Equities Limited Partnership, relating to sale of
interests in Crescent CS Holdings Corp., and Crescent CS
Holdings II Corp., and related Put Agreement of same
date (filed as Exhibit 10.72 to March 31, 1999 Form 10-Q
and incorporated by reference herein)
10.73 Second Amendment to Lease Agreement effective April 1,
1999, between Wine Country Hotel, LLC, and Crescent Real
Estate Funding VI, L.P., relating to Canyon Ranch-Lenox
(filed as Exhibit 10.73 to March 31, 1999 Form 10-Q and
incorporated by reference herein)
10.74 Master Revolving Line of Credit Loan Agreement
(Borrowing Base and Warehouse) dated May 14, 1998,
between Desert Mountain Properties Limited Partnership,
as borrower, and National Bank of Arizona, as lender;
Modification Agreement dated December 30, 1998; second
Modification Agreement dated March 31, 1999; and related
Promissory Note (Borrowing Base), Promissory Note
(Warehouse), Pledge Agreement, Deed of Trust, and
Amendment to Deed of Trust (filed as Exhibit 10.74 to
March 31, 1999 Form 10-Q and incorporated by reference
herein)
</TABLE>
<PAGE> 42
<TABLE>
<S> <C>
10.75 Lease Agreement dated as of June 15, 1999, between
Crescent Real Estate Funding III, L.P. and COI Hotel
Group, Inc., relating to the Renaissance Houston Hotel
(filed as Exhibit 10.75 to June 30, 1999 Form 10-Q and
incorporated by reference herein)
10.76 Guaranty of Lease dated June 15, 1999, by Crescent
Operating, Inc. for the benefit of Crescent Real Estate
Funding III, L.P., relating to Renaissance Houston Hotel
(filed as Exhibit 10.76 to June 30, 1999 Form 10-Q and
incorporated by reference herein)
10.77 Asset Management Agreement dated as of January 1, 1999,
between Crescent Real Estate Equities Limited
Partnership and COI Hotel Group, Inc., relating to the
Omni Austin Hotel (filed as Exhibit 10.77 to June 30,
1999 Form 10-Q and incorporated by reference herein)
10.78 Agreement dated June 11, 1999, by and between Gerald W.
Haddock and Crescent Operating, Inc. and its
subsidiaries and affiliates (filed as Exhibit 10.78 to
June 30, 1999 Form 10-Q and incorporated by reference
herein)
10.79 Stock Purchase Agreement dated as of July 15, 1999, by
and among E. L. Lester & Company, Incorporated, E. L.
Lester, Jr., Howard T. Tellepsen II, Karen Tellepsen,
Tom Tellepsen II, Linda Lester Griffen, Crescent
Operating, Inc. and Crescent Machinery Company (filed as
Exhibit 10.79 to the Company's September 30, 1999 Form
10-Q ("September 30, 1999 Form 10-Q") and incorporated
by reference herein)
10.80 Stock Purchase Agreement dated as of July 8, 1999, by
and among Solveson Crane Rental, Inc., Solveson Family
Revocable Trust, and Crescent Machinery Company (filed
as Exhibit 10.80 to September 30, 1999 Form 10-Q and
incorporated by reference herein)
10.81 Second Amendment to Credit Agreement effective as of
August 27, 1999, among Crescent Operating, Inc., Bank of
America, N. A. (formerly NationsBank, N. A.), and the
Support Parties identified therein (filed as Exhibit
10.81 to September 30, 1999 Form 10-Q and incorporated
by reference herein)
10.82 First Amendment to 1997 Crescent Operating, Inc.
Management Stock Incentive Plan (filed as Exhibit 10.82
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 ("December 31, 1999 Form 10-K")
and incorporated by reference herein)
10.83 Form of Sales and Service Agreement between BLAW KNOX
Construction Equipment Corporation and certain of
Crescent Machinery Company and its subsidiaries (filed
as Exhibit 10.83 to December 31, 1999 Form 10-K and
incorporated by reference herein)
10.84 Form of Heavy Equipment Distributor Agreement between
Compaction America, Inc. and certain of Crescent
Machinery Company and its subsidiaries (filed as Exhibit
10.84 to December 31, 1999 Form 10-K and incorporated by
reference herein)
10.85 Form of Gradall Equipment Distributor Agreement between
The Gradall Company and certain of Crescent Machinery
Company and its subsidiaries (filed as Exhibit 10.85 to
December 31, 1999 Form 10-K and incorporated by
reference herein)
10.86 Form of Distributor Selling Agreement between
Ingersoll-Rand Company and certain of Crescent Machinery
Company and its subsidiaries (filed as Exhibit 10.86 to
December 31, 1999 Form 10-K and incorporated by
reference herein)
10.87 Form of JCB Dealership Agreement between JCB Inc. and
certain of Crescent Machinery Company and its
subsidiaries (filed as Exhibit 10.87 to December 31,
1999 Form 10-K and incorporated by reference herein)
10.88 Form of Distributor Agreement between LBX Company, LLC,
and certain of Crescent Machinery Company and its
subsidiaries (filed as Exhibit 10.88 to December 31,
1999 Form 10-K and incorporated by reference herein)
10.89 Form of Distributor Agreement between Liebherr
Construction Equipment Co. and certain of Crescent
Machinery Company and its subsidiaries (filed as Exhibit
10.89 to December 31, 1999 Form 10-K and incorporated by
reference herein)
10.90 Form of Distributor Agreement between Link-Belt
Construction Equipment Company and certain of Crescent
Machinery Company and its subsidiaries (filed as Exhibit
10.90 to December 31, 1999 Form 10-K and incorporated by
reference herein)
10.91 Form of Dealer Floor Plan Financing and Security
Agreement between General Electric Capital Corporation
and certain of Crescent Machinery Company and its
subsidiaries (filed as Exhibit 10.91 to December 31,
1999 Form 10-K and incorporated by reference herein)
10.92 Taxable REIT Subsidiary Election Agreement dated
December 17, 1999, among Crescent Real Estate Equities
Company, Crescent Real Estate Equities Limited
Partnership, Crescent Operating, Inc. and Crescent
Development Management Corp. (filed as Exhibit
10.92 to December 31, 1999 Form 10-K and incorporated by
reference herein)
10.93 Taxable REIT Subsidiary Election Agreement dated
December 17, 1999, among Crescent Real Estate Equities
Company, Crescent Real Estate Equities Limited
Partnership, Crescent Operating, Inc. and Crescent CS
Holdings II Corp. (filed as Exhibit 10.93 to December
31, 1999 Form 10-K and incorporated by reference herein)
10.94 Taxable REIT Subsidiary Election Agreement dated
December 17, 1999, among Crescent Real Estate Equities
Company, Crescent Real Estate Equities Limited
Partnership, Crescent Operating, Inc. and Crescent CS
Holdings Corp. (filed as Exhibit 10.94 to December 31,
1999 Form 10-K and incorporated by reference herein)
10.95 Taxable REIT Subsidiary Election Agreement dated
December 17, 1999, among Crescent Real Estate Equities
Company, Crescent Real Estate Equities Limited
Partnership, Crescent Operating, Inc. and Desert
Mountain Development Corp. (filed as Exhibit 10.95 to
December 31, 1999 Form 10-K and incorporated by
reference herein)
10.96 Taxable REIT Subsidiary Election Agreement dated
December 17, 1999, among Crescent Real Estate Equities
Company, Crescent Real Estate Equities Limited
Partnership, Crescent Operating, Inc. and The Woodlands
Land Company, Inc. (filed as Exhibit 10.96 to December
31, 1999 Form 10-K and incorporated by reference herein)
10.97 $19.5 Million Credit and Security Agreement effective as
of March 11, 1999, between Crescent Real Estate Equities
Limited Partnership and Crescent Operating, Inc. with
related Promissory Note (filed as Exhibit 10.97 to
December 31, 1999 Form 10-K and incorporated by
reference herein)
10.98 First Amendment to Credit and Security Agreement
effective as of March 11, 1999, between Crescent Real
Estate Equities Limited Partnership and Crescent
Operating, Inc. (filed as Exhibit 10.98 to December 31,
1999 Form 10-K and incorporated by reference herein)
10.99 Third Amendment to Amended and Restated Credit and
Security Agreement effective as of March 11, 1999,
between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc. (filed as
Exhibit 10.99 to December 31, 1999 Form 10-K and
incorporated by reference herein)
10.100 Third Amendment to Line of Credit Credit and Security
Agreement effective as of March 11, 1999, between
Crescent Real Estate Equities Limited Partnership and
Crescent Operating, Inc. (filed as Exhibit 10.100 to
December 31, 1999 Form 10-K and incorporated by
reference herein)
10.101 Agreements for Wholesale Financing (with Addendum)
between Deutsche Financial Services Corporation and,
respectively, Western Traction Company, Machinery Inc.,
Solveson Crane Rentals Inc., Harvey Equipment Center
Inc., and Crescent Machinery Company, with Guarantees
(filed as Exhibit 10.101 to December 31, 1999 Form 10-K
and incorporated by reference herein)
10.102 Master Security Agreements between Associates Commercial
Corporation and, respectively, Crescent Machinery
Company and Western Traction Company; Security Agreement
between Associates Commercial Corporation and Western
Traction Company; Addendum; and Continuing Guaranty by
Crescent Machinery Company (filed as Exhibit 10.102 to
December 31, 1999 Form 10-K and incorporated by
reference herein)
10.103 First Amendment to Amended and Restated Credit Agreement
dated as of December 20, 1999, between Crescent Real
Estate Equities Limited Partnership and Crescent
Development Management Corp. with related Line of Credit
Note and letter amendment to related security agreement
(filed as Exhibit 10.103 to December 31, 1999 Form 10-K
and incorporated by reference herein)
10.104 $5,600,000 Promissory Note dated February 28, 2000,
made by East West Resorts, LLC payable to Crescent Real
Estate Equities Limited Partnership (filed herewith)
10.105 Mutual Termination of Asset Management Agreement for
Omni Austin Hotel, Austin, Texas, effective January 31,
2000, between Crescent Real Estate Equities Limited
Partnership and COI Hotel Group, Inc. (filed herewith)
10.106 Master Asset Management and Administrative Services
Agreement dated February 1, 2000, by and among Sonoma
Management Corp. I, Crescent Operating, Inc. and each
of its subsidiaries identified therein (filed herewith)
10.107 Management Agreement effective February 1, 2000,
between Sonoma Management Corp. I, as Manager, and
Crescent Real Estate Funding VIII, L.P., as Owner and
assignor to the Company, relating to Ventana Inn & Spa
(filed herewith)
10.108 Management Agreement effective February 1, 2000,
between Sonoma Management Corp. I, as Manager, and
Crescent Real Estate Funding VIII, L.P., as Owner and
assignor to the Company, relating to Sonoma Mission Inn
Golf and Country Club (filed herewith)
10.109 Management Agreement effective February 1, 2000,
between Sonoma Management Corp. I, as Manager, and
Crescent Real Estate Funding VIII, L.P., as Owner and
assignor to the Company, relating to Sonoma Mission Inn
and Spa (filed herewith)
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.104
PROMISSORY NOTE
February 28, 2000 $5,600,000.00
FOR VALUE RECEIVED, EAST WEST RESORTS, LLC, a Delaware limited
liability company ("Borrower"), promises to pay CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware limited partnership ("Lender"), at 777 Main
Street, Suite 2100, Fort Worth, Texas 76102, the principal sum of FIVE MILLION
SIX HUNDRED THOUSAND DOLLARS ($5,600,000.00), or so much thereof as may be
advanced, with interest on the principal balance from time to time remaining
unpaid at the rates specified below.
Funds borrowed under this Note shall be used by Borrower solely to pay,
in whole or in part, the direct acquisition purchase price(s) for up to two
business(es) (a) engaged in the same line of business as Borrower is principally
engaged in, (b) specifically identified in writing to Lender a reasonable time
prior to a borrowing under this Note and (c) the acquisition of which with the
use of funds borrowed under this Note, Lender shall not have reasonably objected
to (each such acquisition hereafter referred to as an "Acquisition" or,
collectively, as the "Acquisitions"). No funds may be borrowed under this Note
except contemporaneously with the consummation of an Acquisition for which such
funds shall be applied towards the acquisition purchase price.
Notwithstanding anything else contained in this Note, Lender shall not
be obligated to advance any funds under this Note after June 30, 2000.
Interest on the principal balance hereof from time to time remaining
unpaid prior to an Event of Default shall be payable at the rates of (a) for the
period commencing on the date of the first advance under this Note (the "Initial
Advance Date") and ending on the 180th day thereafter, twelve percent (12%) per
annum; and (2) for the period commencing on the 181st day following the Initial
Advance Date and ending on the Maturity Date, fifteen percent (15%) per annum
(such interest rates are referred to collectively as the "Interest Rate").
A "Partial Event of Default" shall occur whenever Borrower borrows from
a financial institution funds in an amount less than the principal balance of
this Note and accrued but unpaid interest thereon; the amount of any such
borrowing is referred to as a "Prepayment Amount."
Principal and interest on this Note shall be due and payable in legal
tender of the United States of America as follows: within five business days
following the occurrence of a Partial Event of Default, Borrower shall make a
mandatory prepayment against this Note in an amount equal to the Prepayment
Amount, until the earlier of (i) the first anniversary of the Initial Advance
Date (the "Maturity Date") or (ii) the date on which all sums owing hereunder
become due and payable as a result of the occurrence of an Event of Default
(hereinafter defined), upon which either of those dates the entire balance of
principal plus accrued but unpaid interest shall be due and payable. All
payments made against this Note shall be applied, first, to accrued but unpaid
interest and, thereafter, to the outstanding principal balance of this Note.
Interest on the principal balance hereof from time to time remaining
unpaid prior to an Event of Default (as hereafter defined) shall be payable at
the Interest Rate, provided that the interest payable shall not exceed the
maximum rate permitted by applicable law (the "Maximum Rate"). Interest on the
principal hereof from time to time remaining unpaid and, to the extent permitted
by applicable law, interest on the unpaid interest, shall bear interest from and
after an Event of Default at the Maximum Rate (the "Default Rate").
Borrower shall have the right to prepay the whole, or a part, of the
principal sum hereof and all accrued, unpaid interest at any time without
premium or penalty.
An "Event of Default" shall mean the occurrence of any of the
following:
(a) Borrower's default in the prompt payment when due of any
principal or interest owing pursuant to this Note, including
but not limited to any mandatory prepayment;
Page 1 of 4
<PAGE> 2
(b) Borrower (i) files a voluntary petition in bankruptcy; (ii)
makes a general assignment for the benefit of creditors; (iii)
fails to contest in a timely and orderly manner an order for
relief in bankruptcy entered against it; (iv) admits in
writing its inability to pay its debts generally as they
become due; (v) applies for or consents to the appointment of
a receiver, trustee, or liquidator of Borrower or of all or
substantially all of its assets; (vi) voluntarily commences
any proceedings or files any petition seeking any relief under
any bankruptcy, reorganization, debtor's relief or other
insolvency law now or hereafter existing; (vii) files an
answer admitting the material allegations of, or consenting
to, or defaulting in, a petition against Borrower in any
bankruptcy, reorganization or other insolvency proceeding; or
(viii) takes any action for the purpose of effecting any of
the foregoing;
(c) An order, judgment or decree is entered by any court of
competent jurisdiction ordering relief in bankruptcy or
appointing a receiver, trustee or liquidator of Borrower or of
all or substantially all of the assets of Borrower;
(d) Borrower sells, leases, exchanges, conveys, pledges, assigns,
collaterally assigns, grants a security interest in,
mortgages, creates a lien or encumbrance on, or otherwise
transfers or disposes of all or any material portion of its
assets or any interest therein;
(e) Borrower makes any distributions to its members, other than
Tax Distributions; "Tax Distributions" shall mean cash
distributions made (1) for the sole purpose of providing
members of Borrower with funds to pay income tax liabilities
they incur as a result of their ownership of Borrower and (2)
in amounts not exceeding the reasonably calculated amounts of
such income tax liabilities;
(f) The dissolution or liquidation or Borrower; or
(g) Regardless of the terms of such borrowing, including but not
limited to limitations on the use of proceeds therefrom,
Borrower borrows from a financial institution funds in an
amount at least equal to the principal balance of this Note
and accrued but unpaid interest thereon.
Upon the occurrence of any Event of Default described in clauses (a)
through (f) above, all amounts then remaining unpaid under this Note shall, at
the option of Lender, become immediately due and payable and the holder hereof
shall have all rights and remedies of a lender at law and in equity; upon the
occurrence of an Event of Default described in clause (g) above, all amounts
then remaining unpaid under this Note shall become immediately due and payable
and the holder hereof shall have all rights and remedies of a lender at law and
in equity . The failure to exercise its option to accelerate the maturity of
this Note upon the happening of any one or more Events of Default (other than an
Event of Default under clause (g) above, which shall cause this Note to become
immediately due and payable) shall not constitute a waiver of the right of the
holder of this Note to exercise the same or any other option at that time or at
any subsequent time with respect to such uncured Event of Default or any other
uncured Event of Default. The acceptance by the holder hereof of any payment
under this Note that is less than payment in full of all amounts due and payable
at the time of such payment shall not constitute a waiver of or impair, reduce,
release or extinguish any of the rights or remedies of the holder hereof to
exercise the foregoing option at that time or at any subsequent time or nullify
any prior exercise of any such option.
Borrower and all other parties now or hereafter liable for the payment
hereof, whether as endorser, surety or otherwise, severally waive demand,
presentment, notice of dishonor, notice of intention to accelerate the
indebtedness evidenced hereby, notice of the acceleration of the maturity
hereof, diligence in collecting, grace, notice and protest, and consent to all
extensions that from time to time may be granted by the holder hereof and to all
partial payments hereon, whether before or after maturity.
If this Note is not paid when due, whether at maturity or by
acceleration, or if it is collected through a bankruptcy or other court
proceeding, whether before or after maturity, Borrower agrees to pay all costs
of collection, including but not limited to reasonable attorneys' fees and
expenses incurred by the holder hereof.
Page 2 of 4
<PAGE> 3
All agreements between Borrower and the holder hereof, whether now
existing or hereafter arising and whether written or oral, are hereby limited so
that in no contingency, whether by reason of acceleration of the maturity hereof
or otherwise, shall the amount contracted for, charged, received, paid or agreed
to be paid to the holder hereof for the use, forbearance or detention or
principal or interest, which remains unpaid from time to time, exceed the
maximum amount permissible under applicable law, it particularly being the
intention of Borrower and Lender to conform strictly to the law of the State of
Texas and of the United States of America. If from any circumstance the holder
hereof shall ever receive anything of value deemed interest by applicable law in
excess of the maximum lawful amount, an amount equal to any excessive interest
shall be applied to the reduction of the principal hereof and not to the payment
of interest, or if such excessive interest exceeds the unpaid balance of
principal hereof, such excess shall be refunded to Borrower. All interest paid
or agreed to be paid to the holder hereof shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
period until payment in full of the principal so that interest hereon for such
full period shall not exceed the maximum amount permitted by applicable law. As
used in this Note, the term "applicable law" means (a) the law pertaining to the
maximum rate of interest that is now in effect and (b) any law that comes into
effect at any time in the future while this Note is outstanding which allows a
higher interest rate than the law now in effect.
Borrower hereby irrevocably and unconditionally (i) submits itself in
any legal action or proceeding relating to this Note to the non-exclusive
general jurisdiction of the courts of the State of Texas, the courts of the
United States of America for the Northern District of Texas, and appellate
courts from any thereof; (ii) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same; (iii) agrees that service of process in any such action
or proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage prepaid, to
Borrower at its address as set forth hereinbelow or at such other address of
which Lender shall have been notified; and (iv) agrees that nothing herein shall
affect the right to effect service of process in any other manner permitted by
law or shall limit the right to sue in any other jurisdiction.
The loan transaction evidenced hereby shall not be governed by, or be
subject to, Chapter 303 or Chapter 346 of the Texas Finance Code.
To the extent notice is required by the terms of this Note or any
documents executed in connection herewith it will be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
To Borrower: East West Resorts, LLC
105 Edwards Village Road, Suite C-202
P. O. Box 2636
Edwards, Colorado 81632
Fax: __________________
To Lender: Crescent Real Estate Equities Limited
Partnership
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Attention: David M. Dean
Fax: 817.321.2000
EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING WITHOUT LIMITATION
ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW THAT FROM TIME TO TIME IS
APPLICABLE TO THE INDEBTEDNESS EVIDENCED HEREIN AND THAT PREEMPTS STATE USURY
LAWS), THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS IN SUCH
STATE.
THIS NOTE, TOGETHER WITH EACH LOAN DOCUMENT REFERENCED HEREIN, IF ANY,
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE LOAN
Page 3 of 4
<PAGE> 4
DESCRIBED HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EAST WEST RESORTS, LLC,
a Delaware limited liability company
By: East West Resorts Management III, LLC
By: HF Holding Corp., as manager
By:
------------------------
Harry H. Frampton, III
President
Page 4 of 4
<PAGE> 1
EXHIBIT 10.105
MUTUAL TERMINATION OF ASSET MANAGEMENT AGREEMENT
FOR OMNI AUSTIN HOTEL, AUSTIN, TEXAS
THIS INSTRUMENT ("Instrument") is executed and delivered by CRESCENT
REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited partnership
("Crescent"), and COI HOTEL GROUP, INC., Texas corporation ("COI Hotel")
effective ______________, 2000 (the "Effective Date"). Crescent and COI Hotel
are sometimes together called the "Parties" and each a "Party."
WHEREAS, Crescent and COI Hotel are parties to that certain Asset
Management Agreement dated as of January 1, 1999 (the "Omni Austin Agreement"),
pursuant to which COI Hotel provides asset management services at the Omni
Austin Hotel in Austin, Texas (the "Hotel"); and
WHEREAS, the Parties mutually desire to mutually terminate the Omni
Austin Agreement without continuing obligation or liability on the part of
either Party except as provided in this Instrument;
NOW, THEREFORE, in consideration of the foregoing premises, the
covenants and mutual releases herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
acting in accordance with Section 8.1 of the Omni Austin Agreement, the Parties
hereby agree that, as of the Effective Date:
1. The Omni Austin Agreement is hereby fully terminated, without
continuing obligation or liability on the part of either Party except as
provided in Paragraph 3 of this Instrument.
2. Subject to Paragraph 3 of this Instrument, each Party hereby fully,
finally and unconditionally releases, waives, discharges, and quitclaims the
other Party and its successors, assigns, affiliates, stockholders, partners,
directors, officers, employees, agents and representatives from any and all
rights, claims, obligations, duties, losses, liabilities, breaches, defaults,
demands, damages, causes of action and interests of any kind whatsoever, whether
known or unknown, whether actual or contingent, now existing or hereafter
arising, arising out of, resulting from, or arising in connection with, the Omni
Austin Agreement or any actual or alleged breach, default or nonperformance of
any terms thereof, whether known or unknown.
3. Notwithstanding anything to the contrary contained in this
Instrument, the Parties agree that, except as provided otherwise in this
Instrument, those provisions of the Omni Austin Agreement which expressly
survive termination of the Omni Austin Agreement shall survive the termination
of the Omni Austin Agreement effected by this Instrument and shall not be deemed
discharged by Paragraph 2 of this Instrument. Without limiting the preceding,
the Parties agree that Section 6.3 (Effect of Termination) of the Omni Austin
Agreement shall continue to apply in accordance with its terms, except that the
following provisions of such Section 6.3 are modified as provided in this
Paragraph 3:
1
<PAGE> 2
(a) Section 6.3(b)(i): Deleted and all rights and obligations
of the Parties otherwise arising under this clause waived and
discharged, in the manner provided in Paragraph 2 of this Instrument;
(b) Section 6.3(b)(ii): Deleted and all rights and obligations
of the Parties otherwise arising under this clause waived and
discharged, in the manner provided in Paragraph 2 of this Instrument,
except, however, that Crescent shall continue to be obligated to
reimburse expenses, in accordance with Section 5.3 of the Omni Austin
Agreement, incurred or accrued prior to the Effective Date;
(c) Section 6.3(b)(vi): Modified, solely with respect to the
reference to Section 6.3 of the Omni Austin Agreement, to refer to the
provisions of such Section 6.3 as modified by this Instrument; and
(d) Last sentence of Section 6.3(b): Modified, solely with
respect to the reference to Section 6.3 of the Omni Austin Agreement,
to refer to the provisions of such Section 6.3 as modified by this
Instrument
4. The Parties agree that the termination of the Omni Austin Agreement
effected by this Instrument is not a termination of the Omni Austin Agreement
pursuant to Section 6.2(a) or 6.2(b).
5. THE VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS INSTRUMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO ITS CHOICE
OF LAW PRINCIPLES.
6. This Instrument may be executed in multiple counterparts, each of
which shall be deemed an original for all purposes and all of which when taken
together shall constitute a single counterpart instrument. Executed signature
pages to any counterpart instrument may be detached and affixed to a single
counterpart, which single counterpart with multiple executed signature pages
affixed thereto constitutes the original counterpart instrument. All such
counterpart pages shall be read as though one and shall have the same force and
effect as if all of the parties had executed a single signature page.
2
<PAGE> 3
IN WITNESS WHEREOF, this Instrument has been executed and delivered as
of the Effective Date.
CRESCENT: CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd.,
its general partner
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
COI HOTEL: COI HOTEL GROUP, INC., a Texas corporation
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
3
<PAGE> 1
EXHIBIT 10.106
MASTER ASSET MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
THIS MASTER ASSET MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
("Agreement") is made and entered into as of ______________, 2000, by and among
Sonoma Management Corp. I, a Delaware corporation ("SMC"), Crescent Operating,
Inc., a Delaware corporation ("COPI"), and each of the subsidiaries of COPI
identified in Schedule 1 hereto (the "Subsidiaries").
RECITALS
A. RoseStar Management LLC, a Texas limited liability company
("RoseStar"), a subsidiary of COPI, and The Varma Group, Inc., a Texas
corporation ("TVG") entered into an Amended and Restated Asset Management
Agreement August 31, 1997 (the "RoseStar Asset Management Agreement") pursuant
to which TVG agreed to provide management services with respect to RoseStar's
assets, including its interest as the lessee of the Marriott City Center Hotel
in Denver, Colorado (the "Marriott Hotel") under a long-term lease agreement
(the "Marriott Lease") with the owner of that property. The principals of TVG
are Sanjay and Johanna Varma. The Marriott Hotel is operated by a hotel
management operator, Marriott, under a long-term property management agreement
(Marriott's property management agreement and each of the other property
management agreements specified in these recitals is a "Property Management
Agreement" and one or more are "Property Management Agreements"). (The hotel
management operator under the Marriott Lease and each of the other leases
specified in these recitals is an "Operator" and one or more are "Operators".)
Simultaneously herewith, RoseStar and TVG are executing and delivering that
Mutual Release and Termination Agreement in the form attached to this Agreement
as Exhibit D terminating the RoseStar Asset Management Agreement without
continuing obligations or liabilities on the part of either of them.
B. TVG and RoseStar's subsidiary, RoseStar Southwest, LLC ("RoseStar
Southwest"), entered into an Amended and Restated Asset Management Agreement
August 31, 1997 (the "Southwest Asset Management Agreement") pursuant to which
TVG agreed to provide asset management services with respect to RoseStar
Southwest's assets, including its interests as the lessee of the Hyatt Regency
Hotel in Albuquerque, New Mexico (the "Hyatt Albuquerque") and the Hyatt Regency
Beaver Creek in Avon, Colorado under long-term lease agreements with the
respective owners of those properties (the lease agreement for the Hyatt
Albuquerque is called the "Hyatt Albuquerque Lease"). The Hyatt Albuquerque is
operated by an Operator under a Property Management Agreement. The Hyatt Beaver
Creek is operated by an Operator under a Property Management Agreement.
Simultaneously herewith, RoseStar and TVG are executing and delivering that
Mutual Release and Termination Agreement in the form attached to this Agreement
as Exhibit D terminating the Southwest Asset Management Agreement without
continuing obligations or liabilities on the part of either of them.
C. TVG and RoseStar's subsidiary, Wine Country Hotel, LLC ("WCH"),
entered into an Amended and Restated Asset Management Agreement August 31, 1997
(the "WCH Asset Management Agreement"), pursuant to which TVG agreed to provide
management services with respect to WCH's interest as lessee of the Sonoma
Mission Inn and Spa in Sonoma, California under
1
<PAGE> 2
a long-term lease agreement with the owner of that property. Simultaneously
herewith, RoseStar and TVG are executing and delivering that Mutual Release and
Termination Agreement in the form attached to this Agreement as Exhibit D
terminating the WCH Asset Management Agreement without continuing obligations or
liabilities on the part of either of them.
D. COI Hotel Group, Inc., a Texas corporation ("COI Hotel") and a
subsidiary of COPI, is the lessee of Renaissance Hotel Houston (the
"Renaissance Hotel") and Four Seasons Hotel Houston (the "Four Seasons Hotel")
under long-term lease agreements (the "Renaissance Lease" and the "Four Seasons
Lease") with the respective owners of those properties. The Renaissance Hotel
and Four Season Hotel are operated by Operators under Property Management
Agreements.
E. Canyon Ranch Leasing, L. L. C., an Arizona limited liability company
("Canyon Ranch Leasing") and a subsidiary of COPI, is the lessee of Canyon Ranch
- - Tucson ("CR Tucson") under a long-term lease agreement (the "CR Tucson Lease")
with the owner of that property. CR Tucson is operated by an Operator under a
Property Management Agreement.
F. WCH is the lessee of Canyon Ranch - Lenox ("CR Lenox") under a
long-term lease agreement (the "CR Lenox Lease") with the owner of that
property. CR Lenox is operated by an Operator under a Property Management
Agreement.
G. CRL Investments, Inc., a Texas corporation ("CRL Investments"), the
ownership of which is shared by COPI and Crescent Real Estate Equities Limited
Partnership ("CEI"), is a non-managing member of CR Las Vegas, LLC, a Nevada
limited liability company ("CR Las Vegas"), which is the lessee of the Venetian
Day Spa (the "Venetian Spa") under a long-term lease agreement (the "Venetian
Spa Lease") with the owner of the property in which the Venetian Spa is located.
H. COI Hotel is the asset manager at Omni-Austin Hotel ("Austin Omni")
under a long-term Asset Management Agreement with the owner of that property.
Simultaneously herewith, COI Hotel and the owner of Austin Omni are by mutual
agreement terminating that Asset Management Agreement on the condition that the
owner of Austin Omni enter into a new asset management agreement with SMC.
I. CDMC Palm Beach, Inc., a Delaware corporation ("CDMC") and a
subsidiary of COPI, is a minority, nonmanaging member of Manalapan Hotel
Partners, a Florida joint venture ("Manalapan Partners"), which is the owner of
the Ritz-Carlton Hotel in Palm Beach, Florida (the "Ritz-Carlton").The
Ritz-Carlton is operated by an Operator under a Property Management Agreement.
J. The Marriott Hotel, the Hyatt Albuquerque, the Renaissance Hotel, the
Four Seasons Hotel, CR Tucson, CR Lenox, the Venetian Spa and the Ritz-Carlton
are each a "Property" and one or more are "Properties". (Where the context
requires, the term "Property" shall also mean CRL Investment's interest in CR
Las Vegas and CDMC's interest in Manalapan Partners.) The Marriott Lease, the
Hyatt Albuquerque Lease, the Renaissance Lease, the Four Seasons Lease, the CR
Tucson Lease, the CR Lenox Lease and the Venetian Spa Lease are each a "Lease"
and one or more are "Leases."
2
<PAGE> 3
K. SMC and its principals would like to increase the number of Properties
to which they provide services and expand the scope of those services.
L. COPI and the Subsidiaries would like to assure that the Subsidiaries
have obtained from a satisfactory source the asset management and/or
administrative services necessary for their lease responsibilities at the
Properties where they are lessees and necessary to protect their interests at
the Ritz-Carlton; and would like to be released from the obligation and costs of
providing asset management services at a single Property, Austin Omni.
Now therefore, for and in consideration of the premises and the mutual
covenants herein contained and subject to the following terms and conditions,
SMC, COPI and the Subsidiaries agree as follows:
ARTICLE 1
GENERAL
1.1 Master Agreement. This Agreement sets forth the terms and conditions
upon which SMC shall provide Asset Management Services (as defined in Section
3.3 of this Agreement) or Administrative Services (as defined in Section 4.1 of
this Agreement) to one or more Subsidiaries with respect to one or more
Properties leased by those Subsidiaries. SMC shall become obligated to provide
Asset Management Services or Administrative Services (each, as applicable,
"Services") to a Subsidiary only if SMC and that Subsidiary enter into a
Subsidiary Asset Management Agreement or a Subsidiary Administrative Services
Agreement in substantially the form attached to this Agreement as Exhibits A and
B, respectively. Immediately following the execution and delivery of this
Agreement by the parties hereto:
(a) SMC and RoseStar agree to enter into a Subsidiary Asset
Management Agreement with respect to the Marriott Hotel;
(b) SMC and RoseStar Southwest agree to enter into a Subsidiary Asset
Management Agreement with respect to the Hyatt Albuquerque;
(c) SMC and COI Hotel agree to enter into a Subsidiary Asset
Management Agreement with respect to the Renaissance Hotel and the Four
Seasons Hotel;
(d) SMC and CDMC agree to enter into a Subsidiary Asset Management
Agreement with respect to CDMC's interest in Manalapan Partners;
(e) SMC and CR Leasing agree to enter into a Subsidiary
Administrative Services Agreement with respect to the CR Tucson;
(f) SMC and WCH agree to enter into a Subsidiary Administrative
Services Agreement with respect to the CR Lenox; and
(g) SMC and the owner of Austin Omni shall enter a new asset
management agreement on terms mutually agreeable to Sonoma and such owner.
3
<PAGE> 4
Effective upon execution and delivery of a Subsidiary Asset Management
Agreement or Subsidiary Administrative Services Agreement (each a "Subsidiary
Agreement"), COPI's rights and obligations under this Agreement with respect to
the Property which is the subject of such Subsidiary Agreement shall be deemed
assigned to and assumed by the Subsidiary that is a party to such Subsidiary
Agreement and, subject to Section 1.7, COPI shall be deemed fully released from
all obligations to SMC under this Agreement with respect to such Property. SMC
acknowledges and agrees that, except as provided in Section 1.7, it shall have
no recourse against COPI with respect to a breach of any Subsidiary Agreement.
1.2 Additional Subsidiary Agreements. Prior to the expiration or
termination of this Agreement, COPI at its discretion may offer to SMC the
opportunity to provide Asset Management Services or Administrative Services to
one or more other hospitality properties hereafter acquired (by purchase or
lease) by a Subsidiary or by another entity hereafter organized which is a
subsidiary of COPI, the terms and conditions of any such future agreement for
Asset Management Services or Administrative Services to be negotiated and agreed
upon by the parties at their discretion.
1.3 Non-Exclusive Arrangement; Covenant of Noncompetition by SMC. Except
as provided in this Section 1.3, nothing herein shall be construed to prohibit
SMC or its affiliates from entering into, and COPI is aware that SMC and its
affiliates may enter into, property management agreements, asset management
agreements and administrative service agreements with owners of one or more
Properties and operators or lessees of other hotel or resort properties.
However, SMC agrees that, for so long as it is party to a Subsidiary Agreement,
it shall not enter into an asset management agreement or an administrative
service agreement for any hotel or resort property that is within the
"competitive set" (as identified from time to time by Smith Travel Research) of
properties for any of the Properties.
1.4 Independent Contractor. In performing its obligations under a
Subsidiary Agreement, SMC shall be an independent contractor. Neither COPI nor
any Subsidiary nor SMC intends by this Agreement or any Subsidiary Agreement to
create a partnership, joint venture or trust or (except as provided elsewhere
herein) to make either party hereto the agent of the other party hereto or to
create any fiduciary relationship between a Subsidiary and SMC or between COPI
and SMC or to create any contractual relationship between COPI and SMC or
between any Subsidiary and SMC except as expressly created by this Agreement or
any Subsidiary Agreement. Except as strictly provided in this Agreement or a
Subsidiary Agreement, SMC shall not in any capacity become liable for any
obligations, liabilities, losses or debts of COPI or any Subsidiary.
1.5 Representation by SMC. SMC represents and warrants to COPI and each
Subsidiary that by entering into and performing its obligations under this
Agreement and each Subsidiary Agreement, SMC is not violating and will not
violate any contractual, fiduciary or legal obligations or responsibilities to
which it is or is likely to become subject, nor is it subject to any
contractual, fiduciary or legal obligations or responsibilities which may
reasonably be expected to interfere with its ability to perform its obligations
under this Agreement or any Subsidiary Agreement.
4
<PAGE> 5
1.6 Other Services. The parties contemplate that SMC may offer to provide
other services beyond Asset Management Services and Administrative Services to
COPI, one or more Subsidiaries, or the owners of the Properties. Such services
may include construction supervision and development management services.
Nothing in this Agreement shall apply to the rendition of any such other
services.
1.7 COPI Guaranty.
(a) Except as provided otherwise in Section 1.7(b), COPI hereby
irrevocably and unconditionally guarantees to SMC the full and timely
payment of all amounts that may become due and payable to SMC pursuant to
any Subsidiary Agreement.
(b) The guaranty set forth in Section 1.7(a) shall expire
automatically and immediately upon the assignment by COPI of its rights
under this Agreement in accordance with Section 8.2 if COPI's assignee
becomes primarily obligated to SMC, either by assuming the Subsidiary
Agreements or by giving SMC a guaranty like the guaranty set forth in
Section 1.7(a).
ARTICLE 2
TERM
SMC's duties and responsibilities with respect to a Property under each
Subsidiary Agreement shall begin on the date specified in such Subsidiary
Agreement as the "Commencement Date" and, except as otherwise provided herein,
with respect to such Property shall be coterminous with the term of the Lease of
such Property, as such term may be hereafter extended from time to time (the
"Management Period"). The Subsidiary Asset Management Agreement between SMC and
CDMC with respect to its investment in Manalapan Partners shall remain in effect
so long as CDMC remains a member of Manalapan Partners.
ARTICLE 3
APPOINTMENT OF AND RESPONSIBILITIES OF
ASSET MANAGEMENT SERVICES PROVIDER
If SMC enters into a Subsidiary Asset Management Agreement with a
Subsidiary, then:
3.1 Appointment of SMC for Asset Management Services. Pursuant to the
Subsidiary Asset Management Agreement to which it is a party, such Subsidiary
shall appoint SMC as exclusive manager of the assets of such Subsidiary listed
in Schedule 1 to such Subsidiary Asset Management Agreement, including its
interests under the Lease or Leases to which it is a party, and in connection
therewith SMC shall, with respect to the Property covered by such Subsidiary
Asset Management Agreement, (i) perform, to direct the performance of, or to
supervise the performance of such Subsidiary's obligations under such Lease or
Leases, (ii) supervise the performance of the Operator (if there is one) of the
Property or Properties, (iii) promote, exercise, and protect the rights of such
Subsidiary under the Lease or Leases to which it is a party and, if applicable,
its contract with the
5
<PAGE> 6
Operator, (iv) on behalf of such Subsidiary deal with the Property owner, the
Operator (if there is one) and other third parties, (v) perform the services
listed in Schedule 2 to this Agreement, and (vi) in general to oversee,
preserve, protect, supervise, maintain, promote and utilize such Subsidiary's
assets associated with or relating to the Property or Properties which are the
subject of the Subsidiary Asset Management Agreement. In carrying out its
duties, SMC (provided SMC shall have been provided by such Subsidiary the
funding required of it under such Subsidiary Asset Management Agreement) shall
endeavor to assure that each Property is operated in an efficient and
businesslike manner consistent with the standard, status and character of such
Property as a first class hotel or resort property, that revenues and net income
from operation of such Property are maximized, and, subject to Section 3.5, to
do and perform, or cause to be done and performed, all other activities
customary and usual in connection with the management of such Property.
3.2 Authority and Power. Each Subsidiary authorizes SMC, subject to
Section 3.5, to exercise such powers with respect to the Lease with respect to
which SMC is to provide Asset Management Services, the Property Management
Agreement (if any) and the interests and assets of such Subsidiary as may be
necessary for the performance of SMC's obligations under the terms of the
Subsidiary Asset Management Agreement and SMC accepts such appointment under the
terms and conditions set forth herein. Except as expressly limited in Section
3.5, SMC shall have plenary right and authority to commit or otherwise obligate
such Subsidiary in all matters pertaining to such Lease or such Management
Agreement.
3.3 Management of Property Assets Generally. Subject to Section 3.5, SMC,
on behalf of such Subsidiary, shall implement, or cause to be implemented, the
decisions of such Subsidiary with respect to its Lease or Leases, its Property
Management Agreement (if applicable) and its Property or Properties; shall
direct the performance of such Subsidiary's obligations under such Lease or
Leases and such Management Agreement; and shall supervise the performance by the
Operator of its obligations under such Management Agreement; including, without
limitation: (a) formulating policies, strategies and tactics for carrying out
such Subsidiary's duties under its Lease or Leases; (b) reviewing and
supervising the performance by Operator of its contractual obligations to such
Subsidiary with respect to such Property or Properties; (c) assembling,
organizing and maintaining records of the operations and activities of the
Property or Properties; (d) maintaining permits and licenses required of such
Subsidiary and necessary for the leasing of the Property or Properties; and (e)
inspecting the Property or Properties to assure compliance by the Operator with
its Property Management Agreement. The services described in Sections 3.1, 3.3
and 3.4 are called "Asset Management Services".
3.4 Management of Property Assets Specifically. Without limiting the
preceding and by way of illustration but not limitation, SMC shall, subject to
Section 3.5, in a prudent, businesslike, skillful, and expeditious manner:
(a) after consultation with such Subsidiary, obtain all licenses,
permits, consents, and approvals ("Governmental Approvals") from any
applicable governmental authorities and agencies necessary for such
Subsidiary as lessee of the Property or Properties;
(b) after consultation with such Subsidiary, obtain all consents and
approvals ("Private Approvals") from any applicable associations, persons
and other parties holding
6
<PAGE> 7
rights of consent and approval necessary for such Subsidiary as lessee of
the Property or Properties;
(c) deliver to such Subsidiary an operating budget ("Operating
Budget") and a capital budget ("Capital Budget" and, jointly with the
Operating Budget, the "Operating and Capital Budgets") for the Property or
Properties pursuant to Section 3.9;
(d) prepare and submit to such Subsidiary upon its request (but not
more frequently than quarterly) written progress reports in form acceptable
to such Subsidiary and reflecting significant developments affecting or
relating to the Property or Properties, all for the periods requested by
such Subsidiary, and prepare and submit to such Subsidiary monthly
comparisons between budgeted and actual operations;
(e) consult with such Subsidiary on all matters requiring Approval of
such Subsidiary under or pursuant to Section 3.5 or elsewhere in this
Agreement or the Subsidiary Asset Management Agreement;
(f) permit such Subsidiary to inspect and audit records of SMC
pertaining to the Property or Properties as reasonably necessary and
consult with SMC on matters pertaining to the Property or Properties;
(g) coordinate and, where necessary, assist such Subsidiary at its
request in obtaining or recovering payment for all credits, reimbursables
or other funds payable to such Subsidiary in connection with the Lease or
Leases;
(h) advise such Subsidiary with respect to and with such Subsidiary's
Approval implement, any challenge to the tax rates or assessments on or
pertaining to the Property or Properties;
(i) comply with the applicable Lease and the applicable Property
Management Agreement (if any), including without limitation taking or
causing Operator to take all actions in management of the Property or
Properties as are required to be taken and refraining from taking any
action that would cause such Subsidiary to breach or be in default of the
Lease or Property Management Agreement;
(j) advise such Subsidiary with respect to all proposed amendments to
the Lease and Property Management Agreement and, as requested or directed
by such Subsidiary, provide such Subsidiary all other assistance with
respect to the review, analysis, modeling, drafting, preparation and
negotiation of Lease amendments and Property Management Agreement
amendments; in all such actions, SMC shall act as such Subsidiary's agent
and representative to the extent of authority granted by such Subsidiary;
and
(k) other than operational services provided under and budgeted for a
Property Management Agreement, all other services for the Properties of any
kind whatsoever, including without limitation the services listed in
Schedule 2 to this Agreement; provided, however, that such Subsidiary's
Approval shall be required for any services that either are not
7
<PAGE> 8
listed in Schedule 2 or involve costs and expenses of more than $50,000 in
the aggregate during any fiscal year.
3.5 Approval of Subsidiary Required. SMC shall not have authority or
exercise power to take any of the following actions without first obtaining such
Subsidiary's written approval or consent ("Approval"; an action shall be
"Approved" if Approval has been granted), which may be given or withheld in such
Subsidiary's sole discretion and judgement: (a) apply for, modify or renew a
Governmental Approval and Private Approval, if such Subsidiary beforehand shall
have requested SMC to discuss with it the propriety or advisability thereof, (b)
enter into any agreement or transaction which may become a lien against the
applicable Property, a personal obligation of any owner of such Subsidiary, or
an obligation of such Subsidiary involving more than $100,000, (c) sue, defend,
settle or compromise any claim by or against any third party, including but not
limited to governmental or taxing authorities, (d) incur any capital expenditure
or series of related capital expenditures in excess of, per Property, the sum of
the furniture, fixture and equipment ("FF&E") account for that Property plus
$50,000 (unless such expenditures have been previously specifically Approved in
a Capital Budget) for any fiscal year, (e) any changes, modifications or
alterations (other than immaterial changes) in the FF&E of the applicable
Property or the FF&E account for that Property, but only if such modification or
alteration would cause or result in a rental adjustment under the applicable
Lease, (f) any change of, or agreement to change, the association of the
applicable Property with an Operator or with its current "flag" or hotel chain
affiliation, (g) incur in any fiscal year any other expense, expenditure, cost
or obligation involving more than $50,000, unless such matter has previously
been Approved in an Operating or Capital Budget or otherwise Approved. or (h)
take any other action for which Approval is elsewhere in this Agreement or the
Subsidiary Asset Management Agreement required, without first obtaining such
Approval (including without limitation Approval of Operating and Capital Budgets
pursuant to Section 3.9). Notwithstanding the preceding, such Subsidiary's
Approval shall be deemed to have been given as to any action for which SMC shall
have requested Approval in writing if such Subsidiary shall have neither given
nor denied Approval within 20 days after its actual receipt of such written
request.
3.6 For the Subsidiary's Account; Exceptions. The services of SMC in
performing its duties and providing services pursuant to the Subsidiary Asset
Management Agreement shall be for the account of such Subsidiary. Except for
costs and obligations otherwise provided herein to be paid or borne by SMC, such
Subsidiary agrees to be responsible for all costs, expenses, and disbursements
incurred by SMC under the terms of this Agreement and the Subsidiary Asset
Management Agreement in providing Asset Management Services thereunder and such
Subsidiary agrees to provide all funding reasonably necessary for Manager to
perform its Asset Management Services under the Subsidiary Asset Management
Agreement; but without such Subsidiary's consent, SMC will not incur any
expenses or make any expenditure except as required or permitted in this
Agreement or the Subsidiary Asset Management Agreement. SMC shall be responsible
for and shall pay when due all of its internal costs and expenses (for example,
salaries, wages, fees and benefits of employees, advisors and all other labor
costs; travel expenses; and all general, administrative and operating expenses
of SMC) and all direct expenses, without reimbursement from COPI or any
Subsidiary; but each Property shall provide lodging and meals to visiting SMC
personnel at no charge to SMC. Whenever SMC in good faith believes that
emergency circumstances exist that require immediate actions to preserve such
Subsidiary's assets or to protect such Subsidiary's rights under the applicable
Lease or its contract (if applicable) with the Operator, then SMC shall take
such
8
<PAGE> 9
actions and incur such reasonably necessary expenses and expenditures for the
account of such Subsidiary, without undue delay, as SMC deems necessary under
the circumstances; but SMC shall furnish such Subsidiary a complete reporting of
such actions and expenses as promptly as practicable.
3.7 Standards. In the performance of its obligations under the Subsidiary
Asset Management Agreement, SMC shall exercise a high degree of skill,
expertise, judgment and prudence. SMC shall also act in the best interest of
such Subsidiary with respect to the proper protection of and accounting for the
Property or Properties.
3.8 Financial Reports and Records.
(a) SMC shall keep proper and suitable books and records for the Property
or Properties which are the subject of the Subsidiary Asset Management Agreement
as reasonably required to protect such Subsidiary's assets from theft, error or
fraudulent activity.
(b) SMC shall provide reports with respect to the Property or Properties
as set forth in Exhibit C and such other reports as such Subsidiary may from
time to time request.
(c) All financial statements and reports with respect to a Property will
be prepared in accordance with accounting principles established by such
Subsidiary and consistent with the requirements of the Lease to which such
Property is subject; if such Subsidiary does not specify accounting principles
to be followed by SMC, then SMC shall keep books and records in accordance with
the Uniform System of Accounts for Hotels as approved by the American Hotel
Association.
(d) Such Subsidiary or its representatives may, at any time, conduct
examinations of the books and records maintained for such Subsidiary by SMC.
Such Subsidiary also may perform any and all additional audit tests relating to
SMC's activities with respect to this Agreement or the Subsidiary Asset
Management Agreement at any appropriate place. Any and all such audits shall be
at the sole expense of such Subsidiary subject, however, to such Subsidiary's
indemnification rights. All books and records shall be preserved throughout the
Management Period, upon termination of this Agreement shall be promptly
delivered to such Subsidiary, and shall at all times remain the exclusive
property of such Subsidiary.
3.9 Budgets. SMC shall for each calendar year direct, review, negotiate
and (subject to the last sentence of this Section 3.9), approve the Operating
and Capital Budgets prepared by the Operator (or, if there is no Operator with
respect to the Property, SMC shall prepare the Operating and Capital Budgets on
customary terms consistent with the terms upon which Operating and Capital
Budgets are prepared by other Operators) and submit to such Subsidiary a report
thereon together with SMC's recommendations thereon. In connection with each
Capital Budget, SMC shall prepare a three-year plan, evaluate ROI projects,
direct long-term funds build-up, manage the Capital Budget process and work in
general toward maximizing asset improvement. The proposed Operating and Capital
Budgets for each Property shall be presented to such Subsidiary (a) as required
by the terms of the Property Management Agreement or Agreements, if applicable,
or (b) if (a) is inapplicable, as reasonably requested by such Subsidiary;
however, if the Budgets do not project a greater House Profit for that Property
than the House Profit for that Property for the immediately preceding fiscal
year, then the proposed Budgets shall be presented to such Subsidiary for its
Approval. "House
9
<PAGE> 10
Profit" of a Property shall mean the gross operating income of that Property,
calculated as the net operating income of that Property adjusted upward by
adding back the following: fixed expenses and adjustments: FF&E expenditures;
management fees to Operator; property, income and other taxes; insurance
expenses; and other charges generally qualifying as "fixed charges."
3.10 Intentionally Deleted.
3.11 Collection of Income. SMC shall use diligent efforts to collect all
income and payments due to such Subsidiary from operations of the Property or
Properties.
3.12 Compliance with Laws. SMC shall not in the performance of its services
hereunder violate any federal, state, municipal or other governmental law,
ordinance, rule or regulation. SMC shall immediately notify such Subsidiary of
any known violation of any federal, state, municipal or other governmental law,
ordinance, rule or regulation due to the structure, condition or operation of
the Property or Properties or the activities therein. SMC shall obtain and
maintain all permits and licenses required for such Subsidiary's lease and/or
operation of the Property or Properties. SMC shall not in performance of its
services hereunder knowingly violate, and shall comply in all material respects
with the terms of, such Subsidiary's Lease or Leases, Property Management
Agreement, mortgages, deeds of trust or other security instruments binding on
such Subsidiary or affecting the Property or Properties. In the event of a
conflict between the terms of any such document and the terms of this Agreement,
SMC shall not take any action except to notify such Subsidiary and await such
Subsidiary's instructions. SMC shall not be required to make any payment on its
own behalf or incur any liability in order to comply with the terms or
conditions of any such instruments.
3.13 Notification of Litigation. If SMC shall be apprised of any claim,
demand, suit or other legal proceeding made or instituted against such
Subsidiary on account of any matter connected with the Property or Properties,
SMC shall give such Subsidiary all information in its possession in respect
thereof, and shall assist and cooperate with such Subsidiary in all reasonable
respects in the defense of any such suit or other legal proceeding.
3.14 Confidentiality. SMC acknowledges and agrees that all information
about any Subsidiary or the Property or Properties provided to it is and will
continue to be the exclusive property of such Subsidiary and agrees to keep all
such information (other than information which is publicly known other than as a
result of SMC's disclosure in violation of this Agreement) in strictest
confidence except that limited disclosure may be made with the prior express
consent of such Subsidiary, or as SMC determines in good faith is necessary to
enable it to perform its obligations under this Agreement or the Subsidiary
Asset Management Agreement, or as required by law or judicial or regulatory
process. The provisions of this Section 3.14 shall survive termination of this
Agreement or any Subsidiary Asset Management Agreement.
3.15 Notice of Breaches and Defaults. SMC shall notify such Subsidiary
immediately upon becoming aware of a breach or default by SMC under the
Subsidiary Asset Management Agreement or the occurrence of an event which, with
or without notice or the lapse of time or both, would entitle such Subsidiary to
terminate such Subsidiary Asset Management Agreement for cause.
10
<PAGE> 11
3.16 Personal Performance Requirement. This Agreement and the Subsidiary
Asset Management Agreement are based on the special skill and ability of Sanjay
and Johanna Varma, as principals of SMC, and the devotion by them of sufficient
time to cause SMC to perform its obligations thereunder in a timely manner.
Therefore, Sanjay Varma covenants to such Subsidiary that he shall at all times
during the Management Period own in the aggregate a majority of the outstanding
stock of SMC and serve as the most senior executive officer and a member of the
board of directors of SMC, and Sanjay Varma shall devote the substantial
majority of his professional time and efforts to SMC's business.
ARTICLE 4
APPOINTMENT OF AND RESPONSIBILITIES OF
ADMINISTRATIVE SERVICES PROVIDER
If SMC is appointed to provide administrative services under a Subsidiary
Administrative Services Agreement with a Subsidiary other than CDMC, then:
4.1 Appointment of SMC for Administrative Services. Pursuant to the
Subsidiary Administrative Services Agreement to which it is a party, such
Subsidiary shall appoint SMC as exclusive provider of Administrative Services
for the assets and operations of such Subsidiary listed in Schedule 1 to such
Subsidiary Administrative Services Agreement, including its interests under the
lease or Leases to which it is a party, and in connection therewith SMC shall,
with respect to the Property covered by such Subsidiary Administrative Services
Agreement, perform the services listed in Schedule 3 to this Agreement The
services described in this Section 4.1 are called "Administrative Services."
4.2 Standards. In the performance of its obligations under the Subsidiary
Administrative Services Agreement, SMC shall exercise a high degree of skill,
expertise, judgment and prudence. SMC shall also act in the best interest of
such Subsidiary with respect to the proper protection of and accounting for the
Property or Properties.
4.3 Notification of Litigation. If SMC shall be apprised of any claim,
demand, suit or other legal proceeding made or instituted against such
Subsidiary on account of any matter connected with the Property or Properties,
SMC shall give such Subsidiary all information in its possession in respect
thereof, and shall assist and cooperate with such Subsidiary in all reasonable
respects in the defense of any such suit or other legal proceeding.
4.4 Confidentiality. SMC acknowledges and agrees that all information
about any Subsidiary or the Property or Properties provided to it is and will
continue to be the exclusive property of such Subsidiary and agrees to keep all
such information (other than information which is publicly known other than as a
result of SMC's disclosure in violation of this Agreement) in strictest
confidence except that limited disclosure may be made with the prior express
consent of such Subsidiary, or as SMC determines in good faith is necessary to
enable it to perform its obligations under this Agreement or the Subsidiary
Administrative Services Agreement, or as required by law or judicial or
regulatory process. The provisions of this Section 4.4 shall survive termination
of this Agreement or any Subsidiary Asset Management Agreement.
11
<PAGE> 12
ARTICLE 5
INSURANCE COVERAGE
SMC shall procure and maintain at all times during the Management Period
workmen's compensation insurance coverage, in reasonable amounts, for the
benefit of SMC. Each Subsidiary shall add SMC to its general liability insurance
policy or policies as an additional insured at all times during the Management
Period.
ARTICLE 6
COMPENSATION AND REIMBURSEMENTS
6.1 Compensation for Asset Management Services.
(a) Except as specifically provided elsewhere herein, SMC shall receive as
consideration and remuneration for all its services under a Subsidiary Asset
Management Agreement an amount equal to the sum of the Base Management Fee and
its allocable portion of the Incentive Management Fee.
(b) The "Base Management Fee" shall be an annualized fee equal to
eighty-five basis points (0.85%) (or, in the case of the Ritz Carlton, one
quarter of that amount, or 22.5 basis points) of the Gross Revenues of each
Property for which SMC provides asset management services under such Subsidiary
Asset Management Agreement. "Gross Revenues of each Property"shall mean all
items of revenue and income derived from operation of a Property as identified
or specified in the Property Management Agreement for such Property. The Base
Management Fee with respect to any Property will be payable in advance (each a
"Base Management Fee Monthly Installment"), not later than the 20th day of the
immediately preceding month, based upon the Gross Revenues projected in the
Operating Budget for such Property for such Property for the month to which such
Base Management Fee relates. Any Base Management Fee Monthly Installment not
paid when due shall bear simple interest at 18% per annum from and after the due
date until paid; additionally, for any Base Management Fee Monthly Installment
not paid by the first day of the month to which it relates, the Subsidiary
responsible therefor shall become obligated to immediately pay SMC a late charge
equal to ten percent of the amount of such Base Management Fee Monthly
Installment (exclusive of interest accrued thereon). Within 45 days following
the end of each quarter in each fiscal year ended during the Management Period
(and within 45 days following the end of the Management Period), SMC and the
Subsidiary party to the relevant Subsidiary Asset Management Agreement shall
calculate the value of eighty-five basis points (0.85%) of the Gross Revenues
for the quarter then ended of each such Property (the "Final Gross Revenue
Calculation"), and, (i) to the extent that the aggregate amount of the Base
Management Fee Monthly Installments received by SMC with respect to that quarter
exceed the Final Gross Revenue Calculation, then SMC shall within ten days
following the date of such calculation redeliver to such Subsidiary cash in the
amount of such excess, and (ii) to the extent that the Final Gross Revenue
Calculation exceeds the aggregate amount of the Base Management Fee Monthly
Installments received by SMC with respect to that quarter, then such
12
<PAGE> 13
Subsidiary shall within ten days following the date of such calculation pay to
such Subsidiary cash in the amount of such excess.
(c) The "Incentive Management Fee" shall be, for each full fiscal year, an
amount equal to Fifty Percent (50%) of the amount, if any, by which COPI
Hospitality Net Income for such fiscal year exceeds COPI Hospitality Budgeted
Income for such fiscal year for the Asset Managed Properties as a group;
provided, however, that in the event of the occurrence of a partial fiscal year
with respect to any Asset Managed Property, then the individual months' budgeted
and actual results (determined in the same manner as full year results) of that
Asset Managed Property will be used in calculating the Incentive Management Fee
for the Asset Managed Properties, as a group.
(d) The Incentive Management Fee for each fiscal year shall be payable in
arrears within 90 days following the last day of such fiscal year. For any
portion of the Management Period not constituting a fiscal year the Incentive
Management Fee shall be calculated and payable within 60 days following the end
of such period.
(e) The following definitions shall apply with respect to this Article 6:
(i) "Asset Managed Properties" shall mean all Properties for which
SMC provides asset management services under Subsidiary Asset Management
Agreements.
(ii) "COPI Hospitality Budgeted Net Income" shall mean that portion of
the Net Income projected in the Operating Budgets of all the Asset Managed
Properties that, if realized, would be distributable to COPI; provided,
however, that in the event of the occurrence of a partial fiscal year with
respect to any Asset Managed Property, then the individual months' budgeted
and actual results (determined in the same manner as full year results) of
that Asset Managed Property will be used in calculating the Incentive
Management Fee for the Asset Managed Properties, as a group.
(iii) A "fiscal year" shall mean a 12-month period beginning January 1
and ending December 31; however, a "partial fiscal year" shall mean, with
respect to any Asset Managed Property, a period beginning January 1 and
ending on the date such Asset Managed Property is no longer the subject of
a Subsidiary Agreement with a Subsidiary because (A) such Asset Managed
Property is sold, exchanged or otherwise disposed of by the owner of such
Asset Managed Property and the person acquiring such Asset Managed Property
does not elect to assume the obligations of the Subsidiary under that
Subsidiary Agreement or (B) the Lease of such Asset Managed Property is
reconveyed or surrendered to the lessor.
(iv) "COPI Hospitality Net Income" shall mean that portion of the Net
Income derived from all Asset Managed Properties that is distributed to, or
distributable to, COPI; provided, that no general or administrative
expenses of COPI shall be taken into account in determining COPI
Hospitality Net Income.
6.2 Administrative Services Compensation. In consideration of this
Agreement and in particular the agreements of COPI to allow SMC to provide
compensated asset management services to certain Subsidiaries as herein
contemplated, SMC shall perform its services under each Subsidiary
13
<PAGE> 14
Administrative Services Agreement for no additional consideration; provided,
however, that if in the discretion of COPI or a Subsidiary, a monetary
consideration should be paid for the Administrative Services to a Subsidiary,
then such Subsidiary may pay SMC a nominal monetary amount, as determined by
that Subsidiary, and SMC agrees that such additional remuneration shall be
acceptable and binding upon it.
ARTICLE 7
TERMINATION
7.1 Termination by a Subsidiary for Cause.
(a) A Subsidiary shall have the right to immediately terminate its
Subsidiary Agreement, without recourse by SMC except as provided in Section
7.5(b), in the event SMC commits any act (i) which is a breach of a material
provision of this Agreement or its Subsidiary Agreement or (ii) which
constitutes an act of gross negligence, willful or wanton misconduct relating to
or pertaining to the Property subject to such Subsidiary Agreement or (iii)
which is in material violation of any mortgage, deed of trust, or other security
instrument, property management agreement, equipment lease, insurance contract,
or other material contract or agreement affecting the Property which is the
subject of such Subsidiary Agreement, and which is not cured within 20 days
after written demand by such Subsidiary to SMC (provided, that such Subsidiary
shall not be required to give SMC an opportunity to cure if in such Subsidiary's
good faith judgment its rights or interests are likely to be materially
prejudiced by delay).
(b) A Subsidiary shall have the right to terminate its Subsidiary
Agreement upon at least 90 days notice, without recourse by SMC except as
provided in Section 7.5(b), in the event that:
(i) SMC shall apply for or consent to the appointment of a receiver,
trustee, or liquidator of SMC or of all or a substantial part of its
assets, file a voluntary petition in bankruptcy, or admit in writing its
inability to pay its debts as they come due, make a general assignment for
the benefit of creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or take advantage of any
insolvency law, or file an answer admitting the material allegations of a
petition filed against SMC in any bankruptcy, reorganization, or insolvency
proceeding, or of an order, judgment, or on the application of a creditor,
a decree shall be entered by any court of competent jurisdiction
adjudicating SMC bankrupt or insolvent or approving a petition seeking
reorganization of SMC or appointing a receiver, trustee, or liquidator of
SMC or of all or a substantial part of its assets, and such order, judgment
or decree shall continue unstayed and in effect for any period of 90
consecutive days;
(ii) Another Subsidiary shall have terminated its Subsidiary Agreement
for cause; or
(iii) The Properties, taken as a whole, shall have failed to at least
meet the COPI Hospitality Budgeted House Profit for the Properties, taken
as a whole, for any three consecutive fiscal years (as defined in Section
6.1).
14
<PAGE> 15
(c) In the event that Sanjay Varma dies, becomes permanently disabled or
incapacitated (and an individual shall be deemed "permanently disabled or
incapacitated" if he is unable to complete his duties for 60 days in any
consecutive 90 day period), or ceases to engage personally in performing SMC's
obligations under the Subsidiary Agreement, a Subsidiary shall have the right to
terminate its Subsidiary Agreement immediately following the completion of a
12-month review period, without recourse by SMC except as provided in Section
7.5(b), provided that such Subsidiary shall have given notice of such
termination at least 90 days prior to the completion of such review period.
7.2 Termination in Event of Sale of Property or Surrender of Lease. In
addition, a Subsidiary Agreement shall terminate (a) if any Property which is
the subject of such Subsidiary Agreement is sold, exchanged or otherwise
disposed of by the owner of such Property and the person acquiring such Property
does not elect to assume the obligations of such Subsidiary under such
Subsidiary Agreement or (b) if any Lease of a Property which is the subject of
such Subsidiary Agreement shall have been reconveyed or surrendered to the
lessor. The date of termination of the Subsidiary Agreement shall be deemed to
be the date as of which the relevant Property is sold, exchanged or otherwise
disposed of or the date as of which the Lease of the relevant Property is
reconveyed or surrendered to the lessor (the "Effective Termination Date"); and
such Subsidiary shall give SMC notice of the occurrence of such event and of the
Effective Termination Date. In either event, then such Subsidiary shall pay SMC
a termination fee (the "Termination Fee"). The Termination Fee due SMC shall be
payable in a single lump sum cash payment by such Subsidiary within three months
following the Effective Termination Date. The Termination Fee due SMC shall be
equal to the Base Management Fee plus the Incentive Management calculated for
the twelve month period ended the last day of the calendar month immediately
preceding the calendar month of the Effective Termination Date.
7.3 Termination by SMC.
(a) SMC shall have the right to immediately terminate a Subsidiary
Agreement, without recourse by the Subsidiary that is a party thereto except as
provided in Section 7.5(b), in the event such Subsidiary commits any act (i)
which is a breach of a material provision of its Subsidiary Agreement or (ii)
which constitutes an act of gross negligence, willful or wanton misconduct
relating to or pertaining to the Property subject to the Subsidiary Agreement or
(iii) which is in material violation of any mortgage, deed of trust, or other
security instrument, equipment lease, property management agreement, insurance
contract, or other material contract or agreement affecting the Property which
is the subject of such Subsidiary Agreement, and which is not cured within 20
days after written demand by SMC to such Subsidiary (provided, that SMC shall
not be required to give such Subsidiary an opportunity to cure if in SMC's good
faith judgment its rights or interests are likely to be materially prejudiced by
delay).
(b) SMC shall have the right to terminate a Subsidiary Agreement upon at
least 90 days notice, without recourse by such Subsidiary except as provided in
Section 7.5(b), in the event such Subsidiary shall apply for or consent to the
appointment of a receiver, trustee, or liquidator of such Subsidiary or of all
or a substantial part of its assets, file a voluntary petition in bankruptcy, or
admit in writing its inability to pay its debts as they come due, make a general
assignment for the benefit of creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or take advantage of any insolvency
law, or file an answer admitting the material allegations of a petition filed
15
<PAGE> 16
against such Subsidiary in any bankruptcy, reorganization, or insolvency
proceeding, or of an order, judgment, or on the application of a creditor, a
decree shall be entered by any court of competent jurisdiction adjudicating such
Subsidiary bankrupt or insolvent or approving a petition seeking reorganization
of such Subsidiary or appointing a receiver, trustee, or liquidator of such
Subsidiary or of all or a substantial part of its assets, and such order,
judgment or decree shall continue unstayed and in effect for any period of 90
consecutive days.
(c) SMC shall have the right to terminate a Subsidiary Agreement
immediately, without recourse by such Subsidiary except as provided in Section
7.5(b), in the event that SMC shall not have been paid the compensation due to
it pursuant to Article 6 hereof, SMC thereafter shall have made written demand
upon such Subsidiary to pay such compensation, and SMC shall not have received
such compensation within 20 days after such written demand shall have been
given; provided, that SMC shall have given notice to both such Subsidiary and
COPI of such non-payment no later than 60 days after such due date.
7.4 Intentionally Deleted.
7.5 Effect of Termination.
(a) Upon the termination of a Subsidiary Agreement, the obligation of the
Subsidiary party thereto to pay SMC compensation thereunder shall cease upon the
date of termination or resignation (the "Termination Date"), and except as
provided herein, the parties shall have no further rights or obligations to the
other.
(b) Notwithstanding the foregoing, the termination of this Agreement shall
not affect (i) the rights of a Subsidiary or SMC with respect to any damages at
law or in equity either may have suffered as a result of any breach of their
Subsidiary Agreement by the other party hereto, (ii) the rights of a Subsidiary
or SMC with respect to liability or claims accrued (including but not limited to
reimbursement rights), or arising out of events occurring, prior to the
Termination Date of their Subsidiary Agreement, (iii) the indemnification or
exoneration rights of SMC set forth in Sections 9.5 and 9.6, (iv) the
confidentiality obligations of SMC under Section 3.12 and 4.2, (v) the
obligations of SMC under Section 7.6, and (vi) the provisions of this Section
7.5 and of Section 7.2. The provisions of this Section 7.5 and of Sections 7.3,
7.6, 3.13, 9.5 and 9.6 shall survive termination of this Agreement.
(c) No party to this Agreement or to any Subsidiary Agreement shall be
liable to any other party hereto or thereto for consequential or punitive
damages arising as a result of a breach of this Agreement or any Subsidiary
Agreement.
7.6 Final Accounting. Upon termination of a Subsidiary Agreement for any
reason, SMC shall not take or destroy any books, records, contracts, receipts
for deposits, unpaid bills, and other papers, documents (including all related
computer programs) or properties and operating and maintenance information which
relate to a Property, Lease or a Property Management Agreement or any personal
property or equipment of a Property. SMC shall convey to the applicable
Subsidiary all books and records (including all related computer programs)
pertaining to a Property, Lease or Property Management Agreement in its
possession or under its control and make a final accounting
16
<PAGE> 17
as promptly as practicable but in no event later than 60 days following the
Termination Date. SMC shall cooperate with such Subsidiary and SMC's successor
to assign contracts, transfer management responsibilities, and otherwise to make
best efforts to assure continued asset management services without interruption;
without limiting the foregoing, SMC shall not take any actions which might
reasonably be expected to interfere with or damage the continued operations of a
Property or its reputation and shall not make any disparaging public remarks
about a Property, a Subsidiary, COPI, or SMC's successor. The provisions of this
Section 7.6 shall survive termination of this Agreement.
ARTICLE 8
ASSIGNMENT
8.1 No Assignment by SMC. Each Subsidiary Agreement is a personal services
contract with respect to SMC and, therefor, SMC may not assign its rights and
obligations under a Subsidiary Agreement without the prior written consent of
the Subsidiary that is a party thereto, which consent may be given or withheld
in such Subsidiary's sole and absolute discretion.
8.2 Assignment Permitted by Subsidiary; Assignment by COPI. A Subsidiary
may assign its rights or obligations under its Subsidiary Agreement, without the
prior written consent of SMC, to any assignee or successor of such Subsidiary
that succeeds to the Subsidiary's obligations as lessee or owner with respect to
the Property to which such Subsidiary's Subsidiary Agreement relates. The
assignment of a Subsidiary Agreement by a Subsidiary which is a party thereto
shall not be deemed to terminate such Subsidiary Agreement or to give SMC any
right to receive a Termination Fee. Effective automatically and immediately upon
the assignment by a Subsidiary of its obligations under its Subsidiary Agreement
as permitted by this Section 8.2, COPI's guaranty under Section 1.7 shall
immediately expire and terminate with respect to that Subsidiary Agreement;
provided, however, that if the sole asset and business of a Subsidiary's
assignee is the leasing or owning of the Property to which the assigned
Subsidiary Agreement relates and if such assignee is wholly-owned by another
entity as its parent entity, then such parent entity shall have given SMC a
guaranty like the guaranty set forth in Section 1.7(a). In addition, SMC agrees
that COPI may assign (or cause its Subsidiaries to assign) this Agreement (their
respective Subsidiary Agreements) to a subsidiary of CEI without the consent of
SMC; and in such event, all of the obligations of COPI (and such respective
Subsidiaries) shall cease and be extinguished.
8.3 Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, their respective legal representatives
and permitted successors and permitted assigns.
ARTICLE 9
GENERAL PROVISIONS
9.1 Modification and Changes. This Agreement cannot be altered, amended,
or modified except by another agreement in writing signed by all the parties
hereto.
17
<PAGE> 18
9.2 Understandings and Agreements. This Agreement (including all Schedules
and Exhibits attached hereto, which are incorporated herein by reference),
together with the Subsidiary Agreements, constitutes all of the understandings
and agreements of whatsoever nature or kind existing between the parties with
respect to SMC's asset management services and administrative services to the
Subsidiaries in connection with the Properties.
9.3 Waiver. No consent or waiver, express or implied, by any party to this
Agreement or any Subsidiary Agreement to or for any breach or default by any
other party to this Agreement or any Subsidiary Agreement in the performance by
such other party of its obligations under this Agreement or any Subsidiary
Agreement shall be deemed or construed to be a consent or waiver to or of any
other breach or default in the performance by such other party of the same or
any other obligations of such other party under this Agreement or any Subsidiary
Agreement. Failure on the part of any party to this Agreement or any Subsidiary
Agreement to complain of any act or failure to act of any other party to this
Agreement or any Subsidiary Agreement or to declare any other party in default,
regardless of how long such failure continues, shall not constitute a waiver by
such party of his or its rights thereunder.
9.4 Headings. The Article and Section headings contained herein are for
convenience or reference only and are not intended to define, limit, or describe
the scope or intent of any provision of this Agreement.
9.5 INDEMNIFICATION OF SMC. SUBJECT TO SECTION 9.5(G) AND (H), A
SUBSIDIARY SHALL INDEMNIFY AND HOLD HARMLESS SMC AS FOLLOWS:
(A) IN ANY THREATENED, PENDING OR COMPLETED ACTION, SUIT OR
PROCEEDING, WHETHER CIVIL, CRIMINAL, ADMINISTRATIVE, ARBITRATIVE OR
INVESTIGATIVE, TO WHICH SMC WAS OR IS A PARTY OR IS THREATENED TO BE MADE A
PARTY INVOLVING AN ALLEGED CAUSE OF ACTION ARISING FROM THE ACTIVITIES OF
SMC AND WHICH ACTIVITIES WERE ON BEHALF OF SUCH SUBSIDIARY OR THE PROPERTY
WHICH IS THE SUBJECT OF THE SUBSIDIARY AGREEMENT BETWEEN SUCH SUBSIDIARY
AND SMC OR ANY APPEAL IN SUCH ACTION, SUIT OR PROCEEDING OR IN ANY INQUIRY
OR INVESTIGATION THAT COULD LEAD TO SUCH AN ACTION, SUIT OR PROCEEDING,
SUCH SUBSIDIARY SHALL (EXCEPT AS OTHERWISE PROVIDED IN SECTION 9.5(C)
BELOW) INDEMNIFY SMC AGAINST ANY AND ALL LOSSES, CLAIMS, DEMANDS,
LIABILITIES, COSTS AND EXPENSES, INCLUDING REASONABLE ATTORNEYS' FEES,
ACCOUNTANT'S FEES, JUDGMENTS, PENALTIES, FINES AND AMOUNTS PAID IN
SETTLEMENT, ACTUALLY AND REASONABLY INCURRED BY SMC IN CONNECTION WITH SUCH
ACTION, SUIT OR PROCEEDING, (COLLECTIVELY "LOSSES") PROVIDED THAT (I) SMC
ACTED IN GOOD FAITH, (II) SMC ACTED IN A MANNER IT REASONABLY BELIEVED TO
BE IN THE BEST INTERESTS OF SUCH SUBSIDIARY, AND (III) SMC'S CONDUCT DOES
NOT CONSTITUTE A BREACH OF A MATERIAL PROVISION OF THIS AGREEMENT OR THE
SUBSIDIARY AGREEMENT BETWEEN SUCH SUBSIDIARY AND SMC OR AN ACT OF
NEGLIGENCE OR WILLFUL OR WANTON MISCONDUCT OR A MATERIAL
18
<PAGE> 19
VIOLATION OF ANY MORTGAGE, DEED OF TRUST, OR OTHER SECURITY INSTRUMENT,
EQUIPMENT LEASE, INSURANCE CONTRACT OR OTHER MATERIAL CONTRACT OR AGREEMENT
AFFECTING THE PROPERTY. THE TERMINATION OF A PROCEEDING BY JUDGMENT, ORDER,
SETTLEMENT, CONVICTION OR UPON A PLEA OF NOLO CONTENDERE, OR ITS
EQUIVALENT, SHALL NOT, OF ITSELF, DETERMINE OR CREATE A PRESUMPTION THAT
SMC DID NOT ACT IN GOOD FAITH AND IN A MANNER THAT IT REASONABLY BELIEVED
TO BE IN THE BEST INTERESTS OF SUCH SUBSIDIARY, NOR SHALL ANY SUCH
TERMINATION OF A PROCEEDING, OF ITSELF, DETERMINE OR CREATE A PRESUMPTION
THAT SMC WAS NEGLIGENT OR WAS GUILTY OF WILLFUL OR WANTON MISCONDUCT OR A
BREACH OF A MATERIAL PROVISION OF THIS AGREEMENT OR SUCH SUBSIDIARY
AGREEMENT UNLESS A SPECIFIC FINDING TO SUCH EFFECT IS INCLUDED IN SUCH
JUDGMENT, ORDER, SETTLEMENT, CONVICTION OR PLEA.
(B) WITH RESPECT TO MATTERS AS TO WHICH SMC IS ENTITLED TO
INDEMNIFICATION HEREUNDER, ALL REASONABLE EXPENSES (INCLUDING REASONABLE
LEGAL FEES AND EXPENSES) INCURRED IN DEFENDING ANY PROCEEDING SHALL BE PAID
BY SUCH SUBSIDIARY IN ADVANCE OF THE FINAL DISPOSITION OF SUCH PROCEEDING
UPON RECEIPT OF AN UNDERTAKING BY OR ON BEHALF OF SMC TO REPAY SUCH AMOUNT
IF IT SHALL ULTIMATELY BE DETERMINED, BY A COURT OF COMPETENT JURISDICTION
OR OTHERWISE, THAT SMC IS NOT ENTITLED TO BE INDEMNIFIED BY SUCH SUBSIDIARY
AS AUTHORIZED HEREUNDER.
(C) ANY SUCH INDEMNIFICATION SHALL BE MADE ONLY OUT OF THE ASSETS OF
SUCH SUBSIDIARY, AND IN NO EVENT MAY SMC SUBJECT THE OWNERS, SHAREHOLDERS,
PARTNERS, MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES OR AGENTS OF
SUCH SUBSIDIARY TO PERSONAL LIABILITY BY REASON OF THESE INDEMNIFICATION
PROVISIONS.
(D) THE INDEMNIFICATION PROVIDED BY THIS SECTION 9.5 SHALL BE IN
ADDITION TO ANY OTHER RIGHTS TO WHICH SMC MAY BE ENTITLED, IN ANY CAPACITY,
UNDER ANY AGREEMENT, AS A MATTER OF LAW OR OTHERWISE AND SHALL INURE TO THE
BENEFIT OF THE HEIRS, SUCCESSORS, ASSIGNS AND ADMINISTRATORS OF SMC.
(E) SMC SHALL NOT BE DENIED INDEMNIFICATION IN WHOLE OR IN PART UNDER
THIS SECTION 9.5 BECAUSE SMC HAD AN INTEREST IN THE TRANSACTION WITH
RESPECT TO WHICH THE INDEMNIFICATION APPLIES IF THE TRANSACTION WAS
OTHERWISE PERMITTED BY THE TERMS OF THIS AGREEMENT.
(F) THE PROVISIONS OF THIS SECTION 9.5 SHALL SURVIVE ANY TERMINATION
OF SUCH SUBSIDIARY AGREEMENT.
19
<PAGE> 20
(G) DESPITE THE FOREGOING, A SUBSIDIARY SHALL HAVE NO OBLIGATION TO
INDEMNIFY SMC UNDER THIS SECTION 9.5 IF AND TO THE EXTENT THAT DAMAGES
ARISE AS A RESULT OF OR RELATE TO SMC'S BAD FAITH, BREACH OF THIS AGREEMENT
OR SUCH SUBSIDIARY AGREEMENT OR OUT OF SMC'S WILLFUL OR WANTON MISCONDUCT
OR NEGLIGENCE.
(H) DESPITE THE FOREGOING, A SUBSIDIARY SHALL HAVE NO OBLIGATION TO
INDEMNIFY SMC UNDER THIS SECTION 9.5 WITH RESPECT TO ANY MATTER OF THE KIND
DESCRIBED IN SECTION 9.7A.
9.6 Exoneration of SMC. SMC shall not be liable for obligations,
liabilities, losses or debts of a Subsidiary or damages caused by or resulting
from actions or omissions of a Subsidiary, except if and to the extent of
obligations, liabilities, losses, debts or damages that arise as a result of or
relate to SMC's bad faith, breach of this Agreement or such Subsidiary Agreement
or out of SMC's willful or wanton misconduct or negligence. Furthermore, SMC
shall not be liable to a Subsidiary for mistakes in judgement, for actions or
inactions taken or omitted for a purpose which SMC in good faith reasonably
believed to be in the best interest of such Subsidiary, for losses due to
mistake, action or omission of any agent provided that he shall have been
selected and monitored by SMC in good faith, if the same do not result from or
involve negligence, willful or wanton misconduct, or breach of a material
provision of this Agreement or such Subsidiary Agreement. The provisions of this
Section 9.6 shall survive any termination of this Agreement or such Subsidiary
Agreement.
9.7A INDEMNIFICATION OF COPI AND SUBSIDIARIES. SUBJECT TO SECTION 9.7A(G)
AND (H), SMC SHALL INDEMNIFY AND HOLD HARMLESS COPI AND EACH SUBSIDIARY AS
FOLLOWS:
(A) IN ANY THREATENED, PENDING OR COMPLETED ACTION, SUIT OR
PROCEEDING, WHETHER CIVIL, CRIMINAL, ADMINISTRATIVE, ARBITRATIVE OR
INVESTIGATIVE, TO WHICH COPI OR A SUBSIDIARY WAS OR IS A PARTY OR IS
THREATENED TO BE MADE A PARTY INVOLVING AN ALLEGED CAUSE OF ACTION ARISING
FROM THE ACTIVITIES OF SMC OR ANY APPEAL IN SUCH ACTION, SUIT OR PROCEEDING
OR IN ANY INQUIRY OR INVESTIGATION THAT COULD LEAD TO SUCH AN ACTION, SUIT
OR PROCEEDING, SMC SHALL (EXCEPT AS OTHERWISE PROVIDED IN SECTION 9.7A(C)
BELOW) INDEMNIFY COPI AND EACH SUBSIDIARY AGAINST ANY AND ALL LOSSES,
CLAIMS, DEMANDS, LIABILITIES, COSTS AND EXPENSES, INCLUDING REASONABLE
ATTORNEYS' FEES, ACCOUNTANT'S FEES, JUDGMENTS, PENALTIES, FINES AND AMOUNTS
PAID IN SETTLEMENT, ACTUALLY AND REASONABLY INCURRED BY SMC IN CONNECTION
WITH SUCH ACTION, SUIT OR PROCEEDING, (COLLECTIVELY "LOSSES") PROVIDED THAT
SMC SHALL NOT BE OBLIGATED TO INDEMNIFY UNDER THIS SECTION 9.7A IF (I) SMC
ACTED IN GOOD FAITH, (II) SMC ACTED IN A MANNER IT REASONABLY BELIEVED TO
BE IN THE BEST INTERESTS OF SUCH SUBSIDIARY, AND (III) SMC'S CONDUCT DOES
NOT CONSTITUTE A BREACH OF A MATERIAL PROVISION OF THIS AGREEMENT OR THE
SUBSIDIARY
20
<PAGE> 21
AGREEMENT BETWEEN SUCH SUBSIDIARY AND SMC OR AN ACT OF GROSS NEGLIGENCE OR
WILLFUL OR WANTON MISCONDUCT OR A MATERIAL VIOLATION OF ANY MORTGAGE, DEED
OF TRUST, OR OTHER SECURITY INSTRUMENT, EQUIPMENT LEASE, INSURANCE CONTRACT
OR OTHER MATERIAL CONTRACT OR AGREEMENT AFFECTING THE PROPERTY.
(B) WITH RESPECT TO MATTERS AS TO WHICH COPI OR A SUBSIDIARY IS
ENTITLED TO INDEMNIFICATION HEREUNDER, ALL REASONABLE EXPENSES (INCLUDING
REASONABLE LEGAL FEES AND EXPENSES) INCURRED IN DEFENDING ANY PROCEEDING
SHALL BE PAID BY SMC IN ADVANCE OF THE FINAL DISPOSITION OF SUCH PROCEEDING
UPON RECEIPT OF AN UNDERTAKING BY OR ON BEHALF OF COPI OR SUCH SUBSIDIARY
TO REPAY SUCH AMOUNT IF IT SHALL ULTIMATELY BE DETERMINED, BY A COURT OF
COMPETENT JURISDICTION OR OTHERWISE, THAT IT IS NOT ENTITLED TO BE
INDEMNIFIED BY SMC AS AUTHORIZED HEREUNDER.
(C) ANY SUCH INDEMNIFICATION SHALL BE MADE ONLY OUT OF THE ASSETS OF
SMC, AND IN NO EVENT MAY COPI OR A SUBSIDIARY SUBJECT THE OWNERS,
SHAREHOLDERS, PARTNERS, MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES
OR AGENTS OF SMC TO PERSONAL LIABILITY BY REASON OF THESE INDEMNIFICATION
PROVISIONS.
(D) THE INDEMNIFICATION PROVIDED BY THIS SECTION 9.7A SHALL BE IN
ADDITION TO ANY OTHER RIGHTS TO WHICH COPI AND THE SUBSIDIARIES MAY BE
ENTITLED, IN ANY CAPACITY, UNDER ANY AGREEMENT, AS A MATTER OF LAW OR
OTHERWISE AND SHALL INURE TO THE BENEFIT OF THE HEIRS, SUCCESSORS, ASSIGNS
AND ADMINISTRATORS OF COPI AND THE SUBSIDIARIES.
(E) NEITHER COPI NOR A SUBSIDIARY SHALL BE DENIED INDEMNIFICATION IN
WHOLE OR IN PART UNDER THIS SECTION 9.7A BECAUSE EITHER HAD AN INTEREST IN
THE TRANSACTION WITH RESPECT TO WHICH THE INDEMNIFICATION APPLIES IF THE
TRANSACTION WAS OTHERWISE PERMITTED BY THE TERMS OF THIS AGREEMENT.
(F) THE PROVISIONS OF THIS SECTION 9.7A SHALL SURVIVE ANY TERMINATION
OF SUCH SUBSIDIARY AGREEMENT.
(G) DESPITE THE FOREGOING, SMC SHALL HAVE NO OBLIGATION TO INDEMNIFY
COPI OR A SUBSIDIARY UNDER THIS SECTION 9.7A IF AND TO THE EXTENT THAT
DAMAGES ARISE AS A RESULT OF OR RELATE TO BAD FAITH, BREACH OF THIS
AGREEMENT OR SUCH SUBSIDIARY AGREEMENT, OR WILLFUL OR WANTON MISCONDUCT OR
GROSS NEGLIGENCE ON THE PART OF THE PARTY SEEKING INDEMNIFICATION.
21
<PAGE> 22
(H) DESPITE THE FOREGOING, SMC SHALL HAVE NO OBLIGATION TO INDEMNIFY
COPI OR A SUBSIDIARY UNDER THIS SECTION 9.7A WITH RESPECT TO ANY MATTER OF
THE KIND DESCRIBED IN SECTION 9.5.
9.7 Third Parties. None of the obligations hereunder of either party shall
run to or be enforceable by any party other than the other party to this
Agreement.
9.8 Governing Law. THE VALIDITY, ENFORCEMENT, AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD
TO ITS CHOICE OF LAW PRINCIPLES.
9.9 Severability. In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal, or unenforceable provision had never been
contained herein.
9.10 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original for all purposes and all of which when
taken together shall constitute a single counterpart instrument. Executed
signature pages to any counterpart instrument may be detached and affixed to a
single counterpart, which single counterpart with multiple executed signature
pages affixed thereto constitutes the original counterpart instrument. All of
these counterpart pages shall be read as though one and they shall have the same
force and effect as if all of the parties had executed a single signature page.
9.11 Notice. Any notice or communication hereunder or in any agreement
entered into in connection with the transactions contemplated hereby must be in
writing and given by depositing the same in the United States first class mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person or
by facsimile transmission, or by sending the same by reputable overnight
courier. Such notice shall be deemed received on the date on which it is
hand-delivered or received by facsimile transmission, on the third business day
following the date on which it is so mailed, or on the business day next
following the date on which it is sent by overnight courier. For purposes of
notice, the addresses of the parties shall be:
If to a Subsidiary: At the address and facsimile number
given for such Subsidiary in its Subsidiary Agreement
With a
Copy to: Crescent Operating, Inc.
306 W. 7th Street, Suite 1000
Fort Worth, Texas 76102
Attention: Jeffrey L. Stevens, Chief Operating Officer
Facsimile: 817 339 2220
22
<PAGE> 23
If to SMC or
the Varmas: 306 W. 7th Street, Suite 1025
Fort Worth, Texas 76102
Attention: Sanjay Varma
Facsimile: 817 317 0665
Any party may change its address for notice by written notice given to the other
parties in accordance with this section.
9.12 Arbitration. Upon the demand of either party, whether made before or
after the institution of any judicial proceeding, any controversy or claim
whatsoever arising out of or relating to this Agreement or a Subsidiary
Agreement or the breach or alleged breach thereof, the performance or
nonperformance of any terms thereof, or the relationship between the parties
created by or arising out of this Agreement or a Subsidiary Agreement, shall be
settled by binding arbitration in Fort Worth, Texas, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgement upon the award rendered by the arbitrator or arbitrators may be
entered in any court having jurisdiction thereof.
23
<PAGE> 24
IN WITNESS WHEREOF, this Master Asset Management and Administrative
Services Agreement is executed as of the date first above written.
SMC:
SONOMA MANAGEMENT CORP. I
By:
----------------------------------------
Printed Name and Title:
----------------------------------------
COPI:
CRESCENT OPERATING, INC.
By:
----------------------------------------
Printed Name and Title:
----------------------------------------
SUBSIDIARIES:
[See Attached Signature Page for Execution]
FOR PURPOSES OF SECTION 3.16 ONLY:
--------------------------------
SANJAY VARMA
--------------------------------
JOHANNA VARMA
<PAGE> 25
SIGNATURE PAGE TO
MASTER ASSET MANAGEMENT AND SERVICES AGREEMENT
COI HOTEL GROUP, INC.
By:
---------------------------------------
Jeffrey L. Stevens, Chairman
CRL INVESTMENTS, INC.
By:
---------------------------------------
Jeffrey L. Stevens, President
ROSESTAR MANAGEMENT LLC
By:
---------------------------------------
Jeffrey L. Stevens, Manager
ROSESTAR SOUTHWEST, LLC
By: RSSW Corp, its manager
By:
---------------------------------------
Jeffrey L. Stevens, President
CANYON RANCH LEASING, L. L. C.
By: RoseStar Management, LLC
By:
---------------------------------------
Jeffrey L. Stevens, Manager
WINE COUNTRY HOTEL, LLC
By:
---------------------------------------
Jeffrey L. Stevens, Manager
CDMC PALM BEACH, INC.
By:
---------------------------------------
Jeffrey L. Stevens, Chief Executive Officer
<PAGE> 26
SCHEDULE 1
to Master Asset Management and Administrative Services Agreement
Subsidiaries
RoseStar Management LLC
RoseStar Southwest, LLC
COI Hotel Group, Inc.
Canyon Ranch Leasing, L. L. C.
Wine Country Hotel, LLC
CDMC Palm Beach, Inc.
CRL Investments, Inc.
26
<PAGE> 27
SCHEDULE 2
to Master Asset Management and Administrative Services Agreement
Services included within Asset Management Services
With respect to the applicable Property of each Subsidiary:
(a) review, negotiate and approve the marketing plan presented by the
Operator;
(b) visit with Property General Manager or Controller to analyze and
critique the monthly profit and loss, and other financial, statements, and
communicate with the Operator (if any) with a view to improving performance and
review, negotiate and approve of the Operating Budget to maximize revenues and
profits;
(c) prepare a quarterly update of operations, capital spending, other
business initiatives and forecasts, and prepare quarterly financial projections
for the current fiscal year, and prepare and present a monthly detailed property
analysis and financial performance update;
(d) review cash flow management through detail review of balance sheet and
cash flow projections every month;
(e) ensure proper insurance coverage, including business interruption
insurance;
(f) visit the Property quarterly and there perform a total Property
walk-through, update evaluation of all capital projects, repair and maintenance,
review the marketing plan, and review financial statements;
(g) review all Property operations, including without limitation the
following: (i) resort, (ii) spa, (iii) room (including revenue enhancement),
(iv) food and beverage, (v) merchandise, (vi) golf and country club, (vii)
maintenance and technical services, (viii) information services and (ix)
telecommunications;
(h) maintain a three-year capital plan;
(i) approve the Operator's capital expenditure plan, including quarterly
review and evaluation of all projects that generate new and incremental profit
sources for Subsidiary and Owner;
(j) ensure that Property is maintained by Operator in good physical
condition, approving capital and FF&E expenditures to achieve that purpose;
(k) monitor financial performance of Property through review of monthly
forecasts, updating of monthly forecasts, and review of actual performance;
(l) visit quarterly with corporate staff of each "flag" under which one or
more Properties are operated for a detailed review of financial and operational
matters, overhead costs, corporate support, manpower and capital operating
status;
27
<PAGE> 28
(m) work in general toward maximizing profits.
28
<PAGE> 29
SCHEDULE 3
to Master Asset Management and Administrative Services Agreement
Services included within Administrative Services
With respect to the applicable Property of each Subsidiary:
(a) deliver to Subsidiary a marketing plan;
(b) deliver to Subsidiary the Operating and Capital Budget; review with
Subsidiary and provide advice;
(c) deliver to Subsidiary monthly profit and loss statements,
incorporating revenue and profit results into monthly financial report for all
Properties;
(d) provide Subsidiary with a monthly update and status report of the
Capital Budget expenditures for the year to date;
(e) file insurance certificates;
(f) perform a total Property walk-through annually and provide Subsidiary
with written report of overall impressions; and
(g) act as Subsidiary's liaison on all communications with Property
General Manager and staff and with Operator on all matters pertaining to
operations, capital budgets and capital expenditures.
29
<PAGE> 30
EXHIBIT A
to Master Asset Management and Administrative Services Agreement
Form of Subsidiary Asset Management Agreement
SUBSIDIARY ASSET MANAGEMENT AGREEMENT
This Subsidiary Asset Management Agreement ("Subsidiary Agreement") is made
as of ________ between Sonoma Management Corp. I, a Delaware corporation
("SMC"), and _____________ ("Subsidiary").
WHEREAS, SMC and Subsidiary are parties to that Master Asset Management and
Administrative Services Agreement dated __________ (the "Master Agreement") by
and among SMC, Crescent Operating, Inc. ("COPI"), Subsidiary, and other entities
which are subsidiaries of COPI (collectively, the "Other Subsidiaries"); and
WHEREAS, SMC and Subsidiary are entering into this Subsidiary Agreement
pursuant to the terms of the Master Agreement;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained and subject to the following terms and conditions,
SMC and the Subsidiary agree as follows:
1. All capitalized terms used herein but not herein defined shall have
the meanings ascribed to those terms in the Master Agreement. This Subsidiary
Agreement shall be governed by and interpreted in accordance with the terms of
the Master Agreement, which are incorporated herein by reference and made a part
hereof, except to the extent herein otherwise expressly provided. Without
limiting the foregoing, Subsidiary and SMC acknowledge that all of COPI's rights
and obligations under the Master Agreement with respect to the Property
identified in Schedule 1 hereto have been assigned to, and are assumed by,
Subsidiary.
2. The "Commencement Date" shall mean _______________.
3. Subsidiary hereby appoints SMC, from and after the Commencement Date
through the end of the Management Period, as exclusive manager of the assets of
Subsidiary listed in Schedule 1 hereto, which is incorporated herein by
reference. SMC accepts such appointment and agrees to provide Asset Management
Services to Subsidiary throughout the Management Period in accordance with the
terms of the Master Agreement. In consideration for its services hereunder
during the Management Period, SMC shall be entitled to receive a Base Management
Fee and Incentive Management Fee in accordance with the terms of the Master
Agreement.
30
<PAGE> 31
IN WITNESS WHEREOF, this Subsidiary Agreement is executed as of the date
first above written.
SONOMA MANAGEMENT CORP. I
By:
-------------------------------
[Subsidiary]
[Address and facsimile for notices]
By:
-------------------------------
31
<PAGE> 32
SCHEDULE 1
to Subsidiary Asset Management Agreement
Managed Assets
[Example: RoseStar's interests as lessee under that Amended and Restated
Lease Agreement between Crescent Real Estate Equities Limited Partnership and
RoseStar Management, LLC, dated June 30, 1995.]
32
<PAGE> 33
EXHIBIT B
to Master Asset Management and Administrative Services Agreement
Form of Subsidiary Administrative Services Agreement
SUBSIDIARY ADMINISTRATIVE SERVICES AGREEMENT
This Subsidiary Administrative Services Agreement ("Subsidiary Agreement")
is made as of ________ between Sonoma Management Corp. I, a Delaware corporation
("SMC"), and _____________ ("Subsidiary").
WHEREAS, SMC and Subsidiary are parties to that Master Asset Management and
Administrative Services Agreement dated __________ (the "Master Agreement") by
and among SMC, Crescent Operating, Inc. ("COPI"), Subsidiary, and other entities
which are subsidiaries of COPI (collectively, the "Other Subsidiaries"); and
WHEREAS, SMC and Subsidiary are entering into this Subsidiary Agreement
pursuant to the terms of the Master Agreement;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained and subject to the following terms and conditions,
SMC and the Subsidiary agree as follows:
1. All capitalized terms used herein but not herein defined shall have
the meanings ascribed to those terms in the Master Agreement. This Subsidiary
Agreement shall be governed by and interpreted in accordance with the terms of
the Master Agreement, which are incorporated herein by reference and made a part
hereof, except to the extent herein otherwise expressly provided. Without
limiting the foregoing, Subsidiary and SMC acknowledge that all of COPI's rights
and obligations under the Master Agreement with respect to the Property
identified in Schedule 1 hereto have been assigned to, and are assumed by,
Subsidiary.
2. The "Commencement Date" shall mean _______________.
3. Subsidiary hereby appoints SMC, from and after the Commencement Date
through the end of the Management Period, as exclusive provider of
Administrative Services to Subsidiary with respect to the assets and operations
of Subsidiary listed in Schedule 1 hereto, which is incorporated herein by
reference. SMC accepts such appointment and agrees to provide Administrative
Services to Subsidiary throughout the Management Period in accordance with the
terms of the Master Agreement. In consideration for its services hereunder
during the Management Period, SMC may be entitled to receive a fee in accordance
with the terms of the Master Agreement.
33
<PAGE> 34
IN WITNESS WHEREOF, this Subsidiary Agreement is executed as of the date
first above written.
SONOMA MANAGEMENT CORP. I
By:
-------------------------------
[Subsidiary]
[Address and facsimile for notices]
By:
-------------------------------
34
<PAGE> 35
SCHEDULE 1
to Subsidiary Administrative Services Agreement
Assets and Operations of Subsidiary Covered by this Agreement
[Example: CDMC Palm Beach's interest as member of Manalapan Partners]
35
<PAGE> 36
EXHIBIT C
to Master Asset Management and Administrative Services Agreement
Reports
SMC shall prepare and submit to each Subsidiary the following reports with
respect to the Property or Properties subject to a Subsidiary Agreement between
SMC and that Subsidiary:
A. Financial Statements as required by applicable Lease or Leases
B. Capital Projects progress reports
C. Comparisons of actual to projected operational results and budgets
36
<PAGE> 37
EXHIBIT D
to Master Asset Management and Administrative Services Agreement
MUTUAL RELEASE AND TERMINATION AGREEMENT
[To be Attached]
37
<PAGE> 1
EXHIBIT 10.107
MANAGEMENT AGREEMENT
(VENTANA INN & SPA - BIG SUR)
by and between
SONOMA MANAGEMENT CORP. I
(as "MANAGER")
and
CRESCENT REAL ESTATE FUNDING VIII, L.P.
(as "OWNER")
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
<S> <C>
MANAGEMENT OF THE RESORT.............................................1
1.01 Management Responsibilities.................................1
1.02 Corporate Services..........................................6
1.03 Employees...................................................6
1.04 Owner's Right to Inspect....................................6
1.05 Owner's Right to Reserve Rooms and Facilities; Owner's
Perquisites...............................................6
ARTICLE II
TERM.................................................................7
2.01 Term........................................................7
2.02 Performance Termination.....................................7
2.03 Termination Rights for Cessation of Involvement by Varma....9
ARTICLE III
COMPENSATION OF MANAGER..............................................9
3.01 Management Fees.............................................9
3.02 Operating Profit...........................................10
ARTICLE IV
ACCOUNTING MATTERS..................................................10
4.01 Accounting, Distributions and Annual Reconciliation........10
4.02 Books and Records..........................................12
4.03 Accounts, Expenditures.....................................12
4.04 Business Plan..............................................13
4.05 Working Capital............................................15
4.06 Fixed Asset Supplies.......................................15
ARTICLE V
REPAIRS, MAINTENANCE AND REPLACEMENTS...............................15
5.01 Repairs and Maintenance Costs Which Are Expensed...........15
5.02 FF&E Reserve...............................................16
5.03 Capital Expenditures.......................................18
5.04 Ownership of Replacements..................................18
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE VI
<S> <C>
INSURANCE, DAMAGE AND CONDEMNATION..................................19
6.01 Insurance..................................................19
6.02 Damage and Repair..........................................22
6.03 Condemnation...............................................23
ARTICLE VII
TAXES...............................................................24
7.01 Real Estate and Personal Property Taxes....................24
ARTICLE VIII
OWNERSHIP OF THE RESORT.............................................25
8.01 Ownership of the Resort....................................25
8.02 Mortgages..................................................26
8.03 Subordination Agreement....................................26
8.04 No Covenants, Conditions or Restrictions...................27
8.05 Liens; Credit..............................................27
8.06 Amendments Requested by Mortgagee..........................28
ARTICLE IX
DEFAULTS............................................................28
9.01 Events of Default..........................................28
9.02 Remedies...................................................29
9.03 Additional Remedies........................................30
ARTICLE X
ASSIGNMENT AND SALE.................................................30
10.01 Assignment.................................................30
10.02 Sale of the Resort.........................................31
10.03 Termination on Sale of Resort..............................31
ARTICLE XI
MISCELLANEOUS.......................................................32
11.01 Right to Make Agreement...................................32
11.02 Consents and Cooperation..................................32
11.03 Relationship..............................................32
11.04 Applicable Law............................................33
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
11.05 Recordation................................................33
11.06 Headings...................................................33
11.07 Notices....................................................33
11.08 Environmental Matters......................................34
11.09 Confidentiality............................................36
11.10 Projections................................................37
11.11 Actions to be Taken Upon Termination.......................38
11.12 Trademarks, Trade Names and Intellectual Property..........39
11.13 Trade Area Restriction.....................................41
11.14 Waiver.....................................................41
11.15 Partial Invalidity.........................................41
11.16 Survival...................................................41
11.17 Affiliates and Third Party Vendors.........................42
11.18 Estoppel Certificates......................................42
11.19 Luxury Spa Resort Standards................................42
11.20 Arbitration................................................43
11.21 Entire Agreement...........................................44
11.22 Multiple Counterparts......................................44
11.23 Guaranty...................................................44
ARTICLE XII
DEFINITION OF TERMS.................................................44
12.01 Definition of Terms..........................................44
EXHIBIT A
LEGAL DESCRIPTION OF THE SITE
EXHIBIT B
MEMORANDUM OF MANAGEMENT AGREEMENT
</TABLE>
iii
<PAGE> 5
MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is executed on February ____,
2000 to be effective February 1, 2000 ("Effective Date"), by CRESCENT REAL
ESTATE FUNDING VIII, L.P. ("Owner"), a Delaware limited partnership, with a
mailing address at 777 Main Street, Suite 2100, Fort Worth, TX 76102, and SONOMA
MANAGEMENT CORP. I ("Manager"), a Delaware corporation, with a mailing address
at 306 W. 7th Street, Fort Worth, Texas 76102.
R E C I T A L S :
A. Owner is the owner of fee title to the real property (the "Site")
described on Exhibit A attached to this Agreement and incorporated herein. The
Site is improved with the Hotel (collectively, the "Resort Improvements"). The
Site and the Resort Improvements, in addition to certain other rights,
improvements, and personal property as more particularly described in the
definition of "Resort" in Section 12.01 hereof, are collectively referred to as
the "Resort".
B. All capitalized terms used in this Agreement shall have the meaning
set forth in Article XII hereof or otherwise defined herein.
C. Owner desires to engage Manager to manage and operate the Resort and
Manager desires to accept such engagement upon the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and other good and valuable consideration, the receipt of which
is hereby acknowledged, Owner and Manager agree as follows:
ARTICLE I
MANAGEMENT OF THE RESORT
1.01 Management Responsibilities
A. Beginning with the Effective Date, Manager shall, and Owner hereby
authorizes and engages Manager to, supervise, direct and control the management
and operation of the Resort in accordance with the terms and conditions of this
Agreement. Manager agrees to operate and manage the Resort for Owner in a
commercially reasonable, business-like, prudent and professional manner, as
agent of Owner, pursuant to the requirements of this Agreement, with the
then-current Business Plan approved by Owner, and with the objective of
maximizing the long-term value of the Resort subject to Luxury Spa Resort
Standards. Manager further agrees to consult regularly (at least quarterly or as
otherwise reasonably requested by Owner) with Owner regarding the management
policies in effect at the Resort. During the Term, the Resort shall be known as
the "Ventana Inn &
1
<PAGE> 6
Spa - Big Sur", with such additional identification determined by Manager and
approved by Owner, which approval shall not be unreasonably withheld unless the
proposed identification conflicts with the Owner's other business names, styles
or identification, as may be necessary to provide local identification.
B. Manager shall manage the Resort in accordance with Luxury Spa Resort
Standards and shall, subject to the terms of this Agreement (including Section
1.01.C hereof), perform each of the following functions (the costs and expenses
of which shall be Deductions) with respect to the Resort:
1. Recruit, employ, train, supervise, direct and discharge the
employees at the Resort (or cause a SMC Affiliate to do so).
2. Establish prices, rates and charges for services provided in the
Resort, including Guest Room rates and spa services rates.
3. Establish and revise, as necessary, administrative policies and
procedures, including policies and procedures for the control of revenue and
expenditures, for the purchasing of supplies and services, for the control of
credit, and for the scheduling of maintenance, and verify that the foregoing
procedures are operating in a sound manner.
4. Make payments on accounts payable and handle collections of
accounts receivable using diligence and best business practices.
5. Arrange for and supervise public relations and advertising,
prepare marketing plans, and make available to the Resort the benefits of
various marketing and guest loyalty and recognition programs in use in the SMC
System as they may exist from time to time.
6. Procure all Inventories and replacement Fixed Asset Supplies.
7. Prepare and deliver interim accountings, Monthly Statements,
Quarterly Statements, annual accountings, Annual Operating Statements, Building
Estimates, FF&E Budgets, and such other information as is required by this
Agreement.
8. Plan, execute and supervise repairs, maintenance, and FF&E
purchases at the Resort.
9. Subject to the provisions of Article VI, provide, or cause to be
provided, risk management services relating to the types of insurance required
to be obtained or provided by Manager under this Agreement.
10. Operate the Resort as a luxury spa resort and in accordance with
the Luxury Spa Resort Standards applicable to luxury spa resorts.
2
<PAGE> 7
11. Apply for, obtain and keep in full force and effect, either in
Manager's name or in Owner's name, as may be required by applicable law, any and
all licenses and permits to the extent same is within the control of Manager
(or, if same is not within the control of Manager, Manager shall use due
diligence and reasonable efforts to obtain and keep same in full force and
effect).
12. Negotiate and enter into service contracts on Owner's behalf
which are necessary or desirable in the ordinary course of business in operating
the Resort, including, without limitation, contracts for provision of
electricity, gas, water, telephone and other utility services, cleaning
services, security services, vermin extermination, trash removal, elevator and
boiler maintenance, air conditioning maintenance, master television service,
laundry and dry cleaning, entertainment satellite systems and other services
which Manager deems advisable. All such service contracts shall be entered into
in Owner's name, and shall remain the responsibility of Owner upon the
expiration or earlier termination of this Agreement.
13. Establish all credit policies, and enter into agreements with
credit card companies, in connection with the Resort.
14. Subject to Section 1.01.C.7, institute and defend in the name of
Manager or Owner (or both), subject to reasonable approval by Owner, any and all
legal actions or proceedings.
15. Establish, supervise and implement a sales and marketing program
for the Resort consistent with the sales and marketing plan approved by Owner as
part of the Business Plan for the then-current year.
16. Plan, prepare, arrange and contract for all advertising,
publicity and promotional activities for the Resort, including advertising and
promotional activities in conjunction with other Resorts owned, operated or
franchised by Manager and SMC Affiliates, and all discount and complimentary
policies with respect to bona fide travel agents, tourist officials, and airline
representatives.
17. Engage such persons, subject to reasonable prior approval by
Owner, for providing services of a specialist nature (such as legal counsel and
independent accountants) related to matters within Manager's responsibility
under this Agreement.
18. Lease to third parties approved by Owner the food and beverage,
banquet and room service facilities.
19. Do any and all other acts and things as Manager may reasonably
deem necessary and appropriate to carry out its responsibilities under the terms
of this Agreement.
In connection with the performance of the foregoing functions, Manager
may purchase goods, supplies and services from itself or any SMC Affiliate, or
enter into any other transaction with an
3
<PAGE> 8
Affiliate of Manager, so long as any such purchase, costs or proposed
transaction is on competitive market based terms available to Owner from
unaffiliated third parties for similar purchases or transactions.
C. Limitations on Authority. Manager shall have no authority on behalf
of Owner to do any of the following without Owner's prior written approval in
each instance:
1. Borrow money, guaranty the debts of any third person, or
mortgage, pledge, grant a security interest in or otherwise encumber all or any
part of the Resort;
2. Enter into any lease for the use of any item of furnishings and
equipment or other property, except as provided for in the Business Plan;
3. Enter into any agreement, lease, license or concession agreement
for office, retail, lobby or other space at the Resort, except as provided for
in the Business Plan;
4. Incur any liabilities or obligations to third parties which are
unrelated to the performance of Manager's responsibilities under this Agreement;
5. Except for an "Excluded Transaction" and subject to the
provisions of this Agreement regarding contracts with Affiliates of Manager,
Manager shall not, without the consent of Owner, enter into any contract or
other arrangement (or series of related contracts or arrangements) if the
expenditures thereunder would, or are reasonably anticipated to, exceed Fifty
Thousand Dollars ($50,000) in the aggregate, or if the term of such contract has
a term in excess of three (3) years. For purposes hereof, the term "Excluded
Transaction" shall mean (1) any contracts subject to competitive bidding in
which the lowest bid is accepted; and (2) contracts or expenditures required in
cases of emergency or casualty, which expenditures are required to protect life
and safety, or in order to comply with legal requirements, in an amount not to
exceed Fifty Thousand Dollars ($50,000) in any twelve-month period;
6. Settle any casualty and insurance claims which involve, or which
are reasonably estimated to involve, amounts in excess of Two Hundred Fifty
Thousand Dollars ($250,000), and any condemnation awards regardless of amount;
7. Institute or defend any legal or equitable proceedings with
respect to the Resort (including the selection of counsel) other than routine
collection Litigation involving ordinary day-to-day operations of the Resort
involving amounts in controversy of less than Twenty-Five Thousand Dollars
($25,000); provided, however, Manager shall inform Owner of the existence of,
and keep Manager updated as to the status of, Litigation involving the Resort
involving amounts in controversy in excess of Five Thousand Dollars ($5,000).
8. Employ any professional firm (other than legal counsel and
accountants) for more than Fifty Thousand Dollars ($50,000) in the aggregate
except as set forth in the Business Plan,
4
<PAGE> 9
or enter into any arrangement for the employment of any attorney or accountant
(other than legal counsel retained to collect accounts receivable of less than
Fifty Thousand Dollars ($50,000);
9. Prosecute or settle any tax claims or appeals;
10. Manager shall not provide complimentary rooms or services to any
guests, employees or other persons except for which the business purpose for the
benefit of the Resort is properly documented, and in any event, the value of
such complimentary services shall not exceed the amount allocated in the
approved Business Plan for such complimentary services;
11. Acquire on behalf of Owner any land or any interest therein;
12. Acquire any capital assets of the Resort or any interest
therein;
13. Consent to any condemnation or participate in any condemnation
proceeding relating to the Resort, the Site or any portion thereof;
14. Sell, transfer or otherwise dispose of all or any portion of the
Resort except for dispositions of furnishings and equipment to the extent
expressly permitted herein, or expressly provided for in the Business Plan;
15. Perform any alterations to the Resort or any portion thereof
except to the extent Manager's performance of any such alteration shall be
expressly provided for in the Business Plan;
16. Enter into new programs and services offered to the Resort by
Manager or an SMC Affiliate that were not included in the Business Plan approved
by Owner, such approval not to be unreasonably withheld. If Owner does not
approve the service or program, the matter will be determined by arbitration
pursuant to Section 11.20; or
17. Take any other action which, under the terms of this Agreement,
is prohibited or requires the approval of Owner.
D. Manager will comply with and abide by all applicable Legal
Requirements (except for certain Legal Requirements which are Owner's
responsibility under Section 5.03 hereof) pertaining to its operation of the
Resort. Owner will comply with and abide by all applicable Legal Requirements
pertaining to the Resort Improvements or to Owner's ownership interest in the
Resort (including, without limitation, Owner's obligations under Sections 5.03).
Either Owner or Manager shall have the right, but not the obligation, in its
reasonable discretion, to contest or oppose, by appropriate proceedings, any
such Legal Requirements. The reasonable expenses of any such contest of a Legal
Requirement shall be paid from Gross Revenues as Deductions; provided, however,
with respect Manager, such Legal Requirements must arise as a result of
Manager's obligations hereunder (and not as a result of managing properties
generally).
5
<PAGE> 10
1.02 Corporate Services
Commencing with the Effective Date and thereafter during the Term of
this Agreement, Manager shall cause to be furnished to the Resort certain
services (collectively referred to herein as "Corporate Services") that are
furnished generally on a central, regional or other group basis to other
properties in the SMC System and which benefit such properties; provided,
however, that the Corporate Services expense for the existing Corporate Services
shall not exceed the annual total set forth in Business Plan for the subject
Fiscal Year, approved by Owner in accordance with Section 4.04. Reservation
costs will be charged at reasonable out-of-pocket cost to Manager. The charges
for Corporate Services shall be allocated on a reasonable basis among all
properties managed by Manager and receiving such services.
1.03 Employees
All personnel employed at the Resort shall, at all times from and after
the Effective Date, be the employees of Manager or an SMC Affiliate. Manager
shall have absolute discretion with respect to all personnel employed at the
Resort, including, without limitation, decisions regarding hiring, promoting,
transferring, compensating, supervising, terminating, directing and training all
employees at the Resort, and, generally, establishing and maintaining all
policies relating to employment. Notwithstanding the foregoing, in the event the
Resort is leased by Owner, as lessor, to Sonoma Spa Resorts, L.P. or an
Affiliate thereof, or to an Affiliate of Owner, as lessee, or if Owner has not
leased the Resort, then Manager shall not hire any proposed candidate for the
position of General Manager of the Resort without the Owner's approval, which
approval may not be unreasonably withheld. In the event that a General Manager
is to be appointed (under circumstances requiring Owner's approval as set forth
in the preceding sentence) and Owner has rejected one suitably qualified and
experienced candidate proposed by Manager in Manager's reasonable judgment for
the position, Owner shall have no further approval rights with respect to any
candidate proposed by Manager for such position at such time, and Manager may in
its sole discretion hire a candidate for such position. The foregoing provisions
with respect to Owner's right to approve a General Manager shall apply in each
instance that specific position at the Resort is filled. Manager shall be
permitted to provide free accommodations and amenities to its employees and
representatives living at or visiting the Resort in connection with its
management or operation. No person shall otherwise be given gratuitous
accommodations or services without prior joint approval of Owner and Manager,
except in accordance with usual practices of the resort and travel industry.
Manager shall use its reasonable efforts to implement employment practices with
the goal of achieving continuity of management and reduction of personnel
turnover.
1.04 Owner's Right to Inspect
Owner and its agents shall have access to the Resort at any and all
reasonable times for the purpose of inspection or showing the Resort to
prospective purchasers, tenants or Mortgagees.
1.05 Owner's Right to Reserve Rooms and Facilities; Owner's Perquisites
6
<PAGE> 11
A. Notwithstanding Manager's responsibility to set room rates
and occupancy policies for the Resort, Owner shall have the right to reserve
Guest Rooms or other facilities of the Resort (including spa, banquet,
reception, catering and other services) upon a space available basis at the
prevailing preferred corporate rate then charged by the Resort upon reasonable
notice to Manager.
B. In addition to the foregoing, Manager shall grant to Owner
and to individuals designated by Owner preferred rates and other perquisites at
the Resort that are at least as favorable as the rates and perquisites made
available by Manager to owners of other hotel and/or resort properties managed
by Manager or any other SMC Affiliate (which rates and perquisites shall be at
least as favorable as is typical in the industry with other first-class resort
managers, such as "Marriott" and "Hyatt").
ARTICLE II
TERM
2.01 Term
The "Term" of this Agreement shall consist of and include the "Initial
Term" and any "Renewal Term(s)". The "Initial Term" shall begin on the Effective
Date and shall continue until the expiration of the twentieth (20th) full Fiscal
Year from the Effective Date. Unless Manager is in Default hereunder, the Term
may thereafter be renewed by Manager, at its option (on the same terms and
conditions contained in this Agreement), for each of two (2) successive periods
of ten (10) Fiscal Years each (each such period a "Renewal Term"); provided,
however, Manager's option to renew shall be conditioned upon achievement of an
Owner ROI (determined solely by reference to Operating Profit [i.e., exclusive
of any "cure" payment]) of at least ten percent (10%) per annum for the two (2)
Fiscal Years immediately preceding the final Fiscal Year of the then existing
Term. For purposes of Section this 2.01, in the event Owner ROI is less than ten
percent (10%) per annum for either of the two (2) Fiscal Years immediately
preceding the final Fiscal Year of the then existing Term as a result of Force
Majeure or a major renovation of the Resort, then such Fiscal Year shall be
disregarded as one of the two (2) Fiscal Years immediately preceding the final
Fiscal Year of such Term. (For example: in Fiscals Year 17 and 19 Owner ROI is
11% for each year, in Fiscal Year 18 Owner ROI is 7% and Fiscal Year 20 is the
final Fiscal Year of the then existing Term; however, Owner ROI in Fiscal Year
18 was less than 10% as a result of a Force Majeure that occurred during Fiscal
Year 18, and such year is, thus, disregarded. As a result, Fiscal Years 18 and
19 are not two preceding Fiscal Years that would prohibit Manager from renewing
this Agreement; the two Fiscal Years considered in determining satisfaction of
the renewal condition of this Section 2.01, in this example, would be Fiscal
Years 17 and 19. Because Owner ROI exceeded 10% during Fiscal Years 17 and 19,
Manager would be entitled to renew this Agreement.)
2.02 Performance Termination
7
<PAGE> 12
A. Subject to the provisions of Section 2.02.B. below, in the event (A)
the Owner ROI is less than the applicable Performance Thresholds with respect to
any two (2) consecutive Fiscal Years (determined without regard to any "cure"
payments, if any, made by Manager for such Fiscal Years pursuant to Section
2.02.B), and (B) the failure to meet the Performance Thresholds for two (2)
consecutive years as described in clause (A) is for reason(s) other than Force
Majeure or a major renovation of the Resort, then (i) Owner shall have the
option to terminate this Agreement and (ii) such option to terminate shall
thereafter continue (subject to the provisions of Section 2.02.D.) with respect
to any Fiscal Year in which the applicable Performance Threshold is not met. For
purposes of Section 2.02, in the event Owner ROI is less than the applicable
Performance Threshold with respect to any Fiscal Year as a result of Force
Majeure or a major renovation of the Resort, then such Fiscal Year shall be
disregarded in determining whether Owner ROI is less than the Performance
Threshold for two (2) consecutive Fiscal Years. (For example: in Fiscal Years 1,
2 and 3 the applicable Performance Threshold for Owner ROI is not met; however,
the Performance Threshold was not met in Fiscal Year 2 as a result of a major
renovation of the Resort conducted during Fiscal Year 2, and such year is, thus,
disregarded. As a result, Fiscal Years 1 and 2 are not two consecutive Fiscal
Years satisfying the precondition of Section 2.02.A; however, Fiscal Years 1 and
3 do constitute two consecutive Fiscal Years satisfying such precondition.)
B. If a condition giving Owner the right to terminate this Agreement
pursuant to this Section 2.02 has occurred (a "Deficit"), Manager shall have the
right to "cure" the Deficit (thus, eliminating Owner's right to terminate under
Section 2.02A for such Fiscal Year) by paying to Owner (on or before the
thirtieth [30th] day following delivery of the Annual Operating Statement) an
amount equal to the difference between (i) the Operating Profit actually
distributed to Owner during the Fiscal Year in question and (ii) the Operating
Profit that would have been required to be distributed to Owner during the
Fiscal Year in question to achieve the applicable Performance Threshold for such
Fiscal Year (the "Deficiency"). Nothing herein contained shall be deemed to
obligate Manager to "cure" any Deficit. Amounts paid by Manager to "cure" a
Deficit shall be paid directly to Owner and shall not be considered part of the
Gross Receipts of the Resort.
C. If Manager either fails to "cure" as above provided or has no
further right to cure, then Owner shall have the right to terminate this
Agreement effective upon not less than sixty (60) days written notice, which
notice shall be delivered to Manager within ninety (90) days after the
expiration of Manager's right to cure the Deficit. Upon the effective date of
such termination, all of the rights and obligations of the parties hereto shall
terminate (except to the extent of any survival pursuant to the terms of this
Agreement) without further act or notice of either of the parties, on the date
specified in a written notice from Owner to Manager, which date shall in no
event be sooner than the date on which there has been payment in full of any
other amounts due and owing to Manager hereunder (such payment to be made in
accordance with Section 3.01) or later than six (6) months thereafter.
D. Owner's ongoing right to terminate this Agreement set forth in
Section 2.02.A. shall cease after any Fiscal Year during which the applicable
Performance Threshold is satisfied as a result
8
<PAGE> 13
of the Operating Profit distributed to Owner (not as a result of "cure" by
Manager). Thereafter, Owner's right to terminate this Agreement set forth in
Section 2.02.A. shall again be available to Owner upon re-satisfaction of the
conditions relating thereto (i.e., a Fiscal Year in which the applicable
Performance Threshold is met through Operating Profit eliminates Owner's right
to terminate under Section 2.02 until there is again a period of 2 consecutive
Fiscal Years for which the applicable Performance Thresholds are not met without
"cure" payments).
2.03 Termination Rights for Cessation of Involvement by Varma.
A. Owner shall have the option to terminate this Agreement (and such
option to terminate shall thereafter continue for one (1) year after the event
giving rise to Owner's termination option under this Section 2.03.A.) in the
event Sanjay Varma ("Varma"), during the first three (3) years following the
Effective Date, either (i) commits an event of default under that certain
Exclusivity Agreement dated as of even date herewith between, among others,
Varma and Owner, or (ii) ceases (for a reason other than Varma's death,
permanent disability or incapacitation (as described in Section 2.03.B)) to be
the controlling shareholder of Manager or its parent corporation.
B. In the event either of the following occurs during the first three
(3) years following the Effective Date: Varma (i) dies, becomes permanently
disabled or incapacitated (and he shall be deemed "permanently disabled or
incapacitated" if he is unable to complete his duties for sixty (60) days in any
consecutive ninety (90) day period), or (ii) ceases to engage personally in
performing Manager's obligations under this Agreement, then Owner shall have the
right to terminate this Agreement immediately following the completion of a six
(6) month review period, without recourse by Manager, provided that Owner shall
have given notice of such termination at least sixty (60) days prior to the
completion of such review period.
C. In the event either of the following occurs after the first three
(3) years but prior to the end of seven (7) years following the Effective Date:
Varma (i) dies, becomes permanently disabled or incapacitated (as described in
Section 2.03.B), or (ii) ceases to engage personally in performing Manager's
obligations under this Agreement, then Owner shall have the right to terminate
this Agreement immediately following the completion of a twelve (12) month
review period, without recourse by Manager, provided that Owner shall have given
notice of such termination at least ninety (90) days prior to the completion of
such review period.
ARTICLE III
COMPENSATION OF MANAGER
3.01 Management Fees
Manager shall be paid the sum of the following as its management fees:
9
<PAGE> 14
A. The Base Management Fee, which shall be retained by Manager from
Gross Revenues;
B. The Short-Term Incentive Fee, which shall be retained by Manager
from Operating Profit in accordance with Sections 3.02 and 4.01.
3.02 Operating Profit
A. Operating Profit shall be distributed to Owner and to Manager in the
following order of priority:
1. an amount equal to Owner's Priority shall be paid to Owner;
2. if Manager is entitled to same, the Short-Term Incentive Fee
shall be paid to Manager; and
3. any remaining balance of Operating Profit shall be paid to Owner.
B. To the extent of available Operating Profit with respect to each
Calendar Quarter, Manager shall distribute (within twenty (20) days after the
end of each Calendar Quarter) a prorated portion of the Owner's Priority to
Owner each such Calendar Quarter, and shall be entitled to retain a prorated
portion of the Short-Term Incentive Fee for each such Calendar Quarter based on
its good faith estimate of the Short-Term Incentive Fee for the full Fiscal
Year.
C. All distributions to Owner shall be made concurrently with the
delivery of Manager's Quarterly Statement.
ARTICLE IV
ACCOUNTING MATTERS
4.01 Accounting, Distributions and Annual Reconciliation
A. Within twenty (20) days after the close of each calendar month,
Manager shall deliver to Owner an interim accounting profit and loss statement
showing Gross Revenues, Deductions, Operating Profit, and applications and
distributions thereof for the preceding calendar month and on a year-to-date
cumulative basis, and within thirty (30) days after the close of each calendar
month, Manager shall deliver to Owner a balance sheet for the Resort as of the
end of the preceding month (collectively, the "Monthly Statement"). Within
twenty (20) days after the close of each Calendar Quarter, Manager shall deliver
to Owner an interim quarterly accounting profit and Loss statement showing Gross
Revenues, Deductions, Operating Profit, and applications and distributions
thereof
10
<PAGE> 15
for the preceding Calendar Quarter and on a year-to-date cumulative basis for
such Fiscal Year, and within thirty (30) days after the close of each Calendar
Quarter, Manager shall deliver to Owner a balance sheet for the Resort as of the
end of the preceding Calendar Quarter (collectively, the "Quarterly Statement").
The Monthly Statements and Quarterly Statements shall be certified by the
controller of the Resort. Manager shall transfer to Owner, with each Quarterly
Statement, any interim amounts due Owner, subject to Working Capital needs, and
shall retain any interim amounts due Manager. With each Monthly Statement and
Quarterly Statement, Manager shall provide to Owner Manager's most current
estimate of Gross Revenues for the remaining months in the Fiscal Year. With the
Quarterly Statement, Manager shall provide to Owner Manager's variance report,
segmentation analysis, group activity report and competition survey for each
period, together with a period status report regarding uncompleted capital
projects and such other information as reasonably requested by Owner.
B. Within one hundred twenty (120) days after the end of each Fiscal
Year, Manager shall deliver to Owner annual operating statements for business of
the Resort, a balance sheet as of the end of such year, and related statements
of income and retained earnings and changes in financial position for the Resort
for such Fiscal Year audited by an independent certified public accounting firm
selected by Owner. The reasonable and customary costs of such audit shall be
included as a Deduction.
C. Calculations and payments of the Short-Term Incentive Fee, the Base
Management Fee, and distributions of Operating Profit made with respect to each
Calendar Quarter within a Fiscal Year shall be accounted for cumulatively.
Within sixty (60) days after the end of each Fiscal Year, Manager shall deliver
to Owner a statement (the "Annual Operating Statement") in reasonable detail
summarizing the operations of the Resort for the immediately preceding Fiscal
Year and a certificate of Manager's chief accounting officer certifying that, to
the best of his or her knowledge, such Annual Operating Statement is true and
correct. Without limiting the foregoing, the Annual Operating Statement shall
provide detail with respect to Gross Revenues attributable to Beverage Sales,
Food Sales, Room Revenues and Other Income. The parties shall, within five (5)
business days after Owner's receipt of such Annual Operating Statement, make any
adjustments, by cash payment, in the amounts paid or retained for such Fiscal
Year as are needed because of the final figures set forth in such Annual
Operating Statement. Such Annual Operating Statement shall be controlling over
the preceding Monthly or Quarterly Statements. No adjustments shall be made for
any Operating Loss in any preceding Fiscal Year.
D. To the extent there is a Working Capital deficiency for any Calendar
Quarter, Manager shall advise Owner not less than thirty (30) days in advance of
the additional funds to be provided by Owner. If Owner does not so fund such
Working Capital deficit within the thirty (30) day time period, Manager shall
have the right (without affecting Manager's other remedies under this Agreement)
to withdraw an amount equal to such deficit from future distributions of funds
otherwise due to Owner.
E. As between Owner and Manager in connection with this Agreement,
neither Owner nor Manager shall assume any liabilities which accrued (or would
stem solely from events which
11
<PAGE> 16
occurred) prior to the Effective Date. Owner shall indemnify, defend, and hold
Manager harmless from and against all claims, Litigation and damages arising
from the acts or omissions of any Person performing management functions on
behalf of Owner at or for the Resort prior to the Effective Date ("Prior
Manager"); provided, however, Manager shall not be entitled to the rights and
benefits of this sentence in the event both (i) such claims, Litigation or
damages arise from the acts or omissions of Varma, individually or in a
representative capacity for a Prior Manager, and (ii) Owner is not entitled to
indemnification with respect to, or payment of, such claims, Litigation or
damages from such Prior Manager.
4.02 Books and Records
Books of control and account pertaining to operations at the Resort
shall be kept on the accrual basis and in all material respects in accordance
with the Uniform System of Accounts. All such books and records are the property
of and shall be available to Owner and its representatives at reasonable times
for examination and shall be maintained at the Resort or such other location
reasonably determined by Owner. Twice a year upon thirty (30) days prior written
notice to Manager, Owner may audit by a duly licensed independent certified
public accounting firm, examine or review the Annual Operating Statement and/or
the books, records and operations of Manager at the Resort and/or any
subtenants, concessionaires, licensees, and/or assignees relating to the Resort
as set forth in this Agreement. Owner shall complete such audit within ninety
(90) days after commencement thereof. The cost of such audit shall be a
Deduction from Gross Revenues. If Owner does not make such an audit or fails to
notify Manger in writing that Owner disputes all or some portion of the
respective Annual Operating Statement on or before ninety (90) days after
receipt by Owner of such Annual Operating Statement, then such Annual Operating
Statement shall be deemed to be conclusively accepted by Owner as being correct,
and Owner shall have no right thereafter, except in the event of fraud by
Manager, to question or examine the same. If such audit discloses that Gross
Revenues, gross operating expenses, or any other matter which is the subject of
the audit as previously reported for the period audited were inaccurate, Manager
or Owner, as the case may be, shall immediately pay to the other party any sums
disclosed by such audit as being due and owing, plus interest thereon (at the
Prime Rate plus one percent (1%) per annum). Further, if such inaccuracy was in
excess of five percent (5%) of the item so being audited, as disclosed by such
audit, Manager shall immediately pay to Owner the cost of such audit (and such
audit cost shall not be a Deduction). Any dispute concerning the correctness of
an audit shall be settled by arbitration in accordance with Section 11.20.
4.03 Accounts, Expenditures
A. Manager will deposit all funds derived from operation of the Resort
in bank accounts (the "Operating Accounts") in a bank or banks, identified and
selected by Owner, subject to Manager's reasonable approval. Withdrawals from
said Operating Accounts shall be made solely by representatives of Manager whose
signatures have been authorized. Reasonable petty cash funds shall be maintained
at the Resort.
12
<PAGE> 17
B. All payments made by Manager hereunder shall be made from the
Operating Accounts or petty cash funds. Manager shall not be required to make
any advance or payment with respect to the Resort except out of such funds, and
Manager shall not be obligated to incur any liability or obligation with respect
to the Resort. In any event, if any such liability or obligation is incurred by
Manager with respect to the Resort, Manager shall have the option to deduct such
amounts from Owner's share of Operating Profit if Owner has not fully reimbursed
Manager for said amounts within ten (10) days after Owner's receipt of notice
from Manager that said amounts are due.
C. Debts and liabilities incurred by Manager as a result of its
operation and management of the Resort pursuant to the terms hereof, whether
asserted before or after Termination, will be paid by Owner to the extent funds
are not available for that purpose from Gross Revenues. The provisions of this
Section 4.03.C shall survive Termination.
4.04 Business Plan
A. Manager shall deliver to Owner for its review and written approval,
at least forty-five (45) days prior to the beginning of each Fiscal Year, a
preliminary draft of a business plan ("Business Plan") showing the following:
1. Manager's reasonable estimate (on a monthly basis) of Gross
Revenues, Deductions, departmental profits and Operating Profits, FF&E Reserve
for the upcoming Fiscal Year, itemized by line item, in a reasonable manner
consistent with the Uniform System of Accounts (once approved by Owner, the
"Operating Budget") together with the assumptions (in narrative form) utilized
in preparing the Operating Budget;
2. A budget of Manager's recommended renewals, revisions,
rebuilding, replacements, substitutions or improvements to the Resort for the
Fiscal Year which are of a capital nature under the Uniform System of Accounts
(once approved by Owner, "Capital Budget");
3. A description of the general marketing strategy which Manager
intends to implement during the Fiscal Year to optimize both short and long-term
profitability of the Resort;
4. Manager's estimate of any amounts Owner will be requested to
provide as Working Capital or to fund expenditures contemplated by the Capital
Budget during the Fiscal Year;
5. A description of the status of any negotiations relating to a
collective bargaining agreement, if any, affecting Resort employees;
6. A description of the current legal status of pending or
threatened suits, actions, proceedings, inquiries, or investigations concerning
the Resort;
7. An organization chart which details a management staffing plan
for the upcoming Fiscal Year;
13
<PAGE> 18
8. To the extent not included above, a detailed estimate of all
reimbursable costs.
B. Owner shall have forty-five (45) days after the date on which it
receives the proposed Business Plan to review, approve, disapprove or change the
entries appearing in the proposed Business Plan (other than the proposed Capital
Budget, which is addressed below). If Owner shall disapprove the proposed
Business Plan or any portion thereof, Owner shall specify with particularity the
reasons for its disapproval and Manager shall, after consultation with Owner,
submit to Owner a new proposed Business Plan or appropriate portion thereof
within fifteen (15) days after the date of Owner's disapproval. Any further
disagreement as to the Business Plan shall be determined pursuant to arbitration
in accordance with Section 11.20. The foregoing procedure shall be followed
until the proposed Business Plan is fully approved by Owner. Until such time as
the new proposed Operating Budget is approved by Owner, the portion approved, if
any, shall become effective and the Operating Budget for the previous Fiscal
Year, if available, with such changes as Owner may designate, shall remain in
effect with respect to the portion of the proposed Operating Budget disapproved
by Owner. In conjunction with the preparation and approval of the Business Plan,
Owner and Manager shall cooperate to establish an approved Business Plan that is
appropriate for the required standard of operations of the Resort and for the
Resort's level of occupancy and consistent with the primary and overriding
objective of maximizing the present value of Owner's cash flow from the Resort.
C. Manager shall use its best efforts to limit the costs and expenses
incurred by or on behalf of Owner to those included within the approved
Operating and Capital Budgets. Manager shall provide Owner with a report with
respect to each Calendar Quarter of each Fiscal year summarizing year-to-date
performance and providing a forecast for the remainder of the Fiscal Year.
Manager may submit for Owner's approval a proposed revision of the Operating or
Capital Budget for any Fiscal Year if Manager determines during the course of
such Fiscal Year that any changes are in the best interests of the Resort
operations and, upon Owner's approval thereof, the revised Operating or Capital
Budget shall be substituted for the applicable prior budget for the current
Fiscal Year.
D. Manager shall notify Owner whenever, during the course of a Fiscal
Year, Manager anticipates or becomes aware that the actual costs and expenses
shall exceed an amount equal to 1.05 times the budgeted amounts of costs and
expenses with respect to each departmental expense category, each undistributed
expense category, or any separate project identified in the approved Capital
Budget, and shall provide Owner, in each instance, with a written explanation of
the reasons therefor.
E. Representatives of Manager, including without limitation appropriate
corporate executives, shall meet with representatives of Owner on a quarterly
basis to review the results of operations for the prior period and forecasts of
operations for the Resort.
F. Manager shall diligently operate the Resort in accordance with the
Business Plan. It is understood, however, that the Business Plan is an estimate
only and that unforeseen circumstances such as the costs of labor, material,
services and supplies, casualty, operation of law, or economic and
14
<PAGE> 19
market conditions, may make adherence to the Business Plan impracticable, and
Manager shall be entitled to depart therefrom due to causes of the foregoing
nature.
4.05 Working Capital
A. Owner shall, from time to time during the Term, promptly, but no
later than sixty (60) days after written request by Manager, advance any
additional funds, over and above those required pursuant to this Agreement,
necessary to maintain Working Capital at levels determined by Manager to be
reasonably necessary to satisfy the needs of the Resort as its operation may
from time to time require. Funds permanently advanced to establish or maintain
adequate Working Capital will be included in Owner's Investment and Owner's
Priority computation. If Owner does not so fund additional Working Capital
within the said sixty (60) day time period, Manager shall have the right
(without affecting Manager's other remedies under this Agreement) to (i)
withdraw an amount equal to the funds requested by Manager for additional
Working Capital from future distributions of funds otherwise due to Owner or
(ii) Manager may terminate this Agreement upon ninety (90) days prior written
notice, provided that such notice is given within ninety (90) days after
delivery of Manager's written request for additional funds. Upon Termination,
Manager shall, except as otherwise provided in this Agreement, return the
outstanding balance of the Working Capital to Owner.
B. Manager shall cooperate with Owner and Hotel Lessee in determining
the balance of Working Capital upon the termination of the Hotel Lease.
4.06 Fixed Asset Supplies
It is anticipated that funding of initial Fixed Asset Supplies for the
Resort shall be included in the initial Working Capital funded in accordance
with Section 4.05. Owner shall, within thirty (30) days after request by
Manager, provide funds from Gross Revenues that are necessary to increase the
level of Fixed Asset Supplies to levels determined by Manager, in its good faith
judgment, to be necessary to satisfy the needs of the Resort as its operation
may, from time to time, require. Fixed Asset Supplies shall remain the property
of Owner throughout the term of the Agreement and upon Termination (except for
those Fixed Asset Supplies which are purchased by Manager pursuant to Section
11.11.E).
ARTICLE V
REPAIRS, MAINTENANCE AND REPLACEMENTS
5.01 Repairs and Maintenance Costs Which Are Expensed
Manager shall maintain the Resort as a first-class luxury resort in
good repair and condition, and shall make or cause to be made such routine
maintenance, repairs and minor alterations as it determines are necessary for
such purposes and as may be necessary to maintain and execute
15
<PAGE> 20
preventative maintenance schedules on all equipment used at the Resort. The
phrase "routine maintenance, repairs, and minor alterations" as used in this
Section 5.01 shall include only those which are normally expensed under
generally accepted accounting principles. The cost of such maintenance, repairs
and alterations shall be paid from Gross Revenues (and not from the FF&E
Reserve) and shall be treated as a Deduction in determining Operating Profit.
Manager shall provide Owner with an annual audit of Resort machinery, electrical
equipment and life safety equipment supervised by a senior engineer and shall
oversee the implementation of any action plans resulting thereof.
5.02 FF&E Reserve
A. Manager shall establish a book reserve account (the "FF&E Reserve")
that will reflect additions (plus accrued interest based upon rates earned by
other operating accounts maintained by the Resort) each Calendar Quarter, to
cover the cost of:
1. replacements, renewals and additions to the FF&E at the Resort;
and
2. Special Capital Expenditures.
B. With each Quarterly Statement, Manager shall also submit to Owner a
detailed request for funds to cover the cost of replacements, renewals and
additions to the Resort FF&E and Special Capital Expenditures in accordance with
the FF&E Budget. Subject to the further provisions of this Agreement, Owner
shall provide such funds from the FF&E Reserve within thirty (30) days after
Manager's request.
C. During the Term, the FF&E Reserve will reflect an addition of an
amount equal to (i) three and one-half percent (3.5%) of Gross Revenues
attributable to the Resort for each Calendar Quarter. All amounts accounted for
in the FF&E Reserve pursuant to this Section 5.02.C shall be a Deduction from
Gross Revenues.
D. Manager shall prepare an annual budget estimate (the "FF&E Budget@)
of the expenditures necessary for (1) replacements, renewals and additions to
the FF&E of the Resort, and (2) Special Capital Expenditures, during the ensuing
Fiscal Year and the four (4) succeeding Fiscal Years, including anticipated
major Capital Expenditures in these four (4) years, and shall deliver the FF&E
Budget to Owner for its review and written approval, at the same time as Manager
submits the preliminary business plan described in Section 4.04.A. Owner agrees
that it will approve all items necessary to maintain the Resort in accordance
with Luxury Spa Resort Standards and as required by law and, in the event of any
disapproval, Owner shall specify each item disapproved and the reasons therefore
in writing to Manager within thirty (30) days after receipt of the FF&E Budget.
The FF&E Budget shall also indicate the estimated time schedule for making such
replacements, renewals, and additions.
16
<PAGE> 21
E. Manager shall (endeavoring in good faith to comply with the
applicable FF&E Budget) from time to time make such (1) replacements, renewals
and additions to the FF&E of the Resort, and (2) Special Capital Expenditures,
as Manager deems necessary, up to the balance in the FF&E Reserve. No
expenditures will be made in excess of said balance without the prior written
approval of Owner. At the end of each Fiscal Year, any amounts remaining in the
FF&E Reserve shall be carried forward to the next Fiscal Year. Proceeds from the
sale of FF&E no longer necessary to the operation of the Resort shall be added
to the FF&E Reserve. The FF&E Reserve will be kept on the books of Owner.
Proceeds from the disposition of FF&E shall reduce the required transfers to the
FF&E Reserve set forth in subsection B above, but shall not be included in Gross
Revenues.
F. As the Resort ages, the percentage of Gross Revenues which is set
forth in Section 5.02.C may not be sufficient to keep the FF&E Reserve at the
levels necessary to make the replacements, renewals, and additions to the FF&E
of the Resort, or to make the Special Capital Expenditures, which are required
to maintain the Resort in accordance with the Luxury Spa Resort Standards. If
Manager reasonably believes (and so notifies Owner) that the funding of the FF&E
Reserve (with respect to the following Fiscal Year or any subsequent Fiscal
Year) will not be adequate to maintain the Resort in accordance with Luxury Spa
Resort Standards, Manager shall so notify Owner in writing ("Notice for
Additional FF&E Reserve"). The Notice for Additional FF&E Reserve shall set
forth, by specific categories, the amount and use of the additional funds
required for the FF&E Reserve as reasonably determined by Manager in good faith.
In the event Owner disagrees with the amount or use of funds proposed by Manager
in the Notice for Additional FF&E Reserve, Manager and Owner shall negotiate in
good faith, for a period not to exceed thirty (30) days, to reach a mutually
acceptable resolution (the agreed upon amounts and/or uses being referred to as
the "Agreed Upon FF&E Increase"). Thereafter, Owner shall elect one or the other
of the following two (2) alternatives:
1. to agree in writing to increase the annual percentage in Section
5.02.C to provide the Agreed Upon FF&E Increase; or
2. to make a lump sum contribution to the FF&E Reserve in the amount
of the Agreed Upon FF&E Increase.
The failure of the parties to agree upon an Agreed Upon FF&E
Increase or the failure or refusal by Owner either to agree in writing to
Section 5.02.F.1 above, or to provide the funds required in accordance with
Section 5.02.F.2 above, within sixty (60) days after expiration of the foregoing
thirty (30) day negotiation period shall result in Termination of the
Performance Hurdles (hereafter defined), but shall not be an Event of Default by
either party. Upon "Termination of the Performance Hurdles" (i) the provisions
of Section 2.02 (and references in this Agreement to such section) shall be
null, void and of no further effect, and (ii) Manager's option to renew the Term
of this Agreement as set forth in Section 2.01 shall no longer be conditioned
upon achievement of an Owner ROI of at least ten percent (10%) per annum for the
two (2) Fiscal Years immediately preceding the final Fiscal Year of the then
existing Term.
17
<PAGE> 22
5.03 Capital Expenditures
A. Manager shall prepare an annual estimate (the "Building Estimate")
of all Capital Expenditures. Manager shall submit the Building Estimate to Owner
for its approval at the same time as Manager submits the preliminary business
plan described in Section 4.04.A. Manager shall not make any Capital
Expenditures without the prior written approval of Owner, unless specifically
permitted herein.
B. Notwithstanding the provisions of Section 5.03.A, Manager shall be
authorized to take appropriate remedial action (including making any necessary
Capital Expenditures) without receiving Owner's prior consent in the following
circumstances: (i) if there is an emergency threatening the Resort, its guests,
invitees or employees; or (ii) if the continuation of the given condition would
subject Manager and/or Owner to civil or criminal liability, and if Owner has
either failed to remedy the situation or has failed to take appropriate legal
action to stay the effectiveness of any applicable Legal Requirement, provided,
that Manager may not take any such action without first notifying Owner (or, in
the case of an emergency, using its best efforts to notify Owner). Manager shall
cooperate with Owner in the pursuit of any such action and shall have the right
to participate therein. Owner shall, upon written request by Manager, promptly
reimburse all expenditures made by Manager pursuant to this Section 5.03.B.
C. The cost of all Capital Expenditures (including the expenses
incurred by either Owner or Manager in connection with any civil or criminal
proceeding described above) shall be borne solely by Owner, and shall not be
paid from Gross Revenues nor from the FF&E Reserve.
D. Owner shall not unreasonably withhold its approval with respect to
Capital Expenditures as are: (i) required, in Manager's reasonable judgment, to
keep the Resort in a first-class, competitive, efficient and economical
operating condition in accordance with Luxury Spa Resort Standards; or (ii)
required by reason of any Legal Requirement, or otherwise required for the
continued safe and orderly operation of the Resort. It shall be an Event of
Default by Owner (and Manager shall be entitled to exercise any of the remedies
described in Article IX hereof) if Owner either (a) unreasonably withholds its
approval of any Capital Expenditure described in the preceding sentence, or (b)
fails to provide funding for any such Capital Expenditure, which was previously
approved by Owner, within sixty (60) days after the submission to Owner of the
Building Estimate requesting such Capital Expenditure.
5.04 Ownership of Replacements
All repairs, alterations, improvements, renewals or replacements made
pursuant to Article V, and all amounts kept in the FF&E Reserve, shall, except
as otherwise provided in this Agreement, be the property of Owner.
18
<PAGE> 23
ARTICLE VI
INSURANCE, DAMAGE AND CONDEMNATION
6.01 Insurance
A. Manager shall, commencing with the Effective Date and thereafter
during the Term of the Agreement, procure and maintain, with insurance companies
that have an A.M. Best Insurance Guide Rating of not less than A-VIII, a minimum
of the following insurance:
1. Property insurance on the Resort Improvements and contents
against loss or damage by fire, lightning and all other risks (including
earthquake and flood in reasonable amounts if and as determined by Owner and
Manager) covered by a "Special Form" (formerly "All Risk") policy, and an agreed
amount endorsement (or its equivalent), all in an amount not less than one
hundred percent (100%) (less excavation and foundation costs) of the replacement
cost thereof;
2. Boiler and machinery insurance against loss or damage (direct and
indirect) to boilers, pressure vessels, air conditioning systems, machinery and
electrical equipment to the extent applicable to the Resort;
3. Business income (formerly "business interruption") insurance on a
"Special Form" policy and written on an actual loss sustained basis, covering
loss of profits and necessary continuing expenses, for not less than twelve (12)
months, for interruptions caused by any occurrence covered by the insurance
referred to in Sections 6.01.A.1 and 2 of a type and in amounts as are generally
established by Manager at similar Resorts it owns, leases or manages;
4. Commercial general liability insurance, on an occurrence basis,
covering against claims for bodily injury, including death, personal and
advertising injury or property damage occurring on, in, or about the Resort,
including liquor law or "dram shop" liability (if liquor or alcoholic beverages
are served on the managed property), with a combined single limit for each
occurrence of not less than One Million Dollars ($1,000,000) and Two Million
Dollars ($2,000,000) in the aggregate;
5. Business automobile liability insurance to cover all owned, hired
and nonowned automobiles owned or operated by Manager providing a minimum
combined single limit of One Million Dollars ($1,000,000);
6. Garagekeepers legal liability insurance to cover both
comprehensive and collision-type losses with a limit of liability of Two Million
Dollars ($2,000,000) for any one occurrence;
7. Workers' compensation as may be required under applicable laws
covering all of Manager's employees at the Resort, and employer's liability
insurance in an amount of at least $500,000 per occurrence;
19
<PAGE> 24
8. Umbrella liability insurance in excess of the liability coverage
set forth above in Sections 6.01.A.4, A.5 and A.7 (employers liability only)
with limits no less than One Hundred Million Dollars ($100,000,000);
9. Fidelity bonds or a blanket commercial crime policy with
reasonable limits to be determined by Manager, covering its employees in job
classifications normally bonded in other similar Resorts it leases or manages
under the name of Manager or any of its Affiliates in the United States or as
otherwise required by law to the extent Manager and Owner mutually agree it is
necessary for the Resort, which fidelity bonds or blanket commercial crime
policy shall be endorsed to include safe deposit box legal liability and
innkeeper's legal liability; and
10. Such other insurance in amounts as reasonably requested by Owner
after consultation with Manager for protection against claims, liabilities and
losses arising out of or connected with the operation of the Resort.
B. All insurance described in Section 6.01.A may be obtained by Manager
by endorsement or equivalent means under its blanket insurance policies,
provided that such blanket policies substantially fulfill the requirements
specified in this Agreement.
C. The policies of insurance required under Sections 6.01.A.1 and A.2
shall be carried in the name of Owner, all other policies required hereunder
shall be carried in the name of Manager. The policies required under Sections
6.01.A. 3, 4, 5, 6, 8 and 9 shall include the owner of the Resort and any lessee
of the Resort as an additional insured and include a waiver of subrogation in
favor of the Owner. Upon notice by the Owner, Manager shall also have the
policies required under Sections 6.01.A.1, 2, and 3 include any Mortgagee as an
additional insured. Any property losses thereunder shall be payable to the
respective parties as their interests may appear.
D. Manager shall deliver to Owner certificates of insurance with
respect to all policies so procured and, in the case of insurance policies about
to expire, shall deliver certificates with respect to the renewal thereof. All
certificates of insurance provided for under this Section 6.01 shall, to the
extent obtainable, state that the insurance shall not be canceled or materially
changed without at least thirty (30) days' prior written notice to the
certificate holder. Each insurer mentioned in this Section 6.01 shall agree, by
endorsement to the policy or policies issued to it, or by independent instrument
furnished to Crescent Real Estate Funding VIII, L.P., that it will provide
Crescent Real Estate Funding VIII, L.P. thirty (30) days written notice before
the policy or policies in question shall be materially altered, allowed to
expire or canceled.
E. Insurance premiums and any other costs or expenses with respect to
the insurance required under Section 6.01.A., including any Insurance Retention
(as defined below), shall be paid from Gross Revenues as Deductions. Such
premiums and costs, if applicable, shall be allocated on an equitable basis to
the properties participating under Manager's blanket insurance. Any reserves,
losses, costs or expenses which are uninsured shall be treated as a cost of
insurance and shall be Deductions. Upon termination of this Agreement, a reserve
in an amount acceptable to Manager and
20
<PAGE> 25
Owner (as determined, in the absence of mutual agreement, by arbitration
pursuant to Section 11.20) shall be established from Gross Revenues to cover the
amount of any Insurance Retention and all other costs which will eventually have
to be paid by either Owner or Manager with respect to pending or contingent
claims, including those which arise after termination for causes arising during
the Term of the Agreement. If Gross Revenues are insufficient to meet the
requirements of such reserve, Owner shall deliver to Manager, within ten (10)
days after receipt of Manager's written request therefor, the sums necessary to
establish such reserve; and if Owner fails to timely deliver such sums to
Manager, Manager shall have the right (without affecting Manager's other
remedies under this Agreement) to withdraw the amount of such expenses from the
Operating Accounts, the Working Capital funds or any other funds of Owner held
by or under the control of Manager. For purposes of this Section 6.01.E,
"Insurance Retention" shall mean the amount of any loss or reserve under
Manager's blanket insurance which is allocated to the Resort, not to exceed the
higher of (A) the maximum per occurrence limit established for similar Resorts
participating in such programs, or (B) the insurance policy deductible on any
loss which may fall within high hazard classifications as mandated by the
insurer (e.g., earthquake, flood, windstorm on coastal properties, etc.). If the
Resort is not a participant under Manager's blanket insurance, "Insurance
Retention" shall mean the amount of any loss or reserve allocated to the Resort,
not to exceed the insurance policy deductible.
F. Owner may, at its option, by written notice to Manager which shall
be delivered no later than ninety (90) days prior to the inception of the
insurance policies required in Sections 6.01.A.1 and 2, procure and maintain the
insurance specified in Section, 6.01.A.1 and 2, subject to the following terms
and conditions:
1. All such policies of insurance shall be carried in the name of
Owner, with Manager as an additional insured. Any property losses thereunder
shall be payable to the respective parties as their interests may appear. The
documentation with respect to each secured loan shall contain provisions to the
effect that proceeds of the insurance policies required to be carried under
Sections 6.01.A.1 and 2 shall be available for repair and restoration of the
Resort, to the extent required pursuant to Section 6.01.C. However, any holder
of such secured loan shall be entitled to impose reasonable conditions on the
disbursement of insurance proceeds for the repair and/or restoration of the
Resort, including a demonstration by Owner and/or Manager that the amount of
such proceeds (together with other funds Owner agrees to make available) is
sufficient for such purpose.
2. Owner shall deliver to Manager certificates of insurance with
respect to all policies so procured and, in the case of insurance policies about
to expire, shall deliver certificates with respect to the renewal thereof.
3. All such certificates of insurance shall, to the extent
obtainable, state that the insurance shall not be canceled or materially changed
without at least thirty (30) days' prior written notice to the certificate
holder.
21
<PAGE> 26
4. To the extent the premiums for such insurance coverage shall
exceed the premiums for such insurance under Manager's policies, such excess
shall not be treated as a Deduction.
5. Should the Resort meet the insurability criteria of Manager and
Owner nevertheless exercises its right to obtain the insurance described in this
Section 6.01.F, Owner acknowledges that Manager is under no obligation to
thereafter include the Resort in its blanket insurance program (with respect to
the coverage described in Sections 6.01.A.1, 2 and 3) for the balance of the
Term of this Agreement. However, upon a Sale of the Resort, a successor Owner
shall have the right, notwithstanding the fact that the previous Owner may have
obtained insurance in accordance with this Section 6.01.F, to have the Resort
included in Manager's blanket insurance program (provided that the Resort, as of
that point in time, satisfies the applicable criteria for admission to such
program, as established by the program's insurance carriers) by making a written
request to Manager for such inclusion not later than thirty (30) days after the
date on which such party becomes the Owner.
6. All insurance procured by Owner hereunder shall be obtained from
reputable insurance companies authorized to issue insurance in the State of
California and reasonably acceptable to Manager.
G. Increase in Limits. If Owner at any time deems the limits of the
personal injury or property damage under the comprehensive public liability
insurance then carried to be either excessive or insufficient, Manager and Owner
shall endeavor in good faith to agree on the proper and reasonable limits for
such insurance to be carried and such insurance shall thereafter be carried with
the limits thus agreed on until further change pursuant to the provisions of
this Section.
6.02 Damage and Repair
A. If, during the Term, the Resort is damaged by a Minor Casualty,
Manager shall, with commercially reasonable diligence, proceed to process the
claim with the applicable insurance carriers, including settling such claim, and
to make the necessary arrangements with appropriate contractors and suppliers to
repair and/or replace the damaged portion of the Resort. Owner's consent shall
not be needed for Manager to perform any of the foregoing, all of which shall be
performed in accordance with Manager's reasonable judgment. Owner agrees to sign
promptly any documents which are reasonably necessary to process and/or adjust
the claim with the insurance carriers, as well as any contracts with such
contractors and/or suppliers.
B. If, during the Term, the Resort suffers a Total Casualty, this
Agreement shall be terminable at the option of either party upon ninety (90)
days' written notice to the other party. Such notice must be sent within thirty
(30) days after the date of the Total Casualty. In the event that (i) insurance
proceeds actually received by Owner are sufficient to replace and/or rebuild the
Resort, and (ii) Owner so elects to terminate this Agreement (notwithstanding
receipt of insurance proceeds sufficient to replace and/or rebuild the Resort),
then Owner will pay to Manager the Termination Fee,
22
<PAGE> 27
such payment to be made on or before the ninetieth (90th) day after the date on
which Owner notifies Manager of its election to terminate this Agreement.
C. If, during the Term, the Resort is damaged by fire, casualty or
other cause to a greater extent than a Minor Casualty, but not to the extent of
a Total Casualty, or if the Resort suffers a Total Casualty but neither party
elects to terminate under Section 6.02.B, Owner shall, at its cost and expense
and with all reasonable diligence, repair and/or replace the damaged portion of
the Resort to the same condition as existed previously. Manager shall have the
right to discontinue operating the Resort to the extent it deems necessary to
comply with applicable Legal Requirements or as necessary for the safe and
orderly operation of the Resort. To the extent available, proceeds from the
insurance described in Section 6.01 of this Agreement shall be applied to such
repairs and/or replacements. If Owner does not elect to terminate this Agreement
under Section 6.02.B and fails to promptly commence the repairing and/or
replacement of the Resort so that it shall be substantially the same as it was
prior to such damage or destruction, such failure shall be an Event of Default
by Owner.
6.03 Condemnation
A. In the event all or substantially all of the Resort shall be taken
in any eminent domain, condemnation, compulsory acquisition, or similar
proceeding by any competent authority for any public or quasi-public use or
purpose, or in the event a portion of the Resort shall be so taken, but the
result is that it is unreasonable to continue to operate the Resort in
accordance with the standards required by this Agreement, this Agreement shall
terminate. Owner and Manager shall each have the right to initiate such
proceedings as they deem advisable to recover any compensation to which they may
be entitled.
B. In the event a portion of the Resort shall be taken by the events
described in Section 6.03.A, or the entire Resort is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate the
Resort, this Agreement shall not terminate. However, so much of any award for
any such partial taking or condemnation as shall be necessary to render the
Resort equivalent to its condition prior to such event shall be used for such
purpose; and Manager shall have the right to discontinue operating the Resort to
the extent it deems necessary for the safe and orderly operation of the Resort.
23
<PAGE> 28
ARTICLE VII
TAXES
7.01 Real Estate and Personal Property Taxes
A. Except as specifically set forth in subsection B below, all real
estate and personal property taxes, levies, assessments and similar charges on
or relating to the Resort ("Impositions") during the Term shall be paid by
Manager from Gross Revenues, before any fine, penalty, or interest is added
thereto or lien placed upon the Resort or upon the Agreement, unless payment
thereof is in good faith being contested and enforcement thereof is stayed. Any
such payments shall be Deductions in determining Operating Profit. Owner shall,
within ten (10) business days after receipt, furnish Manager with copies of
official tax bills and assessments which it may receive with respect to the
Resort. Either Owner or Manager (in which case Owner agrees to sign the required
applications and otherwise cooperate with Manager in expediting the matter) may
initiate proceedings to contest any negotiations or proceedings with respect to
any Imposition, and all reasonable costs of any such contest shall be paid from
Gross Revenues and shall be a Deduction in determining Operating Profit. Manager
shall, as part of its contest or negotiation of any Imposition, be entitled, on
Owner's behalf, to waive any applicable statute of limitations in order to avoid
paying the Imposition during the pendency of any proceedings or negotiations
with applicable authorities.
B. The word "Impositions" as used in this Agreement shall not include
the following, all of which shall be paid solely by Owner, not from Gross
Revenues nor from the FF&E Reserve:
1. Any franchise, corporate, estate, inheritance, succession,
capital levy or transfer tax imposed on Owner, or any income tax imposed on any
income of Owner (including distributions to Owner pursuant to Article III
hereof, but not including any property taxes which are assessed on the basis of
income or revenues generated by the Resort);
2. Special assessments (regardless of when due or whether they are
paid as a lump sum or in installments over time) imposed because of facilities
which are constructed by or on behalf of the assessing jurisdiction (for
example, roads, sidewalks, sewers, culverts, etc.) which directly benefit the
Resort (regardless of whether or not they also benefit other buildings), which
assessments shall be treated as capital costs of construction and not as
Deductions;
3. "Impact Fees" (regardless of when due or whether they are paid as
a lump sum or in installments over time) which are required of Owner as a
condition to the issuance of site plan approval, zoning variances or building
permits, which impact fees shall be treated as capital costs of construction and
not as Deductions; or
4. "Tax-increment financing" or similar financing whereby the
municipality or other taxing authority has assisted in financing the
construction of the Resort by temporarily reducing or abating normal Impositions
in return for substantially higher levels of Impositions at later dates.
24
<PAGE> 29
ARTICLE VIII
OWNERSHIP OF THE RESORT
8.01 Ownership of the Resort
A. During the Term and any Renewals, Owner hereby covenants that it
holds good and marketable fee title to the Site and that it will have, keep, and
maintain good and marketable fee title to the Resort free and clear of any and
all liens, encumbrances or other charges (or in the event of a lease of the
Resort, the lessee holds a valid leasehold interest in the Site) except as
follows:
1. Easements or other encumbrances (other than those described in
subsections 2 and 3 hereof) that do not materially and adversely affect the
operation of the Resort by Manager and that are not prohibited pursuant to
Section 8.04 of this Agreement;
2. Liens on encumbrances related to equipment used in the operation
of the Resort;
3. Mortgages;
4. Liens for taxes, assessments, levies or other public charges not
yet due or due but not yet payable or due and payable but payment is in good
faith being contested; or
5. The Hotel Lease.
B. Owner shall pay and discharge, on or before the due date, any and
all payments due under any Mortgage that Owner has entered into with respect to
the Resort. Owner shall indemnify, defend, and hold Manager harmless from and
against all claims, Litigation and damages arising from the failure to make any
such payments as and when required; and this obligation of Owner shall survive
Termination. Manager shall have no responsibility for payment of debt service
due with respect to the Resort, from Gross Revenues or otherwise, and such
responsibility shall be solely that of Owner.
C. Owner covenants that, so long as Manager is not in Default under
this Agreement, Manager shall quietly hold, occupy and enjoy the Resort
throughout the Term hereof free from hindrance, ejection or molestation by Owner
or other party claiming under, through or by right of Owner. Owner agrees to pay
and discharge any payments and charges and, at its expense, to prosecute all
appropriate actions, judicial or otherwise, necessary to assure such free and
quiet occupation.
D. Manager and Owner agree that during the Term, Owner may lease the
Resort to any Person on terms and conditions acceptable to Owner in its sole and
absolute discretion. Manager,
25
<PAGE> 30
Owner and Hotel Lessee acknowledge that the Resort is currently leased by Owner
to Hotel Lessee pursuant to the Hotel Lease, and Hotel Lessee executes this
Agreement to evidence its agreement that, until such time as all of Owner's
obligations under this Agreement have been satisfied in full, the Hotel Lease
and all terms and provisions thereof shall be subject to and unconditionally
subordinate in all respects to this Agreement (including without limitation the
respective obligations and liabilities, and the respective rights, privileges,
and powers, of Owner and Manager under this Agreement and any renewals,
extensions, modifications or assignments hereof). During the term of the Hotel
Lease, but not thereafter, Owner hereby assigns to Hotel Lessee (an Affiliate of
Crescent Operating, Inc.) all of Owner's interest in this Agreement, and all of
Owner's rights, benefits, and privileges under this Agreement shall be vested in
Hotel Lessee throughout the term of the Hotel Lease and upon termination of the
Hotel Lease, for whatever reason, shall automatically revert to Owner without
the necessity of any action on the part of the Owner hereunder.
8.02 Mortgages
Owner shall be permitted to encumber the Resort and/or the Site with
any Mortgage.
8.03 Subordination Agreement.
A. At Owner's request, Manager shall execute an instrument
("Subordination Agreement") reasonable satisfactory to Manager and any
Mortgagee, which shall be recordable in the jurisdiction where the Resort is
located pursuant to which:
1. This Agreement and any extensions, renewal, replacements or
modifications there, and all right and interest of Manager in and to the Resort,
shall be subject and subordinate to such Mortgage; and
2. Manager shall be obligated to each of the Subsequent Owners (as
defined below) to perform all of the terms and conditions of this Agreement for
the balance of the remaining Term hereof, with the same force and effect as if
such Subsequent Owner were the Owner.
Notwithstanding the foregoing, Manager shall not be obligated to execute a
Subordination Agreement with respect to any Mortgage for which the loan-to-value
ratio, as determined by the lender under such Mortgage, exceeds seventy percent
(70%).
B. Owner shall use commercially reasonable efforts to obtain in the
Subordination Agreement the terms of this Section 8.03.B. In the event that
there is a Foreclosure of such Mortgage (or a deed in lieu of Foreclosure), or
other exercise by such Mortgagee (or its successor) of its remedies in the event
of default, in connection with which title or possession of the Resort is
transferred to the Mortgagee (or its designee) or to a purchaser at Foreclosure
or to a subsequent purchaser from the Mortgagee (or from its designee) (all of
the foregoing shall collectively be referred to as "Subsequent Owners"), Manager
shall not be disturbed in its rights under this Agreement so long as Manager is
not in Default hereunder.
26
<PAGE> 31
C. Notwithstanding the subordination of this Agreement which is
described in Section 8.03.A (or any subsequent subordination to any other
Mortgage), if, in connection with the exercise by any Mortgagee of its remedies
under any Mortgage, there is a material adverse impact upon the operation of the
Resort by Manager in accordance with the Luxury Spa Resort Standards (such as,
for example, the imposition of material restrictions upon expenditures from the
FF&E Reserve by Manager, where such restrictions are not set forth in this
Agreement), the foregoing shall be deemed to be an Event of Default by Owner
entitling Manager to all of the remedies set forth in Article IX.
8.04 No Covenants, Conditions or Restrictions
A. Owner covenants that, from and after the Effective Date and during
the Term of this Agreement, Owner shall not (unless Manager has given its prior
written consent thereto) create or cause or suffer to be caused any covenants,
conditions or restrictions, including reciprocal easement agreements or
cost-sharing arrangements (collectively referred to as "CC&Rs") affecting the
Site or the Resort (i) which would prohibit or substantially limit Manager from
operating the Resort in accordance with the Luxury Spa Resort Standards,
including related amenities proposed for the Resort; (ii) which would legally
entitle the Resort facilities (for example, parking spaces) to be used by
persons other than guests, invitees or employees of the Resort; (iii) other than
leases entered into by Owner, which would allow the Resort facilities to be used
for specified charges or rates which have not been approved by Manager; or (iv)
which would subject the Resort to exclusive arrangements regarding food and
beverage operation or retail merchandise.
B. Unless otherwise agreed by both Owner and Manager, all financial
obligations imposed on Owner or on the Resort pursuant to any CC&Rs shall be
paid by Owner from its own funds, and not from Gross Revenues or from the FF&E
Reserve. Manager's consent to any such CC&Rs shall be conditioned (among other
things) on satisfactory evidence that: (i) the CC&R in question provides a
reasonable and cost-effective benefit to the operation of the Resort; (ii) the
costs incurred (including administrative expenses) pursuant to such CC&R will be
both reasonable and allocated to the Resort on a reasonable basis; and (iii) no
capital expenditures incurred pursuant to said CC&R will be paid as a Deduction
(but rather, such capital expenditures will be paid separately by Owner).
8.05 Liens; Credit
Manager and Owner shall use commercially reasonable efforts to prevent
any liens from being filed against the Resort which arise from any maintenance,
repairs, alterations, improvements, renewals or replacements in or to the
Resort, other than the lease or financing of equipment for use at the Resort.
They shall cooperate fully in obtaining the release of any such liens, and the
cost thereof, if the lien was not occasioned by the fault of either party, shall
be treated the same as the cost of the matter to which it relates. If the lien
arises as a result of the fault of either party, then the party at fault shall
bear the cost of obtaining the lien release. In no event shall either party
borrow money in the name of or pledge the credit of the other.
27
<PAGE> 32
8.06 Amendments Requested by Mortgagee
A. If requested by any Mortgagee or prospective Mortgagee, Manager
agrees to execute and deliver any amendment of this Agreement that is reasonably
required by such Mortgagee or prospective Mortgagee, provided that Manager shall
be under no obligation to amend this Agreement if the result of such amendment
would be: (i) to reduce, defer or delay the amount of any payment to be made to
Manager hereunder; (ii) to materially and adversely increase Manager's
obligations or affect Manager's rights under this Agreement; (iii) to change the
Term of this Agreement; (iv) to cause the Resort to be operated other than
pursuant to the Luxury Spa Resort Standards and other provisions hereof; or (v)
to amend Section 5.02 or Section 5.03. Any such amendment shall be in effect
only for the period of time in which such Mortgage is outstanding.
B. Notwithstanding the provisions of Section 8.06.A, if a Mortgagee or
prospective Mortgagee requests that Manager enter into an amendment of this
Agreement which would impose additional duties (for example, an increase in the
reporting requirements or in the record-keeping requirements, or adding the
obligation to prepare parallel accounting statements using a different fiscal
year) on Manager, or would otherwise adversely affect Manager's rights under
this Agreement, but not to the degree of materiality which would be prohibited
under Section 8.06.A, and with respect to which Manager believes, in its good
faith judgment, that it can be adequately compensated, Manager hereby agrees
that it will execute and deliver such requested amendment of this Agreement,
provided that Owner compensates Manager for the additional burden imposed by
such amendment that relate directly to the Resort. It is understood that the
word "burden," as used in the preceding sentence, shall encompass not only
additional work to be performed by Manager, but also the adverse effect on the
Short-Term Incentive Fee which would be caused by requiring increased services
to be provided to the Resort by third parties and by paying from Gross Revenues
any other expenses incurred by Manager in meeting such additional obligations.
Any dispute as to the additional compensation to which Manager is entitled
pursuant to this Section 8.06.B. shall be resolved by arbitration pursuant to
Section 11.20.
ARTICLE IX
DEFAULTS
9.01 Events of Default
Each of the following shall constitute a "Default" under this
Agreement.
A. The filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by either party, or the
admission by either party that it is unable to pay its debts as they become due.
Upon the occurrence of any Default by either party (referred to as the
"defaulting party") as described under this subsection A, said Default shall be
deemed an "Event of Default" under this Agreement.
28
<PAGE> 33
B. The consent to an involuntary petition in bankruptcy or the failure
to vacate, within ninety (90) days from the date of entry thereof, any order
approving an involuntary petition by either party. Upon the occurrence of any
Default by either party as described under this subsection B, said Default shall
be deemed an "Event of Default" under this Agreement.
C. The entering of an order, judgment or decree by any court of
competent jurisdiction, on the application of a creditor, adjudicating either
party as bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee, or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree's continuing unstayed
and in effect for an aggregate of sixty (60) days (whether or not consecutive).
Upon the occurrence of any Default by either party as described under this
subsection C, said Default shall be deemed an "Event of Default" under this
Agreement.
D. The failure of either party to make any payment required to be made
in accordance with the terms of this Agreement, as of the due date as specified
in this Agreement. Upon the occurrence of any Default by either party as
described under this subsection D, said Default shall be deemed an "Event of
Default" under this Agreement if the defaulting party fails to cure such Default
within ten (10) days after receipt of written notice from the non-defaulting
party demanding such cure.
E. The failure of either party to perform, keep or fulfill any of the
other covenants, undertakings, obligations or conditions set forth in this
Agreement, and the continuance of such default for a period of thirty (30) days
after the defaulting party's receipt of written notice from the non-defaulting
party of said failure. Upon the occurrence of any Default by either party as
described under this subsection E, said Default shall be deemed an "Event of
Default" under this Agreement if the defaulting party fails to cure the Default
within thirty (30) days after receipt of written notice from the non-defaulting
party demanding such cure, or, if the Default is such that it cannot reasonably
be cured within said thirty (30) day period of time, if the defaulting party
fails to commence the cure of such Default within said thirty (30) day period of
time or thereafter fails to diligently pursue such efforts to completion.
9.02 Remedies
Upon the occurrence of an Event of Default, the non-defaulting party
shall have the right to pursue any one or more of the following courses of
action: (1) if the Event of Default has a material adverse impact on the
non-defaulting party, to terminate this Agreement by written notice to the
defaulting party, which termination shall be effective as of the effective date
which is set forth in said notice, provided that said effective date shall be at
least thirty (30) days after the date of said notice and further provided that
either party may extend the foregoing period of thirty (30) days to seventy-
five (75) days (or such longer period of time as may be necessary under Legal
Requirements pertaining to termination of employment); (2) to institute
forthwith any and all proceedings permitted by law or equity including, without
limitation, actions for specific performance and/or damages; and/or (3) to avail
itself of the remedies described in Section 9.03.
29
<PAGE> 34
9.03 Additional Remedies
A. Upon the occurrence of a Default by either party under the
provisions of Section 9.01.D, the amount owed to the non-defaulting party shall
accrue interest, at an annual rate equal to the Prime Rate plus three (3)
percentage points, from and after the date on which the Default occurred.
B. Upon the occurrence of a Default by Owner under the provisions of
Section 9.01.D, Manager shall have the right (without affecting Manager's other
remedies under this Agreement) to withdraw the amount (plus accrued interest as
described in 9.03.A above) owed to Manager by Owner from distributions otherwise
payable to Owner pursuant to Sections 3.02 and 4.01 of this Agreement.
C. Manager and/or any Affiliate shall be entitled, in case of any
breach of the covenants of Sections 11.11.E, F, or G or of Section 11.12 by
Owner or others claiming through it, to injunctive relief and to any other right
or remedy available at law.
D. Except as provided, the remedies granted under Sections 9.02 and
9.03 shall not be in substitution for, but shall be in addition, to, any and all
rights and remedies available to the non- defaulting party (including, without
limitation, injunctive relief and damages) by reason of applicable provisions of
law or equity and shall survive Termination.
ARTICLE X
ASSIGNMENT AND SALE
10.01 Assignment
A. Manager shall not assign or transfer its interest in this Agreement
without the prior written consent of Owner; provided, however, that Manager
shall have the right, without Owner's consent, to lease shops or grant
concessions at the Resort so long as the terms of any such leases or concessions
do not exceed the Term of this Agreement, subject to Owner's right to consent as
set forth in Section 1.02 and elsewhere in this Agreement.
B. Owner shall not assign or transfer its interest in this Agreement
without the prior written consent of Manager; provided, however, that Owner
shall have the right, without such consent, to (1) assign its interest in this
Agreement to Crescent Operating, Inc., Crescent Real Estate Equities Limited
Partnership, Crescent Real Estate Equities, Ltd., Sonoma Spa Resorts, L.P. or
any of their Affiliates or any successors of the foregoing, (2) conditionally
assign this Agreement as security for a Mortgage of the Resort in accordance
with this Agreement, and (3) assign its interest in this Agreement in connection
with a Sale of the Resort.
30
<PAGE> 35
C. In the event either party consents to an assignment of this
Agreement by the other, no further assignment shall be made without the express
consent in writing of such party, unless such assignment may otherwise be made
without such consent pursuant to the terms of this Agreement. An assignment by
Manager of its interest in this Agreement shall not relieve Manager from its
obligations under this Agreement, and shall inure to the benefit of, and be
binding upon, its successors, heirs, legal representatives, or assigns. In the
event Owner assigns this Agreement in accordance with the terms hereof and
thereby causes its assignee to assume all of Owner's obligations hereunder,
Owner shall thereby be released from the obligations of Owner under this
Agreement to the extent such obligations accrue on or after the effective date
of the assumption by Owner's assignee.
10.02 Sale of the Resort
A. At any time during the Term, Owner shall be entitle to sell, assign,
transfer or otherwise dispose of the Resort subject to the further provisions of
this Agreement.
B. Unless this Agreement is terminated in accordance with Section
10.03, no Sale of the Resort shall reduce or otherwise affect: (i) the current
level of Working Capital; (ii) the outstanding balance deposited in the FF&E
Reserve; or (iii) the outstanding balance in any of the Operating Accounts
maintained by Manager pursuant to this Agreement. If, in connection with any
Sale of the Resort, the selling Owner intends to withdraw, for its own use, any
of the cash deposits described in the preceding sentence, the selling Owner must
obtain the contractual obligation of the buying Owner to replenish those
deposits (in the identical amounts) simultaneously with such withdrawal. The
selling Owner is hereby contractually obligated to Manager to ensure that such
replenishment in fact occurs. The obligations described in this Section 10.02.B
shall survive such Sale of the Resort.
C. The terms and provisions of this Agreement shall be binding upon all
successors to Owner's interest in the Site and/or the Resort. Each selling Owner
shall be obligated to Manager to obtain from each buying Owner an assumption of
this Agreement. The foregoing obligation of the selling Owner shall survive any
Sale of the Resort.
10.03 Termination on Sale of Resort
Owner shall have the right to terminate this Agreement upon the Sale of
the Resort if the Resort is sold in a bonafide arms length transaction to a
non-related entity (where no shareholder or partner of Owner holds any ownership
interest in such new entity, other than ownership of a non- controlling
interest) and Owner is not in default under the terms of this Agreement by
notice given pursuant to Section 11.07. Such Termination shall be effective in
accordance with the following: Owner shall notify Manager of its election to
terminate this Agreement pursuant to the provisions of this Section 10.03 by
delivery of a written notice ("Sale Termination Notice") setting forth Owner's
intention to terminate this Agreement and the anticipated date on which this
Agreement shall terminate, which notice shall be delivered at least ninety (90)
days prior to the projected termination date. Notwithstanding the foregoing, in
the event the Sale Termination Notice is delivered to
31
<PAGE> 36
Manager less than twelve (12) months prior to the projected termination date,
Owner shall be obligated to pay Manager the Base Management Fee for twelve (12)
months following the Sale Termination Notice (without regard to a prior
termination of this Agreement pursuant to this Section 10.03). In the event
Owner is obligated under this Section 10.03 to pay Manager the Base Management
Fee for any period following the termination of this Agreement pursuant to this
Section 10.03, the amount of such Base Management Fee shall be the amount of the
Base Management Fee paid by Owner to Manager for the corresponding period in the
immediately preceding Fiscal Year. Owner may, not less than thirty (30) days
prior to the projected termination date of this Agreement as set forth in a Sale
Termination Notice, withdraw such Sale Termination Notice (in which case, this
Agreement shall continue in full force and effect as if such Sale Termination
Notice had not been previously delivered to Manager).
ARTICLE XI
MISCELLANEOUS
11.01 Right to Make Agreement
Each party warrants, with respect to itself, that neither the execution
of the Agreement nor the finalization of the transactions contemplated hereby
shall violate any provision of law or judgment, writ, injunction, order or
decree of any court or governmental authority having jurisdiction over it;
result in or constitute a breach or default under any indenture, contract, other
commitment or restriction to which it is a party or by which it is bound; or
require any consent, vote or approval which has not been taken, or at the time
of the transaction involved shall not have been given or taken. Each party
covenants that it has and will continue to have throughout the Term of the
Agreement and any extensions thereof, the full right to enter into the Agreement
and perform its obligations hereunder.
11.02 Consents and Cooperation
Wherever in the Agreement the consent or approval of Owner or Manager
is required, such consent or approval shall be in writing and shall be executed
by a duly authorized officer or agent of the party granting such consent or
approval. Additionally, Owner agrees to cooperate with Manager by executing such
leases, subleases, licenses, concessions, equipment leases, service contracts
and other agreements negotiated in good faith by Manager and pertaining to the
Resort that are consistent with the terms of this Agreement and, in Manager's
reasonable judgment, should be made in the name of the Owner of the Resort.
11.03 Relationship
Neither this Agreement nor any agreements, instruments, documents, or
transactions contemplated hereby shall in any respect be interpreted, deemed or
construed as making Manager a
32
<PAGE> 37
partner or joint venturer with Owner. Owner and Manager agree that neither party
will make any contrary assertion, claim or counterclaim in any action, suit,
arbitration or other legal proceedings involving Owner and Manager.
11.04 Applicable Law
The Agreement shall be construed under and shall be governed by the
laws of the state of Texas.
11.05 Recordation
The terms and provisions of the Agreement shall run with the parcel of
land designated as the Site, and with Owner's interest therein, and shall be
binding upon all successors to such interest. Simultaneously with the execution
of this Agreement, the parties shall execute a recordable "Memorandum of
Management Agreement," in the form which is attached hereto as Exhibit B. The
Memorandum shall be recorded or registered promptly following the Effective Date
in the jurisdiction in which the Resort is located. The Memorandum shall not be
a lien against Owner's interest in the Site. Any cost of such recordation shall
be reimbursed from Gross Revenues and treated as a Deduction. Upon termination
of this Agreement, Owner and Manager shall execute a written notice of such
termination in recordable form.
11.06 Headings
Headings of articles and sections are inserted only for convenience and
are in no way to be construed as a limitation on the scope of the particular
articles or sections to which they refer.
11.07 Notices
Notices, statements and other communications to be given under the
terms of the Agreement shall be in writing and delivered by hand against receipt
or sent by certified or registered mail, postage prepaid, return receipt
requested or by nationally utilized overnight delivery service, addressed to the
parties as follows:
<TABLE>
<S> <C>
To Owner: Crescent Real Estate Funding VIII, L.P.
777 Main Street, Suite 2100
Fort Worth, TX 76102
Attn: Senior Vice President and Chief
Investment Officer
Facsimile: (817) 321-2000
and Crescent Real Estate Funding VIII, L.P.
777 Main Street, Suite 2100
Fort Worth, TX 76102
Attn: Legal Department
Facsimile: (817) 321-2000
</TABLE>
33
<PAGE> 38
with copy to: Brown McCarroll & Oaks Hartline, LLP
300 Crescent Court, Suite 1400
Dallas, Texas 75201
Attn: Robert W. Dupuy
Facsimile: (214) 999-6170
To Manager: Sonoma Management Corp. I
c/o Sonoma Holdings I, LLP
306 W. 7th Street, Suite 1025
Fort Worth, TX 76102
Attn: Sanjay Varma
Facsimile: 817/317-0665
with copy to: Gray, Harris & Robinson
201 East Pine Street, Suite 1200
Orlando, Florida 32801
Attn: Byrd F. Marshall
Facsimile: (407) 244-5690
or at such other address as is from time to time designated by the party
receiving the notice. Any such notice that is mailed in accordance herewith
shall be deemed received when delivery is received or refused, as the case may
be. Additionally, notices may be given by telephone facsimile transmission,
provided that an original copy of said transmission shall be delivered to the
addressee by nationally utilized overnight delivery service by no later than the
second business day following such transmission. Telephone facsimiles shall be
deemed delivered on the date of such transmission.
11.08 Environmental Matters
A. At all times during the term of this Agreement, Manager shall fully
comply with Environmental Laws applicable to the Resort and its operations.
Manager shall at all times use diligent efforts to determine if any Hazardous
Material is being used, released, disposed or discharged at or from the Resort,
including, without limitation, the engagement of professional environmental
engineers to perform such environmental studies or tests as may be approved by
Owner. If any Hazardous Material is discovered at the Resort, Manager shall not
disturb, release or dispose of (or permit to be disturbed, released or disposed
of) any such Hazardous Material except in strict compliance with a remediation
and/or removal program approved by Owner. Additionally, without the prior
consent of Owner, which may be withheld in its sole and absolute discretion,
Manager shall not permit on the Resort (a) any dry cleaning operations, (b) any
activity requiring a permit under any Environmental Laws, even if the permit has
been or can be obtained, (c) any activity generating any Hazardous Materials as
waste or using Hazardous Materials, other than (i) kitchen grease traps, (ii)
pool and spa chemicals, fertilizers and pesticides in reasonable quantities
relative to the needs of the
34
<PAGE> 39
Resort which are properly stored, handled and disposed of, and (iii) other
Hazardous Materials in small quantities that are typically used in the
operations of the Resort.
B. Manager and Owner each agrees to give the other prompt written
notice of (1) all Environmental Liabilities; (2) all pending, threatened or
anticipated proceedings, and all notices, demands, requests or investigations,
relating to any Environmental Liability or relating to the issuance, revocation
or change in any Environmental Authorization required for operation of the
Resort; (3) all Releases at, on, in, under or in any way affecting the Resort,
or any Release known by Owner or Manager, as the case may be, at, on, in or
under any property adjacent to the Resort; and (4) all facts, events or
conditions that could reasonably lead to the occurrence of any of the above-
referenced matters. Manager and Owner each agrees to defend, indemnify and save
harmless the other and its Affiliates from and against any and all Environmental
Liabilities to the extent that the same were caused by the intentionally
wrongful or grossly negligent acts or omissions of Manager or Owner, as the case
may be, or any of their employees at the Resort.
C. For the purposes of this Section 11.08, the following terms shall
have the meanings set forth below:
"Environmental Authority" shall mean any department, agency or other
body or component of any government that exercises any form of jurisdiction or
authority under any Environmental Law.
"Environmental Laws" shall mean all applicable federal, state, local
and foreign laws and regulations relating to pollution of the environment
(including without limitation, ambient air, surface water, ground water, land
surface or subsurface strata), including without limitation laws and regulations
relating to emissions, discharges, Releases or threatened Releases of Hazardous
Materials or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials.
"Environmental Liabilities" shall mean any and all actual or potential
obligations to pay the amount of any judgment or settlement, the cost of
complying with any settlement, judgment or order for injunctive or other
equitable relief, the cost of compliance or corrective action in response to any
notice, demand or request from an Environmental Authority, the amount of any
civil penalty or criminal fine, any court costs and reasonable amounts for
attorney's fees, fees for witnesses and experts, and costs of investigation and
preparation for defense of any claim or any proceeding, regardless of whether
such proceeding is threatened, pending or completed, that may be or have been
asserted against or imposed upon Owner, Manager, any predecessor in interest,
the Resort or any property used therein and arising out of:
(a) the failure to comply at any time with any Environmental
Law applicable to the Resort;
(b) the presence of any Hazardous Materials on, in, under, at
or in any way affecting the Resort;
35
<PAGE> 40
(c) a Release or threatened Release of any Hazardous Materials
on, in, at, under or in any way affecting the Resort;
(d) the identification of Manager, Owner or any predecessor in
interest as a potentially responsible party under any Environmental Law;
(e) the presence at any time of any above-ground and/or
underground storage tanks, as defined in any applicable Environmental Law on,
in, at or under the Resort or any adjacent site or Resort; or
(f) any and all claims for injury or damage to persons or
property arising out of exposure to Hazardous Materials originating or located
at the Resort, or resulting from operation thereof or any adjoining property.
"Hazardous Materials" shall mean all chemicals, pollutants,
contaminants, wastes and toxic substances, including without limitation:
(a) Solid or hazardous waste, hazardous substances, toxic
substances and insecticides, fungicides, or rodenticides, as defined in any
Environmental Law;
(b) Gasoline or any other petroleum product or byproduct,
polychlorinated biphenyls, asbestos and urea formaldehyde;
(c) Asbestos or asbestos containing materials;
(d) Urea formaldehyde foam insulation; and
(e) Radon gas.
"Release" shall mean a "Release" as defined in any Environmental Law,
unless such Release has been properly authorized and permitted in writing by all
applicable Environmental Authorities or is allowed by such Environmental Law
without authorizations or permits.
11.09 Confidentiality
A. The parties hereto agree that the matters set forth in this
Agreement and all statements, reports, projections, and other information
relating to the operation of the Resort are strictly confidential and each party
will make every effort to ensure that the information is not disclosed to any
outside person or entities (including the press) without the prior written
consent of the other party, which consent shall not be unreasonably withheld or
delayed, except as may, in the disclosing party's reasonable evaluation, be
required by law (including, without limitation, laws and regulations regarding
publicly-traded securities) and as may be reasonably necessary to obtain
licenses, permits, and other public approvals necessary for the refurbishment or
operation of the
36
<PAGE> 41
Resort, or in connection with Owner's financing of the Resort, a Sale of the
Resort, or a sale of a controlling interest in Owner or Manager.
B. The provisions of this Section 11.09B shall not be operative unless
and until Owner ceases to own a direct or indirect interest in Manager (whether
through Sonoma Corporation or otherwise). No reference to Manager or to any
Affiliate of Manager will be made in any prospectus, private placement
memorandum, offering circular or offering documentation related thereto
(collectively referred to as the "Prospectus"), issued by Owner or by one of
Owner's Affiliates or by one or more Mortgagees, which is designed to interest
potential investors in debt or equity securities related to the Resort, unless
Manager has not less than three (3) days prior to its intended use, received and
approved a copy of all such references; provided, however, the foregoing shall
not apply with respect to any report, filing or disclosure of any type or nature
required to be made by Owner or any Affiliate of Owner in order to comply with
applicable laws and regulations (including without limitation securities laws
and regulations applicable to Owner or any Affiliate of Owner). Manager shall
not unreasonably withhold or delay its consent to Owner's use of such
references. Manager's failure to respond within such three (3) day period shall
be deemed approval of its use. However, regardless of whether Manager does or
does not so receive a copy of all such references, neither Manager nor any
Affiliate will be deemed a sponsor of the offering described in the Prospectus,
nor will it have any responsibility for the Prospectus. Owner shall indemnify,
defend and hold Manager harmless from and against all loss, costs, liability and
damage (including attorneys' fees and expenses, and the cost of Litigation)
arising out of any Prospectus or the offering described therein; and this
obligation of Owner shall survive Termination of this Agreement.
C. No reference to Owner or to any Affiliate of Owner will be made in
any Prospectus issued by Manager or by one of Manager's Affiliates, which is
designed to interest potential investors in debt or equity securities of
Manager, unless Owner has, not less than three (3) days prior to its intended
use, received and approved a copy of all such references. Owner shall not
unreasonably withhold or delay its consent to Manager's use of such references.
Owner's failure to respond within such three (3) day period shall be deemed
approval of its use. However, regardless of whether Owner does or does not so
receive a copy of all such references, neither Owner nor any Affiliate of Owner
shall be deemed a sponsor of the offering described in the Prospectus, nor will
it have any responsibility for the Prospectus, and the Prospectus will so state.
Unless Owner agrees in advance, the Prospectus will not include any Trade Names,
Trademarks or proprietary marks of Owner or Owner's Affiliates. Manager shall
indemnify, defend and hold Owner harmless from and against all loss, costs,
liability and damage (including attorneys' fees and expenses, and the cost of
Litigation), arising out of any Prospectus or the offering described therein;
and this obligation of Manager shall survive Termination of this Agreement.
11.10 Projections
Owner acknowledges that any written or oral projections, proforma, or
other similar information that has been (prior to execution of this Agreement)
or will (during the Term of this Agreement) be provided by Manager (or any
Affiliate thereof) to Owner is for information purposes
37
<PAGE> 42
only, and that Manager and any such Affiliate do not guarantee that the Resort
will achieve the results set forth in any such projections, proforma, or other
similar information. Any such projections, proforma, or other similar
information are based on assumptions and estimates. Unanticipated events may
occur subsequent to the date of preparation of such projections, proforma, and
other similar information. Therefore, the actual results achieved by the Resort
are likely to vary from the estimates contained in any such projections,
proforma, or other similar information and such variations might be material.
11.11 Actions to be Taken Upon Termination
Upon a Termination of this Agreement, the following shall be
applicable:
A. Manager shall, within ninety (90) days after Termination of this
Agreement, prepare and deliver to Owner a final accounting statement and
supporting documentation with respect to the Resort, as more particularly
described in Section 4.01 hereof, along with a statement of any sums due from
Owner or Manager pursuant hereto, dated as of the date of Termination. Within
thirty (30) days of the receipt by Owner, Owner will review and confirm such
final accounting statement and the parties will make whatever cash adjustments
are necessary pursuant to such final statement. The cost of preparing such final
accounting statement shall be a Deduction, unless the Termination occurs as a
result of a Default by either party, in which case the defaulting party shall
pay such cost. Manager and Owner acknowledge that there may be certain
adjustments for which the information will not be available at the time of the
final accounting and the parties agree to readjust such amounts and make the
necessary cash adjustments when such information becomes available; provided,
however, that all accounts shall be deemed final as of the first (1st)
anniversary of the effective date of Termination.
B. Manager shall immediately release and transfer to Owner any of
Owner's funds which are held or controlled by Manager with respect to the Resort
with the exception of funds to be held in escrow pursuant to Sections 6.01.E and
11.11.H and otherwise in accordance herewith.
C. Manager shall deliver to Owner all books and records respecting the
Resort (including those from prior years), which are the property of Owner,
whether such records are prepared by Manager or at the direction or request of
Manager or any Affiliate of Manager.
D. Manager shall (to the extent permitted by law) assign to Owner or to
the new manager all operating licenses and permits for the Resort which have
been issued in Manager's name (including liquor and restaurant licenses, if
any); provided that if Manager has expended any of its own funds in the
acquisition of any of such licenses or permits, Owner shall reimburse Manager
therefor if it has not done so already.
E. Owner shall have the right to operate the improvements on the Site
with or without modifying the architectural design of same, notwithstanding the
fact that such design or certain features thereof may be proprietary to Manager
and/or protected by trade marks or service marks held by Manager or an
Affiliate, provided that such use shall be confined to the Site.
38
<PAGE> 43
F. If this Agreement is terminated for any reason other than (i) a
Default by Manager or by Owner, (ii) termination pursuant to Section 2.02, 2.03
or Section 10.03, (iii) termination by Manager pursuant to Section 6.02, (iv) if
insurance proceeds actually received by Owner are insufficient to replace and/or
rebuild the Resort following a Total Casualty, the termination by Owner pursuant
to Section 6.02, or (v) natural expiration of the Term, then Owner shall, within
ten (10) days after Manager's request therefor, pay to Manager, as Manager's
sole remedy, as compensation for Manager's lost revenue and expenses and not as
a penalty, an amount (the "Termination Fee") equal to the product of (i) the
amount of the Base Management Fee during the immediately preceding twelve (12)
months, multiplied by (ii) one (1) minus ("X" divided by 365), with "X" being
the number of days between and including the date Owner delivers notice of
termination to Manager through the effective date of such termination.
G. In the event that sufficient notice pursuant to the WARN Act cannot
be given, Owner shall cause the entity which shall succeed Manager as the
operator of the Resort to hire a sufficient number of the employees at the
Resort to avoid the occurrence, in connection with such Termination, of a
"closing" under the WARN Act.
H. Various other actions shall be taken, as described in this
Agreement, including, but not limited to, the actions described in Sections 4.05
and 6.01.E.
I. Manager shall peacefully vacate and surrender the Resort to Owner.
The provisions of this Section 11.11 shall survive Termination.
11.12 Trademarks, Trade Names and Intellectual Property
A. Owner grants to Manager a non-exclusive license to use during the
Term and only in connection with the operation of the Resort all Ventana Inn
Trademarks (hereafter defined), including any statutory and common law rights
related thereto. Manager agrees that the quality of the services furnished in
connection with Manager's use of the Ventana Inn Trademarks shall be of a first
class nature. When using the Ventana Inn Trademarks, Manager shall comply with
all applicable laws pertaining to servicemarks, trademarks or tradenames,
including marking requirements. Owner shall have the right, at all reasonable
times, to inspect the premises of Manager and all goods, literature, brochures,
signs, advertising materials and other items used by Manager bearing the Ventana
Inn Trademarks, to determine compliance of use of the Ventana Inn Trademarks as
provided for herein. Manager acknowledges Owner's right, title and interest in
and to the Ventana Inn Trademarks and any registrations that have issued or may
issue thereon, and Manager agrees that it will not at any time do or cause to be
done any act or thing contesting or in any way impairing or tending to impair
any part of such right, title and interest. In connection with the use of the
Ventana Inn Trademarks, Manager shall not in any manner represent that it has
any ownership in the Ventana Inn Trademarks or registrations thereof, and
Manager acknowledges that any use of the Ventana Inn Trademarks, including all
goodwill associated therewith, shall inure solely to the benefit of Owner. Upon
the expiration or earlier termination of this Agreement, Manager will cease and
desist from all use of the
39
<PAGE> 44
Ventana Inn Trademarks in any way, and it will deliver to Owner, or its duly
authorized representatives, all items upon which the Ventana Inn Trademarks
appear. Manager will not at any time adopt or use without Owner's prior written
consent, any word, logo or mark which is likely to be similar to or confusing
with the Ventana Inn Trademarks. The term "Ventana Inn Trademarks" shall
include, without limitation, all Trademarks and Trade Names used in conjunction
with the Resort, including but not limited to restaurant names, lounge names,
etc., whether or not the marks contain the "Ventana Inn & Spa" name. The right
to use or authorize others to use Ventana Inn Trademarks belongs exclusively to
Owner and/or lessees under the Hotel Lease, whether or not the same are
registered and regardless of the source of the same. The provisions of this
Section 11.12 shall survive Termination.
B. All Intellectual Property shall at all times be proprietary to
Owner, and shall be the exclusive property of Owner. During the Term of this
Agreement, Manager shall take all reasonable steps to ensure that the
Intellectual Property remains confidential and is not disclosed to anyone other
than Manager's employees at the Resort.
C. Owner shall be entitled, in case of any breach by Manager of any of
the covenants of this Section 11.12, to injunctive relief and to any other right
or remedy available at law. Section 11.12 shall survive Termination.
40
<PAGE> 45
11.13 Trade Area Restriction
A. Neither Manager nor any of its Affiliates shall manage or operate
any resort, hotel or golf facility within a twenty (20) mile radius of the
Resort during the period from the Effective Date through the seventh (7th)
anniversary after the Effective Date ("Restricted Period"). In the event Manager
violates such trade area restriction during the Restricted Period, Owner may, as
a one (1) time right, terminate this Agreement within one hundred eighty (180)
days after the opening of the facility within this restricted trade area and
Manager will pay Owner a one (1) time fee of Two Hundred Fifty Thousand Dollars
($250,000). Owner and Manger agree that the Owner's damages resulting from
Manager's violation of the trade area restriction of this Section 11.13 would be
difficult, if not impossible, to determine and the foregoing fee is a fair
estimate of those damages which has been agreed to in an effort to cause the
amount of said damages to be certain.
B. Neither Manager nor any of its Affiliates shall manage or operate
any resort, hotel or golf facility within a two (2) mile radius of the Resort
during the Initial Term or any Renewal Terms.
11.14 Waiver
The failure of either party to insist upon a strict performance of any
of the terms or provisions of the Agreement, or to exercise any option, right or
remedy contained in this Agreement, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.
11.15 Partial Invalidity
If any portion of the Agreement shall be declared invalid by order,
decree or judgment of a court, the Agreement shall be construed as if such
portion had not been so inserted except when such construction would operate as
an undue hardship on Manager or Owner or constitute a substantial deviation from
the general intent and purpose of said parties as reflected in the Agreement.
11.16 Survival
Except as otherwise specifically provided in this Agreement, the rights
and obligations of the parties herein shall not survive any Termination of this
Agreement. Any obligation of Owner to pay a Termination Fee shall survive
Termination of this Agreement.
41
<PAGE> 46
11.17 Affiliates and Third Party Vendors
Subject to the terms and limitations contained in this Agreement,
Manager shall be entitled to contract with one or more of its Affiliates and to
enter into agreements with various non-Affiliate vendors to provide goods and/or
services to the Resort; provided that the prices and/or fees paid to any such
Affiliate are competitive with the prices and/or fees which may be charged by
reputable and qualified parties for similar goods and/or services. In
determining, pursuant to the foregoing, whether such prices and/or fees are
competitive, the goods and/or services which are being purchased shall be
grouped in reasonable categories, rather than being compared item by item. The
prices and/or fees paid may include overhead and the allowance of a reasonable
return to Manager and its Affiliates. Additionally, Manager acknowledges and
agrees that, with respect to any such purchases or services, Manager and its
Affiliates shall credit to Owner any allowances, credits, rebates, commissions
and discounts.
11.18 Estoppel Certificates
Each party to this Agreement shall at any time and from time to time,
upon not less than thirty (30) days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (a) certifying that this Agreement is
unmodified and in full force and effect (or if there have been modifications,
that the same, as modified, is in full force and effect and stating the
modifications); (b) stating whether or not to the best knowledge of the
certifying party (i) there is a continuing Default or Event of Default by the
non-certifying party in the performance or observance of any covenant, agreement
or condition contained in this Agreement, or (ii) there shall have occurred any
event which, with the giving of notice or passage of time or both, would become
a Default or Event of Default, and, if so, specifying each such Default or Event
of Default or occurrence of which the certifying party may have knowledge; and
(c) stating such other information as the non-certifying party may reasonably
request. Such statement shall be binding upon the certifying party and may be
relied upon by the non-certifying party and/or such third party specified by the
non-certifying party as aforesaid. In addition, upon written request after a
Termination, each party agrees to execute and deliver to the non-certifying
party and to any such third party a statement certifying that this Agreement has
been terminated.
11.19 Luxury Spa Resort Standards
In the event of either (i) a Legal Requirement, including an order,
judgment or directive by a court or administrative body which is issued in
connection with any Litigation involving Owner, or (ii) any action taken by a
Mortgagee in connection with a Foreclosure, which in either case restricts or
prevents Manager, in a material and adverse manner, from operating the Resort in
accordance with Luxury Spa Resort Standards (including without limitation, any
restrictions on expenditures by Manager from the Operating Accounts or from the
FF&E Reserve, other than restrictions which are set forth in this Agreement),
Manager shall be entitled, at its option, to terminate this Agreement upon sixty
(60) days' written notice to Owner. The foregoing shall not reduce or otherwise
affect the rights of the parties under either Article IX or Section 11.11.I.
42
<PAGE> 47
11.20 Arbitration.
Any dispute between the parties the subject matter of which is subject
to arbitration hereunder shall be, at the written request of either Manager or
Owner (the "Arbitration Request"), determined by arbitration to be conducted in
the Tarrant County, Texas, and in accordance with the terms of this Section
11.20.
(a) If either Manager or Owner requests arbitration in accordance
with the terms of this Section 11.20 (as to a matter subject to arbitration
hereunder), both parties shall use their diligent good faith efforts to agree
upon and appoint, within thirty (30) days after the delivery of the Arbitration
Request (the "Outside Agreement Date"), a neutral arbitrator who is a member in
good standing of the International Society of Hospitality Consultants ("ISHC")
or, in the case of any dispute regarding financial statements, a person with
special expertise in accounting matters. The selected neutral arbitrator shall
decide the disputed matter in accordance with the terms and provisions of this
Agreement, provided, that if the terms and provisions of this Agreement are not
determinative then the terms and conditions of this Agreement shall be
interpreted and supplemented by the customs and practices of the industry for
Resorts generally comparable to the Resort. Any decision reached by said
arbitrator shall be final and binding upon Owner and Manager.
(b) If Owner and Manager are unable to agree upon an arbitrator who
is a member of ISHC prior to the expiration of the Outside Agreement Date, the
disputed matter shall be determined by arbitration, in accordance with the
United States Arbitration Act (Title 9, U.S. Code) and under the Commercial
Rules (the "Commercial Rules") of the American Arbitration Association ("AAA")
where the arbitrator is selected in accordance with AAA Commercial Rules from
ISHC members or other persons with at least ten (10) years experience in the
hospitality industry, with particular emphasis on Resorts generally comparable
to the Resort and who are not, at the time of the arbitration, employed by a
competing Resort Manager.
(c) The arbitrator shall resolve all claims and defenses or other
matters in dispute in accordance with this Agreement and applicable law,
including without limitation thereto, all statutes of limitation; provided, that
the arbitrator's authority shall be limited to accepting the proposal, position
or resolution proposed by the parties, and the arbitrator shall have no
authority to fashion any remedy not submitted by the parties. Any controversy
concerning whether an issue is arbitrable shall be determined by the
arbitrator(s). Judgment upon the arbitration award may be entered in any court
having jurisdiction. The institution and maintenance of an action for judicial
relief or pursuit of provisional or ancillary remedies shall not constitute a
waiver of the right of any party, including the plaintiff, to submit the
controversy or claim to arbitration if any other party contests such action for
judicial relief.
(d) Wherever reference is made herein to selection of an arbitrator,
it shall be deemed to mean the selection of three arbitrators whenever either
party so requests within ten (10) days after the delivery of the Arbitration
Request. Each such arbitrator shall be selected in
43
<PAGE> 48
accordance with and have the qualifications set forth in this Section 11.20. If
three arbitrators are chosen, all decisions of the board of arbitrators shall be
made by a majority of the arbitrators.
11.21 Entire Agreement
The Agreement, together with any other writings signed by the parties
expressly stated to be supplemental hereto and together with any instruments to
be executed and delivered pursuant to the Agreement, constitutes the entire
agreement between the parties and supersedes and replaces all prior agreements
and understandings and writings, and may be changed only by a writing signed by
the parties hereto.
11.22 Multiple Counterparts
This Agreement may be executed in counterparts, all of which taken
together shall constitute one document.
11.23 Guaranty. Sonoma Corporation, a Delaware corporation, shall
execute a guarantee in favor of Owner of all obligations of Manager hereunder.
ARTICLE XII
DEFINITION OF TERMS
12.01 Definition of Terms
The following terms when used in the Agreement and the Addendum
attached hereto shall have the meanings indicated:
"AAA" shall have the meaning set forth in Section 11.20.
"Affiliate" shall mean, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For purposes of this definition, the term "control" (including
the terms "controlling", "controlled by" and "under common control with") of a
Person means the possession, directly or indirectly, of the power: (i) to vote
more than fifty percent (50%) of the voting stock of such Person; or (ii) to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting stock, by contract or otherwise.
"Agreed Upon FF&E Increase" shall have the meaning set forth in Section
5.02.F.
44
<PAGE> 49
"Agreement" shall mean this Management Agreement between Owner and
Manager, including the exhibits attached hereto.
"Annual Operating Statement" shall have the meaning set forth in
Section 4.01.C.
"Arbitration Request" shall have the meaning set forth in Section
11.20.
"Available Cash Flow" shall mean an amount, with respect to each Fiscal
Year or portion thereof during the Term of this Agreement, equal to the excess,
if any, of the Operating Profit over the Owner's Priority.
"Base Management Fee" shall mean an amount payable to Manager as a
Deduction from Gross Revenues equal to two percent (2%) of Gross Revenues for
each Fiscal Year or portion thereof.
"Beverage Sales" shall mean Gross Revenues from the sale of (i) wine,
beer, liquor or other alcoholic beverages, whether sold in a bar or lounge,
delivered to or available in a Guest Room, sold at meetings or banquets or at
any other location at the Resort and (ii) nonalcoholic beverages sold in a bar
or lounge. Such Gross Revenues constituting Beverage Sales shall include sales
by Owner or its lessee and its permitted subtenants, licensees and
concessionaires. Such revenue shall be determined in a manner consistent with
the most current Uniform System of Accounts and shall not include the following:
(i) Any gratuity or service charge added to a customer's bill
or statement in lieu of a gratuity which is paid directly to an employee;
(ii) Credits, rebates or refunds; and
(iii) Sales taxes or taxes of any other kind imposed on the
sale of alcoholic or other beverages.
"Building Estimate" shall have the meaning ascribed to it in Section
5.03.
"Business Plan" shall have the meaning set forth in Section 4.04.
"Calendar Quarter" shall mean each of the first (1st), second (2nd),
third (3rd) and fourth (4th) quarters of each calendar year.
"Capital Budget" shall have the meaning set forth in Section 4.04.A.2.
"Capital Expenditure(s)" shall mean the expenses necessary for
non-routine, major repairs, alterations, improvements, renewals, replacements,
and additions to the Resort including, without limitation, to the structure, the
roof, the exterior facade and all of the mechanical, electrical, heating,
45
<PAGE> 50
ventilating, air conditioning, plumbing or vertical transportation elements of
the Resort building, together with all other expenditures which are classified
as "capital expenditures" under generally- accepted accounting principles and
the Uniform System of Accounts.
"Case Goods" shall mean furniture and furnishings used in the Resort,
including, without limitation: chairs, beds, chests, headboards, desks, lamps,
tables, television sets, mirrors, pictures, wall decorations and similar items.
"CC&Rs" shall have the meaning ascribed to it in Section 8.04.
"Commercial Rules" shall have the meaning set forth in Section 11.20.
"Corporate Services" shall have the meaning set forth in Section 1.02.
"Deductions" shall mean the following expenses incurred by Manager in
operating the Resort:
1. the cost of sales, including, without limitation,
compensation, fringe benefits, payroll taxes, ERISA-related liabilities,
pension-fund withdrawal liabilities, and other costs related to employees of
Manager (or one of its Affiliates) who are working exclusively for the benefit
of the Resort (regardless of whether such employees are located at the Resort or
elsewhere); provided that the foregoing costs shall not include the salary and
other employee costs of Manager's corporate executive staff;
2. departmental expenses incurred at departments within the
Resort; administrative and general expenses; the cost of marketing incurred by
the Resort; advertising and business promotion incurred by the Resort; heat,
light, and power; computer line charges; and routine repairs, maintenance and
minor alterations treated as Deductions under Section 5.01;
3. the cost of Inventories and Fixed Asset Supplies consumed
in the operation of the Resort;
4. a reasonable reserve for uncollectible accounts receivable
as determined by Manager;
5. all costs and fees of independent professionals or other
third parties who are retained by Manager to perform services required or
permitted hereunder;
6. all costs and fees of technical consultants, professionals
and operational experts who are retained or employed by Manager and its
Affiliates for specialized services in connection with matters directly
involving the Resort (including, without limitation, quality assurance
inspectors, personnel providing architectural, technical or procurement services
for the Resort, tax consultants, and personnel providing legal services and the
cost of attendance by employees of the Resort at training and manpower
development programs designated by Manager;
46
<PAGE> 51
7. the Base Management Fee;
8. insurance costs and expenses as provided in Sections 6.01;
9. taxes, if any, payable by or assessed against Manager
related to this Agreement or to Manager's operation of the Resort (exclusive of
Manager's income taxes or franchise taxes);
10. all Impositions;
11. the amount of FF&E Reserve required to be transferred to
Owner pursuant to Section 5.02;
12. the Resort's share of costs and expenses (allocated on a
basis mutually acceptable to Owner and Manager) incurred in connection with
sales, advertising, promotion and marketing programs, including guest loyalty
and recognition programs, where such expenses are not deducted as departmental
expenses under paragraph 2 above or as Corporate Services pursuant to paragraph
13 below;
13. the Resort's share, if any, of the charges for Corporate
Services (determined in accordance with Section 1.02);
14. all costs and expenses of compliance by Manager with
applicable Legal Requirements pertaining to the operation of the Resort;
15. the cost and expenses incurred in connection with the
audit of the Annual Operating Statement pursuant to Section 4.02; and
16. such other costs and expenses incurred by Manager (either
at the Resort or elsewhere) as are specifically provided for elsewhere in this
Agreement or are otherwise reasonably necessary for the proper and efficient
operation of the Resort.
The term "Deductions" shall not include: (a) debt service payments
pursuant to any Mortgage on the Resort; (b) payments pursuant to equipment
leases or other forms of financing obtained for the FF&E located in or connected
with the Resort, unless Manager has previously given its written consent to such
equipment lease and/or financing; (c) rental payments pursuant to any ground
lease of the Site; or (d) depreciation on the Resort or any of its contents. All
of the foregoing items listed in this paragraph shall be paid by Owner from its
own funds.
"Default" shall have the meaning ascribed to it in Section 9.01.
"Deficiency" shall have the meaning set forth in Section 2.02.B.
"Deficit" shall have the meaning set forth in Section 2.02.B.
47
<PAGE> 52
"Effective Date" shall have the meaning ascribed to it in the Preamble.
"Environmental Authority" shall have the meaning ascribed to it in
Section 11.08.
"Environmental Laws" shall have the meaning ascribed to it in Section
11.08.
"Environmental Liabilities" shall have the meaning ascribed to it in
Section 11.08.
"Event of Default" shall have the meaning ascribed to it in Section
9.01.
"Excluded Transaction" shall have the meaning ascribed to it in Section
1.01.C.5.
"FF&E" shall mean furniture, furnishings, fixtures, Soft Goods, Case
Goods, signage, audio- visual equipment, kitchen appliances, vehicles, carpeting
and equipment, including front desk and back-of-the house computer equipment,
but shall not include Fixed Asset Supplies or Software.
"FF&E Budget" shall have the meaning ascribed to it in Section 5.02.D.
"FF&E Reserve" shall have the meaning ascribed to it in Section 5.02.A.
"Fiscal Year" shall mean the calendar year.
"Fixed Asset Supplies" shall mean items included within "Property and
Equipment" under the Uniform System of Accounts including, but not limited to,
linen, china, glassware, tableware, uniforms, and similar items, whether used in
connection with public space or Guest Rooms.
"Food Sales" shall mean (i) Gross Revenues from the sale of food and
non-alcoholic beverages that are prepared at the Resort and sold or delivered on
or off the Resort by Owner, its lessee and its permitted subtenants, licensees,
or concessionaires whether for cash or for credit, including in respect of Guest
Rooms, banquet rooms, meeting rooms and other similar rooms, and (ii) Gross
Revenues from the rental of banquet, meeting and other similar rooms. Such Gross
Revenues constituting Food Sales shall include sales by Owner or its lessee and
its permitted subtenants, licensees and concessionaires. Such revenue shall be
determined in a manner consistent with the Uniform System of Accounts and shall
not include the following:
(i) Vending machine sales;
(ii) Any gratuities or service charges added to a customer's
bill or statement in lieu of a gratuity which is paid directly to an employee;
(iii) Non-alcoholic beverages sold from a bar or lounge;
(iv) Credits, rebates or refunds; and
48
<PAGE> 53
(v) Sales taxes or taxes of any other kind imposed on the sale
of food or nonalcoholic beverages.
"Force Majeure" shall mean the following events, but only to the extent
the same cannot be overcome with diligence and commercially reasonable expense
by the party claiming the existence of a Force Majeure:
(a) War, invasion, rebellion, revolution, insurrection, riots,
or civil war;
(b) Acts of government in its sovereign capacity;
(c) Earthquakes, hurricanes, tidal waves, or any operation of
the forces of nature as reasonable foresight and ability on the part of the
affected party could not reasonably provide against;
(d) Unavailability of supply of construction materials;
(e) Strikes, lockouts, or other significant employee
disturbances not caused by Manager's acts; and
(f) Events beyond the reasonable control of the party claiming
the existence of a Force Majeure, other than a shortage of funds, and such that
reasonable foresight and ability on the part of the affected party could not
reasonably provide against.
"Foreclosure" shall mean any exercise of the remedies available to a
Mortgagee, upon a default under the Mortgage held by such Mortgagee, which
results in a transfer of title to or possession of the Resort. The term
"Foreclosure" shall include, without limitation, any one or more of the
following events, if they occur in connection with a default under a Mortgage:
(i) a transfer by judicial foreclosure; (ii) a transfer by deed in lieu of
foreclosure; (iii) the appointment by a court of a receiver to assume possession
of the Resort; or (iv) any similar judicial or non-judicial exercise of the
remedies held by the Mortgagee.
"GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
Deflator" issued from time to time by the United States Bureau of Economic
Analysis of the Department of Commerce, or if the aforesaid GDP Deflator is not
at such time so prepared and published, any comparable index selected by Owner
and reasonably satisfactory to Manager (a "Substitute Index") then prepared and
published by an agency of the government of the United States, appropriately
adjusted for changes in the manner in which such index is prepared and/or year
upon which such index is based. Any dispute regarding the selection of the
Substitute Index or the adjustments to be made thereto shall be settled by
arbitration in accordance with Section 11.20. Except as otherwise expressly
stated herein, whenever a number or amount is required to be "adjusted by the
GDP Deflator", or similar terminology, such adjustment shall be equal to the
percentage increase or decrease in the GDP Deflator which is issued for the
month in which such adjustment is to be made (or, if the GDP
49
<PAGE> 54
Deflator for such month is not yet publicly available, the GDP Deflator for the
most recent month for which the GDP Deflator is publicly available) as compared
to the GDP Deflator which was issued for the month in which the Effective Date
occurred.
"Gross Revenues" shall mean all revenues and receipts of every kind
derived from operating the Resort and all departments and parts thereof,
including, but not limited to: income (from both cash and credit transactions)
from rental of Guest Rooms, telephone charges, stores, offices, exhibit or sales
space of every kind; license, lease and concession fees and rentals (not
including gross receipts of licensees, lessees and concessionaires); income from
vending machines; income from parking; health club membership fees; fees from
personal and sports services; food and beverage sales; wholesale and retail
sales of merchandise; service charges; and proceeds, if any, from business
interruption or other loss of income insurance; provided, however, that Gross
Revenues shall not include the following: gratuities to employees of the Resort;
federal, state or municipal excise, sales or use taxes or any other taxes
collected directly from patrons or guests or included as part of the sales price
of any goods or services; rental payments pursuant to any ground lease of the
Site; proceeds from the sale of FF&E; interest received or accrued with respect
to the funds in the FF&E Reserve or the other operating accounts of the Resort;
any refunds, rebates, discounts and credits of a similar nature, given, paid or
returned in the course of obtaining Gross Revenues or components thereof;
insurance proceeds (other than proceeds from business interruption or other loss
of income insurance); condemnation proceeds (other than for a temporary taking);
or any proceeds from any Sale of the Resort or from the refinancing of any debt
encumbering the Resort. In determining Gross Revenues, amounts shall be
allocated to Beverage Sales, Food Sales, Room Revenues and Other Income and
shall be reported by such categories on Monthly Statements, Quarterly
Statements, Annual Operating Statements and any other statement or report
required hereunder that includes Gross Revenues. The reporting of Gross Revenues
by Manager to Owner shall also include further detail and breakdown as Owner may
reasonably require.
"Guest Profile Data" shall mean personal guest profiles and information
regarding guest preferences.
"Guest Room" shall mean a separately-keyed lodging unit in the Resort.
"Hazardous Materials" shall have the meaning ascribed to it in Section
11.08.
"Hotel" shall mean the hotel complex known as the Ventana Inn & Spa -
Big Sur located on the Site and including a building or buildings containing
approximately Guest Rooms, a lobby, restaurants, meeting rooms, administrative
offices, parking and other amenities and related facilities.
"Hotel Lease" shall mean that certain Lease Agreement dated as of
December 19, 1997, as amended, between Owner and Wine Country Hotel, LLC.
"Hotel Lessee" shall mean Wine Country Hotel, LLC.
50
<PAGE> 55
"Impositions" shall have the meaning set forth in Section 7.01.
"Initial Term" shall have the meaning set forth in Section 2.01.
"Insurance Retention" shall have the meaning ascribed to it in Section
6.01.E.
"Intellectual Property" shall mean: (i) all Software; (ii) all manuals,
brochures and directives issued by Manager to its employees at the Resort
regarding the procedures and techniques to be used in operating the Resort; and
(iii) customer lists and Guest Profile Data.
"Inventories" shall mean "Inventories" as defined in the Uniform System
of Accounts, such as, but not limited to, provisions in storerooms,
refrigerators, pantries and kitchens; beverages in wine cellars and bars; other
merchandise intended for sale; fuel; mechanical supplies; stationery; and other
expensed supplies and similar items.
"Legal Requirement" shall mean any federal, state or local law, code,
rule, ordinance, regulation or order of any governmental authority or agency
having jurisdiction over the business or operation of the Resort or the matters
which are the subject of this Agreement, including, without limitation, the
following: (i) any building, zoning or use laws, ordinances, regulations or
orders; and (ii) Environmental Laws.
"License Agreement" shall have the meaning ascribed to it in Section
11.12.
"Litigation" shall mean: (i) any cause of action (including, without
limitation, bankruptcy or other debtor/creditor proceedings) commenced in a
federal, state or local court; or (ii) any claim brought before an
administrative agency or body (for example, without limitation, employment
discrimination claims).
"Luxury Spa Resort Standards" shall mean either (or both, as the
context requires) of the following two (2) categories of standards: (i) the
operational standards (for example, services offered to guests, quality of food
and beverages, cleanliness, staffing and employee compensation and benefits,
Corporate Services (if applicable), frequent traveler programs and other similar
programs, etc.); and (ii) the physical standards (for example, quality of the
Resort Improvements, FF&E, and Fixed Asset Supplies, frequency of FF&E
replacements, etc.); each of such standards shall be the standard which is
generally prevailing or in the process of being implemented at first- class,
luxury resorts, including all services and facilities in connection therewith
that are customary and usual at such first-class, luxury resorts.
"Manager" shall have the meaning ascribed to it in the Preamble hereto
or shall mean any successor or permitted assign, as applicable.
"Minor Casualty" shall mean any fire or other casualty which results in
damage to the Resort and/or its contents, to the extent that the total cost (in
Manager's reasonable judgment) of repairing
51
<PAGE> 56
and/or replacing the damaged portion of the Resort to the same condition as
existed previously does not exceed the dollar amount of Three Million and No/00
Dollars ($3,000,000.00), said dollar amount to be adjusted by the GDP Deflator.
"Monthly Statement" shall have the meaning set forth in Section 4.01.A
"Mortgage" shall mean any mortgage, deed of trust, or security document
encumbering the Resort and/or the Site.
"Mortgagee" shall mean the holder of any Mortgage.
"Notice for Additional FF&E Reserve" shall have the meaning ascribed to
it in Section 5.02.F.
"Operating Accounts" shall have the meaning set forth in Section
4.03.A.
"Operating Budget" shall have the meaning ascribed to it in Section
4.04.A.1.
"Operating Loss" shall mean a negative Operating Profit.
"Operating Profit" shall mean, with respect to any given period of
time, the excess of Gross Revenues over Deductions (each calculated in
accordance with this Agreement and the Uniform System of Accounts).
"Other Income" shall mean all revenues, receipts, and income of any
kind derived directly or indirectly from or in connection with the Resort and
included in Gross Revenues other than Room Revenues, Food Sales or Beverage
Sales.
"Outside Agreement Date" shall have the meaning ascribed to it in
Section 11.20.
"Owner" shall have the meaning ascribed to it in the Preamble or shall
mean any successor or permitted assign, as applicable.
"Owner's Investment" shall mean an amount equal to (i) Thirty Million
One Hundred Thousand Dollars ($30,100,000.00), plus (ii) the amount of Capital
Expenditures made by Owner for the Resort in excess of FF&E Reserve, plus (iii)
funds permanently advanced to establish or maintain Working Capital pursuant to
Section 4.05, plus (iv) amounts funded pursuant to Section 5.02F. For purposes
of determining Owner's Priority, Owner ROI and Performance Threshold, Owner's
Investment for any Fiscal Year shall be the amount thereof as of December 31 of
said Fiscal Year.
"Owner's Priority" shall mean an annual amount equal to twelve percent
(12%) of Owner's Investment.
52
<PAGE> 57
"Owner ROI" shall mean for any Fiscal Year, the Operating Profit
distributed to Owner pursuant to Section 3.02 divided by the Owner's Investment.
"Performance Threshold" shall mean an annual Owner ROI equal to or in
excess of (i) eight percent (8%) of the Owner's Investment in the first (1st)
and second (2nd) full Fiscal Year of the Term, (ii) nine percent (9%) of the
Owner's Investment for the third (3rd) and fourth (4th) full Fiscal Year, and
(iii) ten percent (10%) of the Owner's Investment for each full Fiscal Year
thereafter.
"Person" means an individual (and the heirs, executors, administrators,
or other legal representatives of an individual), a partnership, a corporation,
limited liability company, a government or any department or agency thereof, a
trustee, a trust and any unincorporated organization.
"Prime Rate" shall mean the "base rate" of interest announced from time
to time by Bankers Trust Company, New York, New York.
"Prior Manager" shall have the meaning ascribed to it in Section
4.01.E.
"Prospectus" shall have the meaning set forth in Section 11.09 B.
"Quarterly Statement" shall have the meaning set forth in Section
4.01.A.
"Release" shall have the meaning ascribed to it in Section 11.08.
"Resort" shall mean the Site and the Hotel together with the following:
(i) the Resort Improvements and all other improvements constructed or to be
constructed on the Site ; (ii) all FF&E, Fixed Asset Supplies and Inventories
installed or located on the Site or in the Resort Improvements; and (iii) all
easements or other appurtenant rights thereto.
"Resort Improvements" shall have the meaning set forth in the Recitals.
"Renewal Term" shall have the meaning ascribed to it in Section 2.01.
"Restricted Period" shall have the meaning ascribed to it in Section
11.13.
"Room Revenues" shall mean Gross Revenues from the rental of Guest
Rooms, whether to individuals, groups or transients, at the Resort, determined
in a manner consistent with the Uniform System of Accounts, excluding the
following:
(i) The amount of all credits, rebates or refunds to
customers, guests or patrons;
(ii) All sales taxes or any other taxes imposed on the rental
of such Guest Rooms; and
53
<PAGE> 58
(iii) Any fees collected for amenities including, but not
limited to, telephone, laundry, movies or concessions.
"Sale of the Resort" shall mean any sale, assignment, transfer or other
disposition, for value or otherwise, voluntary or involuntary, of the fee simple
title to the Site and/or the Resort. For purposes of this Agreement, a Sale of
the Resort shall also include any sale, assignment, transfer or other
disposition, for value or otherwise, voluntary or involuntary, in a single
transaction or a series of transactions, of the controlling interest in Owner.
The phrase "controlling interest", as used in the preceding sentence, shall mean
either: (x) the right to exercise, directly or indirectly, more than fifty
percent (50%) of the voting rights attributable to the shares of Owner (through
ownership of such shares or by contract); or (y) the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of Owner.
"Sale Termination Notice" shall have the meaning ascribed to it in
Section 10.03.
"Short-Term Incentive Fee" shall mean an amount payable to Manager that
is equal to twenty percent (20%) of Operating Profit distributed to Owner in
excess Operating Profit required to be distributed to Owner to achieve an Owner
ROI of twelve percent (12%) per annum in any Fiscal Year (i.e., there shall be
no Short-Term Incentive Fee in any year in which Owner ROI in less than twelve
percent (12%) per annum in any Fiscal Year or portion thereof).
"Site" shall have the meaning ascribed to it in Section A of the
Recitals.
"SMC Affiliate" shall mean any Person that directly or indirectly,
controls or is under common control with Manager. For purposes of this
definition, the term "control" shall have the meaning set forth in the
definition of "Affiliate" under this Section 12.01.
"SMC System" shall mean all of the full-service resorts and hotels in
the United States which are operated by Manager (or an SMC Affiliate).
"Soft Goods" shall mean all fabric, textile and flexible plastic
products (not including items which are classified as "Fixed Asset Supplies"
under the Uniform System of Accounts) which are used in furnishing the Resort,
including, without limitation: carpeting, drapes, bedspreads, wall and floor
coverings, mats, shower curtains and similar items.
"Software" shall mean all computer software and accompanying
documentation (including all future upgrades, enhancements, additions,
substitutions and modifications thereof), other than computer software which is
commercially available, which are used by Manager in connection with the
property management system, the reservation system and all future electronic
systems developed or designated by Manager for use in the Resort.
"Ventana Inn Trademarks" shall have the meaning ascribed in Section
11.12.
54
<PAGE> 59
"Special Capital Expenditures" shall mean certain routine, non-major
expenditures which are classified as "capital expenditures" under
generally-accepted accounting principles, but which will be funded from the FF&E
Reserve (pursuant to Section 5.02), rather than pursuant to the provisions of
Section 5.03. Special Capital Expenditures consist of the following types of
expenditures: exterior and interior repainting (other than routine "touch-up"
and repairs); resurfacing building walls and floors (other than routine
"touch-up" and repairs); resurfacing parking areas (other than routine
"touch-up" and repairs); replacing folding walls; and miscellaneous similar
expenditures, to the extent the same do not constitute ordinary repair and
maintenance.
"Subordination Agreement" shall have the meaning ascribed to it in
Section 8.03.
"Subsequent Owners" shall have the meaning ascribed to it in Section
8.03.
"Term" shall have the meaning ascribed to it in Section 2.01.
"Termination" shall mean the expiration or sooner cessation of this
Agreement.
"Termination Fee" shall have the meaning set forth in Section 11.11.F.
"Termination of Performance Hurdles" shall have the meaning ascribed to
it in Section 5.02.
"Total Casualty" shall mean any fire or other casualty which results in
damage to the Resort and its contents to the extent that the total cost of
repairing and/or replacing the damaged portion of the Resort to the same
condition as existed previously would be thirty percent (30%) or more of the
then total replacement cost of the Resort.
"Trade Names" shall mean any name, whether informal (such as a
fictitious name or d/b/a) or formal (such as the full legal name of a
corporation or partnership) which is used to identify an entity.
"Trademark" shall mean any word, name, device, symbol, logo, design,
brand, servicemark, other distinctive feature or any combination of the
foregoing which is used to identify or symbolize a party's goods and/or services
and to distinguish them from the goods and/or services of others.
"Uniform System of Accounts" shall mean the Uniform System of Accounts
for the Lodging Industry, Ninth Revised Edition, 1996, as published by the
American Resort & Motel Association, and any successor thereto.
"Varma" shall have the meaning ascribed to it in Section 2.03.
"Working Capital" shall mean funds that are used in the day-to-day
operation of the business of the Resort, including, without limitation, amounts
sufficient for the maintenance of change and petty cash funds, amounts deposited
in operating bank accounts, receivables, amounts deposited in
55
<PAGE> 60
payroll accounts, prepaid expenses and funds required to maintain Inventories,
less accounts payable and accrued current liabilities.
"WARN Act" shall mean the Worker Adjustment and Retraining Notification
Act, 29 U.S.C. 2101 et seq.
[SIGNATURES ON FOLLOWING PAGES]
56
<PAGE> 61
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
OWNER:
CRESCENT REAL ESTATE FUNDING VIII, L.P.,
a Delaware limited partnership
By: CRE Management VIII, LLC,
a Delaware limited liability company,
its general partner
By: Crescent Real Estate Equities,
Ltd., a Delaware corporation,
its manager
By:
---------------------------
Name:
--------------------------
Title:
-------------------------
MANAGER:
SONOMA MANAGEMENT CORP. I,
a Delaware corporation
By:
---------------------------
Name:
--------------------------
Title:
-------------------------
57
<PAGE> 62
JOINDER BY HOTEL LESSEE
Wine Country Hotel, LLC, referred to in this Agreement as the "Hotel
Lessee," hereby executes this Agreement to evidence that Hotel Lessee hereby (i)
assumes and agrees to perform all of Owner's obligations under this Agreement
during the term of the Hotel Lease, and (ii) accepts the assignment by Owner to
Hotel Lessee of all of Owner's interest in this Agreement during the term of the
Hotel Lease.
HOTEL LESSEE:
WINE COUNTRY HOTEL, LLC,
a Delaware limited liability
company
By:
---------------------------
Name:
--------------------------
Title:
-------------------------
58
<PAGE> 63
EXHIBIT A
LEGAL DESCRIPTION OF THE SITE
<PAGE> 64
EXHIBIT B
MEMORANDUM OF MANAGEMENT AGREEMENT
This Memorandum of Management Agreement (the "Memorandum") is made and
entered into as of this _____ day of ________________, _________ by and between
Crescent Real Estate Funding VIII, L.P., a Delaware limited partnership
("Owner"), with a mailing address at 777 Main Street, Suite 2100, Fort Worth,
Texas 76102 and Sonoma Management Corp. I, a Delaware corporation ("Manager"),
with a mailing address at c/o Sanjay Varma, 306 W. 7th St., Fort Worth, Texas
76102.
W I T N E S E T H :
Owner and Manager have entered into that certain Management Agreement
effective as of , 2000 (herein, the "Management Agreement") with respect to the
operation of a Resort on the premises located in Monterey County, California as
more particularly described in Exhibit "A" attached hereto (the "Site").
The Management Agreement is in effect. The term of the Management
Agreement expires on __________________. Subject to certain conditions, the term
may thereafter be renewed by Manager, for two (2) successive periods of ten (10)
Fiscal Years each.
The Management Agreement contains terms and restrictions relating to
financing of the Resort. The Management Agreement also contains terms and
conditions relating to Owner's sale of the Resort or the Site.
This Memorandum is not intended to alter or modify in any way the terms
and conditions of the Management Agreement. Terms not specifically defined in
this Memorandum are defined in the Management Agreement.
IN WITNESS WHEREOF, Owner and Manager have caused this Memorandum to be
executed under seal by their duly authorized representatives as of the day first
above written, for the purpose of providing an instrument for recording giving
notice of the Management Agreement and certain of the terms and conditions
thereto.
<PAGE> 65
OWNER:
CRESCENT REAL ESTATE FUNDING VIII, L.P.,
a Delaware limited partnership
By: CRE Management VIII, LLC,
a Delaware limited liability
company, its general partner
By: Crescent Real Estate Equities,
Ltd., a Delaware corporation,
its manager
By:
---------------------------
Name:
--------------------------
Title:
-------------------------
MANAGER:
SONOMA MANAGEMENT CORP. I,
a Delaware corporation
By:
---------------------------
Name:
--------------------------
Title:
-------------------------
<PAGE> 66
ACKNOWLEDGMENT
STATE OF ______________)
) ss.
COUNTY OF _____________)
On the ___ day of ___________, 2000, before me, the undersigned, a
Notary Public, in and for the State of ________, personally appeared
___________________________, who acknowledged himself to be the
____________________ of Crescent Real Estate Equities, Ltd., a Delaware
corporation, and the manager of CRE Management VIII, LLC, a Delaware limited
liability company, in its capacity as general partner of Crescent Real Estate
Funding VIII, L.P. and that he, as such officer, being authorized to do so,
executed the foregoing instrument for the purposes therein contained, and on
behalf of said corporation and limited partnership.
In witness whereof, I hereunto set my hand and official seal.
- ------------------------------
Notary Public
My commission expires:
- ------------------------
ACKNOWLEDGMENT
STATE OF ______________)
) ss.
COUNTY OF _____________)
On the ___ day of ___________, 2000, before me, the undersigned, a
Notary Public, in and for the State of ________, personally appeared
___________________________, who acknowledged himself to be the
____________________ of Sonoma Management Corp. I, a Delaware corporation, and
that he, as such _______, being authorized to do so, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as _________.
In witness whereof, I hereunto set my hand and official seal.
- ------------------------------
Notary Public
My commission expires:
- ------------------------
<PAGE> 67
EXHIBIT "A" TO
MEMORANDUM OF MANAGEMENT AGREEMENT
Legal Description
<PAGE> 1
EXHIBIT 10.108
MANAGEMENT AGREEMENT
(SONOMA MISSION INN GOLF AND COUNTRY CLUB)
by and between
SONOMA MANAGEMENT CORP. I
(as "MANAGER")
and
CRESCENT REAL ESTATE FUNDING VIII, L.P.
(as "OWNER")
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I
MANAGEMENT OF THE GOLF CLUB..............................................................................1
1.01 Management Responsibilities.....................................................................1
1.02 Corporate Services..............................................................................6
1.03 Employees.......................................................................................6
1.04 Owner's Right to Inspect........................................................................7
1.05 Owner's Right to Reserve Tee Times and Facilities; Owner's Perquisites..........................7
ARTICLE II
TERM.....................................................................................................7
2.01 Term............................................................................................7
2.02 Performance Termination.........................................................................8
2.03 Termination Rights for Cessation of Involvement by Varma........................................9
ARTICLE III
COMPENSATION OF MANAGER.................................................................................10
3.01 Management Fees................................................................................10
3.02 Operating Profit...............................................................................10
ARTICLE IV
ACCOUNTING MATTERS......................................................................................11
4.01 Accounting, Distributions and Annual Reconciliation............................................11
4.02 Books and Records..............................................................................12
4.03 Accounts, Expenditures.........................................................................13
4.04 Business Plan..................................................................................13
4.05 Working Capital................................................................................15
4.06 Fixed Asset Supplies...........................................................................15
ARTICLE V
REPAIRS, MAINTENANCE AND REPLACEMENTS...................................................................16
5.01 Repairs and Maintenance Costs Which Are Expensed...............................................16
5.02 FF&E Reserve...................................................................................16
5.03 Capital Expenditures...........................................................................18
5.04 Ownership of Replacements......................................................................19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ARTICLE VI
INSURANCE, DAMAGE AND CONDEMNATION......................................................................20
6.01 Insurance......................................................................................20
6.02 Damage and Repair..............................................................................23
6.03 Condemnation...................................................................................24
ARTICLE VII
TAXES...................................................................................................25
7.01 Real Estate and Personal Property Taxes........................................................25
ARTICLE VIII
OWNERSHIP OF THE GOLF CLUB..............................................................................26
8.01 Ownership of the Golf Club.....................................................................26
8.02 Mortgages......................................................................................27
8.03 Subordination Agreement........................................................................27
8.04 No Covenants, Conditions or Restrictions.......................................................28
8.05 Liens; Credit..................................................................................28
8.06 Amendments Requested by Mortgagee..............................................................29
ARTICLE IX
DEFAULTS................................................................................................29
9.01 Events of Default..............................................................................29
9.02 Remedies.......................................................................................30
9.03 Additional Remedies............................................................................31
ARTICLE X
ASSIGNMENT AND SALE....................................................................................31
10.01 Assignment.....................................................................................31
10.02 Sale of the Golf Club..........................................................................32
10.03 Termination on Sale of Golf Club...............................................................33
ARTICLE XI
MISCELLANEOUS...........................................................................................34
11.01 Right to Make Agreement........................................................................34
11.02 Consents and Cooperation.......................................................................34
11.03 Relationship...................................................................................34
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
11.04 Applicable Law................................................................................34
11.05 Recordation...................................................................................35
11.06 Headings......................................................................................35
11.07 Notices.......................................................................................35
11.08 Environmental Matters.........................................................................36
11.09 Confidentiality...............................................................................38
11.10 Projections...................................................................................39
11.11 Actions to be Taken Upon Termination..........................................................40
11.12 Trademarks, Trade Names and Intellectual Property.............................................41
11.13 Trade Area Restriction........................................................................42
11.14 Waiver........................................................................................42
11.15 Partial Invalidity............................................................................43
11.16 Survival......................................................................................43
11.17 Affiliates and Third Party Vendors............................................................43
11.18 Estoppel Certificates.........................................................................43
11.19 Luxury Country Club Standards.................................................................44
11.20 Arbitration...................................................................................44
11.21 Entire Agreement..............................................................................45
11.22 Multiple Counterparts.........................................................................45
11.23 Guaranty......................................................................................45
ARTICLE XII
DEFINITION OF TERMS.....................................................................................45
12.01 Definition of Terms...........................................................................45
EXHIBIT A
LEGAL DESCRIPTION OF THE SITE
EXHIBIT B
MEMORANDUM OF MANAGEMENT AGREEMENT
</TABLE>
iii
<PAGE> 5
MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is executed on February , 2000
to be effective February 1, 2000 ("Effective Date"), by CRESCENT REAL ESTATE
FUNDING VIII, L.P. ("Owner"), a Delaware limited partnership, with a mailing
address at 777 Main Street, Suite 2100, Fort Worth, TX 76102, and SONOMA
MANAGEMENT CORP. I ("Manager"), a Delaware corporation, with a mailing address
at 306 W. 7th Street, Fort Worth, Texas 76102.
RECITALS:
A. Owner is the owner of fee title to the real property (the "Site")
described on Exhibit A attached to this Agreement and incorporated herein. The
Site is improved with the Golf Course (collectively, the "Golf Club
Improvements"). The Site and the Golf Club Improvements, in addition to certain
other rights, improvements, and personal property as more particularly described
in the definition of "Golf Club" in Section 12.01 hereof, are collectively
referred to as the "Golf Club".
B. All capitalized terms used in this Agreement shall have the meaning
set forth in Article XII hereof or otherwise defined herein.
C. Owner desires to engage Manager to manage and operate the Golf Club
and Manager desires to accept such engagement upon the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and other good and valuable consideration, the receipt of which
is hereby acknowledged, Owner and Manager agree as follows:
ARTICLE I
MANAGEMENT OF THE GOLF CLUB
1.01 Management Responsibilities
A. Beginning with the Effective Date, Manager shall, and Owner hereby
authorizes and engages Manager to, supervise, direct and control the management
and operation of the Golf Club in accordance with the terms and conditions of
this Agreement. Manager agrees to operate and manage the Golf Club for Owner in
a commercially reasonable, business-like, prudent and professional manner, as
agent of Owner, pursuant to the requirements of this Agreement, with the
then-current Business Plan approved by Owner, and with the objective of
maximizing the long-term value of the Golf Club subject to Luxury Country Club
Standards. Manager further agrees to consult regularly (at least quarterly or as
otherwise reasonably requested by Owner) with Owner regarding the management
policies in effect at the Golf Club. During the Term, the Golf Club shall be
known
1
<PAGE> 6
as the "Sonoma Mission Inn Golf and Country Club", with such additional
identification determined by Manager and approved by Owner, which approval shall
not be unreasonably withheld unless the proposed identification conflicts with
the Owner's other business names, styles or identification, as may be necessary
to provide local identification.
B. Manager shall manage the Golf Club in accordance with Luxury Country
Club Standards and shall, subject to the terms of this Agreement (including
Section 1.01.C hereof), perform each of the following functions (the costs and
expenses of which shall be Deductions) with respect to the Golf Club:
1. Recruit, employ, train, supervise, direct and discharge the
employees at the Golf Club (or cause a SMC Affiliate to do so).
2. Establish prices, rates and charges for services provided
in the Golf Club, including green fees, teaching/professional services fees and
equipment rental rates.
3. Establish and revise, as necessary, administrative policies
and procedures, including policies and procedures for the control of revenue and
expenditures, for the purchasing of supplies and services, for the control of
credit, and for the scheduling of maintenance, and verify that the foregoing
procedures are operating in a sound manner.
4. Make payments on accounts payable and handle collections of
accounts receivable using diligence and best business practices.
5. Arrange for and supervise public relations and advertising,
prepare marketing plans, and make available to the Golf Club the benefits of
various marketing and guest loyalty and recognition programs in use in the SMC
System as they may exist from time to time.
6. Procure all Inventories and replacement Fixed Asset
Supplies.
7. Prepare and deliver interim accountings, Monthly
Statements, Quarterly Statements, annual accountings, Annual Operating
Statements, Building Estimates, FF&E Budgets, and such other information as is
required by this Agreement.
8. Plan, execute and supervise repairs, maintenance, and FF&E
purchases at the Golf Club.
9. Subject to the provisions of Article VI, provide, or cause
to be provided, risk management services relating to the types of insurance
required to be obtained or provided by Manager under this Agreement.
2
<PAGE> 7
10. Operate the Golf Club as a first-class, luxury golf
facility and in accordance with the Luxury Country Club Standards applicable to
first-class, luxury golf and country club facilities.
11. Apply for, obtain and keep in full force and effect,
either in Manager's name or in Owner's name, as may be required by applicable
law, any and all licenses and permits to the extent same is within the control
of Manager (or, if same is not within the control of Manager, Manager shall use
due diligence and reasonable efforts to obtain and keep same in full force and
effect).
12. Negotiate and enter into service contracts on Owner's
behalf which are necessary or desirable in the ordinary course of business in
operating the Golf Club, including, without limitation, contracts for provision
of electricity, gas, water, telephone and other utility services, cleaning
services, security services, mowing and landscape maintenance, vermin
extermination, trash removal, elevator and boiler maintenance, air conditioning
maintenance, master television service, laundry and dry cleaning, entertainment
satellite systems and other services which Manager deems advisable. All such
service contracts shall be entered into in Owner's name, and shall remain the
responsibility of Owner upon the expiration or earlier termination of this
Agreement.
13. Establish all credit policies, and enter into agreements
with credit card companies, in connection with the Golf Club.
14. Subject to Section 1.01.C.7, institute and defend in the
name of Manager or Owner (or both), subject to reasonable approval by Owner, any
and all legal actions or proceedings.
15. Establish, supervise and implement a sales and marketing
program for the Golf Club consistent with the sales and marketing plan approved
by Owner as part of the Business Plan for the then-current year.
16. Plan, prepare, arrange and contract for all advertising,
publicity and promotional activities for the Golf Club, including advertising
and promotional activities in conjunction with other Golf Clubs owned, operated
or franchised by Manager and SMC Affiliates, and all discount and complimentary
policies with respect to bona fide travel agents, tourist officials, and airline
representatives.
17. Engage such persons, subject to reasonable prior approval
by Owner, for providing services of a specialist nature (such as legal counsel
and independent accountants) related to matters within Manager's responsibility
under this Agreement.
18. Lease to third parties approved by Owner the food and
beverage and banquet facilities.
3
<PAGE> 8
19. Do any and all other acts and things as Manager may
reasonably deem necessary and appropriate to carry out its responsibilities
under the terms of this Agreement.
In connection with the performance of the foregoing functions, Manager
may purchase goods, supplies and services from itself or any SMC Affiliate, or
enter into any other transaction with an Affiliate of Manager, so long as any
such purchase, costs or proposed transaction is on competitive market based
terms available to Owner from unaffiliated third parties for similar purchases
or transactions.
C. Limitations on Authority. Manager shall have no authority on behalf
of Owner to do any of the following without Owner's prior written approval in
each instance:
1. Borrow money, guaranty the debts of any third person, or
mortgage, pledge, grant a security interest in or otherwise encumber all or any
part of the Golf Club;
2. Enter into any lease for the use of any item of furnishings
and equipment or other property, except as provided for in the Business Plan;
3. Enter into any agreement, lease, license or concession
agreement for club house, office, retail, pro-shop or other space at the Golf
Club, except as provided for in the Business Plan;
4. Incur any liabilities or obligations to third parties which
are unrelated to the performance of Manager's responsibilities under this
Agreement;
5. Except for an "Excluded Transaction" and subject to the
provisions of this Agreement regarding contracts with Affiliates of Manager,
Manager shall not, without the consent of Owner, enter into any contract or
other arrangement (or series of related contracts or arrangements) if the
expenditures thereunder would, or are reasonably anticipated to, exceed Fifty
Thousand Dollars ($50,000) in the aggregate, or if the term of such contract has
a term in excess of three (3) years. For purposes hereof, the term "Excluded
Transaction" shall mean (1) any contracts subject to competitive bidding in
which the lowest bid is accepted; and (2) contracts or expenditures required in
cases of emergency or casualty, which expenditures are required to protect life
and safety, or in order to comply with legal requirements, in an amount not to
exceed Fifty Thousand Dollars ($50,000) in any twelve-month period;
6. Settle any casualty and insurance claims which involve, or
which are reasonably estimated to involve, amounts in excess of Two Hundred
Fifty Thousand Dollars ($250,000), and any condemnation awards regardless of
amount;
7. Institute or defend any legal or equitable proceedings with
respect to the Golf Club (including the selection of counsel) other than routine
collection Litigation involving ordinary day-to-day operations of the Golf Club
involving amounts in controversy of less than Twenty-Five
4
<PAGE> 9
Thousand Dollars ($25,000); provided, however, Manager shall inform Owner of the
existence of, and keep Manager updated as to the status of, Litigation involving
the Golf Club involving amounts in controversy in excess of Five Thousand
Dollars ($5,000).
8. Employ any professional firm (other than legal counsel and
accountants) for more than Fifty Thousand Dollars ($50,000) in the aggregate
except as set forth in the Business Plan, or enter into any arrangement for the
employment of any attorney or accountant (other than legal counsel retained to
collect accounts receivable of less than Fifty Thousand Dollars ($50,000);
9. Prosecute or settle any tax claims or appeals;
10. Manager shall not provide complimentary amenities or
services to any guests, employees or other persons except for which the business
purpose for the benefit of the Golf Club is properly documented, and in any
event, the value of such complimentary services shall not exceed the amount
allocated in the approved Business Plan for such complimentary services;
11. Acquire on behalf of Owner any land or any interest
therein;
12. Acquire any capital assets of the Golf Club or any
interest therein;
13. Consent to any condemnation or participate in any
condemnation proceeding relating to the Golf Club, the Site or any portion
thereof;
14. Sell, transfer or otherwise dispose of all or any portion
of the Golf Club except for dispositions of furnishings and equipment to the
extent expressly permitted herein, or expressly provided for in the Business
Plan;
15. Perform any alterations to the Golf Club or any portion
thereof except to the extent Manager's performance of any such alteration shall
be expressly provided for in the Business Plan;
16. Enter into new programs and services offered to the Golf
Club by Manager or an SMC Affiliate that were not included in the Business Plan
approved by Owner, such approval not to be unreasonably withheld. If Owner does
not approve the service or program, the matter will be determined by arbitration
pursuant to Section 11.20; or
17. Take any other action which, under the terms of this
Agreement, is prohibited or requires the approval of Owner.
D. Manager will comply with and abide by all applicable Legal
Requirements (except for certain Legal Requirements which are Owner's
responsibility under Section 5.03 hereof) pertaining to its operation of the
Golf
5
<PAGE> 10
Club. Owner will comply with and abide by all applicable Legal Requirements
pertaining to the Golf Club Improvements or to Owner's ownership interest in the
Golf Club (including, without limitation, Owner's obligations under Sections
5.03). Either Owner or Manager shall have the right, but not the obligation, in
its reasonable discretion, to contest or oppose, by appropriate proceedings, any
such Legal Requirements. The reasonable expenses of any such contest of a Legal
Requirement shall be paid from Gross Revenues as Deductions; provided, however,
with respect Manager, such Legal Requirements must arise as a result of
Manager's obligations hereunder (and not as a result of managing properties
generally).
1.02 Corporate Services
Commencing with the Effective Date and thereafter during the Term of
this Agreement, Manager shall cause to be furnished to the Golf Club certain
services (collectively referred to herein as "Corporate Services") that are
furnished generally on a central, regional or other group basis to other
properties in the SMC System and which benefit such properties; provided,
however, that the Corporate Services expense for the existing Corporate Services
shall not exceed the annual total set forth in Business Plan for the subject
Fiscal Year, approved by Owner in accordance with Section 4.04. Reservation
costs will be charged at reasonable out-of-pocket cost to Manager. The charges
for Corporate Services shall be allocated on a reasonable basis among all
properties managed by Manager and receiving such services.
1.03 Employees
All personnel employed at the Golf Club shall, at all times from and
after the Effective Date, be the employees of Manager or an SMC Affiliate.
Manager shall have absolute discretion with respect to all personnel employed at
the Golf Club, including, without limitation, decisions regarding hiring,
promoting, transferring, compensating, supervising, terminating, directing and
training all employees at the Golf Club, and, generally, establishing and
maintaining all policies relating to employment. Notwithstanding the foregoing,
in the event the Golf Club is leased by Owner, as lessor, to Sonoma Spa Golf
Clubs, L.P. or an Affiliate thereof, or to an Affiliate of Owner, as lessee, or
if Owner has not leased the Golf Club, then Manager shall not hire any proposed
candidate for the position of General Manager of the Golf Club without the
Owner's approval, which approval may not be unreasonably withheld. In the event
that a General Manager is to be appointed (under circumstances requiring Owner's
approval as set forth in the preceding sentence) and Owner has rejected one
suitably qualified and experienced candidate proposed by Manager in Manager's
reasonable judgment for the position, Owner shall have no further approval
rights with respect to any candidate proposed by Manager for such position at
such time, and Manager may in its sole discretion hire a candidate for such
position. The foregoing provisions with respect to Owner's right to approve a
General Manager shall apply in each instance that specific position at the Golf
Club is filled. Manager shall be permitted to provide free accommodations and
amenities to its employees and representatives living at or visiting the Golf
Club in connection with its management or operation. No person shall otherwise
be given gratuitous accommodations or services without prior joint approval of
Owner and Manager, except in accordance with usual practices of the luxury golf
and country club industry. Manager shall use its reasonable efforts to implement
employment practices with the goal of achieving continuity of management and
reduction of personnel turnover.
6
<PAGE> 11
1.04 Owner's Right to Inspect
Owner and its agents shall have access to the Golf Club at any and all
reasonable times for the purpose of inspection or showing the Golf Club to
prospective purchasers, tenants or Mortgagees.
1.05 Owner's Right to Reserve Tee Times and Facilities; Owner's
Perquisites
A. Notwithstanding Manager's responsibility to set green fees
and tee time policies for the Golf Club, Owner shall have the right to reserve
tee times or other services or facilities of the Golf Club (including tee times,
banquet, reception, catering and other services) upon a space available basis at
the prevailing preferred corporate rate then charged by the Golf Club upon
reasonable notice to Manager.
B. In addition to the foregoing, Manager shall grant to Owner
and to individuals designated by Owner preferred rates and other perquisites at
the Golf Club that are at least as favorable as the rates and perquisites made
available by Manager to owners of other golf facilities or properties managed by
Manager or any other SMC Affiliate (which rates and perquisites shall be at
least as favorable as is typical in the industry with other first-class, luxury
golf and country club facilities).
ARTICLE II
TERM
2.01 Term
The "Term" of this Agreement shall consist of and include the "Initial
Term" and any "Renewal Term(s)". The "Initial Term" shall begin on the Effective
Date and shall continue until the expiration of the twentieth (20th) full Fiscal
Year from the Effective Date. Unless Manager is in Default hereunder, the Term
may thereafter be renewed by Manager, at its option (on the same terms and
conditions contained in this Agreement), for each of two (2) successive periods
of ten (10) Fiscal Years each (each such period a "Renewal Term"); provided,
however, Manager's option to renew shall be conditioned upon achievement of an
Owner ROI (determined solely by reference to Operating Profit [i.e., exclusive
of any "cure" payment]) of at least ten percent (10%) per annum for the two (2)
Fiscal Years immediately preceding the final Fiscal Year of the then existing
Term. For purposes of Section this 2.01, in the event Owner ROI is less than ten
percent (10%) per annum for either of the two (2) Fiscal Years immediately
preceding the final Fiscal Year of the then existing Term as a result of Force
Majeure or a major renovation of the Golf Club, then such Fiscal Year shall be
disregarded as one of the two (2) Fiscal Years immediately preceding the final
Fiscal Year of such Term. (For example: in Fiscals Year 17 and 19 Owner ROI is
11% for each year, in Fiscal Year 18 Owner ROI is 7% and Fiscal Year 20 is the
final Fiscal Year of the then existing Term; however, Owner ROI in Fiscal Year
18 was less than 10% as a result of a Force Majeure that occurred during
7
<PAGE> 12
Fiscal Year 18, and such year is, thus, disregarded. As a result, Fiscal Years
18 and 19 are not two preceding Fiscal Years that would prohibit Manager from
renewing this Agreement; the two Fiscal Years considered in determining
satisfaction of the renewal condition of this Section 2.01, in this example,
would be Fiscal Years 17 and 19. Because Owner ROI exceeded 10% during Fiscal
Years 17 and 19, Manager would be entitled to renew this Agreement.)
2.02 Performance Termination
A. Subject to the provisions of Section 2.02.B. below, in the event (A)
the Owner ROI is less than the applicable Performance Thresholds with respect to
any two (2) consecutive Fiscal Years (determined without regard to any "cure"
payments, if any, made by Manager for such Fiscal Years pursuant to Section
2.02.B), and (B) the failure to meet the Performance Thresholds for two (2)
consecutive years as described in clause (A) is for reason(s) other than Force
Majeure or a major renovation of the Golf Club, then (i) Owner shall have the
option to terminate this Agreement and (ii) such option to terminate shall
thereafter continue (subject to the provisions of Section 2.02.D.) with respect
to any Fiscal Year in which the applicable Performance Threshold is not met. For
purposes of Section 2.02, in the event Owner ROI is less than the applicable
Performance Threshold with respect to any Fiscal Year as a result of Force
Majeure or a major renovation of the Golf Club, then such Fiscal Year shall be
disregarded in determining whether Owner ROI is less than the Performance
Threshold for two (2) consecutive Fiscal Years. (For example: in Fiscal Years 1,
2 and 3 the applicable Performance Threshold for Owner ROI is not met; however,
the Performance Threshold was not met in Fiscal Year 2 as a result of a major
renovation of the Golf Club conducted during Fiscal Year 2, and such year is,
thus, disregarded. As a result, Fiscal Years 1 and 2 are not two consecutive
Fiscal Years satisfying the precondition of Section 2.02.A; however, Fiscal
Years 1 and 3 do constitute two consecutive Fiscal Years satisfying such
precondition.)
B. If a condition giving Owner the right to terminate this Agreement
pursuant to this Section 2.02 has occurred (a "Deficit"), Manager shall have the
right to "cure" the Deficit (thus, eliminating Owner's right to terminate under
Section 2.02A for such Fiscal Year) by paying to Owner (on or before the
thirtieth [30th] day following delivery of the Annual Operating Statement) an
amount equal to the difference between (i) the Operating Profit actually
distributed to Owner during the Fiscal Year in question and (ii) the Operating
Profit that would have been required to be distributed to Owner during the
Fiscal Year in question to achieve the applicable Performance Threshold for such
Fiscal Year (the "Deficiency"). Nothing herein contained shall be deemed to
obligate Manager to "cure" any Deficit. Amounts paid by Manager to "cure" a
Deficit shall be paid directly to Owner and shall not be considered part of the
Gross Receipts of the Golf Club.
C. If Manager either fails to "cure" as above provided or has no
further right to cure, then Owner shall have the right to terminate this
Agreement effective upon not less than sixty (60) days written notice, which
notice shall be delivered to Manager within ninety (90) days after the
expiration of Manager's right to cure the Deficit. Upon the effective date of
such termination, all of the rights and obligations of the parties hereto shall
terminate (except to the extent of any survival pursuant to
8
<PAGE> 13
the terms of this Agreement) without further act or notice of either of the
parties, on the date specified in a written notice from Owner to Manager, which
date shall in no event be sooner than the date on which there has been payment
in full of any other amounts due and owing to Manager hereunder (such payment to
be made in accordance with Section 3.01) or later than six (6) months
thereafter.
D. Owner's ongoing right to terminate this Agreement set forth in
Section 2.02.A. shall cease after any Fiscal Year during which the applicable
Performance Threshold is satisfied as a result of the Operating Profit
distributed to Owner (not as a result of "cure" by Manager). Thereafter, Owner's
right to terminate this Agreement set forth in Section 2.02.A. shall again be
available to Owner upon re-satisfaction of the conditions relating thereto
(i.e., a Fiscal Year in which the applicable Performance Threshold is met
through Operating Profit eliminates Owner's right to terminate under Section
2.02 until there is again a period of 2 consecutive Fiscal Years for which the
applicable Performance Thresholds are not met without "cure" payments).
2.03 Termination Rights for Cessation of Involvement by Varma.
A. Owner shall have the option to terminate this Agreement (and such
option to terminate shall thereafter continue for one (1) year after the event
giving rise to Owner's termination option under this Section 2.03.A.) in the
event Sanjay Varma ("Varma"), during the first three (3) years following the
Effective Date , either (i) commits an event of default under that certain
Exclusivity Agreement dated as of even date herewith between, among others,
Varma and Owner, or (ii) ceases (for a reason other than Varma's death,
permanent disability or incapacitation (as described in Section 2.03.B)) to be
the controlling shareholder of Manager or its parent corporation.
B. In the event either of the following occurs during the first three
(3) years following the Effective Date: Varma (i) dies, becomes permanently
disabled or incapacitated (and he shall be deemed "permanently disabled or
incapacitated" if he is unable to complete his duties for sixty (60) days in any
consecutive ninety (90) day period), or (ii) ceases to engage personally in
performing Manager's obligations under this Agreement, then Owner shall have the
right to terminate this Agreement immediately following the completion of a six
(6) month review period, without recourse by Manager, provided that Owner shall
have given notice of such termination at least sixty (60) days prior to the
completion of such review period.
C. In the event either of the following occurs after the first three
(3) years but prior to the end of seven (7) years following the Effective Date:
Varma (i) dies, becomes permanently disabled or incapacitated (as described in
Section 2.03.B), or (ii) ceases to engage personally in performing Manager's
obligations under this Agreement, then Owner shall have the right to terminate
this Agreement immediately following the completion of a twelve (12) month
review period, without recourse by Manager, provided that Owner shall have given
notice of such termination at least ninety (90) days prior to the completion of
such review period.
9
<PAGE> 14
ARTICLE III
COMPENSATION OF MANAGER
3.01 Management Fees
Manager shall be paid the sum of the following as its management fees:
A. The Base Management Fee, which shall be retained by Manager from
Gross Revenues;
B. The Short-Term Incentive Fee, which shall be retained by Manager
from Operating Profit in accordance with Sections 3.02 and 4.01.
3.02 Operating Profit
A. Operating Profit shall be distributed to Owner and to Manager in the
following order of priority:
1. an amount equal to Owner's Priority shall be paid to
Owner;
2. if Manager is entitled to same, the Short-Term
Incentive Fee shall be paid to Manager; and
3. any remaining balance of Operating Profit shall be
paid to Owner.
B. To the extent of available Operating Profit with respect to each
Calendar Quarter, Manager shall distribute (within twenty (20) days after the
end of each Calendar Quarter) a prorated portion of the Owner's Priority to
Owner each such Calendar Quarter, and shall be entitled to retain a prorated
portion of the Short-Term Incentive Fee for each such Calendar Quarter based on
its good faith estimate of the Short-Term Incentive Fee for the full Fiscal
Year.
C. All distributions to Owner shall be made concurrently with the
delivery of Manager's Quarterly Statement.
10
<PAGE> 15
ARTICLE IV
ACCOUNTING MATTERS
4.01 Accounting, Distributions and Annual Reconciliation
A. Within twenty (20) days after the close of each calendar month,
Manager shall deliver to Owner an interim accounting profit and loss statement
showing Gross Revenues, Deductions, Operating Profit, and applications and
distributions thereof for the preceding calendar month and on a year-to-date
cumulative basis, and within thirty (30) days after the close of each calendar
month, Manager shall deliver to Owner a balance sheet for the Golf Club as of
the end of the preceding month (collectively, the "Monthly Statement"). Within
twenty (20) days after the close of each Calendar Quarter, Manager shall deliver
to Owner an interim quarterly accounting profit and Loss statement showing Gross
Revenues, Deductions, Operating Profit, and applications and distributions
thereof for the preceding Calendar Quarter and on a year-to-date cumulative
basis for such Fiscal Year, and within thirty (30) days after the close of each
Calendar Quarter, Manager shall deliver to Owner a balance sheet for the Golf
Club as of the end of the preceding Calendar Quarter (collectively, the
"Quarterly Statement"). The Monthly Statements and Quarterly Statements shall be
certified by the controller of the Golf Club. Manager shall transfer to Owner,
with each Quarterly Statement, any interim amounts due Owner, subject to Working
Capital needs, and shall retain any interim amounts due Manager. With each
Monthly Statement and Quarterly Statement, Manager shall provide to Owner
Manager's most current estimate of Gross Revenues for the remaining months in
the Fiscal Year. With the Quarterly Statement, Manager shall provide to Owner
Manager's variance report, segmentation analysis, group activity report and
competition survey for each period, together with a period status report
regarding uncompleted capital projects and such other information as reasonably
requested by Owner.
B. Within ninety (90) days after the end of each Fiscal Year, Manager
shall deliver to Owner annual operating statements for the business of the Golf
Club, a balance sheet as of the end of such year, and related statements of
income and retained earnings and changes in financial position for the Golf Club
for such Fiscal Year audited by an independent certified public accounting firm
selected by Owner. The reasonable and customary costs of such audit shall be
included as a Deduction.
C. Calculations and payments of the Short-Term Incentive Fee, the Base
Management Fee, and distributions of Operating Profit made with respect to each
Calendar Quarter within a Fiscal Year shall be accounted for cumulatively.
Within sixty (60) days after the end of each Fiscal Year, Manager shall deliver
to Owner a statement (the "Annual Operating Statement") in reasonable detail
summarizing the operations of the Golf Club for the immediately preceding Fiscal
Year and a certificate of Manager's chief accounting officer certifying that, to
the best of his or her knowledge, such Annual Operating Statement is true and
correct. The parties shall, within five (5) business days after Owner's receipt
of such Annual Operating Statement, make any adjustments, by cash payment, in
the amounts paid or retained for such Fiscal Year as are needed because of the
final figures set forth in such Annual Operating Statement. Such Annual
Operating Statement shall be controlling over the preceding Monthly or Quarterly
Statements. No adjustments shall be made for any Operating Loss in any preceding
Fiscal Year.
D. To the extent there is a Working Capital deficiency for any Calendar
Quarter, Manager shall advise Owner not less than thirty (30) days in advance of
the additional funds to be provided by
11
<PAGE> 16
Owner. If Owner does not so fund such Working Capital deficit within the thirty
(30) day time period, Manager shall have the right (without affecting Manager's
other remedies under this Agreement) to withdraw an amount equal to such deficit
from future distributions of funds otherwise due to Owner.
E. As between Owner and Manager in connection with this Agreement,
neither Owner nor Manager shall assume any liabilities which accrued (or would
stem solely from events which occurred) prior to the Effective Date. Owner shall
indemnify, defend, and hold Manager harmless from and against all claims,
Litigation and damages arising from the acts or omissions of any Person
performing management functions on behalf of Owner at or for the Golf Club prior
to the Effective Date ("Prior Manager"); provided, however, Manager shall not be
entitled to the rights and benefits of this sentence in the event both (i) such
claims, Litigation or damages arise from the acts or omissions of Varma,
individually or in a representative capacity for a Prior Manager, and (ii) Owner
is not entitled to indemnification with respect to, or payment of, such claims,
Litigation or damages from such Prior Manager.
4.02 Books and Records
Books of control and account pertaining to operations at the Golf Club
shall be kept on the accrual basis and in all material respects in accordance
with the Uniform System of Accounts. All such books and records are the property
of and shall be available to Owner and its representatives at reasonable times
for examination and shall be maintained at the Golf Course or such other
location reasonably determined by Owner. Twice a year upon thirty (30) days
prior written notice to Manager, Owner may audit by a duly licensed independent
certified public accounting firm, examine or review the Annual Operating
Statement and/or the books, records and operations of Manager at the Golf Club
and/or any subtenants, concessionaires, licensees, and/or assignees relating to
the Golf Club as set forth in this Agreement. Owner shall complete such audit
within ninety (90) days after commencement thereof. The cost of such audit shall
be a Deduction from Gross Revenues. If Owner does not make such an audit or
fails to notify Manger in writing that Owner disputes all or some portion of the
respective Annual Operating Statement on or before ninety (90) days after
receipt by Owner of such Annual Operating Statement, then such Annual Operating
Statement shall be deemed to be conclusively accepted by Owner as being correct,
and Owner shall have no right thereafter, except in the event of fraud by
Manager, to question or examine the same. If such audit discloses that Gross
Revenues, gross operating expenses, or any other matter which is the subject of
the audit as previously reported for the period audited were inaccurate, Manager
or Owner, as the case may be, shall immediately pay to the other party any sums
disclosed by such audit as being due and owing, plus interest thereon (at the
Prime Rate plus one percent (1%) per annum). Further, if such inaccuracy was in
excess of five percent (5%) of the item so being audited, as disclosed by such
audit, Manager shall immediately pay to Owner the cost of such audit (and such
audit cost shall not be a Deduction). Any dispute concerning the correctness of
an audit shall be settled by arbitration in accordance with Section 11.20.
12
<PAGE> 17
4.03 Accounts, Expenditures
A. Manager will deposit all funds derived from operation of the Golf
Club in bank accounts (the "Operating Accounts") in a bank or banks, identified
and selected by Owner, subject to Manager's reasonable approval. Withdrawals
from said Operating Accounts shall be made solely by representatives of Manager
whose signatures have been authorized. Reasonable petty cash funds shall be
maintained at the Golf Club.
B. All payments made by Manager hereunder shall be made from the
Operating Accounts or petty cash funds. Manager shall not be required to make
any advance or payment with respect to the Golf Club except out of such funds,
and Manager shall not be obligated to incur any liability or obligation with
respect to the Golf Club. In any event, if any such liability or obligation is
incurred by Manager with respect to the Golf Club, Manager shall have the option
to deduct such amounts from Owner's share of Operating Profit if Owner has not
fully reimbursed Manager for said amounts within ten (10) days after Owner's
receipt of notice from Manager that said amounts are due.
C. Debts and liabilities incurred by Manager as a result of its
operation and management of the Golf Club pursuant to the terms hereof, whether
asserted before or after Termination, will be paid by Owner to the extent funds
are not available for that purpose from Gross Revenues. The provisions of this
Section 4.03.C shall survive Termination.
4.04 Business Plan
A. Manager shall deliver to Owner for its review and written approval,
at least forty- five (45) days prior to the beginning of each Fiscal Year, a
preliminary draft of a business plan ("Business Plan") showing the following:
1. Manager's reasonable estimate (on a monthly basis) of Gross
Revenues, Deductions, departmental profits and Operating Profits, FF&E Reserve
for the upcoming Fiscal Year, itemized by line item, in a reasonable manner
consistent with the Uniform System of Accounts (once approved by Owner, the
"Operating Budget") together with the assumptions (in narrative form) utilized
in preparing the Operating Budget;
2. A budget of Manager's recommended renewals, revisions,
rebuilding, replacements, substitutions or improvements to the Golf Club for the
Fiscal Year which are of a capital nature under the Uniform System of Accounts
(once approved by Owner, "Capital Budget");
3. A description of the general marketing strategy which
Manager intends to implement during the Fiscal Year to optimize both short and
long-term profitability of the Golf Club;
4. Manager's estimate of any amounts Owner will be requested
to provide as Working Capital or to fund expenditures contemplated by the
Capital Budget during the Fiscal Year;
5. A description of the status of any negotiations relating to
a collective bargaining agreement, if any, affecting Golf Club employees;
13
<PAGE> 18
6. A description of the current legal status of pending or
threatened suits, actions, proceedings, inquiries, or investigations concerning
the Golf Club;
7. An organization chart which details a management staffing
plan for the upcoming Fiscal Year;
8. To the extent not included above, a detailed estimate of
all reimbursable costs.
B. Owner shall have forty-five (45) days after the date on which it
receives the proposed Business Plan to review, approve, disapprove or change the
entries appearing in the proposed Business Plan (other than the proposed Capital
Budget, which is addressed below). If Owner shall disapprove the proposed
Business Plan or any portion thereof, Owner shall specify with particularity the
reasons for its disapproval and Manager shall, after consultation with Owner,
submit to Owner a new proposed Business Plan or appropriate portion thereof
within fifteen (15) days after the date of Owner's disapproval. Any further
disagreement as to the Business Plan shall be determined pursuant to arbitration
in accordance with Section 11.20. The foregoing procedure shall be followed
until the proposed Business Plan is fully approved by Owner. Until such time as
the new proposed Operating Budget is approved by Owner, the portion approved, if
any, shall become effective and the Operating Budget for the previous Fiscal
Year, if available, with such changes as Owner may designate, shall remain in
effect with respect to the portion of the proposed Operating Budget disapproved
by Owner. In conjunction with the preparation and approval of the Business Plan,
Owner and Manager shall cooperate to establish an approved Business Plan that is
appropriate for the required standard of operations of the Golf Club and for the
Golf Club's level of occupancy and consistent with the primary and overriding
objective of maximizing the present value of Owner's cash flow from the Golf
Club.
C. Manager shall use its best efforts to limit the costs and expenses
incurred by or on behalf of Owner to those included within the approved
Operating and Capital Budgets. Manager shall provide Owner with a report with
respect to each Calendar Quarter of each Fiscal year summarizing year-to-date
performance and providing a forecast for the remainder of the Fiscal Year.
Manager may submit for Owner's approval a proposed revision of the Operating or
Capital Budget for any Fiscal Year if Manager determines during the course of
such Fiscal Year that any changes are in the best interests of the Golf Club
operations and, upon Owner's approval thereof, the revised Operating or Capital
Budget shall be substituted for the applicable prior budget for the current
Fiscal Year.
D. Manager shall notify Owner whenever, during the course of a Fiscal
Year, Manager anticipates or becomes aware that the actual costs and expenses
shall exceed an amount equal to 1.05 times the budgeted amounts of costs and
expenses with respect to each departmental expense category, each undistributed
expense category, or any separate project identified in the approved Capital
Budget, and shall provide Owner, in each instance, with a written explanation of
the reasons therefor.
14
<PAGE> 19
E. Representatives of Manager, including without limitation appropriate
corporate executives, shall meet with representatives of Owner on a quarterly
basis to review the results of operations for the prior period and forecasts of
operations for the Golf Club.
F. Manager shall diligently operate the Golf Club in accordance with
the Business Plan. It is understood, however, that the Business Plan is an
estimate only and that unforeseen circumstances such as the costs of labor,
material, services and supplies, casualty, operation of law, or economic and
market conditions, may make adherence to the Business Plan impracticable, and
Manager shall be entitled to depart therefrom due to causes of the foregoing
nature.
4.05 Working Capital
A. Owner shall, from time to time during the Term, promptly, but no
later than sixty (60) days after written request by Manager, advance any
additional funds, over and above those required pursuant to this Agreement,
necessary to maintain Working Capital at levels determined by Manager to be
reasonably necessary to satisfy the needs of the Golf Club as its operation may
from time to time require. Funds permanently advanced to establish or maintain
adequate Working Capital will be included in Owner's Investment and Owner's
Priority computation. If Owner does not so fund additional Working Capital
within the said sixty (60) day time period, Manager shall have the right
(without affecting Manager's other remedies under this Agreement) to (i)
withdraw an amount equal to the funds requested by Manager for additional
Working Capital from future distributions of funds otherwise due to Owner or
(ii) Manager may terminate this Agreement upon ninety (90) days prior written
notice, provided that such notice is given within ninety (90) days after
delivery of Manager's written request for additional funds. Upon Termination,
Manager shall, except as otherwise provided in this Agreement, return the
outstanding balance of the Working Capital to Owner.
B. Manager shall cooperate with Owner and Golf Course Lessee in
determining the balance of Working Capital upon the termination of the Golf Club
Lease.
4.06 Fixed Asset Supplies
It is anticipated that funding of initial Fixed Asset Supplies for the
Golf Club shall be included in the initial Working Capital funded in accordance
with Section 4.05. Owner shall, within thirty (30) days after request by
Manager, provide funds from Gross Revenues that are necessary to increase the
level of Fixed Asset Supplies to levels determined by Manager, in its good faith
judgment, to be necessary to satisfy the needs of the Golf Club as its operation
may, from time to time, require. Fixed Asset Supplies shall remain the property
of Owner throughout the term of the Agreement and upon Termination (except for
those Fixed Asset Supplies which are purchased by Manager pursuant to Section
11.11.E).
15
<PAGE> 20
ARTICLE V
REPAIRS, MAINTENANCE AND REPLACEMENTS
5.01 Repairs and Maintenance Costs Which Are Expensed
Manager shall maintain the Golf Club as a first-class, luxury golf
facility in good repair and condition, and shall make or cause to be made such
routine maintenance, repairs and minor alterations as it determines are
necessary for such purposes and as may be necessary to maintain and execute
preventative maintenance schedules on all equipment used at the Golf Club. The
phrase "routine maintenance, repairs, and minor alterations" as used in this
Section 5.01 shall include only those which are normally expensed under
generally accepted accounting principles. The cost of such maintenance, repairs
and alterations shall be paid from Gross Revenues (and not from the FF&E
Reserve) and shall be treated as a Deduction in determining Operating Profit.
Manager shall provide Owner with an annual audit of Golf Club machinery,
electrical equipment and life safety equipment supervised by a senior engineer
and shall oversee the implementation of any action plans resulting thereof.
5.02 FF&E Reserve
A. Beginning November 1, 2000, Manager shall establish a book reserve
account (the "FF&E Reserve") that will reflect additions (plus accrued interest
based upon rates earned by other operating accounts maintained by the Golf Club)
each Calendar Quarter, to cover the cost of:
1. replacements, renewals and additions to the FF&E at
the Golf Club; and
2. Special Capital Expenditures.
B. With each Quarterly Statement, Manager shall also submit to Owner a
detailed request for funds to cover the cost of replacements, renewals and
additions to the Golf Club FF&E and Special Capital Expenditures in accordance
with the FF&E Budget. Subject to the further provisions of this Agreement, Owner
shall provide such funds from the FF&E Reserve within thirty (30) days after
Manager's request.
C. During the Term, the FF&E Reserve will reflect an addition of an
amount equal to (i) three percent (3%) of Gross Revenues attributable to the
Golf Club for each Calendar Quarter. All amounts accounted for in the FF&E
Reserve pursuant to this Section 5.02.C shall be a Deduction from Gross
Revenues.
D. Manager shall prepare an annual budget estimate (the "FF&E Budget")
of the expenditures necessary for (1) replacements, renewals and additions to
the FF&E of the Golf Club, and (2) Special Capital Expenditures, during the
ensuing Fiscal Year and the four (4) succeeding Fiscal Years, including
anticipated major Capital Expenditures in these four (4) years, and shall
deliver the FF&E Budget to Owner for its review and written approval, at the
same time as Manager submits the preliminary business plan described in Section
4.04.A. Owner agrees that it will approve
16
<PAGE> 21
all items necessary to maintain the Golf Club in accordance with Luxury Country
Club Standards and as required by law and, in the event of any disapproval,
Owner shall specify each item disapproved and the reasons therefore in writing
to Manager within thirty (30) days after receipt of the FF&E Budget. The FF&E
Budget shall also indicate the estimated time schedule for making such
replacements, renewals, and additions.
E. Manager shall (endeavoring in good faith to comply with the
applicable FF&E Budget) from time to time make such (1) replacements, renewals
and additions to the FF&E of the Golf Club, and (2) Special Capital
Expenditures, as Manager deems necessary, up to the balance in the FF&E Reserve.
No expenditures will be made in excess of said balance without the prior written
approval of Owner. At the end of each Fiscal Year, any amounts remaining in the
FF&E Reserve shall be carried forward to the next Fiscal Year. Proceeds from the
sale of FF&E no longer necessary to the operation of the Golf Club shall be
added to the FF&E Reserve. The FF&E Reserve will be kept on the books of Owner.
Proceeds from the disposition of FF&E shall reduce the required transfers to the
FF&E Reserve set forth in subsection B above, but shall not be included in Gross
Revenues.
F. As the Golf Club ages, the percentage of Gross Revenues which is set
forth in Section 5.02.C may not be sufficient to keep the FF&E Reserve at the
levels necessary to make the replacements, renewals, and additions to the FF&E
of the Golf Club, or to make the Special Capital Expenditures, which are
required to maintain the Golf Club in accordance with the Luxury Country Club
Standards. If Manager reasonably believes (and so notifies Owner) that the
funding of the FF&E Reserve (with respect to the following Fiscal Year or any
subsequent Fiscal Year) will not be adequate to maintain the Golf Club in
accordance with Luxury Country Club Standards, Manager shall so notify Owner in
writing ("Notice for Additional FF&E Reserve"). The Notice for Additional FF&E
Reserve shall set forth, by specific categories, the amount and use of the
additional funds required for the FF&E Reserve as reasonably determined by
Manager in good faith. In the event Owner disagrees with the amount or use of
funds proposed by Manager in the Notice for Additional FF&E Reserve, Manager and
Owner shall negotiate in good faith, for a period not to exceed thirty (30)
days, to reach a mutually acceptable resolution (the agreed upon amounts and/or
uses being referred to as the "Agreed Upon FF&E Increase"). Thereafter, Owner
shall elect one or the other of the following two (2) alternatives:
1. to agree in writing to increase the annual percentage in
Section 5.02.C to provide the Agreed Upon FF&E Increase; or
2. to make a lump sum contribution to the FF&E Reserve in the
amount of the Agreed Upon FF&E Increase.
The failure of the parties to agree upon an Agreed Upon FF&E Increase
or the failure or refusal by Owner either to agree in writing to Section
5.02.F.1 above, or to provide the funds required in accordance with Section
5.02.F.2 above, within sixty (60) days after expiration of the foregoing thirty
(30) day negotiation period shall result in Termination of the Performance
Hurdles (hereafter defined), but shall not be an Event of Default by either
party. Upon "Termination of the
17
<PAGE> 22
Performance Hurdles" (i) the provisions of Section 2.02 (and references in this
Agreement to such section) shall be null, void and of no further effect, and
(ii) Manager's option to renew the Term of this Agreement as set forth in
Section 2.01 shall no longer be conditioned upon achievement of an Owner ROI of
at least ten percent (10%) per annum for the two (2) Fiscal Years immediately
preceding the final Fiscal Year of the then existing Term.
5.03 Capital Expenditures
A. Manager shall prepare an annual estimate (the "Building Estimate")
of all Capital Expenditures. Manager shall submit the Building Estimate to Owner
for its approval at the same time as Manager submits the preliminary business
plan described in Section 4.04.A. Manager shall not make any Capital
Expenditures without the prior written approval of Owner, unless specifically
permitted herein.
B. Notwithstanding the provisions of Section 5.03.A, Manager shall be
authorized to take appropriate remedial action (including making any necessary
Capital Expenditures) without receiving Owner's prior consent in the following
circumstances: (i) if there is an emergency threatening the Golf Club, its
guests, invitees or employees; or (ii) if the continuation of the given
condition would subject Manager and/or Owner to civil or criminal liability, and
if Owner has either failed to remedy the situation or has failed to take
appropriate legal action to stay the effectiveness of any applicable Legal
Requirement, provided, that Manager may not take any such action without first
notifying Owner (or, in the case of an emergency, using its best efforts to
notify Owner). Manager shall cooperate with Owner in the pursuit of any such
action and shall have the right to participate therein. Owner shall, upon
written request by Manager, promptly reimburse all expenditures made by Manager
pursuant to this Section 5.03.B.
C. The cost of all Capital Expenditures (including the expenses
incurred by either Owner or Manager in connection with any civil or criminal
proceeding described above) shall be borne solely by Owner, and shall not be
paid from Gross Revenues nor from the FF&E Reserve.
D. Owner shall not unreasonably withhold its approval with respect to
Capital Expenditures as are: (i) required, in Manager's reasonable judgment, to
keep the Golf Club in a first-class, competitive, efficient and economical
operating condition in accordance with Luxury Country Club Standards; or (ii)
required by reason of any Legal Requirement, or otherwise required for the
continued safe and orderly operation of the Golf Club. It shall be an Event of
Default by Owner (and Manager shall be entitled to exercise any of the remedies
described in Article IX hereof) if Owner either (a) unreasonably withholds its
approval of any Capital Expenditure described in the preceding sentence, or (b)
fails to provide funding for any such Capital Expenditure, which was previously
approved by Owner, within sixty (60) days after the submission to Owner of the
Building Estimate requesting such Capital Expenditure.
18
<PAGE> 23
5.04 Ownership of Replacements
All repairs, alterations, improvements, renewals or replacements made
pursuant to Article V, and all amounts kept in the FF&E Reserve, shall, except
as otherwise provided in this Agreement, be the property of Owner.
19
<PAGE> 24
ARTICLE VI
INSURANCE, DAMAGE AND CONDEMNATION
6.01 Insurance
A. Manager shall, commencing with the Effective Date and thereafter
during the Term of the Agreement, procure and maintain, with insurance companies
that have an A.M. Best Insurance Guide Rating of not less than A-VIII, a minimum
of the following insurance:
1. Property insurance on the Golf Club Improvements and
contents against loss or damage by fire, lightning and all other risks
(including earthquake and flood in reasonable amounts if and as determined by
Owner and Manager) covered by a "Special Form" (formerly "All Risk") policy, and
an agreed amount endorsement (or its equivalent), all in an amount not less than
one hundred percent (100%) (less excavation and foundation costs) of the
replacement cost thereof;
2. Boiler and machinery insurance against loss or damage
(direct and indirect) to boilers, pressure vessels, air conditioning systems,
machinery and electrical equipment to the extent applicable to the Golf Club;
3. Business income (formerly "business interruption")
insurance on a "Special Form" policy and written on an actual loss sustained
basis, covering loss of profits and necessary continuing expenses, for not less
than twelve (12) months, for interruptions caused by any occurrence covered by
the insurance referred to in Sections 6.01.A.1 and 2 of a type and in amounts as
are generally established by Manager at similar Golf Clubs it owns, leases or
manages;
4. Commercial general liability insurance, on an occurrence
basis, covering against claims for bodily injury, including death, personal and
advertising injury or property damage occurring on, in, or about the Golf Club,
including liquor law or "dram shop" liability (if liquor or alcoholic beverages
are served on the managed property), with a combined single limit for each
occurrence of not less than One Million Dollars ($1,000,000) and Two Million
Dollars ($2,000,000) in the aggregate;
5. Business automobile liability insurance to cover all owned,
hired and nonowned automobiles owned or operated by Manager providing a minimum
combined single limit of One Million Dollars ($1,000,000);
6. Garagekeepers legal liability insurance to cover both
comprehensive and collision-type losses with a limit of liability of Two Million
Dollars ($2,000,000) for any one occurrence;
20
<PAGE> 25
7. Workers' compensation as may be required under applicable
laws covering all of Manager's employees at the Golf Club, and employer's
liability insurance in an amount of at least $500,000 per occurrence;
8. Umbrella liability insurance in excess of the liability
coverage set forth above in Sections 6.01.A.4, A.5 and A.7 (employers liability
only) with limits no less than One Hundred Million Dollars ($100,000,000);
9. Fidelity bonds or a blanket commercial crime policy with
reasonable limits to be determined by Manager, covering its employees in job
classifications normally bonded in other similar Golf Clubs it leases or manages
under the name of Manager or any of its Affiliates in the United States or as
otherwise required by law to the extent Manager and Owner mutually agree it is
necessary for the Golf Club, which fidelity bonds or blanket commercial crime
policy shall be endorsed to include safe deposit box legal liability and
innkeeper's legal liability; and
10. Such other insurance in amounts reasonably requested by
Owner after consultation with Manager for protection against claims, liabilities
and losses arising out of or connected with the operation of the Golf Club.
B. All insurance described in Section 6.01.A may be obtained by Manager
by endorsement or equivalent means under its blanket insurance policies,
provided that such blanket policies substantially fulfill the requirements
specified in this Agreement.
C. The policies of insurance required under Sections 6.01.A.1 and A.2
shall be carried in the name of Owner, all other policies required hereunder
shall be carried in the name of the Manager. The policies required under
Sections 6.01.A. 3, 4, 5, 6, 8 and 9 shall include the owner of the Golf Club
and any lessee of the Golf Club as an additional insured and include a waiver of
subrogation in favor of the Owner. Upon notice by the Owner, Manager shall also
have the policies required under Sections 6.01.A.1, 2, and 3 include any
Mortgagee as an additional insured. Any property losses thereunder shall be
payable to the respective parties as their interests may appear.
D. Manager shall deliver to Owner certificates of insurance with
respect to all policies so procured and, in the case of insurance policies about
to expire, shall deliver certificates with respect to the renewal thereof. All
certificates of insurance provided for under this Section 6.01 shall, to the
extent obtainable, state that the insurance shall not be canceled or materially
changed without at least thirty (30) days' prior written notice to the
certificate holder. Each insurer mentioned in this Section 6.01 shall agree, by
endorsement to the policy or policies issued to it, or by independent instrument
furnished to Crescent Real Estate Equities Limited Partnership, that it will
provide Crescent Real Estate Equities Limited Partnership thirty (30) days
written notice before the policy or policies in question shall be materially
altered, allowed to expire or canceled.
E. Insurance premiums and any other costs or expenses with respect to
the insurance required under Section 6.01.A., including any Insurance Retention
(as defined below), shall be paid
21
<PAGE> 26
from Gross Revenues as Deductions. Such premiums and costs, if applicable, shall
be allocated on an equitable basis to the properties participating under
Manager's blanket insurance. Any reserves, losses, costs or expenses which are
uninsured shall be treated as a cost of insurance and shall be Deductions. Upon
termination of this Agreement, a reserve in an amount acceptable to Manager and
Owner (as determined, in the absence of mutual agreement, by arbitration
pursuant to Section 11.20) shall be established from Gross Revenues to cover the
amount of any Insurance Retention and all other costs which will eventually have
to be paid by either Owner or Manager with respect to pending or contingent
claims, including those which arise after termination for causes arising during
the Term of the Agreement. If Gross Revenues are insufficient to meet the
requirements of such reserve, Owner shall deliver to Manager, within ten (10)
days after receipt of Manager's written request therefor, the sums necessary to
establish such reserve; and if Owner fails to timely deliver such sums to
Manager, Manager shall have the right (without affecting Manager's other
remedies under this Agreement) to withdraw the amount of such expenses from the
Operating Accounts, the Working Capital funds or any other funds of Owner held
by or under the control of Manager. For purposes of this Section 6.01.E,
"Insurance Retention" shall mean the amount of any loss or reserve under
Manager's blanket insurance which is allocated to the Golf Club, not to exceed
the higher of (A) the maximum per occurrence limit established for similar Golf
Clubs participating in such programs, or (B) the insurance policy deductible on
any loss which may fall within high hazard classifications as mandated by the
insurer (e.g., earthquake, flood, windstorm on coastal properties, etc.). If the
Golf Club is not a participant under Manager's blanket insurance, "Insurance
Retention" shall mean the amount of any loss or reserve allocated to the Golf
Club, not to exceed the insurance policy deductible.
F. Owner may, at its option, by written notice to Manager which shall
be delivered no later than ninety (90) days prior to the inception of the
insurance policies required in Sections 6.01.A.1 and 2, procure and maintain the
insurance specified in Section, 6.01.A.1 and 2, subject to the following terms
and conditions:
1. All such policies of insurance shall be carried in the name
of Owner, with Manager as an additional insured. Any property losses thereunder
shall be payable to the respective parties as their interests may appear. The
documentation with respect to each secured loan shall contain provisions to the
effect that proceeds of the insurance policies required to be carried under
Sections 6.01.A.1 and 2 shall be available for repair and restoration of the
Golf Club, to the extent required pursuant to Section 6.01.C. However, any
holder of such secured loan shall be entitled to impose reasonable conditions on
the disbursement of insurance proceeds for the repair and/or restoration of the
Golf Club, including a demonstration by Owner and/or Manager that the amount of
such proceeds (together with other funds Owner agrees to make available) is
sufficient for such purpose.
2. Owner shall deliver to Manager certificates of insurance
with respect to all policies so procured and, in the case of insurance policies
about to expire, shall deliver certificates with respect to the renewal thereof.
22
<PAGE> 27
3. All such certificates of insurance shall, to the extent
obtainable, state that the insurance shall not be canceled or materially changed
without at least thirty (30) days' prior written notice to the certificate
holder.
4. To the extent the premiums for such insurance coverage
shall exceed the premiums for such insurance under Manager's policies, such
excess shall not be treated as a Deduction.
5. Should the Golf Club meet the insurability criteria of
Manager and Owner nevertheless exercises its right to obtain the insurance
described in this Section 6.01.F, Owner acknowledges that Manager is under no
obligation to thereafter include the Golf Club in its blanket insurance program
(with respect to the coverage described in Sections 6.01.A.1, 2 and 3) for the
balance of the Term of this Agreement. However, upon a Sale of the Golf Club, a
successor Owner shall have the right, notwithstanding the fact that the previous
Owner may have obtained insurance in accordance with this Section 6.01.F, to
have the Golf Club included in Manager's blanket insurance program (provided
that the Golf Club, as of that point in time, satisfies the applicable criteria
for admission to such program, as established by the program's insurance
carriers) by making a written request to Manager for such inclusion not later
than thirty (30) days after the date on which such party becomes the Owner.
6. All insurance procured by Owner hereunder shall be obtained
from reputable insurance companies authorized to issue insurance in the State of
California and reasonably acceptable to Manager.
G. Increase in Limits. If Owner at any time deems the limits of the
personal injury or property damage under the comprehensive public liability
insurance then carried to be either excessive or insufficient, Manager and Owner
shall endeavor in good faith to agree on the proper and reasonable limits for
such insurance to be carried and such insurance shall thereafter be carried with
the limits thus agreed on until further change pursuant to the provisions of
this Section.
6.02 Damage and Repair
A. If, during the Term, the Golf Club is damaged by a Minor Casualty,
Manager shall, with commercially reasonable diligence, proceed to process the
claim with the applicable insurance carriers, including settling such claim, and
to make the necessary arrangements with appropriate contractors and suppliers to
repair and/or replace the damaged portion of the Golf Club. Owner's consent
shall not be needed for Manager to perform any of the foregoing, all of which
shall be performed in accordance with Manager's reasonable judgment. Owner
agrees to sign promptly any documents which are reasonably necessary to process
and/or adjust the claim with the insurance carriers, as well as any contracts
with such contractors and/or suppliers.
B. If, during the Term, the Golf Club suffers a Total Casualty, this
Agreement shall be terminable at the option of either party upon ninety (90)
days' written notice to the other party. Such
23
<PAGE> 28
notice must be sent within thirty (30) days after the date of the Total
Casualty. In the event that (i) insurance proceeds actually received by Owner
are sufficient to replace and/or rebuild the Golf Club, and (ii) Owner so elects
to terminate this Agreement (notwithstanding receipt of insurance proceeds
sufficient to replace and/or rebuild the Golf Club), then Owner will pay to
Manager the Termination Fee, such payment to be made on or before the ninetieth
(90th) day after the date on which Owner notifies Manager of its election to
terminate this Agreement.
C. If, during the Term, the Golf Club is damaged by fire, casualty or
other cause to a greater extent than a Minor Casualty, but not to the extent of
a Total Casualty, or if the Golf Club suffers a Total Casualty but neither party
elects to terminate under Section 6.02.B, Owner shall, at its cost and expense
and with all reasonable diligence, repair and/or replace the damaged portion of
the Golf Club to the same condition as existed previously. Manager shall have
the right to discontinue operating the Golf Club to the extent it deems
necessary to comply with applicable Legal Requirements or as necessary for the
safe and orderly operation of the Golf Club. To the extent available, proceeds
from the insurance described in Section 6.01 of this Agreement shall be applied
to such repairs and/or replacements. If Owner does not elect to terminate this
Agreement under Section 6.02.B and fails to promptly commence the repairing
and/or replacement of the Golf Club so that it shall be substantially the same
as it was prior to such damage or destruction, such failure shall be an Event of
Default by Owner.
6.03 Condemnation
A. In the event all or substantially all of the Golf Club shall be
taken in any eminent domain, condemnation, compulsory acquisition, or similar
proceeding by any competent authority for any public or quasi-public use or
purpose, or in the event a portion of the Golf Club shall be so taken, but the
result is that it is unreasonable to continue to operate the Golf Club in
accordance with the standards required by this Agreement, this Agreement shall
terminate. Owner and Manager shall each have the right to initiate such
proceedings as they deem advisable to recover any compensation to which they may
be entitled.
B. In the event a portion of the Golf Club shall be taken by the events
described in Section 6.03.A, or the entire Golf Club is affected but on a
temporary basis, and the result is not to make it unreasonable to continue to
operate the Golf Club, this Agreement shall not terminate. However, so much of
any award for any such partial taking or condemnation as shall be necessary to
render the Golf Club equivalent to its condition prior to such event shall be
used for such purpose; and Manager shall have the right to discontinue operating
the Golf Club to the extent it deems necessary for the safe and orderly
operation of the Golf Club.
24
<PAGE> 29
ARTICLE VII
TAXES
7.01 Real Estate and Personal Property Taxes
A. Except as specifically set forth in subsection B below, all real
estate and personal property taxes, levies, assessments and similar charges on
or relating to the Golf Club ("Impositions") during the Term shall be paid by
Manager from Gross Revenues, before any fine, penalty, or interest is added
thereto or lien placed upon the Golf Club or upon the Agreement, unless payment
thereof is in good faith being contested and enforcement thereof is stayed. Any
such payments shall be Deductions in determining Operating Profit. Owner shall,
within ten (10) business days after receipt, furnish Manager with copies of
official tax bills and assessments which it may receive with respect to the Golf
Club. Either Owner or Manager (in which case Owner agrees to sign the required
applications and otherwise cooperate with Manager in expediting the matter) may
initiate proceedings to contest any negotiations or proceedings with respect to
any Imposition, and all reasonable costs of any such contest shall be paid from
Gross Revenues and shall be a Deduction in determining Operating Profit. Manager
shall, as part of its contest or negotiation of any Imposition, be entitled, on
Owner's behalf, to waive any applicable statute of limitations in order to avoid
paying the Imposition during the pendency of any proceedings or negotiations
with applicable authorities.
B. The word "Impositions" as used in this Agreement shall not include
the following, all of which shall be paid solely by Owner, not from Gross
Revenues nor from the FF&E Reserve:
1. Any franchise, corporate, estate, inheritance, succession,
capital levy or transfer tax imposed on Owner, or any income tax imposed on any
income of Owner (including distributions to Owner pursuant to Article III
hereof, but not including any property taxes which are assessed on the basis of
income or revenues generated by the Golf Club);
2. Special assessments (regardless of when due or whether they
are paid as a lump sum or in installments over time) imposed because of
facilities which are constructed by or on behalf of the assessing jurisdiction
(for example, roads, sidewalks, sewers, culverts, etc.) which directly benefit
the Golf Club (regardless of whether or not they also benefit other buildings),
which assessments shall be treated as capital costs of construction and not as
Deductions;
3. "Impact Fees" (regardless of when due or whether they are
paid as a lump sum or in installments over time) which are required of Owner as
a condition to the issuance of site plan approval, zoning variances or building
permits, which impact fees shall be treated as capital costs of construction and
not as Deductions; or
4. "Tax-increment financing" or similar financing whereby the
municipality or other taxing authority has assisted in financing the
construction of the Golf Club by temporarily
25
<PAGE> 30
reducing or abating normal Impositions in return for substantially higher levels
of Impositions at later dates.
ARTICLE VIII
OWNERSHIP OF THE GOLF CLUB
8.01 Ownership of the Golf Club
A. During the Term and any Renewals, Owner hereby covenants that it
holds good and marketable fee title to the Site and that it will have, keep, and
maintain good and marketable fee title to the Golf Club free and clear of any
and all liens, encumbrances or other charges (or in the event of a lease of the
Golf Club, the lessee holds a valid leasehold interest in the Site) except as
follows:
1. Easements or other encumbrances (other than those described
in subsections 2 and 3 hereof) that do not materially and adversely affect the
operation of the Golf Club by Manager and that are not prohibited pursuant to
Section 8.04 of this Agreement;
2. Liens on encumbrances related to equipment used in the
operation of the Golf Club;
3. Mortgages;
4. Liens for taxes, assessments, levies or other public
charges not yet due or due but not yet payable or due and payable but payment is
in good faith being contested; or
5. The Golf Club Lease.
B. Owner shall pay and discharge, on or before the due date, any and
all payments due under any Mortgage that Owner has entered into with respect to
the Golf Club. Owner shall indemnify, defend, and hold Manager harmless from and
against all claims, Litigation and damages arising from the failure to make any
such payments as and when required; and this obligation of Owner shall survive
Termination. Manager shall have no responsibility for payment of debt service
due with respect to the Golf Club, from Gross Revenues or otherwise, and such
responsibility shall be solely that of Owner.
C. Owner covenants that, so long as Manager is not in Default under
this Agreement, Manager shall quietly hold, occupy and enjoy the Golf Club
throughout the Term hereof free from hindrance, ejection or molestation by Owner
or other party claiming under, through or by right of Owner. Owner agrees to pay
and discharge any payments and charges and, at its expense, to prosecute all
appropriate actions, judicial or otherwise, necessary to assure such free and
quiet occupation.
26
<PAGE> 31
D. Manager and Owner agree that during the Term, Owner may lease the
Golf Club to any Person on terms and conditions acceptable to Owner in its sole
and absolute discretion. Manager, Owner and Golf Club Lessee acknowledge that
the Golf Club is currently leased by Owner to Golf Club Lessee pursuant to the
Golf Club Lease, and Golf Club Lessee executes this Agreement to evidence its
agreement that, until such time as all of Owner's obligations under this
Agreement have been satisfied in full, the Golf Club Lease and all terms and
provisions thereof shall be subject to and unconditionally subordinate in all
respects to this Agreement (including without limitation the respective
obligations and liabilities, and the respective rights, privileges, and powers,
of Owner and Manager under this Agreement and any renewals, extensions,
modifications or assignments hereof). During the term of the Golf Club Lease,
but not thereafter, Owner hereby assigns to Golf Club Lessee (an Affiliate of
Crescent Operating, Inc.) all of Owner's interest in this Agreement, and all of
Owner's rights, benefits, and privileges under this Agreement shall be vested in
Golf Club Lessee throughout the term of the Golf Club Lease and upon termination
of the Golf Club Lease, for whatever reason, shall automatically revert to Owner
without the necessity of any action on the part of the Owner hereunder.
8.02 Mortgages
Owner shall be permitted to encumber the Golf Club and/or the Site with
any Mortgage.
8.03 Subordination Agreement.
A. At Owner's request, Manager shall execute an instrument
("Subordination Agreement") reasonable satisfactory to Manager and any
Mortgagee, which shall be recordable in the jurisdiction where the Golf Club is
located pursuant to which:
1. This Agreement and any extensions, renewal, replacements or
modifications there, and all right and interest of Manager in and to the Golf
Club, shall be subject and subordinate to such Mortgage; and
2. Manager shall be obligated to each of the Subsequent Owners
(as defined below) to perform all of the terms and conditions of this Agreement
for the balance of the remaining Term hereof, with the same force and effect as
if such Subsequent Owner were the Owner.
Notwithstanding the foregoing, Manager shall not be obligated to execute a
Subordination Agreement with respect to any Mortgage for which the loan-to-value
ratio, as determined by the lender under such Mortgage, exceeds seventy percent
(70%).
B. Owner shall use commercially reasonable efforts to obtain in the
Subordination Agreement the terms of this Section 8.03.B. In the event that
there is a Foreclosure of such Mortgage (or a deed in lieu of Foreclosure), or
other exercise by such Mortgagee (or its successor) of its remedies in the event
of default, in connection with which title or possession of the Golf Club is
transferred to the Mortgagee (or its designee) or to a purchaser at Foreclosure
or to a subsequent
27
<PAGE> 32
purchaser from the Mortgagee (or from its designee) (all of the foregoing shall
collectively be referred to as "Subsequent Owners"), Manager shall not be
disturbed in its rights under this Agreement so long as Manager is not in
Default hereunder.
C. Notwithstanding the subordination of this Agreement which is
described in Section 8.03.A (or any subsequent subordination to any other
Mortgage), if, in connection with the exercise by any Mortgagee of its remedies
under any Mortgage, there is a material adverse impact upon the operation of the
Golf Club by Manager in accordance with the Luxury Country Club Standards (such
as, for example, the imposition of material restrictions upon expenditures from
the FF&E Reserve by Manager, where such restrictions are not set forth in this
Agreement), the foregoing shall be deemed to be an Event of Default by Owner
entitling Manager to all of the remedies set forth in Article IX.
8.04 No Covenants, Conditions or Restrictions
A. Owner covenants that, from and after the Effective Date and during
the Term of this Agreement, Owner shall not (unless Manager has given its prior
written consent thereto) create or cause or suffer to be caused any covenants,
conditions or restrictions, including reciprocal easement agreements or
cost-sharing arrangements (collectively referred to as "CC&Rs") affecting the
Site or the Golf Club (i) which would prohibit or substantially limit Manager
from operating the Golf Club in accordance with the Luxury Country Club
Standards, including related amenities proposed for the Golf Club; (ii) which
would legally entitle the Golf Club facilities (for example, parking spaces) to
be used by persons other than guests, invitees or employees of the Golf Club;
(iii) other than leases entered into by Owner, which would allow the Golf Club
facilities to be used for specified charges or rates which have not been
approved by Manager; or (iv) which would subject the Golf Club to exclusive
arrangements regarding food and beverage operation or retail merchandise.
B. Unless otherwise agreed by both Owner and Manager, all financial
obligations imposed on Owner or on the Golf Club pursuant to any CC&Rs shall be
paid by Owner from its own funds, and not from Gross Revenues or from the FF&E
Reserve. Manager's consent to any such CC&Rs shall be conditioned (among other
things) on satisfactory evidence that: (i) the CC&R in question provides a
reasonable and cost-effective benefit to the operation of the Golf Club; (ii)
the costs incurred (including administrative expenses) pursuant to such CC&R
will be both reasonable and allocated to the Golf Club on a reasonable basis;
and (iii) no capital expenditures incurred pursuant to said CC&R will be paid as
a Deduction (but rather, such capital expenditures will be paid separately by
Owner).
8.05 Liens; Credit
Manager and Owner shall use commercially reasonable efforts to prevent
any liens from being filed against the Golf Club which arise from any
maintenance, repairs, alterations, improvements, renewals or replacements in or
to the Golf Club, other than the lease or financing of equipment for use at the
Golf Club. They shall cooperate fully in obtaining the release of any such
liens, and the cost thereof, if the lien was not occasioned by the fault of
either party, shall be treated the same as the cost
28
<PAGE> 33
of the matter to which it relates. If the lien arises as a result of the fault
of either party, then the party at fault shall bear the cost of obtaining the
lien release. In no event shall either party borrow money in the name of or
pledge the credit of the other.
8.06 Amendments Requested by Mortgagee
A. If requested by any Mortgagee or prospective Mortgagee, Manager
agrees to execute and deliver any amendment of this Agreement that is reasonably
required by such Mortgagee or prospective Mortgagee, provided that Manager shall
be under no obligation to amend this Agreement if the result of such amendment
would be: (i) to reduce, defer or delay the amount of any payment to be made to
Manager hereunder; (ii) to materially and adversely increase Manager's
obligations or affect Manager's rights under this Agreement; (iii) to change the
Term of this Agreement; (iv) to cause the Golf Club to be operated other than
pursuant to the Luxury Country Club Standards and other provisions hereof; or
(v) to amend Section 5.02 or Section 5.03. Any such amendment shall be in effect
only for the period of time in which such Mortgage is outstanding.
B. Notwithstanding the provisions of Section 8.06.A, if a Mortgagee or
prospective Mortgagee requests that Manager enter into an amendment of this
Agreement which would impose additional duties (for example, an increase in the
reporting requirements or in the record-keeping requirements, or adding the
obligation to prepare parallel accounting statements using a different fiscal
year) on Manager, or would otherwise adversely affect Manager's rights under
this Agreement, but not to the degree of materiality which would be prohibited
under Section 8.06.A, and with respect to which Manager believes, in its good
faith judgment, that it can be adequately compensated, Manager hereby agrees
that it will execute and deliver such requested amendment of this Agreement,
provided that Owner compensates Manager for the additional burden imposed by
such amendment that relate directly to the Golf Club. It is understood that the
word "burden," as used in the preceding sentence, shall encompass not only
additional work to be performed by Manager, but also the adverse effect on the
Short-Term Incentive Fee which would be caused by requiring increased services
to be provided to the Golf Club by third parties and by paying from Gross
Revenues any other expenses incurred by Manager in meeting such additional
obligations. Any dispute as to the additional compensation to which Manager is
entitled pursuant to this Section 8.06.B. shall be resolved by arbitration
pursuant to Section 11.20.
ARTICLE IX
DEFAULTS
9.01 Events of Default
Each of the following shall constitute a "Default" under this
Agreement.
29
<PAGE> 34
A. The filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by either party, or the
admission by either party that it is unable to pay its debts as they become due.
Upon the occurrence of any Default by either party (referred to as the
"defaulting party") as described under this subsection A, said Default shall be
deemed an "Event of Default" under this Agreement.
B. The consent to an involuntary petition in bankruptcy or the failure
to vacate, within ninety (90) days from the date of entry thereof, any order
approving an involuntary petition by either party. Upon the occurrence of any
Default by either party as described under this subsection B, said Default shall
be deemed an "Event of Default" under this Agreement.
C. The entering of an order, judgment or decree by any court of
competent jurisdiction, on the application of a creditor, adjudicating either
party as bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee, or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree's continuing unstayed
and in effect for an aggregate of sixty (60) days (whether or not consecutive).
Upon the occurrence of any Default by either party as described under this
subsection C, said Default shall be deemed an "Event of Default" under this
Agreement.
D. The failure of either party to make any payment required to be made
in accordance with the terms of this Agreement, as of the due date as specified
in this Agreement. Upon the occurrence of any Default by either party as
described under this subsection D, said Default shall be deemed an "Event of
Default" under this Agreement if the defaulting party fails to cure such Default
within ten (10) days after receipt of written notice from the non-defaulting
party demanding such cure.
E. The failure of either party to perform, keep or fulfill any of the
other covenants, undertakings, obligations or conditions set forth in this
Agreement, and the continuance of such default for a period of thirty (30) days
after the defaulting party's receipt of written notice from the non-defaulting
party of said failure. Upon the occurrence of any Default by either party as
described under this subsection E, said Default shall be deemed an "Event of
Default" under this Agreement if the defaulting party fails to cure the Default
within thirty (30) days after receipt of written notice from the non-defaulting
party demanding such cure, or, if the Default is such that it cannot reasonably
be cured within said thirty (30) day period of time, if the defaulting party
fails to commence the cure of such Default within said thirty (30) day period of
time or thereafter fails to diligently pursue such efforts to completion.
9.02 Remedies
Upon the occurrence of an Event of Default, the non-defaulting party
shall have the right to pursue any one or more of the following courses of
action: (1) if the Event of Default has a material adverse impact on the
non-defaulting party, to terminate this Agreement by written notice to the
defaulting party, which termination shall be effective as of the effective date
which is set forth in said
30
<PAGE> 35
notice, provided that said effective date shall be at least thirty (30) days
after the date of said notice and further provided that either party may extend
the foregoing period of thirty (30) days to seventy-five (75) days (or such
longer period of time as may be necessary under Legal Requirements pertaining to
termination of employment); (2) to institute forthwith any and all proceedings
permitted by law or equity including, without limitation, actions for specific
performance and/or damages; and/or (3) to avail itself of the remedies described
in Section 9.03.
9.03 Additional Remedies
A. Upon the occurrence of a Default by either party under the
provisions of Section 9.01.D, the amount owed to the non-defaulting party shall
accrue interest, at an annual rate equal to the Prime Rate plus three (3)
percentage points, from and after the date on which the Default occurred.
B. Upon the occurrence of a Default by Owner under the provisions of
Section 9.01.D, Manager shall have the right (without affecting Manager's other
remedies under this Agreement) to withdraw the amount (plus accrued interest as
described in 9.03.A above) owed to Manager by Owner from distributions otherwise
payable to Owner pursuant to Sections 3.02 and 4.01 of this Agreement.
C. Manager and/or any Affiliate shall be entitled, in case of any
breach of the covenants of Sections 11.11.E, F, or G or of Section 11.12 by
Owner or others claiming through it, to injunctive relief and to any other right
or remedy available at law.
D. Except as provided, the remedies granted under Sections 9.02 and
9.03 shall not be in substitution for, but shall be in addition, to, any and all
rights and remedies available to the non-defaulting party (including, without
limitation, injunctive relief and damages) by reason of applicable provisions of
law or equity and shall survive Termination.
ARTICLE X
ASSIGNMENT AND SALE
10.01 Assignment
A. Manager shall not assign or transfer its interest in this Agreement
without the prior written consent of Owner; provided, however, that Manager
shall have the right, without Owner's consent, to lease shops or grant
concessions at the Golf Club so long as the terms of any such leases or
concessions do not exceed the Term of this Agreement, subject to Owner's right
to consent as set forth in Section 1.02 and elsewhere in this Agreement.
31
<PAGE> 36
B. Owner shall not assign or transfer its interest in this Agreement
without the prior written consent of Manager; provided, however, that Owner
shall have the right, without such consent, to (1) assign its interest in this
Agreement to Crescent Operating, Inc., Crescent Real Estate Equities Limited
Partnership, Crescent Real Estate Equities, Ltd., Sonoma Spa Golf Clubs, L.P. or
any of their Affiliates or any successors of the foregoing, (2) conditionally
assign this Agreement as security for a Mortgage of the Golf Club in accordance
with this Agreement, and (3) assign its interest in this Agreement in connection
with a Sale of the Golf Club.
C. In the event either party consents to an assignment of this
Agreement by the other, no further assignment shall be made without the express
consent in writing of such party, unless such assignment may otherwise be made
without such consent pursuant to the terms of this Agreement. An assignment by
Manager of its interest in this Agreement shall not relieve Manager from its
obligations under this Agreement, and shall inure to the benefit of, and be
binding upon, its successors, heirs, legal representatives, or assigns. In the
event Owner assigns this Agreement in accordance with the terms hereof and
thereby causes its assignee to assume all of Owner's obligations hereunder,
Owner shall thereby be released from the obligations of Owner under this
Agreement to the extent such obligations accrue on or after the effective date
of the assumption by Owner's assignee.
10.02 Sale of the Golf Club
A. At any time during the Term, Owner shall be entitle to sell, assign,
transfer or otherwise dispose of the Golf Club subject to the further provisions
of this Agreement.
B. Unless this Agreement is terminated in accordance with Section
10.03, no Sale of the Golf Club shall reduce or otherwise affect: (i) the
current level of Working Capital; (ii) the outstanding balance deposited in the
FF&E Reserve; or (iii) the outstanding balance in any of the Operating Accounts
maintained by Manager pursuant to this Agreement. If, in connection with any
Sale of the Golf Club, the selling Owner intends to withdraw, for its own use,
any of the cash deposits described in the preceding sentence, the selling Owner
must obtain the contractual obligation of the buying Owner to replenish those
deposits (in the identical amounts) simultaneously with such withdrawal. The
selling Owner is hereby contractually obligated to Manager to ensure that such
replenishment in fact occurs. The obligations described in this Section 10.02.B
shall survive such Sale of the Golf Club.
C. The terms and provisions of this Agreement shall be binding upon all
successors to Owner's interest in the Site and/or the Golf Club. Each selling
Owner shall be obligated to Manager to obtain from each buying Owner an
assumption of this Agreement. The foregoing obligation of the selling Owner
shall survive any Sale of the Golf Club.
32
<PAGE> 37
10.03 Termination on Sale of Golf Club
Owner shall have the right to terminate this Agreement upon the Sale of
the Golf Club if the Golf Club is sold in a bonafide arms length transaction to
a non-related entity (where no shareholder or partner of Owner holds any
ownership interest in such new entity, other than ownership of a non-
controlling interest) and Owner is not in default under the terms of this
Agreement by notice given pursuant to Section 11.07. Such Termination shall be
effective in accordance with the following: Owner shall notify Manager of its
election to terminate this Agreement pursuant to the provisions of this Section
10.03 by delivery of a written notice ("Sale Termination Notice") setting forth
Owner's intention to terminate this Agreement and the anticipated date on which
this Agreement shall terminate, which notice shall be delivered at least ninety
(90) days prior to the projected termination date. Notwithstanding the
foregoing, in the event the Sale Termination Notice is delivered to Manager less
than twelve (12) months prior to the projected termination date, Owner shall be
obligated to pay Manager the Base Management Fee for twelve (12) months
following the Sale Termination Notice (without regard to a prior termination of
this Agreement pursuant to this Section 10.03). In the event Owner is obligated
under this Section 10.03 to pay Manager the Base Management Fee for any period
following the termination of this Agreement pursuant to this Section 10.03, the
amount of such Base Management Fee shall be the amount of the Base Management
Fee paid by Owner to Manager for the corresponding period in the immediately
preceding Fiscal Year. Owner may, not less than thirty (30) days prior to the
projected termination date of this Agreement as set forth in a Sale Termination
Notice, withdraw such Sale Termination Notice (in which case, this Agreement
shall continue in full force and effect as if such Sale Termination Notice had
not been previously delivered to Manager).
33
<PAGE> 38
ARTICLE XI
MISCELLANEOUS
11.01 Right to Make Agreement
Each party warrants, with respect to itself, that neither the execution
of the Agreement nor the finalization of the transactions contemplated hereby
shall violate any provision of law or judgment, writ, injunction, order or
decree of any court or governmental authority having jurisdiction over it;
result in or constitute a breach or default under any indenture, contract, other
commitment or restriction to which it is a party or by which it is bound; or
require any consent, vote or approval which has not been taken, or at the time
of the transaction involved shall not have been given or taken. Each party
covenants that it has and will continue to have throughout the Term of the
Agreement and any extensions thereof, the full right to enter into the Agreement
and perform its obligations hereunder.
11.02 Consents and Cooperation
Wherever in the Agreement the consent or approval of Owner or Manager
is required, such consent or approval shall be in writing and shall be executed
by a duly authorized officer or agent of the party granting such consent or
approval. Additionally, Owner agrees to cooperate with Manager by executing such
leases, subleases, licenses, concessions, equipment leases, service contracts
and other agreements negotiated in good faith by Manager and pertaining to the
Golf Club that are consistent with the terms of this Agreement and, in Manager's
reasonable judgment, should be made in the name of the Owner of the Golf Club.
11.03 Relationship
Neither this Agreement nor any agreements, instruments, documents, or
transactions contemplated hereby shall in any respect be interpreted, deemed or
construed as making Manager a partner or joint venturer with Owner. Owner and
Manager agree that neither party will make any contrary assertion, claim or
counterclaim in any action, suit, arbitration or other legal proceedings
involving Owner and Manager.
11.04 Applicable Law
The Agreement shall be construed under and shall be governed by the
laws of the state of Texas.
34
<PAGE> 39
11.05 Recordation
The terms and provisions of the Agreement shall run with the parcel of
land designated as the Site, and with Owner's interest therein, and shall be
binding upon all successors to such interest. Simultaneously with the execution
of this Agreement, the parties shall execute a recordable "Memorandum of
Management Agreement," in the form which is attached hereto as Exhibit B. The
Memorandum shall be recorded or registered promptly following the Effective Date
in the jurisdiction in which the Golf Club is located. The Memorandum shall not
be a lien against Owner's interest in the Site. Any cost of such recordation
shall be reimbursed from Gross Revenues and treated as a Deduction. Upon
termination of this Agreement, Owner and Manager shall execute a written notice
of such termination in recordable form.
11.06 Headings
Headings of articles and sections are inserted only for convenience and
are in no way to be construed as a limitation on the scope of the particular
articles or sections to which they refer.
11.07 Notices
Notices, statements and other communications to be given under the
terms of the Agreement shall be in writing and delivered by hand against receipt
or sent by certified or registered mail, postage prepaid, return receipt
requested or by nationally utilized overnight delivery service, addressed to the
parties as follows:
To Owner: Crescent Real Estate Funding VIII, L.P.
777 Main Street, Suite 2100
Fort Worth, TX 76102
Attn: Senior Vice President and Chief
Investment Officer
Facsimile: (817) 321-2000
and Crescent Real Estate Funding VIII, L.P.
777 Main Street, Suite 2100
Fort Worth, TX 76102
Attn: Legal Department
Facsimile: (817) 321-2000
with copy to: Brown McCarroll & Oaks Hartline, LLP
300 Crescent Court, Suite 1400
Dallas, Texas 75201
Attn: Robert W. Dupuy
Facsimile: (214) 999-6170
35
<PAGE> 40
To Manager: Sonoma Management Corp. I
c/o Sonoma Holdings I, LLP
306 W. 7th Street, Suite 1025
Fort Worth, TX 76102
Attn: Sanjay Varma
Facsimile: 817/317-0665
with copy to: Gray, Harris & Robinson
201 East Pine Street, Suite 1200
Orlando, Florida 32801
Attn: Byrd F. Marshall
Facsimile: (407) 244-5690
or at such other address as is from time to time designated by the party
receiving the notice. Any such notice that is mailed in accordance herewith
shall be deemed received when delivery is received or refused, as the case may
be. Additionally, notices may be given by telephone facsimile transmission,
provided that an original copy of said transmission shall be delivered to the
addressee by nationally utilized overnight delivery service by no later than the
second business day following such transmission. Telephone facsimiles shall be
deemed delivered on the date of such transmission.
11.08 Environmental Matters
A. At all times during the term of this Agreement, Manager shall fully
comply with Environmental Laws applicable to the Golf Club and its operations.
Manager shall at all times use diligent efforts to determine if any Hazardous
Material is being used, released, disposed or discharged at or from the Golf
Club, including, without limitation, the engagement of professional
environmental engineers to perform such environmental studies or tests as may be
approved by Owner. If any Hazardous Material is discovered at the Golf Club,
Manager shall not disturb, release or dispose of (or permit to be disturbed,
released or disposed of) any such Hazardous Material except in strict compliance
with a remediation and/or removal program approved by Owner. Additionally,
without the prior consent of Owner, which may be withheld in its sole and
absolute discretion, Manager shall not permit on the Golf Club (a) any dry
cleaning operations, (b) any activity requiring a permit under any Environmental
Laws, even if the permit has been or can be obtained, (c) any activity
generating any Hazardous Materials as waste or using Hazardous Materials, other
than (i) kitchen grease traps, (ii) pool and spa chemicals, fertilizers and
pesticides in reasonable quantities relative to the needs of the Golf Club which
are properly stored, handled and disposed of, and (iii) other Hazardous
Materials in small quantities that are typically used in the operations of the
Golf Club.
B. Manager and Owner each agrees to give the other prompt written
notice of (1) all Environmental Liabilities; (2) all pending, threatened or
anticipated proceedings, and all notices, demands, requests or investigations,
relating to any Environmental Liability or relating to the issuance, revocation
or change in any Environmental Authorization required for operation of the Golf
Club; (3) all Releases at, on, in, under or in any way affecting the Golf Club,
or any Release known by Owner or Manager, as the case may be, at, on, in or
under any property adjacent to the Golf Club;
36
<PAGE> 41
and (4) all facts, events or conditions that could reasonably lead to the
occurrence of any of the above-referenced matters. Manager and Owner each agrees
to defend, indemnify and save harmless the other and its Affiliates from and
against any and all Environmental Liabilities to the extent that the same were
caused by the intentionally wrongful or grossly negligent acts or omissions of
Manager or Owner, as the case may be, or any of their employees at the Golf
Club.
C. For the purposes of this Section 11.08, the following terms shall
have the meanings set forth below:
"Environmental Authority" shall mean any department, agency or other
body or component of any government that exercises any form of jurisdiction or
authority under any Environmental Law.
"Environmental Laws" shall mean all applicable federal, state, local
and foreign laws and regulations relating to pollution of the environment
(including without limitation, ambient air, surface water, ground water, land
surface or subsurface strata), including without limitation laws and regulations
relating to emissions, discharges, Releases or threatened Releases of Hazardous
Materials or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials.
"Environmental Liabilities" shall mean any and all actual or potential
obligations to pay the amount of any judgment or settlement, the cost of
complying with any settlement, judgment or order for injunctive or other
equitable relief, the cost of compliance or corrective action in response to any
notice, demand or request from an Environmental Authority, the amount of any
civil penalty or criminal fine, any court costs and reasonable amounts for
attorney's fees, fees for witnesses and experts, and costs of investigation and
preparation for defense of any claim or any proceeding, regardless of whether
such proceeding is threatened, pending or completed, that may be or have been
asserted against or imposed upon Owner, Manager, any predecessor in interest,
the Golf Club or any property used therein and arising out of:
(a) the failure to comply at any time with any Environmental
Law applicable to the Golf Club;
(b) the presence of any Hazardous Materials on, in, under, at
or in any way affecting the Golf Club;
(c) a Release or threatened Release of any Hazardous Materials
on, in, at, under or in any way affecting the Golf Club;
(d) the identification of Manager, Owner or any predecessor in
interest as a potentially responsible party under any Environmental Law;
37
<PAGE> 42
(e) the presence at any time of any above-ground and/or
underground storage tanks, as defined in any applicable Environmental Law on,
in, at or under the Golf Club or any adjacent site or Golf Club; or
(f) any and all claims for injury or damage to persons or
property arising out of exposure to Hazardous Materials originating or located
at the Golf Club, or resulting from operation thereof or any adjoining property.
"Hazardous Materials" shall mean all chemicals, pollutants,
contaminants, wastes and toxic substances, including without limitation:
(a) Solid or hazardous waste, hazardous substances, toxic
substances and insecticides, fungicides, or rodenticides, as defined in any
Environmental Law;
(b) Gasoline or any other petroleum product or byproduct,
polychlorinated biphenyls, asbestos and urea formaldehyde;
(c) Asbestos or asbestos containing materials;
(d) Urea formaldehyde foam insulation; and
(e) Radon gas.
"Release" shall mean a "Release" as defined in any Environmental Law,
unless such Release has been properly authorized and permitted in writing by all
applicable Environmental Authorities or is allowed by such Environmental Law
without authorizations or permits.
11.09 Confidentiality
A. The parties hereto agree that the matters set forth in this
Agreement and all statements, reports, projections, and other information
relating to the operation of the Golf Club are strictly confidential and each
party will make every effort to ensure that the information is not disclosed to
any outside person or entities (including the press) without the prior written
consent of the other party, which consent shall not be unreasonably withheld or
delayed, except as may, in the disclosing party's reasonable evaluation, be
required by law (including, without limitation, laws and regulations regarding
publicly-traded securities) and as may be reasonably necessary to obtain
licenses, permits, and other public approvals necessary for the refurbishment or
operation of the Golf Club, or in connection with Owner's financing of the Golf
Club, a Sale of the Golf Club, or a sale of a controlling interest in Owner or
Manager.
B. The provisions of this Section 11.09B shall not be operative unless
and until Owner ceases to own a direct or indirect interest in Manager (whether
through Sonoma Corporation or otherwise). No reference to Manager or to any
Affiliate of Manager will be made in any prospectus,
38
<PAGE> 43
private placement memorandum, offering circular or offering documentation
related thereto (collectively referred to as the "Prospectus"), issued by Owner
or by one of Owner's Affiliates or by one or more Mortgagees, which is designed
to interest potential investors in debt or equity securities related to the Golf
Club, unless Manager has not less than three (3) days prior to its intended use,
received and approved a copy of all such references; provided, however, the
foregoing shall not apply with respect to any report, filing or disclosure of
any type or nature required to be made by Owner or any Affiliate of Owner in
order to comply with applicable laws and regulations (including without
limitation securities laws and regulations applicable to Owner or any Affiliate
of Owner). Manager shall not unreasonably withhold or delay its consent to
Owner's use of such references. Manager's failure to respond within such three
(3) day period shall be deemed approval of its use. However, regardless of
whether Manager does or does not so receive a copy of all such references,
neither Manager nor any Affiliate will be deemed a sponsor of the offering
described in the Prospectus, nor will it have any responsibility for the
Prospectus. Owner shall indemnify, defend and hold Manager harmless from and
against all loss, costs, liability and damage (including attorneys' fees and
expenses, and the cost of Litigation) arising out of any Prospectus or the
offering described therein; and this obligation of Owner shall survive
Termination of this Agreement.
C. No reference to Owner or to any Affiliate of Owner will be made in
any Prospectus issued by Manager or by one of Manager's Affiliates, which is
designed to interest potential investors in debt or equity securities of
Manager, unless Owner has, not less than three (3) days prior to its intended
use, received and approved a copy of all such references. Owner shall not
unreasonably withhold or delay its consent to Manager's use of such references.
Owner's failure to respond within such three (3) day period shall be deemed
approval of its use. However, regardless of whether Owner does or does not so
receive a copy of all such references, neither Owner nor any Affiliate of Owner
shall be deemed a sponsor of the offering described in the Prospectus, nor will
it have any responsibility for the Prospectus, and the Prospectus will so state.
Unless Owner agrees in advance, the Prospectus will not include any Trade Names,
Trademarks or proprietary marks of Owner or Owner's Affiliates. Manager shall
indemnify, defend and hold Owner harmless from and against all loss, costs,
liability and damage (including attorneys' fees and expenses, and the cost of
Litigation), arising out of any Prospectus or the offering described therein;
and this obligation of Manager shall survive Termination of this Agreement.
11.10 Projections
Owner acknowledges that any written or oral projections, proforma, or
other similar information that has been (prior to execution of this Agreement)
or will (during the Term of this Agreement) be provided by Manager (or any
Affiliate thereof) to Owner is for information purposes only, and that Manager
and any such Affiliate do not guarantee that the Golf Club will achieve the
results set forth in any such projections, proforma, or other similar
information. Any such projections, proforma, or other similar information are
based on assumptions and estimates. Unanticipated events may occur subsequent to
the date of preparation of such projections, proforma, and other similar
information. Therefore, the actual results achieved by the Golf Club are likely
to
39
<PAGE> 44
vary from the estimates contained in any such projections, proforma, or other
similar information and such variations might be material.
11.11 Actions to be Taken Upon Termination
Upon a Termination of this Agreement, the following shall be
applicable:
A. Manager shall, within ninety (90) days after Termination of this
Agreement, prepare and deliver to Owner a final accounting statement and
supporting documentation with respect to the Golf Club, as more particularly
described in Section 4.01 hereof, along with a statement of any sums due from
Owner or Manager pursuant hereto, dated as of the date of Termination. Within
thirty (30) days of the receipt by Owner, Owner will review and confirm such
final accounting statement and the parties will make whatever cash adjustments
are necessary pursuant to such final statement. The cost of preparing such final
accounting statement shall be a Deduction, unless the Termination occurs as a
result of a Default by either party, in which case the defaulting party shall
pay such cost. Manager and Owner acknowledge that there may be certain
adjustments for which the information will not be available at the time of the
final accounting and the parties agree to readjust such amounts and make the
necessary cash adjustments when such information becomes available; provided,
however, that all accounts shall be deemed final as of the first (1st)
anniversary of the effective date of Termination.
B. Manager shall immediately release and transfer to Owner any of
Owner's funds which are held or controlled by Manager with respect to the Golf
Club with the exception of funds to be held in escrow pursuant to Sections
6.01.E and 11.11.H and otherwise in accordance herewith.
C. Manager shall deliver to Owner all books and records respecting the
Golf Club (including those from prior years), which are the property of Owner,
whether such records are prepared by Manager or at the direction or request of
Manager or any Affiliate of Manager.
D. Manager shall (to the extent permitted by law) assign to Owner or to
the new manager all operating licenses and permits for the Golf Club which have
been issued in Manager's name (including liquor and restaurant licenses, if
any); provided that if Manager has expended any of its own funds in the
acquisition of any of such licenses or permits, Owner shall reimburse Manager
therefor if it has not done so already.
E. Owner shall have the right to operate the improvements on the Site
with or without modifying the architectural design of same, notwithstanding the
fact that such design or certain features thereof may be proprietary to Manager
and/or protected by trade marks or service marks held by Manager or an
Affiliate, provided that such use shall be confined to the Site.
F. If this Agreement is terminated for any reason other than (i) a
Default by Manager or by Owner, (ii) termination pursuant to Section 2.02, 2.03
or Section 10.03, (iii) termination by Manager pursuant to Section 6.02, (iv) if
insurance proceeds actually received by Owner are insufficient to replace and/or
rebuild the Golf Club following a Total Casualty, the termination by
40
<PAGE> 45
Owner pursuant to Section 6.02, or (v) natural expiration of the Term, then
Owner shall, within ten (10) days after Manager's request therefor, pay to
Manager, as Manager's sole remedy, as compensation for Manager's lost revenue
and expenses and not as a penalty, an amount (the "Termination Fee") equal to
the product of (i) the amount of the Base Management Fee during the immediately
preceding twelve (12) months, multiplied by (ii) one (1) minus ("X" divided by
365), with "X" being the number of days between and including the date Owner
delivers notice of termination to Manager through the effective date of such
termination.
G. In the event that sufficient notice pursuant to the WARN Act cannot
be given, Owner shall cause the entity which shall succeed Manager as the
operator of the Golf Club to hire a sufficient number of the employees at the
Golf Club to avoid the occurrence, in connection with such Termination, of a
"closing" under the WARN Act.
H. Various other actions shall be taken, as described in this
Agreement, including, but not limited to, the actions described in Sections 4.05
and 6.01.E.
I. Manager shall peacefully vacate and surrender the Golf Club to
Owner.
The provisions of this Section 11.11 shall survive Termination.
11.12 Trademarks, Trade Names and Intellectual Property
A. Owner grants to Manager a non-exclusive license to use during the
Term and only in connection with the operation of the Golf Club all Golf Club
Trademarks (hereafter defined), including any statutory and common law rights
related thereto. Manager agrees that the quality of the services furnished in
connection with Manager's use of the Golf Club Trademarks shall be of a first
class nature. When using the Golf Club Trademarks, Manager shall comply with all
applicable laws pertaining to servicemarks, trademarks or tradenames, including
marking requirements. Owner shall have the right, at all reasonable times, to
inspect the premises of Manager and all goods, literature, brochures, signs,
advertising materials and other items used by Manager bearing the Golf Club
Trademarks, to determine compliance of use of the Golf Club Trademarks as
provided for herein. Manager acknowledges Owner's right, title and interest in
and to the Golf Club Trademarks and any registrations that have issued or may
issue thereon, and Manager agrees that it will not at any time do or cause to be
done any act or thing contesting or in any way impairing or tending to impair
any part of such right, title and interest. In connection with the use of the
Golf Club Trademarks, Manager shall not in any manner represent that it has any
ownership in the Golf Club Trademarks or registrations thereof, and Manager
acknowledges that any use of the Golf Club Trademarks, including all goodwill
associated therewith, shall inure solely to the benefit of Owner. Upon the
expiration or earlier termination of this Agreement, Manager will cease and
desist from all use of the Golf Club Trademarks in any way, and it will deliver
to Owner, or its duly authorized representatives, all items upon which the Golf
Club Trademarks appear. Manager will not at any time adopt or use without
Owner's prior written consent, any word, logo or mark which is likely to be
similar to or confusing with the Golf Club Trademarks. The term "Golf Club
Trademarks" shall include, without limitation,
41
<PAGE> 46
all Trademarks and Trade Names used in conjunction with the Golf Club, including
but not limited to golf course names, pro-shop names, restaurant names, lounge
names, etc., whether or not the marks contain the "Sonoma Mission Inn Golf and
Country Club" name. The right to use or authorize others to use Golf Club
Trademarks belongs exclusively to Owner and/or lessees under the Golf Club
Lease, whether or not the same are registered and regardless of the source of
the same. The provisions of this Section 11.12 shall survive Termination.
B. All Intellectual Property shall at all times be proprietary to
Owner, and shall be the exclusive property of Owner. During the Term of this
Agreement, Manager shall take all reasonable steps to ensure that the
Intellectual Property remains confidential and is not disclosed to anyone other
than Manager's employees at the Golf Club.
C. Owner shall be entitled, in case of any breach by Manager of any of
the covenants of this Section 11.12, to injunctive relief and to any other right
or remedy available at law. Section 11.12 shall survive Termination.
11.13 Trade Area Restriction
A. Neither Manager nor any of its Affiliates shall manage or operate
any resort, hotel or golf facility within a twenty (20) mile radius of the Golf
Club during the period from the Effective Date through the seventh (7th)
anniversary after the Effective Date ("Restricted Period"). In the event Manager
violates such trade area restriction during the Restricted Period, Owner may, as
a one (1) time right, terminate this Agreement within one hundred eighty (180)
days after the opening of the facility within this restricted trade area and
Manager will pay Owner a one (1) time fee of Two Hundred Fifty Thousand Dollars
($250,000). Owner and Manger agree that the Owner's damages resulting from
Manager's violation of the trade area restriction of this Section 11.13 would be
difficult, if not impossible, to determine and the foregoing fee is a fair
estimate of those damages which has been agreed to in an effort to cause the
amount of said damages to be certain.
B. Neither Manager nor any of its Affiliates shall manage or operate
any resort, hotel or golf facility within a two (2) mile radius of the Golf Club
during the Initial Term or any Renewal Terms.
11.14 Waiver
The failure of either party to insist upon a strict performance of any
of the terms or provisions of the Agreement, or to exercise any option, right or
remedy contained in this Agreement, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.
42
<PAGE> 47
11.15 Partial Invalidity
If any portion of the Agreement shall be declared invalid by order,
decree or judgment of a court, the Agreement shall be construed as if such
portion had not been so inserted except when such construction would operate as
an undue hardship on Manager or Owner or constitute a substantial deviation from
the general intent and purpose of said parties as reflected in the Agreement.
11.16 Survival
Except as otherwise specifically provided in this Agreement, the rights
and obligations of the parties herein shall not survive any Termination of this
Agreement. Any obligation of Owner to pay a Termination Fee shall survive
Termination of this Agreement.
11.17 Affiliates and Third Party Vendors
Subject to the terms and limitations contained in this Agreement,
Manager shall be entitled to contract with one or more of its Affiliates and to
enter into agreements with various non-Affiliate vendors to provide goods and/or
services to the Golf Club; provided that the prices and/or fees paid to any such
Affiliate are competitive with the prices and/or fees which may be charged by
reputable and qualified parties for similar goods and/or services. In
determining, pursuant to the foregoing, whether such prices and/or fees are
competitive, the goods and/or services which are being purchased shall be
grouped in reasonable categories, rather than being compared item by item. The
prices and/or fees paid may include overhead and the allowance of a reasonable
return to Manager and its Affiliates. Additionally, Manager acknowledges and
agrees that, with respect to any such purchases or services, Manager and its
Affiliates shall credit to Owner any allowances, credits, rebates, commissions
and discounts.
11.18 Estoppel Certificates
Each party to this Agreement shall at any time and from time to time,
upon not less than thirty (30) days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (a) certifying that this Agreement is
unmodified and in full force and effect (or if there have been modifications,
that the same, as modified, is in full force and effect and stating the
modifications); (b) stating whether or not to the best knowledge of the
certifying party (i) there is a continuing Default or Event of Default by the
non-certifying party in the performance or observance of any covenant, agreement
or condition contained in this Agreement, or (ii) there shall have occurred any
event which, with the giving of notice or passage of time or both, would become
a Default or Event of Default, and, if so, specifying each such Default or Event
of Default or occurrence of which the certifying party may have knowledge; and
(c) stating such other information as the non-certifying party may reasonably
request. Such statement shall be binding upon the certifying party and may be
relied upon by the non-certifying party and/or such third party specified by the
non-certifying party as aforesaid. In addition, upon
43
<PAGE> 48
written request after a Termination, each party agrees to execute and deliver to
the non-certifying party and to any such third party a statement certifying that
this Agreement has been terminated.
11.19 Luxury Country Club Standards
In the event of either (i) a Legal Requirement, including an order,
judgment or directive by a court or administrative body which is issued in
connection with any Litigation involving Owner, or (ii) any action taken by a
Mortgagee in connection with a Foreclosure, which in either case restricts or
prevents Manager, in a material and adverse manner, from operating the Golf Club
in accordance with Luxury Country Club Standards (including without limitation,
any restrictions on expenditures by Manager from the Operating Accounts or from
the FF&E Reserve, other than restrictions which are set forth in this
Agreement), Manager shall be entitled, at its option, to terminate this
Agreement upon sixty (60) days' written notice to Owner. The foregoing shall not
reduce or otherwise affect the rights of the parties under either Article IX or
Section 11.11.I.
11.20 Arbitration.
Any dispute between the parties the subject matter of which is subject
to arbitration hereunder shall be, at the written request of either Manager or
Owner (the "Arbitration Request"), determined by arbitration to be conducted in
the Tarrant County, Texas, and in accordance with the terms of this Section
11.20.
(a) If either Manager or Owner requests arbitration in
accordance with the terms of this Section 11.20 (as to a matter subject to
arbitration hereunder), both parties shall use their diligent good faith efforts
to agree upon and appoint, within thirty (30) days after the delivery of the
Arbitration Request (the "Outside Agreement Date"), a neutral arbitrator who is
a member in good standing of the International Society of Hospitality
Consultants ("ISHC") or, in the case of any dispute regarding financial
statements, a person with special expertise in accounting matters. The selected
neutral arbitrator shall decide the disputed matter in accordance with the terms
and provisions of this Agreement, provided, that if the terms and provisions of
this Agreement are not determinative then the terms and conditions of this
Agreement shall be interpreted and supplemented by the customs and practices of
the industry for Golf Clubs generally comparable to the Golf Club. Any decision
reached by said arbitrator shall be final and binding upon Owner and Manager.
(b) If Owner and Manager are unable to agree upon an
arbitrator who is a member of ISHC prior to the expiration of the Outside
Agreement Date, the disputed matter shall be determined by arbitration, in
accordance with the United States Arbitration Act (Title 9, U.S. Code) and under
the Commercial Rules (the "Commercial Rules") of the American Arbitration
Association ("AAA") where the arbitrator is selected in accordance with AAA
Commercial Rules from ISHC members or other persons with at least ten (10) years
experience in the hospitality industry, with particular emphasis on Golf Clubs
generally comparable to the Golf Club and who are not, at the time of the
arbitration, employed by a competing Golf Club Manager.
44
<PAGE> 49
(c) The arbitrator shall resolve all claims and defenses or
other matters in dispute in accordance with this Agreement and applicable law,
including without limitation thereto, all statutes of limitation; provided, that
the arbitrator's authority shall be limited to accepting the proposal, position
or resolution proposed by the parties, and the arbitrator shall have no
authority to fashion any remedy not submitted by the parties. Any controversy
concerning whether an issue is arbitrable shall be determined by the
arbitrator(s). Judgment upon the arbitration award may be entered in any court
having jurisdiction. The institution and maintenance of an action for judicial
relief or pursuit of provisional or ancillary remedies shall not constitute a
waiver of the right of any party, including the plaintiff, to submit the
controversy or claim to arbitration if any other party contests such action for
judicial relief.
(d) Wherever reference is made herein to selection of an
arbitrator, it shall be deemed to mean the selection of three arbitrators
whenever either party so requests within ten (10) days after the delivery of the
Arbitration Request. Each such arbitrator shall be selected in accordance with
and have the qualifications set forth in this Section 11.20. If three
arbitrators are chosen, all decisions of the board of arbitrators shall be made
by a majority of the arbitrators.
11.21 Entire Agreement
The Agreement, together with any other writings signed by the parties
expressly stated to be supplemental hereto and together with any instruments to
be executed and delivered pursuant to the Agreement, constitutes the entire
agreement between the parties and supersedes and replaces all prior agreements
and understandings and writings, and may be changed only by a writing signed by
the parties hereto.
11.22 Multiple Counterparts
This Agreement may be executed in counterparts, all of which taken
together shall constitute one document.
11.23 Guaranty. Sonoma Corporation, a Delaware corporation, shall
execute a guarantee in favor of Owner of all obligations of Manager hereunder.
ARTICLE XII
DEFINITION OF TERMS
12.01 Definition of Terms
The following terms when used in the Agreement and the Addendum
attached hereto shall have the meanings indicated:
45
<PAGE> 50
"AAA" shall have the meaning set forth in Section 11.20.
"Affiliate" shall mean, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For purposes of this definition, the term "control" (including
the terms "controlling", "controlled by" and "under common control with") of a
Person means the possession, directly or indirectly, of the power: (i) to vote
more than fifty percent (50%) of the voting stock of such Person; or (ii) to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting stock, by contract or otherwise.
"Agreed Upon FF&E Increase" shall have the meaning set forth in Section
5.02.F.
"Agreement" shall mean this Management Agreement between Owner and
Manager, including the exhibits attached hereto.
"Annual Operating Statement" shall have the meaning set forth in
Section 4.01.C.
"Arbitration Request" shall have the meaning set forth in Section
11.20.
"Available Cash Flow" shall mean an amount, with respect to each Fiscal
Year or portion thereof during the Term of this Agreement, equal to the excess,
if any, of the Operating Profit over the Owner's Priority.
"Base Management Fee" shall mean an amount payable to Manager as a
Deduction from Gross Revenues equal to two percent (2%) of Gross Revenues for
each Fiscal Year or portion thereof.
"Building Estimate" shall have the meaning ascribed to it in Section
5.03.
"Business Plan" shall have the meaning set forth in Section 4.04.
"Calendar Quarter" shall mean each of the first (1st), second (2nd),
third (3rd) and fourth (4th) quarters of each calendar year.
"Capital Budget" shall have the meaning set forth in Section 4.04.A.2.
"Capital Expenditure(s)" shall mean the expenses necessary for
non-routine, major repairs, alterations, improvements, renewals, replacements,
and additions to the Golf Club including, without limitation, to the structure,
the roof, the exterior facade and all of the mechanical, electrical, heating,
ventilating, air conditioning, plumbing or vertical transportation elements of
the Golf Club building, together with all other expenditures which are
classified as "capital expenditures" under generally-accepted accounting
principles and the Uniform System of Accounts.
46
<PAGE> 51
"Case Goods" shall mean furniture and furnishings used in the Golf
Club, including, without limitation: chairs, beds, chests, headboards, desks,
lamps, tables, television sets, mirrors, pictures, wall decorations and similar
items.
"CC&Rs" shall have the meaning ascribed to it in Section 8.04.
"Commercial Rules" shall have the meaning set forth in Section 11.20.
"Corporate Services" shall have the meaning set forth in Section 1.02.
"Deductions" shall mean the following expenses incurred by Manager in
operating the Golf Club:
1. the cost of sales, including, without limitation,
compensation, fringe benefits, payroll taxes, ERISA-related liabilities,
pension-fund withdrawal liabilities, and other costs related to employees of
Manager (or one of its Affiliates) who are working exclusively for the benefit
of the Golf Club (regardless of whether such employees are located at the Golf
Club or elsewhere); provided that the foregoing costs shall not include the
salary and other employee costs of Manager's corporate executive staff;
2. departmental expenses incurred at departments within the
Golf Club; administrative and general expenses; the cost of marketing incurred
by the Golf Club; advertising and business promotion incurred by the Golf Club;
heat, light, and power; computer line charges; and routine repairs, maintenance
and minor alterations treated as Deductions under Section 5.01;
3. the cost of Inventories and Fixed Asset Supplies consumed
in the operation of the Golf Club;
4. a reasonable reserve for uncollectible accounts receivable
as determined by Manager;
5. all costs and fees of independent professionals or other
third parties who are retained by Manager to perform services required or
permitted hereunder;
6. all costs and fees of technical consultants, professionals
and operational experts who are retained or employed by Manager and its
Affiliates for specialized services in connection with matters directly
involving the Golf Club (including, without limitation, quality assurance
inspectors, personnel providing architectural, technical or procurement services
for the Golf Club, tax consultants, and personnel providing legal services and
the cost of attendance by employees of the Golf Club at training and manpower
development programs designated by Manager;
7. the Base Management Fee;
47
<PAGE> 52
8. insurance costs and expenses as provided in Sections 6.01;
9. taxes, if any, payable by or assessed against Manager
related to this Agreement or to Manager's operation of the Golf Club (exclusive
of Manager's income taxes or franchise taxes);
10. all Impositions;
11. the amount of FF&E Reserve required to be transferred to
Owner pursuant to Section 5.02;
12. the Golf Club's share of costs and expenses (allocated on
a basis mutually acceptable to Owner and Manager) incurred in connection with
sales, advertising, promotion and marketing programs, including guest loyalty
and recognition programs, where such expenses are not deducted as departmental
expenses under paragraph 2 above or as Corporate Services pursuant to paragraph
13 below;
13. the Golf Club's share, if any, of the charges for
Corporate Services (determined in accordance with Section 1.02);
14. all costs and expenses of compliance by Manager with
applicable Legal Requirements pertaining to the operation of the Golf Club;
15. the cost and expenses incurred in connection with the
audit of the Annual Operating Statement pursuant to Section 4.02; and
16. such other costs and expenses incurred by Manager (either
at the Golf Club or elsewhere) as are specifically provided for elsewhere in
this Agreement or are otherwise reasonably necessary for the proper and
efficient operation of the Golf Club.
The term "Deductions" shall not include: (a) debt service payments
pursuant to any Mortgage on the Golf Club; (b) payments pursuant to equipment
leases or other forms of financing obtained for the FF&E located in or connected
with the Golf Club, unless Manager has previously given its written consent to
such equipment lease and/or financing; (c) rental payments pursuant to any
ground lease of the Site; or (d) depreciation on the Golf Club or any of its
contents. All of the foregoing items listed in this paragraph shall be paid by
Owner from its own funds.
"Default" shall have the meaning ascribed to it in Section 9.01.
"Deficiency" shall have the meaning set forth in Section 2.02.B.
"Deficit" shall have the meaning set forth in Section 2.02.B.
"Effective Date" shall have the meaning ascribed to it in the Preamble.
48
<PAGE> 53
"Environmental Authority" shall have the meaning ascribed to it in
Section 11.08.
"Environmental Laws" shall have the meaning ascribed to it in Section
11.08.
"Environmental Liabilities" shall have the meaning ascribed to it in
Section 11.08.
"Event of Default" shall have the meaning ascribed to it in Section
9.01.
"Excluded Transaction" shall have the meaning ascribed to it in Section
1.01.C.5.
"FF&E" shall mean furniture, furnishings, fixtures, Soft Goods, Case
Goods, signage, audio-visual equipment, kitchen appliances, golf carts,
maintenance equipment, vehicles, carpeting and equipment, including front desk
and back-of-the house computer equipment, but shall not include Fixed Asset
Supplies or Software.
"FF&E Budget" shall have the meaning ascribed to it in Section 5.02.D.
"FF&E Reserve" shall have the meaning ascribed to it in Section 5.02.A.
"Fiscal Year" shall mean the calendar year.
"Fixed Asset Supplies" shall mean items included within "Property and
Equipment" under the Uniform System of Accounts including, but not limited to,
linen, china, glassware, tableware, uniforms, and similar items, where ever
located or used at the Golf Club.
"Force Majeure" shall mean the following events, but only to the extent
the same cannot be overcome with diligence and commercially reasonable expense
by the party claiming the existence of a Force Majeure:
(a) War, invasion, rebellion, revolution, insurrection, riots,
or civil war;
(b) Acts of government in its sovereign capacity;
(c) Earthquakes, hurricanes, tidal waves, or any operation of
the forces of nature as reasonable foresight and ability on the part of the
affected party could not reasonably provide against;
(d) Unavailability of supply of construction materials;
(e) Strikes, lockouts, or other significant employee
disturbances not caused by Manager's acts; and
49
<PAGE> 54
(f) Events beyond the reasonable control of the party claiming
the existence of a Force Majeure, other than a shortage of funds, and such that
reasonable foresight and ability on the part of the affected party could not
reasonably provide against.
"Foreclosure" shall mean any exercise of the remedies available to a
Mortgagee, upon a default under the Mortgage held by such Mortgagee, which
results in a transfer of title to or possession of the Golf Club. The term
"Foreclosure" shall include, without limitation, any one or more of the
following events, if they occur in connection with a default under a Mortgage:
(i) a transfer by judicial foreclosure; (ii) a transfer by deed in lieu of
foreclosure; (iii) the appointment by a court of a receiver to assume possession
of the Golf Club; or (iv) any similar judicial or non-judicial exercise of the
remedies held by the Mortgagee.
"GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
Deflator" issued from time to time by the United States Bureau of Economic
Analysis of the Department of Commerce, or if the aforesaid GDP Deflator is not
at such time so prepared and published, any comparable index selected by Owner
and reasonably satisfactory to Manager (a "Substitute Index") then prepared and
published by an agency of the government of the United States, appropriately
adjusted for changes in the manner in which such index is prepared and/or year
upon which such index is based. Any dispute regarding the selection of the
Substitute Index or the adjustments to be made thereto shall be settled by
arbitration in accordance with Section 11.20. Except as otherwise expressly
stated herein, whenever a number or amount is required to be "adjusted by the
GDP Deflator", or similar terminology, such adjustment shall be equal to the
percentage increase or decrease in the GDP Deflator which is issued for the
month in which such adjustment is to be made (or, if the GDP Deflator for such
month is not yet publicly available, the GDP Deflator for the most recent month
for which the GDP Deflator is publicly available) as compared to the GDP
Deflator which was issued for the month in which the Effective Date occurred.
"Golf Course" shall mean all golf courses, pro-shops, the club house,
restaurants, administrative offices, parking, maintenance facilities, man-made
lakes, irrigation system, water well, tee boxes, barns, cart and other storage
facilities and other amenities and related facilities.
"Golf Club" shall mean the Site and the Golf Club together with the
following: (i) the Golf Club Improvements and all other improvements constructed
or to be constructed on the Site; (ii) all FF&E, Fixed Asset Supplies and
Inventories installed or located on the Site or in the Golf Club Improvements;
and (iii) all easements or other appurtenant rights thereto.
"Gross Revenues" shall mean all revenues and receipts of every kind
derived from operating the Golf Club and all departments and parts thereof,
including, but not limited to: income (from both cash and credit transactions)
from rental of golf course fees (including green, golf cart and driving range
fees), telephone charges, stores, offices, exhibit or sales space of every kind;
license, lease and concession fees and rentals (not including gross receipts of
licensees, lessees and concessionaires); income from vending machines; income
from parking; health club membership fees; fees from personal and sports
services; food and beverage sales; wholesale and retail sales of merchandise;
50
<PAGE> 55
service charges; and proceeds, if any, from business interruption or other loss
of income insurance; provided, however, that Gross Revenues shall not include
the following: gratuities to employees of the Golf Club; federal, state or
municipal excise, sales or use taxes or any other taxes collected directly from
patrons or guests or included as part of the sales price of any goods or
services; rental payments pursuant to any ground lease of the Site; proceeds
from the sale of FF&; interest received or accrued with respect to the funds in
the FF&E Reserve or the other operating accounts of the Golf Club; any refunds,
rebates, discounts and credits of a similar nature, given, paid or returned in
the course of obtaining Gross Revenues or components thereof; insurance proceeds
(other than proceeds from business interruption or other loss of income
insurance); condemnation proceeds (other than for a temporary taking); any
proceeds from any Sale of the Golf Club or from the refinancing of any debt
encumbering the Golf Club; the sublease or rental by Owner of the existing
multi-unit structure located on the east side of the club house on the Site to a
full-time employee of Owner (or to an independent contractor engaged by Owner to
perform services at the Golf Course), for the personal use and occupancy thereof
by such employee or independent contractor during his or her term of employment
or engagement by Owner; or charitable golf tournaments and professional
consultations conducted at the Golf Course which tournaments and consultations.
"Guest Profile Data" shall mean personal guest profiles and information
regarding guest preferences.
"Hazardous Materials" shall have the meaning ascribed to it in Section
11.08.
"Golf Club Lease" shall mean that certain Lease Agreement dated as of
October 13, 1998, as amended, between Owner and Wine Country Golf Club, Inc.
"Golf Club Lessee" shall mean Wine Country Golf Club, Inc.
"Impositions" shall have the meaning set forth in Section 7.01.
"Initial Term" shall have the meaning set forth in Section 2.01.
"Insurance Retention" shall have the meaning ascribed to it in Section
6.01.E.
"Intellectual Property" shall mean: (i) all Software; (ii) all manuals,
brochures and directives issued by Manager to its employees at the Golf Club
regarding the procedures and techniques to be used in operating the Golf Club;
and (iii) customer lists and Guest Profile Data.
"Inventories" shall mean "Inventories" as defined in the Uniform System
of Accounts, such as, but not limited to, provisions in storerooms,
refrigerators, pantries and kitchens; beverages in wine cellars and bars; other
merchandise intended for sale; fuel; mechanical supplies; stationery; and other
expensed supplies and similar items.
51
<PAGE> 56
"Legal Requirement" shall mean any federal, state or local law, code,
rule, ordinance, regulation or order of any governmental authority or agency
having jurisdiction over the business or operation of the Golf Club or the
matters which are the subject of this Agreement, including, without limitation,
the following: (i) any building, zoning or use laws, ordinances, regulations or
orders; and (ii) Environmental Laws.
"Litigation" shall mean: (i) any cause of action (including, without
limitation, bankruptcy or other debtor/creditor proceedings) commenced in a
federal, state or local court; or (ii) any claim brought before an
administrative agency or body (for example, without limitation, employment
discrimination claims).
"Luxury Country Club Standards" shall mean either (or both, as the
context requires) of the following two (2) categories of standards: (i) the
operational standards (for example, services offered to guests, quality of food
and beverages, cleanliness, staffing and employee compensation and benefits,
Corporate Services (if applicable), guest loyalty and recognition programs,
etc.); and (ii) the physical standards (for example, quality of the Golf Club
Improvements, FF&E, and Fixed Asset Supplies, frequency of FF&E replacements,
etc.); each of such standards shall be the standard which is generally
prevailing or in the process of being implemented at first-class, luxury golf or
country club facilities, including all services and facilities in connection
therewith that are customary and usual at such first-class, luxury golf or
country club facilities.
"Manager" shall have the meaning ascribed to it in the Preamble hereto
or shall mean any successor or permitted assign, as applicable.
"Minor Casualty" shall mean any fire or other casualty which results in
damage to the Golf Club and/or its contents, to the extent that the total cost
(in Manager's reasonable judgment) of repairing and/or replacing the damaged
portion of the Golf Club to the same condition as existed previously does not
exceed the dollar amount of One Million and No/00 Dollars ($1,000,000.00), said
dollar amount to be adjusted by the GDP Deflator.
"Monthly Statement" shall have the meaning set forth in Section 4.01.A.
"Mortgage" shall mean any mortgage, deed of trust, or security document
encumbering the Golf Club and/or the Site.
"Mortgagee" shall mean the holder of any Mortgage.
"Notice for Additional FF&E Reserve" shall have the meaning ascribed to
it in Section 5.02.F.
"Operating Accounts" shall have the meaning set forth in Section
4.03.A.
"Operating Budget" shall have the meaning ascribed to it in Section
4.04.A.1.
52
<PAGE> 57
"Operating Loss" shall mean a negative Operating Profit.
"Operating Profit" shall mean, with respect to any given period of
time, the excess of Gross Revenues over Deductions (each calculated in
accordance with this Agreement and the Uniform System of Accounts).
"Outside Agreement Date" shall have the meaning ascribed to it in
Section 11.20.
"Owner" shall have the meaning ascribed to it in the Preamble or shall
mean any successor or permitted assign, as applicable.
"Owner's Investment" shall mean an amount equal to (i) Seventeen
Million Five Hundred Thousand Dollars ($17,500,000.00), plus (ii) the amount of
Capital Expenditures made by Owner for the Golf Club in excess of FF&E Reserve,
plus (iii) funds permanently advanced to establish or maintain Working Capital
pursuant to Section 4.05, plus (iv) amounts funded pursuant to Section 5.02F.
For purposes of determining Owner's Priority, Owner ROI and Performance
Threshold, Owner's Investment for any Fiscal Year shall be the amount thereof as
of December 31 of said Fiscal Year. The initial Owner's Investment of
$17,500,000 set forth in clause (i) assumes that the cost to Owner of
renovations at the Golf Club that are ongoing as of the date of execution of
this Agreement ("Ongoing Renovations") will not exceed Two Million Dollars
($2,000,000) in the aggregate (of which approximately $518,000 has previously
been expended). In the event the Ongoing Renovations exceed Two Million Dollars
($2,000,000), the amount of initial Owner's Investment set forth in clause (i)
shall be increased by an amount equal to the amount by which the actual cost of
the Ongoing Renovations exceeds Two Million Dollars ($2,000,000).
"Owner's Priority" shall mean an annual amount equal to twelve percent
(12%) of Owner's Investment.
"Owner ROI" shall mean for any Fiscal Year, the Operating Profit
distributed to Owner pursuant to Section 3.02 divided by the Owner's Investment.
"Performance Threshold" shall mean an annual Owner ROI equal to or in
excess of (i) eight percent (8%) of the Owner's Investment in the first (1st)
and second (2nd) full Fiscal Year of the Term, (ii) nine percent (9%) of the
Owner's Investment for the third (3rd) and fourth (4th) full Fiscal Year, and
(iii) ten percent (10%) of the Owner's Investment for each full Fiscal Year
thereafter.
"Person" means an individual (and the heirs, executors, administrators,
or other legal representatives of an individual), a partnership, a corporation,
limited liability company, a government or any department or agency thereof, a
trustee, a trust and any unincorporated organization.
"Prime Rate" shall mean the "base rate" of interest announced from time
to time by Bankers Trust Company, New York, New York.
53
<PAGE> 58
"Prior Manager" shall have the meaning ascribed to it in Section
4.01.E.
"Prospectus" shall have the meaning set forth in Section 11.09 B.
"Quarterly Statement" shall have the meaning set forth in Section
4.01.A.
"Release" shall have the meaning ascribed to it in Section 11.08.
"Golf Club Improvements" shall have the meaning set forth in the
Recitals.
"Renewal Term" shall have the meaning ascribed to it in Section 2.01.
"Restricted Period" shall have the meaning ascribed to it in Section
11.13.
"Sale of the Golf Club" shall mean any sale, assignment, transfer or
other disposition, for value or otherwise, voluntary or involuntary, of the fee
simple title to the Site and/or the Golf Club. For purposes of this Agreement, a
Sale of the Golf Club shall also include any sale, assignment, transfer or other
disposition, for value or otherwise, voluntary or involuntary, in a single
transaction or a series of transactions, of the controlling interest in Owner.
The phrase "controlling interest", as used in the preceding sentence, shall mean
either: (x) the right to exercise, directly or indirectly, more than fifty
percent (50%) of the voting rights attributable to the shares of Owner (through
ownership of such shares or by contract); or (y) the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of Owner.
"Sale Termination Notice" shall have the meaning ascribed to it in
Section 10.03.
"Short-Term Incentive Fee" shall mean an amount payable to Manager that
is equal to twenty percent (20%) of Operating Profit distributed to Owner in
excess Operating Profit required to be distributed to Owner to achieve an Owner
ROI of twelve percent (12%) per annum in any Fiscal Year (i.e., there shall be
no Short-Term Incentive Fee in any year in which Owner ROI in less than twelve
percent (12%) per annum in any Fiscal Year or portion thereof).
"Site" shall have the meaning ascribed to it in Section A of the
Recitals.
"SMC Affiliate" shall mean any Person that directly or indirectly,
controls or is under common control with Manager. For purposes of this
definition, the term "control" shall have the meaning set forth in the
definition of "Affiliate" under this Section 12.01.
"SMC System" shall mean all of the golf or country club facilities in
the United States which are operated by Manager (or an SMC Affiliate).
"Soft Goods" shall mean all fabric, textile and flexible plastic
products (not including items which are classified as "Fixed Asset Supplies"
under the Uniform System of Accounts) which are used
54
<PAGE> 59
in furnishing the Golf Club, including, without limitation: carpeting, drapes,
bedspreads, wall and floor coverings, mats, shower curtains and similar items.
"Software" shall mean all computer software and accompanying
documentation (including all future upgrades, enhancements, additions,
substitutions and modifications thereof), other than computer software which is
commercially available, which are used by Manager in connection with the
property management system, the reservation system and all future electronic
systems developed or designated by Manager for use in the Golf Club.
"Sonoma Golf Club Trademarks" shall have the meaning ascribed in
Section 11.12.
"Special Capital Expenditures" shall mean certain routine, non-major
expenditures which are classified as "capital expenditures" under
generally-accepted accounting principles, but which will be funded from the FF&E
Reserve (pursuant to Section 5.02), rather than pursuant to the provisions of
Section 5.03. Special Capital Expenditures consist of the following types of
expenditures: exterior and interior repainting (other than routine "touch-up"
and repairs); resurfacing building walls and floors (other than routine
"touch-up" and repairs); resurfacing parking areas (other than routine
"touch-up" and repairs); replacing folding walls; and miscellaneous similar
expenditures, to the extent the same do not constitute ordinary repair and
maintenance.
"Subordination Agreement" shall have the meaning ascribed to it in
Section 8.03.
"Subsequent Owners" shall have the meaning ascribed to it in Section
8.03.
"Term" shall have the meaning ascribed to it in Section 2.01.
"Termination" shall mean the expiration or sooner cessation of this
Agreement.
"Termination Fee" shall have the meaning set forth in Section 11.11.F.
"Termination of Performance Hurdles" shall have the meaning ascribed to
it in Section 5.02.
"Total Casualty" shall mean any fire or other casualty which results in
damage to the Golf Club and its contents to the extent that the total cost of
repairing and/or replacing the damaged portion of the Golf Club to the same
condition as existed previously would be thirty percent (30%) or more of the
then total replacement cost of the Golf Club.
"Trade Names" shall mean any name, whether informal (such as a
fictitious name or d/b/a) or formal (such as the full legal name of a
corporation or partnership) which is used to identify an entity.
55
<PAGE> 60
"Trademark" shall mean any word, name, device, symbol, logo, design,
brand, servicemark, other distinctive feature or any combination of the
foregoing which is used to identify or symbolize a party's goods and/or services
and to distinguish them from the goods and/or services of others.
"Uniform System of Accounts" shall mean the Uniform System of Accounts
for the Lodging Industry, Ninth Revised Edition, 1996, as published by the
American Golf Club & Motel Association, and any successor thereto.
"Varma" shall have the meaning ascribed to it in Section 2.03.
"Working Capital" shall mean funds that are used in the day-to-day
operation of the business of the Golf Club, including, without limitation,
amounts sufficient for the maintenance of change and petty cash funds, amounts
deposited in operating bank accounts, receivables, amounts deposited in payroll
accounts, prepaid expenses and funds required to maintain Inventories, less
accounts payable and accrued current liabilities.
"WARN Act" shall mean the Worker Adjustment and Retraining Notification
Act, 29 U.S.C. 2101 et seq.
[SIGNATURES ON FOLLOWING PAGES]
56
<PAGE> 61
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
OWNER:
CRESCENT REAL ESTATE FUNDING VIII, L.P.,
a Delaware limited partnership
By: CRE Management VIII, LLC,
a Delaware limited liability company,
its general partner
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation,
its manager
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
MANAGER:
SONOMA MANAGEMENT CORP. I,
a Delaware corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
57
<PAGE> 62
JOINDER BY GOLF CLUB LESSEE
Wine Country Golf Club, Inc., referred to in this Agreement as the
"Golf Club Lessee," hereby executes this Agreement to evidence that Golf Club
Lessee hereby (i) assumes and agrees to perform all of Owner's obligations under
this Agreement during the term of the Golf Club Lease, and (ii) accepts the
assignment by Owner to Golf Club Lessee of all of Owner's interest in this
Agreement during the term of the Golf Club Lease.
GOLF CLUB LESSEE:
WINE COUNTRY GOLF CLUB, INC.
a Texas corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
58
<PAGE> 63
EXHIBIT A
LEGAL DESCRIPTION OF THE SITE
<PAGE> 64
EXHIBIT B
MEMORANDUM OF MANAGEMENT AGREEMENT
This Memorandum of Management Agreement (the "Memorandum") is made and
entered into as of this ____ day of ________, by ______________ and between
Crescent Real Estate Funding VIII, L.P., a Delaware limited partnership
("Owner"), with a mailing address at 777 Main Street, Suite 2100, Fort Worth,
Texas 76102 and Sonoma Management Corp. I, a Delaware corporation ("Manager"),
with a mailing address at c/o Sanjay Varma, 306 W. 7th St., Fort Worth, Texas
76102.
W I T N E S S E T H:
Owner and Manager have entered into that certain Management Agreement
effective as of __________________, 2000 (herein, the "Management Agreement")
with respect to the operation of a Golf Club on the premises located in Sonoma
County, California as more particularly described in Exhibit "A" attached hereto
(the "Site").
The Management Agreement is in effect. The term of the Management
Agreement expires on __________________. Subject to certain conditions, the term
may thereafter be renewed by Manager, for two (2) successive periods of ten (10)
Fiscal Years each.
The Management Agreement contains terms and restrictions relating to
financing of the Golf Club. The Management Agreement also contains terms and
conditions relating to Owner's sale of the Golf Club or the Site.
This Memorandum is not intended to alter or modify in any way the terms
and conditions of the Management Agreement. Terms not specifically defined in
this Memorandum are defined in the Management Agreement.
IN WITNESS WHEREOF, Owner and Manager have caused this Memorandum to be
executed under seal by their duly authorized representatives as of the day first
above written, for the purpose of providing an instrument for recording giving
notice of the Management Agreement and certain of the terms and conditions
thereto.
<PAGE> 65
OWNER:
CRESCENT REAL ESTATE FUNDING VIII, L.P.,
a Delaware limited partnership
By: CRE Management VIII, LLC,
a Delaware limited liability company,
its general partner
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation,
its manager
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
MANAGER:
SONOMA MANAGEMENT CORP. I,
a Delaware corporation
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
<PAGE> 66
ACKNOWLEDGMENT
STATE OF )
----------------- ) ss.
COUNTY OF )
----------------
On the ___ day of ___________, 2000, before me, the undersigned, a
Notary Public, in and for the State of ________, personally appeared
___________________________, who acknowledged himself to be the
____________________ of Crescent Real Estate Equities, Ltd., a Delaware
corporation, and the manager of Crescent Real Estate Funding VIII, L.P., a
Delaware limited partnership, in its capacity as general partner of Crescent
Real Estate Funding VIII, L.P., and that he, as such officer, being authorized
to do so, executed the foregoing instrument for the purposes therein contained,
and on behalf of said corporation and limited partnership.
In witness whereof, I hereunto set my hand and official seal.
- ------------------------------
Notary Public
My commission expires:
- ------------------------------
ACKNOWLEDGMENT
STATE OF )
----------------- ) ss.
COUNTY OF )
----------------
On the ___ day of ___________, 2000, before me, the undersigned, a
Notary Public, in and for the State of ________, personally appeared
___________________________, who acknowledged himself to be the
____________________ of Sonoma Management Corp. I, a Delaware corporation, and
that he, as such ___________, being authorized to do so, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as ____________.
In witness whereof, I hereunto set my hand and official seal.
- ------------------------------
Notary Public
My commission expires:
- ------------------------------
<PAGE> 67
EXHIBIT "A" TO
MEMORANDUM OF MANAGEMENT AGREEMENT
Legal Description
<PAGE> 1
EXHIBIT 10.109
MANAGEMENT AGREEMENT
(SONOMA MISSION INN AND SPA)
by and between
SONOMA MANAGEMENT CORP. I
(as "MANAGER")
and
CRESCENT REAL ESTATE FUNDING VIII, L.P.
(as "OWNER")
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
MANAGEMENT OF THE RESORT ...................................................... 1
1.01 Management Responsibilities .......................................... 1
1.02 Corporate Services ................................................... 6
1.03 Employees ............................................................ 6
1.04 Owner's Right to Inspect ............................................. 6
1.05 Owner's Right to Reserve Rooms and Facilities; Owner's Perquisites ... 7
ARTICLE II
TERM .......................................................................... 7
2.01 Term ................................................................. 7
2.02 Performance Termination .............................................. 8
2.03 Termination Rights for Cessation of Involvement by Varma ............. 9
ARTICLE III
COMPENSATION OF MANAGER ....................................................... 10
3.01 Management Fees ...................................................... 10
3.02 Operating Profit ..................................................... 10
ARTICLE IV
ACCOUNTING MATTERS ............................................................ 10
4.01 Accounting, Distributions and Annual Reconciliation .................. 10
4.02 Books and Records .................................................... 12
4.03 Accounts, Expenditures ............................................... 13
4.04 Business Plan ........................................................ 13
4.05 Working Capital ...................................................... 15
4.06 Fixed Asset Supplies ................................................. 15
ARTICLE V
REPAIRS, MAINTENANCE AND REPLACEMENTS ......................................... 16
5.01 Repairs and Maintenance Costs Which Are Expensed ..................... 16
5.02 FF&E Reserve ......................................................... 16
5.03 Capital Expenditures ................................................. 18
5.04 Ownership of Replacements ............................................ 19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI
INSURANCE, DAMAGE AND CONDEMNATION ............................................ 19
6.01 Insurance ............................................................ 19
6.02 Damage and Repair .................................................... 22
6.03 Condemnation ......................................................... 23
ARTICLE VII
TAXES ......................................................................... 24
7.01 Real Estate and Personal Property Taxes .............................. 24
ARTICLE VIII
OWNERSHIP OF THE RESORT ....................................................... 25
8.01 Ownership of the Resort .............................................. 25
8.02 Mortgages ............................................................ 26
8.03 Subordination Agreement .............................................. 26
8.04 No Covenants, Conditions or Restrictions ............................. 27
8.05 Liens; Credit ........................................................ 28
8.06 Amendments Requested by Mortgagee .................................... 29
ARTICLE IX
DEFAULTS ...................................................................... 29
9.01 Events of Default .................................................... 29
9.02 Remedies ............................................................. 30
9.03 Additional Remedies .................................................. 31
ARTICLE X
ASSIGNMENT AND SALE ........................................................... 31
10.01 Assignment ........................................................... 31
10.02 Sale of the Resort ................................................... 32
10.03 Termination on Sale of Resort ........................................ 32
ARTICLE XI
MISCELLANEOUS ................................................................. 33
11.01 Right to Make Agreement .............................................. 33
11.02 Consents and Cooperation ............................................. 33
11.03 Relationship ......................................................... 33
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
11.04 Applicable Law ....................................................... 34
11.05 Recordation .......................................................... 34
11.06 Headings ............................................................. 34
11.07 Notices .............................................................. 34
11.08 Environmental Matters ................................................ 35
11.09 Confidentiality ...................................................... 37
11.10 Projections .......................................................... 38
11.11 Actions to be Taken Upon Termination ................................. 39
11.12 Trademarks, Trade Names and Intellectual Property .................... 40
11.13 Trade Area Restriction ............................................... 41
11.14 Waiver ............................................................... 42
11.15 Partial Invalidity ................................................... 42
11.16 Survival ............................................................. 42
11.17 Affiliates and Third Party Vendors ................................... 42
11.18 Estoppel Certificates ................................................ 42
11.19 Luxury Spa Resort Standards .......................................... 43
11.20 Arbitration .......................................................... 43
11.21 Entire Agreement ..................................................... 44
11.22 Multiple Counterparts ................................................ 44
11.23 Guaranty ............................................................. 44
ARTICLE XII
DEFINITION OF TERMS ........................................................... 45
12.01 Definition of Terms .................................................. 45
EXHIBIT A
LEGAL DESCRIPTION OF THE SITE
EXHIBIT B
MEMORANDUM OF MANAGEMENT AGREEMENT
</TABLE>
iii
<PAGE> 5
MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is executed on February , 2000 to
be effective February 1, 2000 ("Effective Date"), by CRESCENT REAL ESTATE
FUNDING VIII, L.P. ("Owner"), a Delaware limited partnership, with a mailing
address at 777 Main Street, Suite 2100, Fort Worth, TX 76102, and SONOMA
MANAGEMENT CORP. I ("Manager"), a Delaware corporation, with a mailing address
at 306 W. 7th Street, Fort Worth, Texas 76102.
R E C I T A L S :
A. Owner is the owner of fee title to the real property (the "Site")
described on Exhibit A attached to this Agreement and incorporated herein. The
Site is improved with the Hotel (collectively, the "Resort Improvements"). The
Site and the Resort Improvements, in addition to certain other rights,
improvements, and personal property as more particularly described in the
definition of "Resort" in Section 12.01 hereof, are collectively referred to as
the "Resort".
B. All capitalized terms used in this Agreement shall have the meaning set
forth in Article XII hereof or otherwise defined herein.
C. Owner desires to engage Manager to manage and operate the Resort and
Manager desires to accept such engagement upon the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement and other good and valuable consideration, the receipt of which is
hereby acknowledged, Owner and Manager agree as follows:
ARTICLE I
MANAGEMENT OF THE RESORT
1.01 Management Responsibilities
A. Beginning with the Effective Date, Manager shall, and Owner hereby
authorizes and engages Manager to, supervise, direct and control the management
and operation of the Resort in accordance with the terms and conditions of this
Agreement. Manager agrees to operate and manage the Resort for Owner in a
commercially reasonable, business-like, prudent and professional manner, as
agent of Owner, pursuant to the requirements of this Agreement, with the
then-current Business Plan approved by Owner, and with the objective of
maximizing the long-term value of the Resort subject to Luxury Spa Resort
Standards. Manager further agrees to consult regularly (at least quarterly or as
otherwise reasonably requested by Owner) with Owner regarding the management
policies in effect at the Resort. During the Term, the Resort shall be known as
the "Sonoma Mission
1
<PAGE> 6
Inn and Spa", with such additional identification determined by Manager and
approved by Owner, which approval shall not be unreasonably withheld unless the
proposed identification conflicts with the Owner's other business names, styles
or identification, as may be necessary to provide local identification.
B. Manager shall manage the Resort in accordance with Luxury Spa Resort
Standards and shall, subject to the terms of this Agreement (including Section
1.01.C hereof), perform each of the following functions (the costs and expenses
of which shall be Deductions) with respect to the Resort:
1. Recruit, employ, train, supervise, direct and discharge the employees
at the Resort (or cause a SMC Affiliate to do so).
2. Establish prices, rates and charges for services provided in the
Resort, including Guest Room rates and spa services rates.
3. Establish and revise, as necessary, administrative policies and
procedures, including policies and procedures for the control of revenue and
expenditures, for the purchasing of supplies and services, for the control of
credit, and for the scheduling of maintenance, and verify that the foregoing
procedures are operating in a sound manner.
4. Make payments on accounts payable and handle collections of accounts
receivable using diligence and best business practices.
5. Arrange for and supervise public relations and advertising, prepare
marketing plans, and make available to the Resort the benefits of various
marketing and guest loyalty and recognition programs in use in the SMC System as
they may exist from time to time.
6. Procure all Inventories and replacement Fixed Asset Supplies.
7. Prepare and deliver interim accountings, Monthly Statements,
Quarterly Statements, annual accountings, Annual Operating Statements, Building
Estimates, FF&E Budgets, and such other information as is required by this
Agreement.
8. Plan, execute and supervise repairs, maintenance, and FF&E purchases
at the Resort.
9. Subject to the provisions of Article VI, provide, or cause to be
provided, risk management services relating to the types of insurance required
to be obtained or provided by Manager under this Agreement.
10. Operate the Resort as a luxury spa resort and in accordance with the
Luxury Spa Resort Standards applicable to luxury spa resorts.
2
<PAGE> 7
11. Apply for, obtain and keep in full force and effect, either in
Manager's name or in Owner's name, as may be required by applicable law, any and
all licenses and permits to the extent same is within the control of Manager
(or, if same is not within the control of Manager, Manager shall use due
diligence and reasonable efforts to obtain and keep same in full force and
effect).
12. Negotiate and enter into service contracts on Owner's behalf which
are necessary or desirable in the ordinary course of business in operating the
Resort, including, without limitation, contracts for provision of electricity,
gas, water, telephone and other utility services, cleaning services, security
services, vermin extermination, trash removal, elevator and boiler maintenance,
air conditioning maintenance, master television service, laundry and dry
cleaning, entertainment satellite systems and other services which Manager deems
advisable. All such service contracts shall be entered into in Owner's name, and
shall remain the responsibility of Owner upon the expiration or earlier
termination of this Agreement.
13. Establish all credit policies, and enter into agreements with credit
card companies, in connection with the Resort.
14. Subject to Section 1.01.C.7, institute and defend in the name of
Manager or Owner (or both), subject to reasonable approval by Owner, any and all
legal actions or proceedings.
15. Establish, supervise and implement a sales and marketing program for
the Resort consistent with the sales and marketing plan approved by Owner as
part of the Business Plan for the then-current year.
16. Plan, prepare, arrange and contract for all advertising, publicity
and promotional activities for the Resort, including advertising and promotional
activities in conjunction with other Resorts owned, operated or franchised by
Manager and SMC Affiliates, and all discount and complimentary policies with
respect to bona fide travel agents, tourist officials, and airline
representatives.
17. Engage such persons, subject to reasonable prior approval by Owner,
for providing services of a specialist nature (such as legal counsel and
independent accountants) related to matters within Manager's responsibility
under this Agreement.
18. Lease to third parties approved by Owner the food and beverage,
banquet and room service facilities.
19. Do any and all other acts and things as Manager may reasonably deem
necessary and appropriate to carry out its responsibilities under the terms of
this Agreement.
3
<PAGE> 8
In connection with the performance of the foregoing functions, Manager may
purchase goods, supplies and services from itself or any SMC Affiliate, or enter
into any other transaction with an Affiliate of Manager, so long as any such
purchase, costs or proposed transaction is on competitive market based terms
available to Owner from unaffiliated third parties for similar purchases or
transactions.
C. Limitations on Authority. Manager shall have no authority on behalf of
Owner to do any of the following without Owner's prior written approval in each
instance:
1. Borrow money, guaranty the debts of any third person, or mortgage,
pledge, grant a security interest in or otherwise encumber all or any part of
the Resort;
2. Enter into any lease for the use of any item of furnishings and
equipment or other property, except as provided for in the Business Plan;
3. Enter into any agreement, lease, license or concession agreement for
office, retail, lobby or other space at the Resort, except as provided for in
the Business Plan;
4. Incur any liabilities or obligations to third parties which are
unrelated to the performance of Manager's responsibilities under this Agreement;
5. Except for an "Excluded Transaction" and subject to the provisions of
this Agreement regarding contracts with Affiliates of Manager, Manager shall
not, without the consent of Owner, enter into any contract or other arrangement
(or series of related contracts or arrangements) if the expenditures thereunder
would, or are reasonably anticipated to, exceed One Hundred Thousand Dollars
($100,000) in the aggregate, or if the term of such contract has a term in
excess of three (3) years. For purposes hereof, the term "Excluded Transaction"
shall mean (1) any contracts subject to competitive bidding in which the lowest
bid is accepted; and (2) contracts or expenditures required in cases of
emergency or casualty, which expenditures are required to protect life and
safety, or in order to comply with legal requirements, in an amount not to
exceed One Hundred Thousand Dollars ($100,000) in any twelve-month period;
6. Settle any casualty and insurance claims which involve, or which are
reasonably estimated to involve, amounts in excess of Five Hundred Thousand
Dollars ($500,000), and any condemnation awards regardless of amount;
7. Institute or defend any legal or equitable proceedings with respect
to the Resort (including the selection of counsel) other than routine collection
Litigation involving ordinary day-to-day operations of the Resort involving
amounts in controversy of less than Fifty Thousand Dollars ($50,000); provided,
however, Manager shall inform Owner of the existence of, and keep Manager
updated as to the status of, Litigation involving the Resort involving amounts
in controversy in excess of Ten Thousand Dollars ($10,000).
4
<PAGE> 9
8. Employ any professional firm (other than legal counsel and
accountants) for more than One Hundred Thousand Dollars ($100,000) in the
aggregate except as set forth in the Business Plan, or enter into any
arrangement for the employment of any attorney or accountant (other than legal
counsel retained to collect accounts receivable of less than Fifty Thousand
Dollars ($50,000);
9. Prosecute or settle any tax claims or appeals;
10. Manager shall not provide complimentary rooms or services to any
guests, employees or other persons except for which the business purpose for the
benefit of the Resort is properly documented, and in any event, the value of
such complimentary services shall not exceed the amount allocated in the
approved Business Plan for such complimentary services;
11. Acquire on behalf of Owner any land or any interest therein;
12. Acquire any capital assets of the Resort or any interest therein;
13. Consent to any condemnation or participate in any condemnation
proceeding relating to the Resort, the Site or any portion thereof;
14. Sell, transfer or otherwise dispose of all or any portion of the
Resort except for dispositions of furnishings and equipment to the extent
expressly permitted herein, or expressly provided for in the Business Plan;
15. Perform any alterations to the Resort or any portion thereof except
to the extent Manager's performance of any such alteration shall be expressly
provided for in the Business Plan;
16. Enter into new programs and services offered to the Resort by
Manager or an SMC Affiliate that were not included in the Business Plan approved
by Owner, such approval not to be unreasonably withheld. If Owner does not
approve the service or program, the matter will be determined by arbitration
pursuant to Section 11.20; or
17. Take any other action which, under the terms of this Agreement, is
prohibited or requires the approval of Owner.
D. Manager will comply with and abide by all applicable Legal Requirements
(except for certain Legal Requirements which are Owner's responsibility under
Section 5.03 hereof) pertaining to its operation of the Resort. Owner will
comply with and abide by all applicable Legal Requirements pertaining to the
Resort Improvements or to Owner's ownership interest in the Resort (including,
without limitation, Owner's obligations under Sections 5.03). Either Owner or
Manager shall have the right, but not the obligation, in its reasonable
discretion, to contest or oppose, by appropriate proceedings, any such Legal
Requirements. The reasonable expenses of
5
<PAGE> 10
any such contest of a Legal Requirement shall be paid from Gross Receipts as
Deductions; provided, however, with respect Manager, such Legal Requirements
must arise as a result of Manager's obligations hereunder (and not as a result
of managing properties generally).
1.02 Corporate Services
Commencing with the Effective Date and thereafter during the Term of this
Agreement, Manager shall cause to be furnished to the Resort certain services
(collectively referred to herein as "Corporate Services") that are furnished
generally on a central, regional or other group basis to other properties in the
SMC System and which benefit such properties; provided, however, that the
Corporate Services expense for the existing Corporate Services shall not exceed
the annual total set forth in Business Plan for the subject Fiscal Year,
approved by Owner in accordance with Section 4.04. Reservation costs will be
charged at reasonable out-of-pocket cost to Manager. The charges for Corporate
Services shall be allocated on a reasonable basis among all properties managed
by Manager and receiving such services.
1.03 Employees
All personnel employed at the Resort shall, at all times from and after the
Effective Date, be the employees of Manager or an SMC Affiliate. Manager shall
have absolute discretion with respect to all personnel employed at the Resort,
including, without limitation, decisions regarding hiring, promoting,
transferring, compensating, supervising, terminating, directing and training all
employees at the Resort, and, generally, establishing and maintaining all
policies relating to employment. Notwithstanding the foregoing, in the event the
Resort is leased by Owner, as lessor, to Sonoma Spa Resorts, L.P. or an
Affiliate thereof, or to an Affiliate of Owner, as lessee, or if Owner has not
leased the Resort, then Manager shall not hire any proposed candidate for the
position of General Manager of the Resort without the Owner's approval, which
approval may not be unreasonably withheld. In the event that a General Manager
is to be appointed (under circumstances requiring Owner's approval as set forth
in the preceding sentence) and Owner has rejected one suitably qualified and
experienced candidate proposed by Manager in Manager's reasonable judgment for
the position, Owner shall have no further approval rights with respect to any
candidate proposed by Manager for such position at such time, and Manager may in
its sole discretion hire a candidate for such position. The foregoing provisions
with respect to Owner's right to approve a General Manager shall apply in each
instance that specific position at the Resort is filled. Manager shall be
permitted to provide free accommodations and amenities to its employees and
representatives living at or visiting the Resort in connection with its
management or operation. No person shall otherwise be given gratuitous
accommodations or services without prior joint approval of Owner and Manager,
except in accordance with usual practices of the resort and travel industry.
Manager shall use its reasonable efforts to implement employment practices with
the goal of achieving continuity of management and reduction of personnel
turnover.
1.04 Owner's Right to Inspect
6
<PAGE> 11
Owner and its agents shall have access to the Resort at any and all
reasonable times for the purpose of inspection or showing the Resort to
prospective purchasers, tenants or Mortgagees.
1.05 Owner's Right to Reserve Rooms and Facilities; Owner's Perquisites
A. Notwithstanding Manager's responsibility to set room rates and occupancy
policies for the Resort, Owner shall have the right to reserve Guest Rooms or
other facilities of the Resort (including spa, banquet, reception, catering and
other services) upon a space available basis at the prevailing preferred
corporate rate then charged by the Resort upon reasonable notice to Manager.
B. In addition to the foregoing, Manager shall grant to Owner and to
individuals designated by Owner preferred rates and other perquisites at the
Resort that are at least as favorable as the rates and perquisites made
available by Manager to owners of other hotel and/or resort properties managed
by Manager or any other SMC Affiliate (which rates and perquisites shall be at
least as favorable as is typical in the industry with other first-class resort
managers, such as "Marriott" and "Hyatt").
ARTICLE II
TERM
2.01 Term
The "Term" of this Agreement shall consist of and include the "Initial
Term" and any "Renewal Term(s)". The "Initial Term" shall begin on the Effective
Date and shall continue until the expiration of the twentieth (20th) full Fiscal
Year from the Effective Date. Unless Manager is in Default hereunder, the Term
may thereafter be renewed by Manager, at its option (on the same terms and
conditions contained in this Agreement), for each of two (2) successive periods
of ten (10) Fiscal Years each (each such period a "Renewal Term"); provided,
however, Manager's option to renew shall be conditioned upon achievement of an
Owner ROI (determined solely by reference to Operating Profit [i.e., exclusive
of any "cure" payment]) of at least ten percent (10%) per annum for the two (2)
Fiscal Years immediately preceding the final Fiscal Year of the then existing
Term. For purposes of Section this 2.01, in the event Owner ROI is less than ten
percent (10%) per annum for either of the two (2) Fiscal Years immediately
preceding the final Fiscal Year of the then existing Term as a result of Force
Majeure or a major renovation of the Resort, then such Fiscal Year shall be
disregarded as one of the two (2) Fiscal Years immediately preceding the final
Fiscal Year of such Term. (For example: in Fiscals Year 17 and 19 Owner ROI is
11% for each year, in Fiscal Year 18 Owner ROI is 7% and Fiscal Year 20 is the
final Fiscal Year of the then existing Term; however, Owner ROI in Fiscal Year
18 was less than 10% as a result of a Force Majeure that occurred during Fiscal
Year 18, and such year is, thus, disregarded. As a result, Fiscal Years 18 and
19 are not two preceding Fiscal Years that would prohibit Manager from renewing
this Agreement; the two Fiscal
7
<PAGE> 12
Years considered in determining satisfaction of the renewal condition of this
Section 2.01, in this example, would be Fiscal Years 17 and 19. Because Owner
ROI exceeded 10% during Fiscal Years 17 and 19, Manager would be entitled to
renew this Agreement.)
2.02 Performance Termination
A. Subject to the provisions of Section 2.02.B. below, in the event (A) the
Owner ROI is less than the applicable Performance Thresholds with respect to any
two (2) consecutive Fiscal Years (determined without regard to any "cure"
payments, if any, made by Manager for such Fiscal Years pursuant to Section
2.02.B), and (B) the failure to meet the Performance Thresholds for two (2)
consecutive years as described in clause (A) is for reason(s) other than Force
Majeure or a major renovation of the Resort, then (i) Owner shall have the
option to terminate this Agreement and (ii) such option to terminate shall
thereafter continue (subject to the provisions of Section 2.02.D.) with respect
to any Fiscal Year in which the applicable Performance Threshold is not met. For
purposes of Section 2.02, in the event Owner ROI is less than the applicable
Performance Threshold with respect to any Fiscal Year as a result of Force
Majeure or a major renovation of the Resort, then such Fiscal Year shall be
disregarded in determining whether Owner ROI is less than the Performance
Threshold for two (2) consecutive Fiscal Years. (For example: in Fiscal Years 1,
2 and 3 the applicable Performance Threshold for Owner ROI is not met; however,
the Performance Threshold was not met in Fiscal Year 2 as a result of a major
renovation of the Resort conducted during Fiscal Year 2, and such year is, thus,
disregarded. As a result, Fiscal Years 1 and 2 are not two consecutive Fiscal
Years satisfying the precondition of Section 2.02.A; however, Fiscal Years 1 and
3 do constitute two consecutive Fiscal Years satisfying such precondition.)
B. If a condition giving Owner the right to terminate this Agreement
pursuant to this Section 2.02 has occurred (a "Deficit"), Manager shall have the
right to "cure" the Deficit (thus, eliminating Owner's right to terminate under
Section 2.02A for such Fiscal Year) by paying to Owner (on or before the
thirtieth [30th] day following delivery of the Annual Operating Statement) an
amount equal to the difference between (i) the Operating Profit actually
distributed to Owner during the Fiscal Year in question and (ii) the Operating
Profit that would have been required to be distributed to Owner during the
Fiscal Year in question to achieve the applicable Performance Threshold for
such Fiscal Year (the "Deficiency"). Nothing herein contained shall be deemed to
obligate Manager to "cure" any Deficit. Amounts paid by Manager to "cure" a
Deficit shall be paid directly to Owner and shall not be considered part of the
Gross Receipts of the Resort.
C. If Manager either fails to "cure" as above provided or has no further
right to cure, then Owner shall have the right to terminate this Agreement
effective upon not less than sixty (60) days written notice, which notice shall
be delivered to Manager within ninety (90) days after the expiration of
Manager's right to cure the Deficit. Upon the effective date of such
termination, all of the rights and obligations of the parties hereto shall
terminate (except to the extent of any survival pursuant to the terms of this
Agreement) without further act or notice of either of the parties, on the date
specified in a written notice from Owner to Manager, which date shall in no
event be sooner than the
8
<PAGE> 13
date on which there has been payment in full of any other amounts due and owing
to Manager hereunder (such payment to be made in accordance with Section 3.01)
or later than six (6) months thereafter.
D. Owner's ongoing right to terminate this Agreement set forth in Section
2.02.A. shall cease after any Fiscal Year during which the applicable
Performance Threshold is satisfied as a result of the Operating Profit
distributed to Owner (not as a result of "cure" by Manager). Thereafter, Owner's
right to terminate this Agreement set forth in Section 2.02.A. shall again be
available to Owner upon re-satisfaction of the conditions relating thereto
(i.e., a Fiscal Year in which the applicable Performance Threshold is met
through Operating Profit eliminates Owner's right to terminate under Section
2.02 until there is again a period of 2 consecutive Fiscal Years for which the
applicable Performance Thresholds are not met without "cure" payments).
2.03 Termination Rights for Cessation of Involvement by Varma .
A. Owner shall have the option to terminate this Agreement (and such option
to terminate shall thereafter continue for one (1) year after the event giving
rise to Owner's termination option under this Section 2.03.A.) in the event
Sanjay Varma ("Varma"), during the first three (3) years following the Effective
Date, either (i) commits an event of default under that certain Exclusivity
Agreement dated as of even date herewith between, among others, Varma and Owner,
or (ii) ceases (for a reason other than Varma's death, permanent disability or
incapacitation (as described in Section 2.03.B)) to be the controlling
shareholder of Manager or its parent corporation.
B. In the event either of the following occurs during the first three (3)
years following the Effective Date: Varma (i) dies, becomes permanently disabled
or incapacitated (and he shall be deemed "permanently disabled or incapacitated"
if he is unable to complete his duties for sixty (60) days in any consecutive
ninety (90) day period), or (ii) ceases to engage personally in performing
Manager's obligations under this Agreement, then Owner shall have the right to
terminate this Agreement immediately following the completion of a six (6) month
review period, without recourse by Manager, provided that Owner shall have given
notice of such termination at least sixty (60) days prior to the completion of
such review period.
C. In the event either of the following occurs after the first three (3)
years but prior to the end of seven (7) years following the Effective Date:
Varma (i) dies, becomes permanently disabled or incapacitated (as described in
Section 2.03.B), or (ii) ceases to engage personally in performing Manager's
obligations under this Agreement, then Owner shall have the right to terminate
this Agreement immediately following the completion of a twelve (12) month
review period, without recourse by Manager, provided that Owner shall have given
notice of such termination at least ninety (90) days prior to the completion of
such review period.
9
<PAGE> 14
ARTICLE III
COMPENSATION OF MANAGER
3.01 Management Fees
Manager shall be paid the sum of the following as its management fees:
A. The Base Management Fee, which shall be retained by Manager from Gross
Receipts;
B. The Short-Term Incentive Fee, which shall be retained by Manager from
Operating Profit in accordance with Sections 3.02 and 4.01.
3.02 Operating Profit
A. Operating Profit shall be distributed to Owner and to Manager in the
following order of priority:
1. an amount equal to Owner's Priority shall be paid to Owner;
2. if Manager is entitled to same, the Short-Term Incentive Fee shall be
paid to Manager; and
3. any remaining balance of Operating Profit shall be paid to Owner.
B. To the extent of available Operating Profit with respect to each
Calendar Quarter, Manager shall distribute (within twenty (20) days after the
end of each Calendar Quarter) a prorated portion of the Owner's Priority to
Owner each such Calendar Quarter, and shall be entitled to retain a prorated
portion of the Short-Term Incentive Fee for each such Calendar Quarter based on
its good faith estimate of the Short-Term Incentive Fee for the full Fiscal
Year.
C. All distributions to Owner shall be made concurrently with the delivery
of Manager's Quarterly Statement.
ARTICLE IV
ACCOUNTING MATTERS
4.01 Accounting, Distributions and Annual Reconciliation
A. Within twenty (20) days after the close of each calendar month, Manager
shall deliver to Owner an interim accounting profit and loss statement showing
Gross Receipts, Deductions, Operating Profit, and applications and distributions
thereof for the preceding calendar month and on
10
<PAGE> 15
a year-to-date cumulative basis, and within thirty (30) days after the close of
each calendar month, Manager shall deliver to Owner a balance sheet for the
Resort as of the end of the preceding month (collectively, the "Monthly
Statement"). Within twenty (20) days after the close of each Calendar Quarter,
Manager shall deliver to Owner an interim quarterly accounting profit and Loss
statement showing Gross Receipts, Deductions, Operating Profit, and applications
and distributions thereof for the preceding Calendar Quarter and on a
year-to-date cumulative basis for such Fiscal Year, and within thirty (30) days
after the close of each Calendar Quarter, Manager shall deliver to Owner a
balance sheet for the Resort as of the end of the preceding Calendar Quarter
(collectively, the "Quarterly Statement"). The Monthly Statements and Quarterly
Statements shall be certified by the controller of the Resort. Manager shall
transfer to Owner, with each Quarterly Statement, any interim amounts due Owner,
subject to Working Capital needs, and shall retain any interim amounts due
Manager. With each Monthly Statement and Quarterly Statement, Manager shall
provide to Owner Manager's most current estimate of Gross Receipts for the
remaining months in the Fiscal Year. With the Quarterly Statement, Manager shall
provide to Owner Manager's variance report, segmentation analysis, group
activity report and competition survey for each period, together with a period
status report regarding uncompleted capital projects and such other information
as reasonably requested by Owner.
B. Within one hundred twenty (120) days after the end of each Fiscal Year,
Manager shall deliver to Owner annual operating statements for the business of
the Resort, a balance sheet as of the end of such year, and related statements
of income and retained earnings and changes in financial position for the Resort
for such Fiscal Year audited by an independent certified public accounting firm
selected by Owner. The reasonable and customary costs of such audit shall be
included as a Deduction.
C. Calculations and payments of the Short-Term Incentive Fee, the Base
Management Fee, and distributions of Operating Profit made with respect to each
Calendar Quarter within a Fiscal Year shall be accounted for cumulatively.
Within sixty (60) days after the end of each Fiscal Year, Manager shall deliver
to Owner a statement (the "Annual Operating Statement") in reasonable detail
summarizing the operations of the Resort for the immediately preceding Fiscal
Year and a certificate of Manager's chief accounting officer certifying that, to
the best of his or her knowledge, such Annual Operating Statement is true and
correct. Without limiting the foregoing, the Annual Operating Statement shall
provide detail with respect to Gross Receipts attributable to Hotel Receipts and
Food & Beverage Receipts. The parties shall, within five (5) business days after
Owner's receipt of such Annual Operating Statement, make any adjustments, by
cash payment, in the amounts paid or retained for such Fiscal Year as are needed
because of the final figures set forth in such Annual Operating Statement. Such
Annual Operating Statement shall be controlling over the preceding Monthly or
Quarterly Statements. No adjustments shall be made for any Operating Loss in any
preceding Fiscal Year.
D. To the extent there is a Working Capital deficiency for any Calendar
Quarter, Manager shall advise Owner not less than thirty (30) days in advance of
the additional funds to be provided by Owner. If Owner does not so fund such
Working Capital deficit within the thirty
11
<PAGE> 16
(30) day time period, Manager shall have the right (without affecting Manager's
other remedies under this Agreement) to withdraw an amount equal to such deficit
from future distributions of funds otherwise due to Owner.
E. As between Owner and Manager in connection with this Agreement, neither
Owner nor Manager shall assume any liabilities which accrued (or would stem
solely from events which occurred) prior to the Effective Date. Owner shall
indemnify, defend, and hold Manager harmless from and against all claims,
Litigation and damages arising from the acts or omissions of any Person
performing management functions on behalf of Owner at or for the Resort prior to
the Effective Date ("Prior Manager"); provided, however, Manager shall not be
entitled to the rights and benefits of this sentence in the event both (i) such
claims, Litigation or damages arise from the acts or omissions of Varma,
individually or in a representative capacity for a Prior Manager, and (ii) Owner
is not entitled to indemnification with respect to, or payment of, such claims,
Litigation or damages from such Prior Manager.
4.02 Books and Records
Books of control and account pertaining to operations at the Resort shall
be kept on the accrual basis and in all material respects in accordance with the
Uniform System of Accounts. All such books and records are the property of and
shall be available to Owner and its representatives at reasonable times for
examination and shall be maintained at the Resort or such other location
reasonably determined by Owner. Twice a year upon thirty (30) days prior written
notice to Manager, Owner may audit by a duly licensed independent certified
public accounting firm, examine or review the Annual Operating Statement and/or
the books, records and operations of Manager at the Resort and/or any
subtenants, concessionaires, licensees, and/or assignees relating to the Resort
as set forth in this Agreement. Owner shall complete such audit within ninety
(90) days after commencement thereof. The cost of such audit shall be a
Deduction from Gross Receipts. If Owner does not make such an audit or fails to
notify Manger in writing that Owner disputes all or some portion of the
respective Annual Operating Statement on or before ninety (90) days after
receipt by Owner of such Annual Operating Statement, then such Annual Operating
Statement shall be deemed to be conclusively accepted by Owner as being correct,
and Owner shall have no right thereafter, except in the event of fraud by
Manager, to question or examine the same. If such audit discloses that Gross
Receipts, gross operating expenses, or any other matter which is the subject of
the audit as previously reported for the period audited were inaccurate, Manager
or Owner, as the case may be, shall immediately pay to the other party any sums
disclosed by such audit as being due and owing, plus interest thereon (at the
Prime Rate plus one percent (1%) per annum). Further, if such inaccuracy was in
excess of five percent (5%) of the item so being audited, as disclosed by such
audit, Manager shall immediately pay to Owner the cost of such audit (and such
audit cost shall not be a Deduction). Any dispute concerning the correctness of
an audit shall be settled by arbitration in accordance with Section 11.20.
12
<PAGE> 17
4.03 Accounts, Expenditures
A. Manager will deposit all funds derived from operation of the Resort in
bank accounts (the "Operating Accounts") in a bank or banks, identified and
selected by Owner, subject to Manager's reasonable approval. Withdrawals from
said Operating Accounts shall be made solely by representatives of Manager whose
signatures have been authorized. Reasonable petty cash funds shall be maintained
at the Resort.
B. All payments made by Manager hereunder shall be made from the Operating
Accounts or petty cash funds. Manager shall not be required to make any advance
or payment with respect to the Resort except out of such funds, and Manager
shall not be obligated to incur any liability or obligation with respect to the
Resort. In any event, if any such liability or obligation is incurred by Manager
with respect to the Resort, Manager shall have the option to deduct such amounts
from Owner's share of Operating Profit if Owner has not fully reimbursed Manager
for said amounts within ten (10) days after Owner's receipt of notice from
Manager that said amounts are due.
C. Debts and liabilities incurred by Manager as a result of its operation
and management of the Resort pursuant to the terms hereof, whether asserted
before or after Termination, will be paid by Owner to the extent funds are not
available for that purpose from Gross Receipts. The provisions of this Section
4.03.C shall survive Termination.
4.04 Business Plan
A. Manager shall deliver to Owner for its review and written approval, at
least forty-five (45) days prior to the beginning of each Fiscal Year, a
preliminary draft of a business plan ("Business Plan") showing the following:
1. Manager's reasonable estimate (on a monthly basis) of Gross Receipts,
Deductions, departmental profits and Operating Profits, FF&E Reserve for the
upcoming Fiscal Year, itemized by line item, in a reasonable manner consistent
with the Uniform System of Accounts (once approved by Owner, the "Operating
Budget") together with the assumptions (in narrative form) utilized in preparing
the Operating Budget;
2. A budget of Manager's recommended renewals, revisions, rebuilding,
replacements, substitutions or improvements to the Resort for the Fiscal Year
which are of a capital nature under the Uniform System of Accounts (once
approved by Owner, "Capital Budget");
3. A description of the general marketing strategy which Manager intends
to implement during the Fiscal Year to optimize both short and long-term
profitability of the Resort;
4. Manager's estimate of any amounts Owner will be requested to provide
as Working Capital or to fund expenditures contemplated by the Capital Budget
during the Fiscal Year;
13
<PAGE> 18
5. A description of the status of any negotiations relating to a
collective bargaining agreement, if any, affecting Resort employees;
6. A description of the current legal status of pending or threatened
suits, actions, proceedings, inquiries, or investigations concerning the Resort;
7. An organization chart which details a management staffing plan for
the upcoming Fiscal Year;
8. To the extent not included above, a detailed estimate of all
reimbursable costs.
B. Owner shall have forty-five (45) days after the date on which it
receives the proposed Business Plan to review, approve, disapprove or change the
entries appearing in the proposed Business Plan (other than the proposed Capital
Budget, which is addressed below). If Owner shall disapprove the proposed
Business Plan or any portion thereof, Owner shall specify with particularity the
reasons for its disapproval and Manager shall, after consultation with Owner,
submit to Owner a new proposed Business Plan or appropriate portion thereof
within fifteen (15) days after the date of Owner's disapproval. Any further
disagreement as to the Business Plan shall be determined pursuant to arbitration
in accordance with Section 11.20. The foregoing procedure shall be followed
until the proposed Business Plan is fully approved by Owner. Until such time as
the new proposed Operating Budget is approved by Owner, the portion approved, if
any, shall become effective and the Operating Budget for the previous Fiscal
Year, if available, with such changes as Owner may designate, shall remain in
effect with respect to the portion of the proposed Operating Budget disapproved
by Owner. In conjunction with the preparation and approval of the Business Plan,
Owner and Manager shall cooperate to establish an approved Business Plan that is
appropriate for the required standard of operations of the Resort and for the
Resort's level of occupancy and consistent with the primary and overriding
objective of maximizing the present value of Owner's cash flow from the Resort.
C. Manager shall use its best efforts to limit the costs and expenses
incurred by or on behalf of Owner to those included within the approved
Operating and Capital Budgets. Manager shall provide Owner with a report with
respect to each Calendar Quarter of each Fiscal year summarizing year-to-date
performance and providing a forecast for the remainder of the Fiscal Year.
Manager may submit for Owner's approval a proposed revision of the Operating or
Capital Budget for any Fiscal Year if Manager determines during the course of
such Fiscal Year that any changes are in the best interests of the Resort
operations and, upon Owner's approval thereof, the revised Operating or Capital
Budget shall be substituted for the applicable prior budget for the current
Fiscal Year.
D. Manager shall notify Owner whenever, during the course of a Fiscal Year,
Manager anticipates or becomes aware that the actual costs and expenses shall
exceed an amount equal to 1.05 times the budgeted amounts of costs and expenses
with respect to each departmental expense category, each undistributed expense
category, or any separate project identified in the approved
14
<PAGE> 19
Capital Budget, and shall provide Owner, in each instance, with a written
explanation of the reasons therefor.
E. Representatives of Manager, including without limitation appropriate
corporate executives, shall meet with representatives of Owner on a quarterly
basis to review the results of operations for the prior period and forecasts of
operations for the Resort.
F. Manager shall diligently operate the Resort in accordance with the
Business Plan. It is understood, however, that the Business Plan is an estimate
only and that unforeseen circumstances such as the costs of labor, material,
services and supplies, casualty, operation of law, or economic and market
conditions, may make adherence to the Business Plan impracticable, and Manager
shall be entitled to depart therefrom due to causes of the foregoing nature.
4.05 Working Capital
A. Owner shall, from time to time during the Term, promptly, but no later
than sixty (60) days after written request by Manager, advance any additional
funds, over and above those required pursuant to this Agreement, necessary to
maintain Working Capital at levels determined by Manager to be reasonably
necessary to satisfy the needs of the Resort as its operation may from time to
time require. Funds permanently advanced to establish or maintain adequate
Working Capital will be included in Owner's Investment and Owner's Priority
computation. If Owner does not so fund additional Working Capital within the
said sixty (60) day time period, Manager shall have the right (without affecting
Manager's other remedies under this Agreement) to (i) withdraw an amount equal
to the funds requested by Manager for additional Working Capital from future
distributions of funds otherwise due to Owner or (ii) Manager may terminate this
Agreement upon ninety (90) days prior written notice, provided that such notice
is given within ninety (90) days after delivery of Manager's written request for
additional funds. Upon Termination, Manager shall, except as otherwise provided
in this Agreement, return the outstanding balance of the Working Capital to
Owner.
B. Manager shall cooperate with Owner and Hotel Lessee in determining the
balance of Working Capital upon the termination of the Hotel Lease.
4.06 Fixed Asset Supplies
It is anticipated that funding of initial Fixed Asset Supplies for the
Resort shall be included in the initial Working Capital funded in accordance
with Section 4.05. Owner shall, within thirty (30) days after request by
Manager, provide funds from Gross Receipts that are necessary to increase the
level of Fixed Asset Supplies to levels determined by Manager, in its good faith
judgment, to be necessary to satisfy the needs of the Resort as its operation
may, from time to time, require. Fixed Asset Supplies shall remain the property
of Owner throughout the term of the Agreement and upon Termination (except for
those Fixed Asset Supplies which are purchased by Manager pursuant to Section
11.11.E).
15
<PAGE> 20
ARTICLE V
REPAIRS, MAINTENANCE AND REPLACEMENTS
5.01 Repairs and Maintenance Costs Which Are Expensed
Manager shall maintain the Resort as a first-class luxury resort in good
repair and condition, and shall make or cause to be made such routine
maintenance, repairs and minor alterations as it determines are necessary for
such purposes and as may be necessary to maintain and execute preventative
maintenance schedules on all equipment used at the Resort. The phrase "routine
maintenance, repairs, and minor alterations" as used in this Section 5.01 shall
include only those which are normally expensed under generally accepted
accounting principles. The cost of such maintenance, repairs and alterations
shall be paid from Gross Receipts (and not from the FF&E Reserve) and shall be
treated as a Deduction in determining Operating Profit. Manager shall provide
Owner with an annual audit of Resort machinery, electrical equipment and life
safety equipment supervised by a senior engineer and shall oversee the
implementation of any action plans resulting thereof.
5.02 FF&E Reserve
A. Manager shall establish a book reserve account (the "FF&E Reserve") that
will reflect additions (plus accrued interest based upon rates earned by other
operating accounts maintained by the Resort) each Calendar Quarter, to cover the
cost of:
1. replacements, renewals and additions to the FF&E at the Resort; and
2. Special Capital Expenditures.
B. With each Quarterly Statement, Manager shall also submit to Owner a
detailed request for funds to cover the cost of replacements, renewals and
additions to the Resort FF&E and Special Capital Expenditures in accordance with
the FF&E Budget. Subject to the further provisions of this Agreement, Owner
shall provide such funds from the FF&E Reserve within thirty (30) days after
Manager's request.
C. During the Term, the FF&E Reserve will reflect an addition of an amount
equal to (i) four percent (4%) of Gross Receipts attributable to the Resort for
each Calendar Quarter. All amounts accounted for in the FF&E Reserve pursuant to
this Section 5.02.C shall be a Deduction from Gross Receipts.
D. Manager shall prepare an annual budget estimate (the "FF&E Budget") of
the expenditures necessary for (1) replacements, renewals and additions to the
FF&E of the Resort, and (2) Special Capital Expenditures, during the ensuing
Fiscal Year and the four (4) succeeding Fiscal Years, including anticipated
major Capital Expenditures in these four (4) years, and shall deliver the
16
<PAGE> 21
FF&E Budget to Owner for its review and written approval, at the same time as
Manager submits the preliminary business plan described in Section 4.04.A. Owner
agrees that it will approve all items necessary to maintain the Resort in
accordance with Luxury Spa Resort Standards and as required by law and, in the
event of any disapproval, Owner shall specify each item disapproved and the
reasons therefore in writing to Manager within thirty (30) days after receipt of
the FF&E Budget. The FF&E Budget shall also indicate the estimated time schedule
for making such replacements, renewals, and additions.
E. Manager shall (endeavoring in good faith to comply with the applicable
FF&E Budget) from time to time make such (1) replacements, renewals and
additions to the FF&E of the Resort, and (2) Special Capital Expenditures, as
Manager deems necessary, up to the balance in the FF&E Reserve. No expenditures
will be made in excess of said balance without the prior written approval of
Owner. At the end of each Fiscal Year, any amounts remaining in the FF&E Reserve
shall be carried forward to the next Fiscal Year. Proceeds from the sale of FF&E
no longer necessary to the operation of the Resort shall be added to the FF&E
Reserve. The FF&E Reserve will be kept on the books of Owner. Proceeds from the
disposition of FF&E shall reduce the required transfers to the FF&E Reserve set
forth in subsection B above, but shall not be included in Gross Receipts.
F. As the Resort ages, the percentage of Gross Receipts which is set forth
in Section 5.02.C may not be sufficient to keep the FF&E Reserve at the levels
necessary to make the replacements, renewals, and additions to the FF&E of the
Resort, or to make the Special Capital Expenditures, which are required to
maintain the Resort in accordance with the Luxury Spa Resort Standards. If
Manager reasonably believes (and so notifies Owner) that the funding of the FF&E
Reserve (with respect to the following Fiscal Year or any subsequent Fiscal
Year) will not be adequate to maintain the Resort in accordance with Luxury Spa
Resort Standards, Manager shall so notify Owner in writing ("Notice for
Additional FF&E Reserve"). The Notice for Additional FF&E Reserve shall set
forth, by specific categories, the amount and use of the additional funds
required for the FF&E Reserve as reasonably determined by Manager in good faith.
In the event Owner disagrees with the amount or use of funds proposed by Manager
in the Notice for Additional FF&E Reserve, Manager and Owner shall negotiate in
good faith, for a period not to exceed thirty (30) days, to reach a mutually
acceptable resolution (the agreed upon amounts and/or uses being referred to as
the "Agreed Upon FF&E Increase"). Thereafter, Owner shall elect one or the other
of the following two (2) alternatives:
1. to agree in writing to increase the annual percentage in Section
5.02.C to provide the Agreed Upon FF&E Increase; or
2. to make a lump sum contribution to the FF&E Reserve in the amount of
the Agreed Upon FF&E Increase.
The failure of the parties to agree upon an Agreed Upon FF&E Increase or
the failure or refusal by Owner either to agree in writing to Section 5.02.F.1
above, or to provide the funds
17
<PAGE> 22
required in accordance with Section 5.02.F.2 above, within sixty (60) days after
expiration of the foregoing thirty (30) day negotiation period shall result in
Termination of the Performance Hurdles (hereafter defined), but shall not be an
Event of Default by either party. Upon "Termination of the Performance Hurdles"
(i) the provisions of Section 2.02 (and references in this Agreement to such
section) shall be null, void and of no further effect, and (ii) Manager's option
to renew the Term of this Agreement as set forth in Section 2.01 shall no longer
be conditioned upon achievement of an Owner ROI of at least ten percent (10%)
per annum for the two (2) Fiscal Years immediately preceding the final Fiscal
Year of the then existing Term.
5.03 Capital Expenditures
A. Manager shall prepare an annual estimate (the "Building Estimate") of
all Capital Expenditures. Manager shall submit the Building Estimate to Owner
for its approval at the same time as Manager submits the preliminary business
plan described in Section 4.04.A. Manager shall not make any Capital
Expenditures without the prior written approval of Owner, unless specifically
permitted herein.
B. Notwithstanding the provisions of Section 5.03.A, Manager shall be
authorized to take appropriate remedial action (including making any necessary
Capital Expenditures) without receiving Owner's prior consent in the following
circumstances: (i) if there is an emergency threatening the Resort, its guests,
invitees or employees; or (ii) if the continuation of the given condition would
subject Manager and/or Owner to civil or criminal liability, and if Owner has
either failed to remedy the situation or has failed to take appropriate legal
action to stay the effectiveness of any applicable Legal Requirement, provided,
that Manager may not take any such action without first notifying Owner (or, in
the case of an emergency, using its best efforts to notify Owner). Manager shall
cooperate with Owner in the pursuit of any such action and shall have the right
to participate therein. Owner shall, upon written request by Manager, promptly
reimburse all expenditures made by Manager pursuant to this Section 5.03.B.
C. The cost of all Capital Expenditures (including the expenses incurred by
either Owner or Manager in connection with any civil or criminal proceeding
described above) shall be borne solely by Owner, and shall not be paid from
Gross Receipts nor from the FF&E Reserve.
D. Owner shall not unreasonably withhold its approval with respect to
Capital Expenditures as are: (i) required, in Manager's reasonable judgment, to
keep the Resort in a first-class, competitive, efficient and economical
operating condition in accordance with Luxury Spa Resort Standards; or (ii)
required by reason of any Legal Requirement, or otherwise required for the
continued safe and orderly operation of the Resort. It shall be an Event of
Default by Owner (and Manager shall be entitled to exercise any of the remedies
described in Article IX hereof) if Owner either (a) unreasonably withholds its
approval of any Capital Expenditure described in the preceding sentence, or (b)
fails to provide funding for any such Capital Expenditure, which was previously
approved by Owner, within sixty (60) days after the submission to Owner of the
Building Estimate requesting such Capital Expenditure.
18
<PAGE> 23
5.04 Ownership of Replacements
All repairs, alterations, improvements, renewals or replacements made
pursuant to Article V, and all amounts kept in the FF&E Reserve, shall, except
as otherwise provided in this Agreement, be the property of Owner.
ARTICLE VI
INSURANCE, DAMAGE AND CONDEMNATION
6.01 Insurance
A. Manager shall, commencing with the Effective Date and thereafter during
the Term of the Agreement, procure and maintain, with insurance companies that
have an A.M. Best Insurance Guide Rating of not less than A-VIII, a minimum of
the following insurance:
1. Property insurance on the Resort Improvements and contents against
loss or damage by fire, lightning and all other risks (including earthquake and
flood in reasonable amounts if and as determined by Owner and Manager) covered
by a "Special Form" (formerly "All Risk") policy, and an agreed amount
endorsement (or its equivalent), all in an amount not less than one hundred
percent (100%) (less excavation and foundation costs) of the replacement cost
thereof;
2. Boiler and machinery insurance against loss or damage (direct and
indirect) to boilers, pressure vessels, air conditioning systems, machinery and
electrical equipment to the extent applicable to the Resort;
3. Business income (formerly "business interruption") insurance on a
"Special Form" policy and written on an actual loss sustained basis, covering
loss of profits and necessary continuing expenses, for not less than twelve (12)
months, for interruptions caused by any occurrence covered by the insurance
referred to in Sections 6.01.A.1 and 2 of a type and in amounts as are generally
established by Manager at similar Resorts it owns, leases or manages;
4. Commercial general liability insurance, on an occurrence basis,
covering against claims for bodily injury, including death, personal and
advertising injury or property damage occurring on, in, or about the Resort,
including liquor law or "dram shop" liability (if liquor or alcoholic beverages
are served on the managed property), with a combined single limit for each
occurrence of not less than One Million Dollars ($1,000,000) and Two Million
Dollars ($2,000,000) in the aggregate;
19
<PAGE> 24
5. Business automobile liability insurance to cover all owned, hired and
nonowned automobiles owned or operated by Manager providing a minimum combined
single limit of One Million Dollars ($1,000,000);
6. Garagekeepers legal liability insurance to cover both comprehensive
and collision-type losses with a limit of liability of Two Million Dollars
($2,000,000) for any one occurrence;
7. Workers' compensation as may be required under applicable laws
covering all of Manager's employees at the Resort, and employer's liability
insurance in an amount of at least $500,000 per occurrence;
8. Umbrella liability insurance in excess of the liability coverage set
forth above in Sections 6.01.A.4, A.5 and A.7 (employers liability only) with
limits no less than One Hundred Million Dollars ($100,000,000);
9. Fidelity bonds or a blanket commercial crime policy with reasonable
limits to be determined by Manager, covering its employees in job
classifications normally bonded in other similar Resorts it leases or manages
under the name of Manager or any of its Affiliates in the United States or as
otherwise required by law to the extent Manager and Owner mutually agree it is
necessary for the Resort, which fidelity bonds or blanket commercial crime
policy shall be endorsed to include safe deposit box legal liability and
innkeeper's legal liability; and
10. Such other insurance in amounts reasonably requested by Owner after
consultation with Manager for protection against claims, liabilities and losses
arising out of or connected with the operation of the Resort.
B. All insurance described in Section 6.01.A may be obtained by Manager by
endorsement or equivalent means under its blanket insurance policies, provided
that such blanket policies substantially fulfill the requirements specified in
this Agreement.
C. The policies required under Sections 6.01.A.1 and A.2 shall be carried
in the name of Owner, all other policies required hereunder shall be carried in
the name of the Manager. The policies required under Sections 6.01.A.3, 4, 5, 6,
8 and 9 shall include the owner of the Resort and any lessee of the Resort as an
additional insured and include a waiver of subrogation in favor of the Owner.
Upon notice by the Owner, Manager shall also have the policies required under
Sections 6.01.A.1, 2, and 3 include any Mortgagee as an additional insured. Any
property losses thereunder shall be payable to the respective parties as their
interests may appear.
D. Manager shall deliver to Owner certificates of insurance with respect to
all policies so procured and, in the case of insurance policies about to expire,
shall deliver certificates with respect to the renewal thereof. All certificates
of insurance provided for under this Section 6.01 shall, to the extent
obtainable, state that the insurance shall not be canceled or materially changed
without
20
<PAGE> 25
at least thirty (30) days' prior written notice to the certificate holder. Each
insurer mentioned in this Section 6.01 shall agree, by endorsement to the policy
or policies issued to it, or by independent instrument furnished to Crescent
Real Estate Funding VIII, L.P., that it will provide Crescent Real Estate
Funding VIII, L.P. thirty (30) days written notice before the policy or policies
in question shall be materially altered, allowed to expire or canceled.
E. Insurance premiums and any other costs or expenses with respect to the
insurance required under Section 6.01.A., including any Insurance Retention (as
defined below), shall be paid from Gross Receipts as Deductions. Such premiums
and costs, if applicable, shall be allocated on an equitable basis to the
properties participating under Manager's blanket insurance. Any reserves,
losses, costs or expenses which are uninsured shall be treated as a cost of
insurance and shall be Deductions. Upon termination of this Agreement, a reserve
in an amount acceptable to Manager and Owner (as determined, in the absence of
mutual agreement, by arbitration pursuant to Section 11.20) shall be established
from Gross Receipts to cover the amount of any Insurance Retention and all other
costs which will eventually have to be paid by either Owner or Manager with
respect to pending or contingent claims, including those which arise after
termination for causes arising during the Term of the Agreement. If Gross
Receipts are insufficient to meet the requirements of such reserve, Owner shall
deliver to Manager, within ten (10) days after receipt of Manager's written
request therefor, the sums necessary to establish such reserve; and if Owner
fails to timely deliver such sums to Manager, Manager shall have the right
(without affecting Manager's other remedies under this Agreement) to withdraw
the amount of such expenses from the Operating Accounts, the Working Capital
funds or any other funds of Owner held by or under the control of Manager. For
purposes of this Section 6.01.E, "Insurance Retention" shall mean the amount of
any loss or reserve under Manager's blanket insurance which is allocated to the
Resort, not to exceed the higher of (A) the maximum per occurrence limit
established for similar Resorts participating in such programs, or (B) the
insurance policy deductible on any loss which may fall within high hazard
classifications as mandated by the insurer (e.g., earthquake, flood, windstorm
on coastal properties, etc.). If the Resort is not a participant under Manager's
blanket insurance, "Insurance Retention" shall mean the amount of any loss or
reserve allocated to the Resort, not to exceed the insurance policy deductible.
F. Owner may, at its option, by written notice to Manager which shall be
delivered no later than ninety (90) days prior to the inception of the insurance
policies required in Sections 6.01.A.1 and 2, procure and maintain the insurance
specified in Section, 6.01.A.1 and 2, subject to the following terms and
conditions:
1. All such policies of insurance shall be carried in the name of Owner,
with Manager as an additional insured. Any property losses thereunder shall be
payable to the respective parties as their interests may appear. The
documentation with respect to each secured loan shall contain provisions to the
effect that proceeds of the insurance policies required to be carried under
Sections 6.01.A.1 and 2 shall be available for repair and restoration of the
Resort, to the extent required pursuant to Section 6.01.C. However, any holder
of such secured loan shall be entitled to impose reasonable conditions on the
disbursement of insurance proceeds for the repair and/or restoration of the
Resort, including a demonstration by Owner and/or Manager that the amount
21
<PAGE> 26
of such proceeds (together with other funds Owner agrees to make available) is
sufficient for such purpose.
2. Owner shall deliver to Manager certificates of insurance with respect
to all policies so procured and, in the case of insurance policies about to
expire, shall deliver certificates with respect to the renewal thereof.
3. All such certificates of insurance shall, to the extent obtainable,
state that the insurance shall not be canceled or materially changed without at
least thirty (30) days' prior written notice to the certificate holder.
4. To the extent the premiums for such insurance coverage shall exceed
the premiums for such insurance under Manager's policies, such excess shall not
be treated as a Deduction.
5. Should the Resort meet the insurability criteria of Manager and Owner
nevertheless exercises its right to obtain the insurance described in this
Section 6.01.F, Owner acknowledges that Manager is under no obligation to
thereafter include the Resort in its blanket insurance program (with respect to
the coverage described in Sections 6.01.A.1, 2 and 3) for the balance of the
Term of this Agreement. However, upon a Sale of the Resort, a successor Owner
shall have the right, notwithstanding the fact that the previous Owner may have
obtained insurance in accordance with this Section 6.01.F, to have the Resort
included in Manager's blanket insurance program (provided that the Resort, as of
that point in time, satisfies the applicable criteria for admission to such
program, as established by the program's insurance carriers) by making a written
request to Manager for such inclusion not later than thirty (30) days after the
date on which such party becomes the Owner.
6. All insurance procured by Owner hereunder shall be obtained from
reputable insurance companies authorized to issue insurance in the State of
California and reasonably acceptable to Manager.
G. Increase in Limits. If Owner at any time deems the limits of the
personal injury or property damage under the comprehensive public liability
insurance then carried to be either excessive or insufficient, Manager and Owner
shall endeavor in good faith to agree on the proper and reasonable limits for
such insurance to be carried and such insurance shall thereafter be carried with
the limits thus agreed on until further change pursuant to the provisions of
this Section.
6.02 Damage and Repair
A. If, during the Term, the Resort is damaged by a Minor Casualty, Manager
shall, with commercially reasonable diligence, proceed to process the claim with
the applicable insurance carriers, including settling such claim, and to make
the necessary arrangements with appropriate contractors and suppliers to repair
and/or replace the damaged portion of the Resort. Owner's
22
<PAGE> 27
consent shall not be needed for Manager to perform any of the foregoing, all of
which shall be performed in accordance with Manager's reasonable judgment. Owner
agrees to sign promptly any documents which are reasonably necessary to process
and/or adjust the claim with the insurance carriers, as well as any contracts
with such contractors and/or suppliers.
B. If, during the Term, the Resort suffers a Total Casualty, this Agreement
shall be terminable at the option of either party upon ninety (90) days' written
notice to the other party. Such notice must be sent within thirty (30) days
after the date of the Total Casualty. In the event that (i) insurance proceeds
actually received by Owner are sufficient to replace and/or rebuild the Resort,
and (ii) Owner so elects to terminate this Agreement (notwithstanding receipt of
insurance proceeds sufficient to replace and/or rebuild the Resort), then Owner
will pay to Manager the Termination Fee, such payment to be made on or before
the ninetieth (90th) day after the date on which Owner notifies Manager of its
election to terminate this Agreement.
C. If, during the Term, the Resort is damaged by fire, casualty or other
cause to a greater extent than a Minor Casualty, but not to the extent of a
Total Casualty, or if the Resort suffers a Total Casualty but neither party
elects to terminate under Section 6.02.B, Owner shall, at its cost and expense
and with all reasonable diligence, repair and/or replace the damaged portion of
the Resort to the same condition as existed previously. Manager shall have the
right to discontinue operating the Resort to the extent it deems necessary to
comply with applicable Legal Requirements or as necessary for the safe and
orderly operation of the Resort. To the extent available, proceeds from the
insurance described in Section 6.01 of this Agreement shall be applied to such
repairs and/or replacements. If Owner does not elect to terminate this Agreement
under Section 6.02.B and fails to promptly commence the repairing and/or
replacement of the Resort so that it shall be substantially the same as it was
prior to such damage or destruction, such failure shall be an Event of Default
by Owner.
6.03 Condemnation
A. In the event all or substantially all of the Resort shall be taken in
any eminent domain, condemnation, compulsory acquisition, or similar proceeding
by any competent authority for any public or quasi-public use or purpose, or in
the event a portion of the Resort shall be so taken, but the result is that it
is unreasonable to continue to operate the Resort in accordance with the
standards required by this Agreement, this Agreement shall terminate. Owner and
Manager shall each have the right to initiate such proceedings as they deem
advisable to recover any compensation to which they may be entitled.
B. In the event a portion of the Resort shall be taken by the events
described in Section 6.03.A, or the entire Resort is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate the
Resort, this Agreement shall not terminate. However, so much of any award for
any such partial taking or condemnation as shall be necessary to render the
Resort equivalent to its condition prior to such event shall be used for such
purpose; and
23
<PAGE> 28
Manager shall have the right to discontinue operating the Resort to the extent
it deems necessary for the safe and orderly operation of the Resort.
ARTICLE VII
TAXES
7.01 Real Estate and Personal Property Taxes
A. Except as specifically set forth in subsection B below, all real estate
and personal property taxes, levies, assessments and similar charges on or
relating to the Resort ("Impositions") during the Term shall be paid by Manager
from Gross Receipts, before any fine, penalty, or interest is added thereto or
lien placed upon the Resort or upon the Agreement, unless payment thereof is in
good faith being contested and enforcement thereof is stayed. Any such payments
shall be Deductions in determining Operating Profit. Owner shall, within ten
(10) business days after receipt, furnish Manager with copies of official tax
bills and assessments which it may receive with respect to the Resort. Either
Owner or Manager (in which case Owner agrees to sign the required applications
and otherwise cooperate with Manager in expediting the matter) may initiate
proceedings to contest any negotiations or proceedings with respect to any
Imposition, and all reasonable costs of any such contest shall be paid from
Gross Receipts and shall be a Deduction in determining Operating Profit. Manager
shall, as part of its contest or negotiation of any Imposition, be entitled, on
Owner's behalf, to waive any applicable statute of limitations in order to avoid
paying the Imposition during the pendency of any proceedings or negotiations
with applicable authorities.
B. The word "Impositions" as used in this Agreement shall not include the
following, all of which shall be paid solely by Owner, not from Gross Receipts
nor from the FF&E Reserve:
1. Any franchise, corporate, estate, inheritance, succession, capital
levy or transfer tax imposed on Owner, or any income tax imposed on any income
of Owner (including distributions to Owner pursuant to Article III hereof, but
not including any property taxes which are assessed on the basis of income or
revenues generated by the Resort);
2. Special assessments (regardless of when due or whether they are paid
as a lump sum or in installments over time) imposed because of facilities which
are constructed by or on behalf of the assessing jurisdiction (for example,
roads, sidewalks, sewers, culverts, etc.) which directly benefit the Resort
(regardless of whether or not they also benefit other buildings), which
assessments shall be treated as capital costs of construction and not as
Deductions;
3. "Impact Fees" (regardless of when due or whether they are paid as a
lump sum or in installments over time) which are required of Owner as a
condition to the issuance of site plan approval, zoning variances or building
permits, which impact fees shall be treated as capital costs of construction and
not as Deductions; or
24
<PAGE> 29
4. "Tax-increment financing" or similar financing whereby the
municipality or other taxing authority has assisted in financing the
construction of the Resort by temporarily reducing or abating normal Impositions
in return for substantially higher levels of Impositions at later dates.
ARTICLE VIII
OWNERSHIP OF THE RESORT
8.01 Ownership of the Resort
A. During the Term and any Renewals, Owner hereby covenants that it holds
good and marketable fee title to the Site and that it will have, keep, and
maintain good and marketable fee title to the Resort free and clear of any and
all liens, encumbrances or other charges (or in the event of a lease of the
Resort, the lessee holds a valid leasehold interest in the Site) except as
follows:
1. Easements or other encumbrances (other than those described in
subsections 2 and 3 hereof) that do not materially and adversely affect the
operation of the Resort by Manager and that are not prohibited pursuant to
Section 8.04 of this Agreement;
2. Liens on encumbrances related to equipment used in the operation of
the Resort;
3. Mortgages;
4. Liens for taxes, assessments, levies or other public charges not yet
due or due but not yet payable or due and payable but payment is in good faith
being contested; or
5. The Hotel Lease.
B. Owner shall pay and discharge, on or before the due date, any and all
payments due under any Mortgage that Owner has entered into with respect to the
Resort. Owner shall indemnify, defend, and hold Manager harmless from and
against all claims, Litigation and damages arising from the failure to make any
such payments as and when required; and this obligation of Owner shall survive
Termination. Manager shall have no responsibility for payment of debt service
due with respect to the Resort, from Gross Receipts or otherwise, and such
responsibility shall be solely that of Owner.
C. Owner covenants that, so long as Manager is not in Default under this
Agreement, Manager shall quietly hold, occupy and enjoy the Resort throughout
the Term hereof free from hindrance, ejection or molestation by Owner or other
party claiming under, through or by right of Owner. Owner agrees to pay and
discharge any payments and charges and, at its expense, to
25
<PAGE> 30
prosecute all appropriate actions, judicial or otherwise, necessary to assure
such free and quiet occupation.
D. Manager and Owner agree that during the Term, Owner may lease the Resort
to any Person on terms and conditions acceptable to Owner in its sole and
absolute discretion. Manager, Owner and Hotel Lessee acknowledge that the Resort
is currently leased by Owner to Hotel Lessee pursuant to the Hotel Lease, and
Hotel Lessee executes this Agreement to evidence its agreement that, until such
time as all of Owner's obligations under this Agreement have been satisfied in
full, the Hotel Lease and all terms and provisions thereof shall be subject to
and unconditionally subordinate in all respects to this Agreement (including
without limitation the respective obligations and liabilities, and the
respective rights, privileges, and powers, of Owner and Manager under this
Agreement and any renewals, extensions, modifications or assignments hereof).
During the term of the Hotel Lease, but not thereafter, Owner hereby assigns to
Hotel Lessee (an Affiliate of Crescent Operating, Inc.) all of Owner's interest
in this Agreement, and all of Owner's rights, benefits, and privileges under
this Agreement shall be vested in Hotel Lessee throughout the term of the Hotel
Lease and upon termination of the Hotel Lease, for whatever reason, shall
automatically revert to Owner without the necessity of any action on the part of
the Owner hereunder.
8.02 Mortgages
Owner shall be permitted to encumber the Resort and/or the Site with any
Mortgage.
8.03 Subordination Agreement .
A. At Owner's request, Manager shall execute an instrument ("Subordination
Agreement") reasonable satisfactory to Manager and any Mortgagee, which shall be
recordable in the jurisdiction where the Resort is located pursuant to which:
1. This Agreement and any extensions, renewal, replacements or
modifications there, and all right and interest of Manager in and to the Resort,
shall be subject and subordinate to such Mortgage; and
2. Manager shall be obligated to each of the Subsequent Owners (as
defined below) to perform all of the terms and conditions of this Agreement for
the balance of the remaining Term hereof, with the same force and effect as if
such Subsequent Owner were the Owner.
Notwithstanding the foregoing, Manager shall not be obligated to execute a
Subordination Agreement with respect to any Mortgage for which the loan-to-value
ratio, as determined by the lender under such Mortgage, exceeds seventy percent
(70%).
B. Owner shall use commercially reasonable efforts to obtain in the
Subordination Agreement the terms of this Section 8.03.B. In the event that
there is a Foreclosure of such
26
<PAGE> 31
Mortgage (or a deed in lieu of Foreclosure), or other exercise by such Mortgagee
(or its successor) of its remedies in the event of default, in connection with
which title or possession of the Resort is transferred to the Mortgagee (or its
designee) or to a purchaser at Foreclosure or to a subsequent purchaser from the
Mortgagee (or from its designee) (all of the foregoing shall collectively be
referred to as "Subsequent Owners"), Manager shall not be disturbed in its
rights under this Agreement so long as Manager is not in Default hereunder.
C. Notwithstanding the subordination of this Agreement which is described
in Section 8.03.A (or any subsequent subordination to any other Mortgage), if,
in connection with the exercise by any Mortgagee of its remedies under any
Mortgage, there is a material adverse impact upon the operation of the Resort by
Manager in accordance with the Luxury Spa Resort Standards (such as, for
example, the imposition of material restrictions upon expenditures from the FF&E
Reserve by Manager, where such restrictions are not set forth in this
Agreement), the foregoing shall be deemed to be an Event of Default by Owner
entitling Manager to all of the remedies set forth in Article IX.
8.04 No Covenants, Conditions or Restrictions
A. Owner covenants that, from and after the Effective Date and during the
Term of this Agreement, Owner shall not (unless Manager has given its prior
written consent thereto) create or cause or suffer to be caused any covenants,
conditions or restrictions, including reciprocal easement agreements or
cost-sharing arrangements (collectively referred to as "CC&Rs") affecting the
Site or the Resort (i) which would prohibit or substantially limit Manager from
operating the Resort in accordance with the Luxury Spa Resort Standards,
including related amenities proposed for the Resort; (ii) which would legally
entitle the Resort facilities (for example, parking spaces) to be used by
persons other than guests, invitees or employees of the Resort; (iii) other than
leases entered into by Owner, which would allow the Resort facilities to be used
for specified charges or rates which have not been approved by Manager; or (iv)
which would subject the Resort to exclusive arrangements regarding food and
beverage operation or retail merchandise.
B. Unless otherwise agreed by both Owner and Manager, all financial
obligations imposed on Owner or on the Resort pursuant to any CC&Rs shall be
paid by Owner from its own funds, and not from Gross Receipts or from the FF&E
Reserve. Manager's consent to any such CC&Rs shall be conditioned (among other
things) on satisfactory evidence that: (i) the CC&R in question provides a
reasonable and cost-effective benefit to the operation of the Resort; (ii) the
costs incurred (including administrative expenses) pursuant to such CC&R will be
both reasonable and allocated to the Resort on a reasonable basis; and (iii) no
capital expenditures incurred pursuant to said CC&R will be paid as a Deduction
(but rather, such capital expenditures will be paid separately by Owner).
27
<PAGE> 32
8.05 Liens; Credit
Manager and Owner shall use commercially reasonable efforts to prevent any
liens from being filed against the Resort which arise from any maintenance,
repairs, alterations, improvements, renewals or replacements in or to the
Resort, other than the lease or financing of equipment for use at the Resort.
They shall cooperate fully in obtaining the release of any such liens, and the
cost thereof, if the lien was not occasioned by the fault of either party, shall
be treated the same as the cost of the matter to which it relates. If the lien
arises as a result of the fault of either party, then the party at fault shall
bear the cost of obtaining the lien release. In no event shall either party
borrow money in the name of or pledge the credit of the other.
28
<PAGE> 33
8.06 Amendments Requested by Mortgagee
A. If requested by any Mortgagee or prospective Mortgagee, Manager agrees
to execute and deliver any amendment of this Agreement that is reasonably
required by such Mortgagee or prospective Mortgagee, provided that Manager shall
be under no obligation to amend this Agreement if the result of such amendment
would be: (i) to reduce, defer or delay the amount of any payment to be made to
Manager hereunder; (ii) to materially and adversely increase Manager's
obligations or affect Manager's rights under this Agreement; (iii) to change the
Term of this Agreement; (iv) to cause the Resort to be operated other than
pursuant to the Luxury Spa Resort Standards and other provisions hereof; or (v)
to amend Section 5.02 or Section 5.03. Any such amendment shall be in effect
only for the period of time in which such Mortgage is outstanding.
B. Notwithstanding the provisions of Section 8.06.A, if a Mortgagee or
prospective Mortgagee requests that Manager enter into an amendment of this
Agreement which would impose additional duties (for example, an increase in the
reporting requirements or in the record-keeping requirements, or adding the
obligation to prepare parallel accounting statements using a different fiscal
year) on Manager, or would otherwise adversely affect Manager's rights under
this Agreement, but not to the degree of materiality which would be prohibited
under Section 8.06.A, and with respect to which Manager believes, in its good
faith judgment, that it can be adequately compensated, Manager hereby agrees
that it will execute and deliver such requested amendment of this Agreement,
provided that Owner compensates Manager for the additional burden imposed by
such amendment that relate directly to the Resort. It is understood that the
word "burden," as used in the preceding sentence, shall encompass not only
additional work to be performed by Manager, but also the adverse effect on the
Short-Term Incentive Fee which would be caused by requiring increased services
to be provided to the Resort by third parties and by paying from Gross Receipts
any other expenses incurred by Manager in meeting such additional obligations.
Any dispute as to the additional compensation to which Manager is entitled
pursuant to this Section 8.06.B. shall be resolved by arbitration pursuant to
Section 11.20.
ARTICLE IX
DEFAULTS
9.01 Events of Default
Each of the following shall constitute a "Default" under this Agreement.
A. The filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by either party, or the
admission by either party that it is unable to pay its debts as they become due.
Upon the occurrence of any Default by either party (referred to as the
"defaulting party") as described under this subsection A, said Default shall be
deemed an "Event of Default" under this Agreement.
29
<PAGE> 34
B. The consent to an involuntary petition in bankruptcy or the failure to
vacate, within ninety (90) days from the date of entry thereof, any order
approving an involuntary petition by either party. Upon the occurrence of any
Default by either party as described under this subsection B, said Default shall
be deemed an "Event of Default" under this Agreement.
C. The entering of an order, judgment or decree by any court of competent
jurisdiction, on the application of a creditor, adjudicating either party as
bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee, or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree's continuing unstayed
and in effect for an aggregate of sixty (60) days (whether or not consecutive).
Upon the occurrence of any Default by either party as described under this
subsection C, said Default shall be deemed an "Event of Default" under this
Agreement.
D. The failure of either party to make any payment required to be made in
accordance with the terms of this Agreement, as of the due date as specified in
this Agreement. Upon the occurrence of any Default by either party as described
under this subsection D, said Default shall be deemed an "Event of Default"
under this Agreement if the defaulting party fails to cure such Default within
ten (10) days after receipt of written notice from the non-defaulting party
demanding such cure.
E. The failure of either party to perform, keep or fulfill any of the other
covenants, undertakings, obligations or conditions set forth in this Agreement,
and the continuance of such default for a period of thirty (30) days after the
defaulting party's receipt of written notice from the non-defaulting party of
said failure. Upon the occurrence of any Default by either party as described
under this subsection E, said Default shall be deemed an "Event of Default"
under this Agreement if the defaulting party fails to cure the Default within
thirty (30) days after receipt of written notice from the non-defaulting party
demanding such cure, or, if the Default is such that it cannot reasonably be
cured within said thirty (30) day period of time, if the defaulting party fails
to commence the cure of such Default within said thirty (30) day period of time
or thereafter fails to diligently pursue such efforts to completion.
9.02 Remedies
Upon the occurrence of an Event of Default, the non-defaulting party shall
have the right to pursue any one or more of the following courses of action: (1)
if the Event of Default has a material adverse impact on the non-defaulting
party, to terminate this Agreement by written notice to the defaulting party,
which termination shall be effective as of the effective date which is set forth
in said notice, provided that said effective date shall be at least thirty (30)
days after the date of said notice and further provided that either party may
extend the foregoing period of thirty (30) days to seventy-five (75) days (or
such longer period of time as may be necessary under Legal Requirements
pertaining to termination of employment); (2) to institute forthwith any and all
proceedings permitted by law or equity including, without limitation, actions
for specific performance and/or damages; and/or (3) to avail itself of the
remedies described in Section 9.03.
30
<PAGE> 35
9.03 Additional Remedies
A. Upon the occurrence of a Default by either party under the provisions of
Section 9.01.D, the amount owed to the non-defaulting party shall accrue
interest, at an annual rate equal to the Prime Rate plus three (3) percentage
points, from and after the date on which the Default occurred.
B. Upon the occurrence of a Default by Owner under the provisions of
Section 9.01.D, Manager shall have the right (without affecting Manager's other
remedies under this Agreement) to withdraw the amount (plus accrued interest as
described in 9.03.A above) owed to Manager by Owner from distributions otherwise
payable to Owner pursuant to Sections 3.02 and 4.01 of this Agreement.
C. Manager and/or any Affiliate shall be entitled, in case of any breach of
the covenants of Sections 11.11.E, F, or G or of Section 11.12 by Owner or
others claiming through it, to injunctive relief and to any other right or
remedy available at law.
D. Except as provided, the remedies granted under Sections 9.02 and 9.03
shall not be in substitution for, but shall be in addition, to, any and all
rights and remedies available to the non-defaulting party (including, without
limitation, injunctive relief and damages) by reason of applicable provisions of
law or equity and shall survive Termination.
ARTICLE X
ASSIGNMENT AND SALE
10.01 Assignment
A. Manager shall not assign or transfer its interest in this Agreement
without the prior written consent of Owner; provided, however, that Manager
shall have the right, without Owner's consent, to lease shops or grant
concessions at the Resort so long as the terms of any such leases or concessions
do not exceed the Term of this Agreement, subject to Owner's right to consent as
set forth in Section 1.02 and elsewhere in this Agreement.
B. Owner shall not assign or transfer its interest in this Agreement
without the prior written consent of Manager; provided, however, that Owner
shall have the right, without such consent, to (1) assign its interest in this
Agreement to Crescent Operating, Inc., Crescent Real Estate Equities Limited
Partnership, Crescent Real Estate Equities, Ltd., Sonoma Spa Resorts, L.P. or
any of their Affiliates or any successors of the foregoing, (2) conditionally
assign this Agreement as security for a Mortgage of the Resort in accordance
with this Agreement, and (3) assign its interest in this Agreement in connection
with a Sale of the Resort.
31
<PAGE> 36
C. In the event either party consents to an assignment of this Agreement by
the other, no further assignment shall be made without the express consent in
writing of such party, unless such assignment may otherwise be made without such
consent pursuant to the terms of this Agreement. An assignment by Manager of its
interest in this Agreement shall not relieve Manager from its obligations under
this Agreement, and shall inure to the benefit of, and be binding upon, its
successors, heirs, legal representatives, or assigns. In the event Owner assigns
this Agreement in accordance with the terms hereof and thereby causes its
assignee to assume all of Owner's obligations hereunder, Owner shall thereby be
released from the obligations of Owner under this Agreement to the extent such
obligations accrue on or after the effective date of the assumption by Owner's
assignee.
10.02 Sale of the Resort
A. At any time during the Term, Owner shall be entitle to sell, assign,
transfer or otherwise dispose of the Resort subject to the further provisions of
this Agreement.
B. Unless this Agreement is terminated in accordance with Section 10.03, no
Sale of the Resort shall reduce or otherwise affect: (i) the current level of
Working Capital; (ii) the outstanding balance deposited in the FF&E Reserve; or
(iii) the outstanding balance in any of the Operating Accounts maintained by
Manager pursuant to this Agreement. If, in connection with any Sale of the
Resort, the selling Owner intends to withdraw, for its own use, any of the cash
deposits described in the preceding sentence, the selling Owner must obtain the
contractual obligation of the buying Owner to replenish those deposits (in the
identical amounts) simultaneously with such withdrawal. The selling Owner is
hereby contractually obligated to Manager to ensure that such replenishment in
fact occurs. The obligations described in this Section 10.02.B shall survive
such Sale of the Resort.
C. The terms and provisions of this Agreement shall be binding upon all
successors to Owner's interest in the Site and/or the Resort. Each selling Owner
shall be obligated to Manager to obtain from each buying Owner an assumption of
this Agreement. The foregoing obligation of the selling Owner shall survive any
Sale of the Resort.
10.03 Termination on Sale of Resort
Owner shall have the right to terminate this Agreement upon the Sale of the
Resort if the Resort is sold in a bonafide arms length transaction to a
non-related entity (where no shareholder or partner of Owner holds any ownership
interest in such new entity, other than ownership of a non-controlling interest)
and Owner is not in default under the terms of this Agreement by notice given
pursuant to Section 11.07. Such Termination shall be effective in accordance
with the following: Owner shall notify Manager of its election to terminate this
Agreement pursuant to the provisions of this Section 10.03 by delivery of a
written notice ("Sale Termination Notice") setting forth Owner's intention to
terminate this Agreement and the anticipated date on which this Agreement shall
terminate, which notice shall be delivered at least ninety (90) days prior to
the projected termination date. Notwithstanding the foregoing, in the event the
Sale Termination Notice is delivered to
32
<PAGE> 37
Manager less than twelve (12) months prior to the projected termination date,
Owner shall be obligated to pay Manager the Base Management Fee for twelve (12)
months following the Sale Termination Notice (without regard to a prior
termination of this Agreement pursuant to this Section 10.03). In the event
Owner is obligated under this Section 10.03 to pay Manager the Base Management
Fee for any period following the termination of this Agreement pursuant to this
Section 10.03, the amount of such Base Management Fee shall be the amount of the
Base Management Fee paid by Owner to Manager for the corresponding period in the
immediately preceding Fiscal Year. Owner may, not less than thirty (30) days
prior to the projected termination date of this Agreement as set forth in a Sale
Termination Notice, withdraw such Sale Termination Notice (in which case, this
Agreement shall continue in full force and effect as if such Sale Termination
Notice had not been previously delivered to Manager).
ARTICLE XI
MISCELLANEOUS
11.01 Right to Make Agreement
Each party warrants, with respect to itself, that neither the execution of
the Agreement nor the finalization of the transactions contemplated hereby shall
violate any provision of law or judgment, writ, injunction, order or decree of
any court or governmental authority having jurisdiction over it; result in or
constitute a breach or default under any indenture, contract, other commitment
or restriction to which it is a party or by which it is bound; or require any
consent, vote or approval which has not been taken, or at the time of the
transaction involved shall not have been given or taken. Each party covenants
that it has and will continue to have throughout the Term of the Agreement and
any extensions thereof, the full right to enter into the Agreement and perform
its obligations hereunder.
11.02 Consents and Cooperation
Wherever in the Agreement the consent or approval of Owner or Manager is
required, such consent or approval shall be in writing and shall be executed by
a duly authorized officer or agent of the party granting such consent or
approval. Additionally, Owner agrees to cooperate with Manager by executing such
leases, subleases, licenses, concessions, equipment leases, service contracts
and other agreements negotiated in good faith by Manager and pertaining to the
Resort that are consistent with the terms of this Agreement and, in Manager's
reasonable judgment, should be made in the name of the Owner of the Resort.
11.03 Relationship
Neither this Agreement nor any agreements, instruments, documents, or
transactions contemplated hereby shall in any respect be interpreted, deemed or
construed as making Manager a
33
<PAGE> 38
partner or joint venturer with Owner. Owner and Manager agree that neither party
will make any contrary assertion, claim or counterclaim in any action, suit,
arbitration or other legal proceedings involving Owner and Manager.
11.04 Applicable Law
The Agreement shall be construed under and shall be governed by the laws of
the state of Texas.
11.05 Recordation
The terms and provisions of the Agreement shall run with the parcel of land
designated as the Site, and with Owner's interest therein, and shall be binding
upon all successors to such interest. Simultaneously with the execution of this
Agreement, the parties shall execute a recordable "Memorandum of Management
Agreement," in the form which is attached hereto as Exhibit B. The Memorandum
shall be recorded or registered promptly following the Effective Date in the
jurisdiction in which the Resort is located. The Memorandum shall not be a lien
against Owner's interest in the Site. Any cost of such recordation shall be
reimbursed from Gross Receipts and treated as a Deduction. Upon termination of
this Agreement, Owner and Manager shall execute a written notice of such
termination in recordable form.
11.06 Headings
Headings of articles and sections are inserted only for convenience and are
in no way to be construed as a limitation on the scope of the particular
articles or sections to which they refer.
11.07 Notices
Notices, statements and other communications to be given under the terms of
the Agreement shall be in writing and delivered by hand against receipt or sent
by certified or registered mail, postage prepaid, return receipt requested or by
nationally utilized overnight delivery service, addressed to the parties as
follows:
To Owner: Crescent Real Estate Funding VIII, L.P.
777 Main Street, Suite 2100
Fort Worth, TX 76102
Attn: Senior Vice President and Chief Investment Officer
Facsimile: (817) 321-2000
and Crescent Real Estate Funding VIII, L.P.
777 Main Street, Suite 2100
Fort Worth, TX 76102
Attn: Legal Department
Facsimile: (817) 321-2000
34
<PAGE> 39
with copy to: Brown McCarroll & Oaks Hartline, LLP
300 Crescent Court, Suite 1400
Dallas, Texas 75201
Attn: Robert W. Dupuy
Facsimile: (214) 999-6170
To Manager: Sonoma Management Corp. I
c/o Sonoma Holdings I, LLP
306 W. 7th Street, Suite 1025
Fort Worth, TX 76102
Attn: Sanjay Varma
Facsimile: 817/317-0665
with copy to: Gray, Harris & Robinson
201 East Pine Street, Suite 1200
Orlando, Florida 32801
Attn: Byrd F. Marshall
Facsimile: (407) 244-5690
or at such other address as is from time to time designated by the party
receiving the notice. Any such notice that is mailed in accordance herewith
shall be deemed received when delivery is received or refused, as the case may
be. Additionally, notices may be given by telephone facsimile transmission,
provided that an original copy of said transmission shall be delivered to the
addressee by nationally utilized overnight delivery service by no later than the
second business day following such transmission. Telephone facsimiles shall be
deemed delivered on the date of such transmission.
11.08 Environmental Matters
A. At all times during the term of this Agreement, Manager shall fully
comply with Environmental Laws applicable to the Resort and its operations.
Manager shall at all times use diligent efforts to determine if any Hazardous
Material is being used, released, disposed or discharged at or from the Resort,
including, without limitation, the engagement of professional environmental
engineers to perform such environmental studies or tests as may be approved by
Owner. If any Hazardous Material is discovered at the Resort, Manager shall not
disturb, release or dispose of (or permit to be disturbed, released or disposed
of) any such Hazardous Material except in strict compliance with a remediation
and/or removal program approved by Owner. Additionally, without the prior
consent of Owner, which may be withheld in its sole and absolute discretion,
Manager shall not permit on the Resort (a) any dry cleaning operations, (b) any
activity requiring a permit under any Environmental Laws, even if the permit has
been or can be obtained, (c) any activity generating any Hazardous Materials as
waste or using Hazardous Materials, other than (i) kitchen grease traps, (ii)
pool and spa chemicals, fertilizers and pesticides in reasonable quantities
relative to the needs of the
35
<PAGE> 40
Resort which are properly stored, handled and disposed of, and (iii) other
Hazardous Materials in small quantities that are typically used in the
operations of the Resort.
B. Manager and Owner each agrees to give the other prompt written notice of
(1) all Environmental Liabilities; (2) all pending, threatened or anticipated
proceedings, and all notices, demands, requests or investigations, relating to
any Environmental Liability or relating to the issuance, revocation or change in
any Environmental Authorization required for operation of the Resort; (3) all
Releases at, on, in, under or in any way affecting the Resort, or any Release
known by Owner or Manager, as the case may be, at, on, in or under any property
adjacent to the Resort; and (4) all facts, events or conditions that could
reasonably lead to the occurrence of any of the above-referenced matters.
Manager and Owner each agrees to defend, indemnify and save harmless the other
and its Affiliates from and against any and all Environmental Liabilities to the
extent that the same were caused by the intentionally wrongful or grossly
negligent acts or omissions of Manager or Owner, as the case may be, or any of
their employees at the Resort.
C. For the purposes of this Section 11.08, the following terms shall have
the meanings set forth below:
"Environmental Authority" shall mean any department, agency or other body
or component of any government that exercises any form of jurisdiction or
authority under any Environmental Law.
"Environmental Laws" shall mean all applicable federal, state, local and
foreign laws and regulations relating to pollution of the environment (including
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata), including without limitation laws and regulations relating
to emissions, discharges, Releases or threatened Releases of Hazardous Materials
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials.
"Environmental Liabilities" shall mean any and all actual or potential
obligations to pay the amount of any judgment or settlement, the cost of
complying with any settlement, judgment or order for injunctive or other
equitable relief, the cost of compliance or corrective action in response to any
notice, demand or request from an Environmental Authority, the amount of any
civil penalty or criminal fine, any court costs and reasonable amounts for
attorney's fees, fees for witnesses and experts, and costs of investigation and
preparation for defense of any claim or any proceeding, regardless of whether
such proceeding is threatened, pending or completed, that may be or have been
asserted against or imposed upon Owner, Manager, any predecessor in interest,
the Resort or any property used therein and arising out of:
(a) the failure to comply at any time with any Environmental Law
applicable to the Resort;
(b) the presence of any Hazardous Materials on, in, under, at or in any
way affecting the Resort;
36
<PAGE> 41
(c) a Release or threatened Release of any Hazardous Materials on, in,
at, under or in any way affecting the Resort;
(d) the identification of Manager, Owner or any predecessor in interest
as a potentially responsible party under any Environmental Law;
(e) the presence at any time of any above-ground and/or underground
storage tanks, as defined in any applicable Environmental Law on, in, at or
under the Resort or any adjacent site or Resort; or
(f) any and all claims for injury or damage to persons or property
arising out of exposure to Hazardous Materials originating or located at the
Resort, or resulting from operation thereof or any adjoining property.
"Hazardous Materials" shall mean all chemicals, pollutants, contaminants,
wastes and toxic substances, including without limitation:
(a) Solid or hazardous waste, hazardous substances, toxic substances and
insecticides, fungicides, or rodenticides, as defined in any Environmental Law;
(b) Gasoline or any other petroleum product or byproduct,
polychlorinated biphenyls, asbestos and urea formaldehyde;
(c) Asbestos or asbestos containing materials;
(d) Urea formaldehyde foam insulation; and
(e) Radon gas.
"Release" shall mean a "Release" as defined in any Environmental Law,
unless such Release has been properly authorized and permitted in writing by all
applicable Environmental Authorities or is allowed by such Environmental Law
without authorizations or permits.
11.09 Confidentiality
A. The parties hereto agree that the matters set forth in this Agreement
and all statements, reports, projections, and other information relating to the
operation of the Resort are strictly confidential and each party will make every
effort to ensure that the information is not disclosed to any outside person or
entities (including the press) without the prior written consent of the other
party, which consent shall not be unreasonably withheld or delayed, except as
may, in the disclosing party's reasonable evaluation, be required by law
(including, without limitation, laws and regulations regarding publicly-traded
securities) and as may be reasonably necessary to obtain licenses, permits, and
other public approvals necessary for the refurbishment or operation of the
37
<PAGE> 42
Resort, or in connection with Owner's financing of the Resort, a Sale of the
Resort, or a sale of a controlling interest in Owner or Manager.
B. The provisions of this Section 11.09B shall not be operative unless and
until Owner ceases to own a direct or indirect interest in Manager (whether
through Sonoma Corporation or otherwise). No reference to Manager or to any
Affiliate of Manager will be made in any prospectus, private placement
memorandum, offering circular or offering documentation related thereto
(collectively referred to as the "Prospectus"), issued by Owner or by one of
Owner's Affiliates or by one or more Mortgagees, which is designed to interest
potential investors in debt or equity securities related to the Resort, unless
Manager has not less than three (3) days prior to its intended use, received and
approved a copy of all such references; provided, however, the foregoing shall
not apply with respect to any report, filing or disclosure of any type or nature
required to be made by Owner or any Affiliate of Owner in order to comply with
applicable laws and regulations (including without limitation securities laws
and regulations applicable to Owner or any Affiliate of Owner). Manager shall
not unreasonably withhold or delay its consent to Owner's use of such
references. Manager's failure to respond within such three (3) day period shall
be deemed approval of its use. However, regardless of whether Manager does or
does not so receive a copy of all such references, neither Manager nor any
Affiliate will be deemed a sponsor of the offering described in the Prospectus,
nor will it have any responsibility for the Prospectus. Owner shall indemnify,
defend and hold Manager harmless from and against all loss, costs, liability and
damage (including attorneys' fees and expenses, and the cost of Litigation)
arising out of any Prospectus or the offering described therein; and this
obligation of Owner shall survive Termination of this Agreement.
C. No reference to Owner or to any Affiliate of Owner will be made in any
Prospectus issued by Manager or by one of Manager's Affiliates, which is
designed to interest potential investors in debt or equity securities of
Manager, unless Owner has, not less than three (3) days prior to its intended
use, received and approved a copy of all such references. Owner shall not
unreasonably withhold or delay its consent to Manager's use of such references.
Owner's failure to respond within such three (3) day period shall be deemed
approval of its use. However, regardless of whether Owner does or does not so
receive a copy of all such references, neither Owner nor any Affiliate of Owner
shall be deemed a sponsor of the offering described in the Prospectus, nor will
it have any responsibility for the Prospectus, and the Prospectus will so state.
Unless Owner agrees in advance, the Prospectus will not include any Trade Names,
Trademarks or proprietary marks of Owner or Owner's Affiliates. Manager shall
indemnify, defend and hold Owner harmless from and against all loss, costs,
liability and damage (including attorneys' fees and expenses, and the cost of
Litigation), arising out of any Prospectus or the offering described therein;
and this obligation of Manager shall survive Termination of this Agreement.
11.10 Projections
Owner acknowledges that any written or oral projections, proforma, or other
similar information that has been (prior to execution of this Agreement) or will
(during the Term of this Agreement) be provided by Manager (or any Affiliate
thereof) to Owner is for information purposes
38
<PAGE> 43
only, and that Manager and any such Affiliate do not guarantee that the Resort
will achieve the results set forth in any such projections, proforma, or other
similar information. Any such projections, proforma, or other similar
information are based on assumptions and estimates. Unanticipated events may
occur subsequent to the date of preparation of such projections, proforma, and
other similar information. Therefore, the actual results achieved by the Resort
are likely to vary from the estimates contained in any such projections,
proforma, or other similar information and such variations might be material.
11.11 Actions to be Taken Upon Termination
Upon a Termination of this Agreement, the following shall be applicable:
A. Manager shall, within ninety (90) days after Termination of this
Agreement, prepare and deliver to Owner a final accounting statement and
supporting documentation with respect to the Resort, as more particularly
described in Section 4.01 hereof, along with a statement of any sums due from
Owner or Manager pursuant hereto, dated as of the date of Termination. Within
thirty (30) days of the receipt by Owner, Owner will review and confirm such
final accounting statement and the parties will make whatever cash adjustments
are necessary pursuant to such final statement. The cost of preparing such final
accounting statement shall be a Deduction, unless the Termination occurs as a
result of a Default by either party, in which case the defaulting party shall
pay such cost. Manager and Owner acknowledge that there may be certain
adjustments for which the information will not be available at the time of the
final accounting and the parties agree to readjust such amounts and make the
necessary cash adjustments when such information becomes available; provided,
however, that all accounts shall be deemed final as of the first (1st)
anniversary of the effective date of Termination.
B. Manager shall immediately release and transfer to Owner any of Owner's
funds which are held or controlled by Manager with respect to the Resort with
the exception of funds to be held in escrow pursuant to Sections 6.01.E and
11.11.H and otherwise in accordance herewith.
C. Manager shall deliver to Owner all books and records respecting the
Resort (including those from prior years), which are the property of Owner,
whether such records are prepared by Manager or at the direction or request of
Manager or any Affiliate of Manager.
D. Manager shall (to the extent permitted by law) assign to Owner or to the
new manager all operating licenses and permits for the Resort which have been
issued in Manager's name (including liquor and restaurant licenses, if any);
provided that if Manager has expended any of its own funds in the acquisition of
any of such licenses or permits, Owner shall reimburse Manager therefor if it
has not done so already.
E. Owner shall have the right to operate the improvements on the Site with
or without modifying the architectural design of same, notwithstanding the fact
that such design or certain features thereof may be proprietary to Manager
and/or protected by trade marks or service marks held by Manager or an
Affiliate, provided that such use shall be confined to the Site.
39
<PAGE> 44
F. If this Agreement is terminated for any reason other than (i) a Default
by Manager or by Owner, (ii) termination pursuant to Section 2.02, 2.03 or
Section 10.03, (iii) termination by Manager pursuant to Section 6.02, (iv) if
insurance proceeds actually received by Owner are insufficient to replace and/or
rebuild the Resort following a Total Casualty, the termination by Owner pursuant
to Section 6.02, or (v) natural expiration of the Term, then Owner shall, within
ten (10) days after Manager's request therefor, pay to Manager, as Manager's
sole remedy, as compensation for Manager's lost revenue and expenses and not as
a penalty, an amount (the "Termination Fee") equal to the product of (i) the
amount of the Base Management Fee during the immediately preceding twelve (12)
months, multiplied by (ii) one (1) minus ("X" divided by 365), with "X" being
the number of days between and including the date Owner delivers notice of
termination to Manager through the effective date of such termination.
G. In the event that sufficient notice pursuant to the WARN Act cannot be
given, Owner shall cause the entity which shall succeed Manager as the operator
of the Resort to hire a sufficient number of the employees at the Resort to
avoid the occurrence, in connection with such Termination, of a "closing" under
the WARN Act.
H. Various other actions shall be taken, as described in this Agreement,
including, but not limited to, the actions described in Sections 4.05 and
6.01.E.
I. Manager shall peacefully vacate and surrender the Resort to Owner.
The provisions of this Section 11.11 shall survive Termination.
11.12 Trademarks, Trade Names and Intellectual Property
A. Manager acknowledges that pursuant to that certain Trademark License
Agreement between Owner and Sonoma Corporation, the parent corporation of
Manager, dated effective as of even date herewith (the "License Agreement"),
Owner has granted to Sonoma Corporation a non-exclusive license to use, and
allow Manager (as a Subsidiary of Sonoma Corporation) to use, Sonoma Mission Inn
Trademarks (hereafter defined) in accordance with the terms and conditions of
the License Agreement. Manager agrees that its use of Sonoma Mission Inn
Trademarks shall be in strict accordance with the License Agreement. The term
"Sonoma Mission Inn Trademarks" shall include, without limitation, all
Trademarks and Trade Names licensed to Sonoma Corporation and used in
conjunction with the Resort, including but not limited to restaurant names,
lounge names, etc., whether or not the marks contain the "Sonoma Mission Inn"
name.
B. All Intellectual Property shall at all times be proprietary to Owner,
and shall be the exclusive property of Owner. During the Term of this Agreement,
Manager shall take all reasonable steps to ensure that the Intellectual Property
remains confidential and is not disclosed to anyone other than Manager's
employees at the Resort.
40
<PAGE> 45
C. Owner shall be entitled, in case of any breach by Manager of any of the
covenants of this Section 11.12, to injunctive relief and to any other right or
remedy available at law. Section 11.12 shall survive Termination.
11.13 Trade Area Restriction
A. Neither Manager nor any of its Affiliates shall manage or operate any
resort, hotel or golf facility within a twenty (20) mile radius of the Resort
during the period from the Effective Date through the seventh (7th) anniversary
after the Effective Date ("Restricted Period"). In the event Manager violates
such trade area restriction during the Restricted Period, Owner may, as a one
(1) time right, terminate this Agreement within one hundred eighty (180) days
after the opening of the facility within this restricted trade area and Manager
will pay Owner a one (1) time fee of Five Hundred Thousand Dollars ($500,000).
Owner and Manger agree that the Owner's damages resulting from Manager's
violation of the trade area restriction of this Section 11.13 would be
difficult, if not impossible, to determine and the foregoing fee is a fair
estimate of those damages which has been agreed to in an effort to cause the
amount of said damages to be certain.
B. Neither Manager nor any of its Affiliates shall manage or operate any
resort, hotel or golf facility within a two (2) mile radius of the Resort during
the Initial Term or any Renewal Terms.
41
<PAGE> 46
11.14 Waiver
The failure of either party to insist upon a strict performance of any of
the terms or provisions of the Agreement, or to exercise any option, right or
remedy contained in this Agreement, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.
11.15 Partial Invalidity
If any portion of the Agreement shall be declared invalid by order, decree
or judgment of a court, the Agreement shall be construed as if such portion had
not been so inserted except when such construction would operate as an undue
hardship on Manager or Owner or constitute a substantial deviation from the
general intent and purpose of said parties as reflected in the Agreement.
11.16 Survival
Except as otherwise specifically provided in this Agreement, the rights and
obligations of the parties herein shall not survive any Termination of this
Agreement. Any obligation of Owner to pay a Termination Fee shall survive
Termination of this Agreement.
11.17 Affiliates and Third Party Vendors
Subject to the terms and limitations contained in this Agreement, Manager
shall be entitled to contract with one or more of its Affiliates and to enter
into agreements with various non-Affiliate vendors to provide goods and/or
services to the Resort; provided that the prices and/or fees paid to any such
Affiliate are competitive with the prices and/or fees which may be charged by
reputable and qualified parties for similar goods and/or services. In
determining, pursuant to the foregoing, whether such prices and/or fees are
competitive, the goods and/or services which are being purchased shall be
grouped in reasonable categories, rather than being compared item by item. The
prices and/or fees paid may include overhead and the allowance of a reasonable
return to Manager and its Affiliates. Additionally, Manager acknowledges and
agrees that, with respect to any such purchases or services, Manager and its
Affiliates shall credit to Owner any allowances, credits, rebates, commissions
and discounts.
11.18 Estoppel Certificates
Each party to this Agreement shall at any time and from time to time, upon
not less than thirty (30) days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (a) certifying that this Agreement is
unmodified and in full force and effect (or if there have been modifications,
that the same, as modified, is in full force and effect and stating the
modifications); (b) stating whether or not
42
<PAGE> 47
to the best knowledge of the certifying party (i) there is a continuing Default
or Event of Default by the non-certifying party in the performance or observance
of any covenant, agreement or condition contained in this Agreement, or (ii)
there shall have occurred any event which, with the giving of notice or passage
of time or both, would become a Default or Event of Default, and, if so,
specifying each such Default or Event of Default or occurrence of which the
certifying party may have knowledge; and (c) stating such other information as
the non-certifying party may reasonably request. Such statement shall be binding
upon the certifying party and may be relied upon by the non-certifying party
and/or such third party specified by the non-certifying party as aforesaid. In
addition, upon written request after a Termination, each party agrees to execute
and deliver to the non-certifying party and to any such third party a statement
certifying that this Agreement has been terminated.
11.19 Luxury Spa Resort Standards
In the event of either (i) a Legal Requirement, including an order,
judgment or directive by a court or administrative body which is issued in
connection with any Litigation involving Owner, or (ii) any action taken by a
Mortgagee in connection with a Foreclosure, which in either case restricts or
prevents Manager, in a material and adverse manner, from operating the Resort in
accordance with Luxury Spa Resort Standards (including without limitation, any
restrictions on expenditures by Manager from the Operating Accounts or from the
FF&E Reserve, other than restrictions which are set forth in this Agreement),
Manager shall be entitled, at its option, to terminate this Agreement upon sixty
(60) days' written notice to Owner. The foregoing shall not reduce or otherwise
affect the rights of the parties under either Article IX or Section 11.11.I.
11.20 Arbitration.
Any dispute between the parties the subject matter of which is subject to
arbitration hereunder shall be, at the written request of either Manager or
Owner (the "Arbitration Request"), determined by arbitration to be conducted in
the Tarrant County, Texas, and in accordance with the terms of this Section
11.20.
(a) If either Manager or Owner requests arbitration in accordance with the
terms of this Section 11.20 (as to a matter subject to arbitration hereunder),
both parties shall use their diligent good faith efforts to agree upon and
appoint, within thirty (30) days after the delivery of the Arbitration Request
(the "Outside Agreement Date"), a neutral arbitrator who is a member in good
standing of the International Society of Hospitality Consultants ("ISHC") or, in
the case of any dispute regarding financial statements, a person with special
expertise in accounting matters. The selected neutral arbitrator shall decide
the disputed matter in accordance with the terms and provisions of this
Agreement, provided, that if the terms and provisions of this Agreement are not
determinative then the terms and conditions of this Agreement shall be
interpreted and supplemented by the customs and practices of the industry for
Resorts generally comparable to the Resort. Any decision reached by said
arbitrator shall be final and binding upon Owner and Manager.
43
<PAGE> 48
(b) If Owner and Manager are unable to agree upon an arbitrator who is a
member of ISHC prior to the expiration of the Outside Agreement Date, the
disputed matter shall be determined by arbitration, in accordance with the
United States Arbitration Act (Title 9, U.S. Code) and under the Commercial
Rules (the "Commercial Rules") of the American Arbitration Association ("AAA")
where the arbitrator is selected in accordance with AAA Commercial Rules from
ISHC members or other persons with at least ten (10) years experience in the
hospitality industry, with particular emphasis on Resorts generally comparable
to the Resort and who are not, at the time of the arbitration, employed by a
competing Resort Manager.
(c) The arbitrator shall resolve all claims and defenses or other matters
in dispute in accordance with this Agreement and applicable law, including
without limitation thereto, all statutes of limitation; provided, that the
arbitrator's authority shall be limited to accepting the proposal, position or
resolution proposed by the parties, and the arbitrator shall have no authority
to fashion any remedy not submitted by the parties. Any controversy concerning
whether an issue is arbitrable shall be determined by the arbitrator(s).
Judgment upon the arbitration award may be entered in any court having
jurisdiction. The institution and maintenance of an action for judicial relief
or pursuit of provisional or ancillary remedies shall not constitute a waiver of
the right of any party, including the plaintiff, to submit the controversy or
claim to arbitration if any other party contests such action for judicial
relief.
(d) Wherever reference is made herein to selection of an arbitrator, it
shall be deemed to mean the selection of three arbitrators whenever either party
so requests within ten (10) days after the delivery of the Arbitration Request.
Each such arbitrator shall be selected in accordance with and have the
qualifications set forth in this Section 11.20. If three arbitrators are chosen,
all decisions of the board of arbitrators shall be made by a majority of the
arbitrators.
11.21 Entire Agreement
The Agreement, together with any other writings signed by the parties
expressly stated to be supplemental hereto and together with any instruments to
be executed and delivered pursuant to the Agreement, constitutes the entire
agreement between the parties and supersedes and replaces all prior agreements
and understandings and writings, and may be changed only by a writing signed by
the parties hereto.
11.22 Multiple Counterparts
This Agreement may be executed in counterparts, all of which taken together
shall constitute one document.
11.23 Guaranty. Sonoma Corporation, a Delaware corporation, shall execute a
guarantee in favor of Owner of all obligations of Manager hereunder.
44
<PAGE> 49
ARTICLE XII
DEFINITION OF TERMS
12.01 Definition of Terms
The following terms when used in the Agreement and the Addendum attached
hereto shall have the meanings indicated:
"AAA" shall have the meaning set forth in Section 11.20.
"Affiliate" shall mean, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with such
Person. For purposes of this definition, the term "control" (including the terms
"controlling", "controlled by" and "under common control with") of a Person
means the possession, directly or indirectly, of the power: (i) to vote more
than fifty percent (50%) of the voting stock of such Person; or (ii) to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting stock, by contract or otherwise.
"Agreed Upon FF&E Increase" shall have the meaning set forth in Section
5.02.F.
"Agreement" shall mean this Management Agreement between Owner and Manager,
including the exhibits attached hereto.
"Annual Operating Statement" shall have the meaning set forth in Section
4.01.C.
"Arbitration Request" shall have the meaning set forth in Section 11.20.
"Available Cash Flow" shall mean an amount, with respect to each Fiscal
Year or portion thereof during the Term of this Agreement, equal to the excess,
if any, of the Operating Profit over the Owner's Priority.
"Base Management Fee" shall mean an amount payable to Manager as a
Deduction from Gross Receipts equal to two percent (2%) of Gross Receipts for
each Fiscal Year or portion thereof.
"Building Estimate" shall have the meaning ascribed to it in Section 5.03.
"Business Plan" shall have the meaning set forth in Section 4.04.
"Calendar Quarter" shall mean each of the first (1st), second (2nd), third
(3rd) and fourth (4th) quarters of each calendar year.
45
<PAGE> 50
"Capital Budget" shall have the meaning set forth in Section 4.04.A.2.
"Capital Expenditure(s)" shall mean the expenses necessary for non-routine,
major repairs, alterations, improvements, renewals, replacements, and additions
to the Resort including, without limitation, to the structure, the roof, the
exterior facade and all of the mechanical, electrical, heating, ventilating, air
conditioning, plumbing or vertical transportation elements of the Resort
building, together with all other expenditures which are classified as "capital
expenditures" under generally-accepted accounting principles and the Uniform
System of Accounts.
"Case Goods" shall mean furniture and furnishings used in the Resort,
including, without limitation: chairs, beds, chests, headboards, desks, lamps,
tables, television sets, mirrors, pictures, wall decorations and similar items.
"CC&Rs" shall have the meaning ascribed to it in Section 8.04.
"Commercial Rules" shall have the meaning set forth in Section 11.20.
"Corporate Services" shall have the meaning set forth in Section 1.02.
"Deductions" shall mean the following expenses incurred by Manager in
operating the Resort:
1. the cost of sales, including, without limitation, compensation,
fringe benefits, payroll taxes, ERISA-related liabilities, pension-fund
withdrawal liabilities, and other costs related to employees of Manager (or one
of its Affiliates) who are working exclusively for the benefit of the Resort
(regardless of whether such employees are located at the Resort or elsewhere);
provided that the foregoing costs shall not include the salary and other
employee costs of Manager's corporate executive staff;
2. departmental expenses incurred at departments within the Resort;
administrative and general expenses; the cost of marketing incurred by the
Resort; advertising and business promotion incurred by the Resort; heat, light,
and power; computer line charges; and routine repairs, maintenance and minor
alterations treated as Deductions under Section 5.01;
3. the cost of Inventories and Fixed Asset Supplies consumed in the
operation of the Resort;
4. a reasonable reserve for uncollectible accounts receivable as
determined by Manager;
5. all costs and fees of independent professionals or other third
parties who are retained by Manager to perform services required or permitted
hereunder;
46
<PAGE> 51
6. all costs and fees of technical consultants, professionals and
operational experts who are retained or employed by Manager and its Affiliates
for specialized services in connection with matters directly involving the
Resort (including, without limitation, quality assurance inspectors, personnel
providing architectural, technical or procurement services for the Resort, tax
consultants, and personnel providing legal services and the cost of attendance
by employees of the Resort at training and manpower development programs
designated by Manager;
7. the Base Management Fee;
8. insurance costs and expenses as provided in Sections 6.01;
9. taxes, if any, payable by or assessed against Manager related to this
Agreement or to Manager's operation of the Resort (exclusive of Manager's income
taxes or franchise taxes);
10. all Impositions;
11. the amount of FF&E Reserve required to be transferred to Owner
pursuant to Section 5.02;
12. the Resort's share of costs and expenses (allocated on a basis
mutually acceptable to Owner and Manager) incurred in connection with sales,
advertising, promotion and marketing programs, including guest loyalty and
recognition programs, where such expenses are not deducted as departmental
expenses under paragraph 2 above or as Corporate Services pursuant to paragraph
13 below;
13. the Resort's share, if any, of the charges for Corporate Services
(determined in accordance with Section 1.02);
14. all costs and expenses of compliance by Manager with applicable
Legal Requirements pertaining to the operation of the Resort;
15. the cost and expenses incurred in connection with the audit of the
Annual Operating Statement pursuant to Section 4.02; and
16. such other costs and expenses incurred by Manager (either at the
Resort or elsewhere) as are specifically provided for elsewhere in this
Agreement or are otherwise reasonably necessary for the proper and efficient
operation of the Resort.
The term "Deductions" shall not include: (a) debt service payments pursuant
to any Mortgage on the Resort; (b) payments pursuant to equipment leases or
other forms of financing obtained for the FF&E located in or connected with the
Resort, unless Manager has previously given its written consent to such
equipment lease and/or financing; (c) rental payments pursuant to any ground
lease
47
<PAGE> 52
of the Site; or (d) depreciation on the Resort or any of its contents. All
of the foregoing items listed in this paragraph shall be paid by Owner from its
own funds.
"Default" shall have the meaning ascribed to it in Section 9.01.
"Deficiency" shall have the meaning set forth in Section 2.02.B.
"Deficit" shall have the meaning set forth in Section 2.02.B.
"Effective Date" shall have the meaning ascribed to it in the Preamble.
"Environmental Authority" shall have the meaning ascribed to it in Section
11.08.
"Environmental Laws" shall have the meaning ascribed to it in Section
11.08.
"Environmental Liabilities" shall have the meaning ascribed to it in
Section 11.08.
"Event of Default" shall have the meaning ascribed to it in Section 9.01.
"Excluded Transaction" shall have the meaning ascribed to it in Section
1.01.C.5.
"FF&E" shall mean furniture, furnishings, fixtures, Soft Goods, Case Goods,
signage, audio-visual equipment, kitchen appliances, vehicles, carpeting and
equipment, including front desk and back-of-the house computer equipment, but
shall not include Fixed Asset Supplies or Software.
"FF&E Budget" shall have the meaning ascribed to it in Section 5.02.D.
"FF&E Reserve" shall have the meaning ascribed to it in Section 5.02.A.
"Fiscal Year" shall mean the calendar year.
"Fixed Asset Supplies" shall mean items included within "Property and
Equipment" under the Uniform System of Accounts including, but not limited to,
linen, china, glassware, tableware, uniforms, and similar items, whether used in
connection with public space or Guest Rooms.
"Food & Beverage Receipts" shall mean all sales from the operation of the
food and beverage facilities at the Resort.
"Force Majeure" shall mean the following events, but only to the extent the
same cannot be overcome with diligence and commercially reasonable expense by
the party claiming the existence of a Force Majeure:
(a) War, invasion, rebellion, revolution, insurrection, riots, or civil
war;
48
<PAGE> 53
(b) Acts of government in its sovereign capacity;
(c) Earthquakes, hurricanes, tidal waves, or any operation of the forces
of nature as reasonable foresight and ability on the part of the affected party
could not reasonably provide against;
(d) Unavailability of supply of construction materials;
(e) Strikes, lockouts, or other significant employee disturbances not
caused by Manager's acts; and
(f) Events beyond the reasonable control of the party claiming the
existence of a Force Majeure, other than a shortage of funds, and such that
reasonable foresight and ability on the part of the affected party could not
reasonably provide against.
"Foreclosure" shall mean any exercise of the remedies available to a
Mortgagee, upon a default under the Mortgage held by such Mortgagee, which
results in a transfer of title to or possession of the Resort. The term
"Foreclosure" shall include, without limitation, any one or more of the
following events, if they occur in connection with a default under a Mortgage:
(i) a transfer by judicial foreclosure; (ii) a transfer by deed in lieu of
foreclosure; (iii) the appointment by a court of a receiver to assume possession
of the Resort; or (iv) any similar judicial or non-judicial exercise of the
remedies held by the Mortgagee.
"GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
Deflator" issued from time to time by the United States Bureau of Economic
Analysis of the Department of Commerce, or if the aforesaid GDP Deflator is not
at such time so prepared and published, any comparable index selected by Owner
and reasonably satisfactory to Manager (a "Substitute Index") then prepared and
published by an agency of the government of the United States, appropriately
adjusted for changes in the manner in which such index is prepared and/or year
upon which such index is based. Any dispute regarding the selection of the
Substitute Index or the adjustments to be made thereto shall be settled by
arbitration in accordance with Section 11.20. Except as otherwise expressly
stated herein, whenever a number or amount is required to be "adjusted by the
GDP Deflator", or similar terminology, such adjustment shall be equal to the
percentage increase or decrease in the GDP Deflator which is issued for the
month in which such adjustment is to be made (or, if the GDP Deflator for such
month is not yet publicly available, the GDP Deflator for the most recent month
for which the GDP Deflator is publicly available) as compared to the GDP
Deflator which was issued for the month in which the Effective Date occurred.
"Gross Receipts" shall mean all revenues and receipts of every kind derived
from operating the Resort and all departments and parts thereof, including, but
not limited to: income (from both cash and credit transactions) from rental of
Guest Rooms, telephone charges, stores, offices, exhibit or sales space of every
kind; license, lease and concession fees and rentals (not including gross
receipts of licensees, lessees and concessionaires); income from vending
machines; income from
49
<PAGE> 54
parking; health club membership fees; fees from personal and sports services;
food and beverage sales; wholesale and retail sales of merchandise; service
charges; and proceeds, if any, from business interruption or other loss of
income insurance; provided, however, that Gross Receipts shall not include the
following: gratuities to employees of the Resort; federal, state or municipal
excise, sales or use taxes or any other taxes collected directly from patrons or
guests or included as part of the sales price of any goods or services; rental
payments pursuant to any ground lease of the Site; proceeds from the sale of
FF&E; interest received or accrued with respect to the funds in the FF&E Reserve
or the other operating accounts of the Resort; any refunds, rebates, discounts
and credits of a similar nature, given, paid or returned in the course of
obtaining Gross Receipts or components thereof; insurance proceeds (other than
proceeds from business interruption or other loss of income insurance);
condemnation proceeds (other than for a temporary taking); or any proceeds from
any Sale of the Resort or from the refinancing of any debt encumbering the
Resort. In determining Gross Receipts, amounts shall be allocated to Food &
Beverage Receipts and Hotel Receipts and shall be reported by such categories on
Monthly Statements, Quarterly Statements, Annual Operating Statements and any
other statement or report required hereunder that includes Gross Receipts. The
reporting of Gross Receipts by Manager to Owner shall also include further
detail and breakdown as Owner may reasonably require.
"Guest Profile Data" shall mean personal guest profiles and information
regarding guest preferences.
"Guest Room" shall mean a separately-keyed lodging unit in the Resort.
"Hazardous Materials" shall have the meaning ascribed to it in Section
11.08.
"Hotel" shall mean the hotel complex known as the Sonoma Mission Inn and
Spa located on the Site and including a building or buildings containing
approximately 228 Guest Rooms, a lobby, restaurants, meeting rooms,
administrative offices, parking and other amenities and related facilities.
"Hotel Lease" shall mean that certain Lease Agreement dated as of November
18, 1996, as amended, between Owner and Wine Country Hotel, LLC.
"Hotel Lessee" shall mean Wine Country Hotel, LLC.
"Hotel Receipts" shall mean Gross Receipts less Food & Beverage Receipts.
"Impositions" shall have the meaning set forth in Section 7.01.
"Initial Term" shall have the meaning set forth in Section 2.01.
"Insurance Retention" shall have the meaning ascribed to it in Section
6.01.E.
50
<PAGE> 55
"Intellectual Property" shall mean: (i) all Software; (ii) all manuals,
brochures and directives issued by Manager to its employees at the Resort
regarding the procedures and techniques to be used in operating the Resort; and
(iii) customer lists and Guest Profile Data.
"Inventories" shall mean "Inventories" as defined in the Uniform System of
Accounts, such as, but not limited to, provisions in storerooms, refrigerators,
pantries and kitchens; beverages in wine cellars and bars; other merchandise
intended for sale; fuel; mechanical supplies; stationery; and other expensed
supplies and similar items.
"Legal Requirement" shall mean any federal, state or local law, code, rule,
ordinance, regulation or order of any governmental authority or agency having
jurisdiction over the business or operation of the Resort or the matters which
are the subject of this Agreement, including, without limitation, the following:
(i) any building, zoning or use laws, ordinances, regulations or orders; and
(ii) Environmental Laws.
"License Agreement" shall have the meaning ascribed to it in Section 11.12.
"Litigation" shall mean: (i) any cause of action (including, without
limitation, bankruptcy or other debtor/creditor proceedings) commenced in a
federal, state or local court; or (ii) any claim brought before an
administrative agency or body (for example, without limitation, employment
discrimination claims).
"Luxury Spa Resort Standards" shall mean either (or both, as the context
requires) of the following two (2) categories of standards: (i) the operational
standards (for example, services offered to guests, quality of food and
beverages, cleanliness, staffing and employee compensation and benefits,
Corporate Services (if applicable), frequent traveler programs and other similar
programs, etc.); and (ii) the physical standards (for example, quality of the
Resort Improvements, FF&E, and Fixed Asset Supplies, frequency of FF&E
replacements, etc.); each of such standards shall be the standard which is
generally prevailing or in the process of being implemented at first-class,
luxury resorts, including all services and facilities in connection therewith
that are customary and usual at such first-class, luxury resorts.
"Manager" shall have the meaning ascribed to it in the Preamble hereto or
shall mean any successor or permitted assign, as applicable.
"Minor Casualty" shall mean any fire or other casualty which results in
damage to the Resort and/or its contents, to the extent that the total cost (in
Manager's reasonable judgment) of repairing and/or replacing the damaged portion
of the Resort to the same condition as existed previously does not exceed the
dollar amount of Eight Million and No/00 Dollars ($8,000,000.00), said dollar
amount to be adjusted by the GDP Deflator.
"Monthly Statement" shall have the meaning set forth in Section 4.01.A.
51
<PAGE> 56
"Mortgage" shall mean any mortgage, deed of trust, or security document
encumbering the Resort and/or the Site.
"Mortgagee" shall mean the holder of any Mortgage.
"Notice for Additional FF&E Reserve" shall have the meaning ascribed to it
in Section 5.02.F.
"Operating Accounts" shall have the meaning set forth in Section 4.03.A.
"Operating Budget" shall have the meaning ascribed to it in Section
4.04.A.1.
"Operating Loss" shall mean a negative Operating Profit.
"Operating Profit" shall mean, with respect to any given period of time,
the excess of Gross Receipts over Deductions (each calculated in accordance with
this Agreement and the Uniform System of Accounts).
"Outside Agreement Date" shall have the meaning ascribed to it in Section
11.20.
"Owner" shall have the meaning ascribed to it in the Preamble or shall mean
any successor or permitted assign, as applicable.
"Owner's Investment" shall mean an amount equal to (i) Eighty Five Million
Dollars ($85,000,000) (subject to adjustment as hereafter provided), plus (ii)
the amount of Capital Expenditures made by Owner for the Resort in excess of
FF&E Reserve, plus (iii) funds permanently advanced to establish or maintain
Working Capital pursuant to Section 4.05, plus (iv) amounts funded pursuant to
Section 5.02F. For purposes of determining Owner's Priority, Owner ROI and
Performance Threshold, Owner's Investment for any Fiscal Year shall be the
amount thereof as of December 31 of said Fiscal Year. The initial Owner's
Investment of $85,000,000 set forth in clause (i) assumes that the cost to Owner
of renovations at the Resort that are ongoing as of the date of execution of
this Agreement ("Ongoing Renovations") will not exceed Twenty One Million Four
Hundred Thousand Dollars ($21,400,000). In the event the Ongoing Renovations
exceed Twenty One Million Four Hundred Thousand Dollars ($21,400,000), the
amount of initial Owner's Investment set forth in clause (i) shall be increased
by an amount equal to the amount by which the actual cost of the Ongoing
Renovations exceeds Twenty One Million Four Hundred Thousand Dollars
($21,400,000).
"Owner's Priority" shall mean an annual amount equal to twelve percent
(12%) of Owner's Investment.
"Owner ROI" shall mean for any Fiscal Year, the Operating Profit
distributed to Owner pursuant to Section 3.02 divided by the Owner's Investment.
52
<PAGE> 57
"Performance Threshold" shall mean an annual Owner ROI equal to or in
excess of (i) eight percent (8%) of the Owner's Investment in the first (1st)
and second (2nd) full Fiscal Year of the Term, (ii) nine percent (9%) of the
Owner's Investment for the third (3rd) and fourth (4th) full Fiscal Year, and
(iii) ten percent (10%) of the Owner's Investment for each full Fiscal Year
thereafter.
"Person" means an individual (and the heirs, executors, administrators, or
other legal representatives of an individual), a partnership, a corporation,
limited liability company, a government or any department or agency thereof, a
trustee, a trust and any unincorporated organization.
"Prime Rate" shall mean the "base rate" of interest announced from time to
time by Bankers Trust Company, New York, New York.
"Prior Manager" shall have the meaning ascribed to it in Section 4.01.E.
"Prospectus" shall have the meaning set forth in Section 11.09 B.
"Quarterly Statement" shall have the meaning set forth in Section 4.01.A.
"Release" shall have the meaning ascribed to it in Section 11.08.
"Resort" shall mean the Site and the Hotel together with the following: (i)
the Resort Improvements and all other improvements constructed or to be
constructed on the Site; (ii) all FF&E, Fixed Asset Supplies and Inventories
installed or located on the Site or in the Resort Improvements; and (iii) all
easements or other appurtenant rights thereto.
"Resort Improvements" shall have the meaning set forth in the Recitals.
"Renewal Term" shall have the meaning ascribed to it in Section 2.01.
"Restricted Period" shall have the meaning ascribed to it in Section 11.13.
"Sale of the Resort" shall mean any sale, assignment, transfer or other
disposition, for value or otherwise, voluntary or involuntary, of the fee simple
title to the Site and/or the Resort. For purposes of this Agreement, a Sale of
the Resort shall also include any sale, assignment, transfer or other
disposition, for value or otherwise, voluntary or involuntary, in a single
transaction or a series of transactions, of the controlling interest in Owner.
The phrase "controlling interest", as used in the preceding sentence, shall mean
either: (x) the right to exercise, directly or indirectly, more than fifty
percent (50%) of the voting rights attributable to the shares of Owner (through
ownership of such shares or by contract); or (y) the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of Owner.
"Sale Termination Notice" shall have the meaning ascribed to it in Section
10.03.
53
<PAGE> 58
"Short-Term Incentive Fee" shall mean an amount payable to Manager that is
equal to twenty percent (20%) of Operating Profit distributed to Owner in excess
Operating Profit required to be distributed to Owner to achieve an Owner ROI of
twelve percent (12%) per annum in any Fiscal Year (i.e., there shall be no
Short-Term Incentive Fee in any year in which Owner ROI in less than twelve
percent (12%) per annum in any Fiscal Year or portion thereof).
"Site" shall have the meaning ascribed to it in Section A of the Recitals.
"SMC Affiliate" shall mean any Person that directly or indirectly, controls
or is under common control with Manager. For purposes of this definition, the
term "control" shall have the meaning set forth in the definition of "Affiliate"
under this Section 12.01.
"SMC System" shall mean all of the full-service resorts and hotels in the
United States which are operated by Manager (or an SMC Affiliate).
"Soft Goods" shall mean all fabric, textile and flexible plastic products
(not including items which are classified as "Fixed Asset Supplies" under the
Uniform System of Accounts) which are used in furnishing the Resort, including,
without limitation: carpeting, drapes, bedspreads, wall and floor coverings,
mats, shower curtains and similar items.
"Software" shall mean all computer software and accompanying documentation
(including all future upgrades, enhancements, additions, substitutions and
modifications thereof), other than computer software which is commercially
available, which are used by Manager in connection with the property management
system, the reservation system and all future electronic systems developed or
designated by Manager for use in the Resort.
"Sonoma Mission Inn Trademarks" shall have the meaning ascribed in Section
11.12.
"Special Capital Expenditures" shall mean certain routine, non-major
expenditures which are classified as "capital expenditures" under
generally-accepted accounting principles, but which will be funded from the FF&E
Reserve (pursuant to Section 5.02), rather than pursuant to the provisions of
Section 5.03. Special Capital Expenditures consist of the following types of
expenditures: exterior and interior repainting (other than routine "touch-up"
and repairs); resurfacing building walls and floors (other than routine
"touch-up" and repairs); resurfacing parking areas (other than routine
"touch-up" and repairs); replacing folding walls; and miscellaneous similar
expenditures, to the extent the same do not constitute ordinary repair and
maintenance.
"Subordination Agreement" shall have the meaning ascribed to it in Section
8.03.
"Subsequent Owners" shall have the meaning ascribed to it in Section 8.03.
"Term" shall have the meaning ascribed to it in Section 2.01.
54
<PAGE> 59
"Termination" shall mean the expiration or sooner cessation of this
Agreement.
"Termination Fee" shall have the meaning set forth in Section 11.11.F.
"Termination of Performance Hurdles" shall have the meaning ascribed to it
in Section 5.02.
"Total Casualty" shall mean any fire or other casualty which results in
damage to the Resort and its contents to the extent that the total cost of
repairing and/or replacing the damaged portion of the Resort to the same
condition as existed previously would be thirty percent (30%) or more of the
then total replacement cost of the Resort.
"Trade Names" shall mean any name, whether informal (such as a fictitious
name or d/b/a) or formal (such as the full legal name of a corporation or
partnership) which is used to identify an entity.
"Trademark" shall mean any word, name, device, symbol, logo, design, brand,
servicemark, other distinctive feature or any combination of the foregoing which
is used to identify or symbolize a party's goods and/or services and to
distinguish them from the goods and/or services of others.
"Uniform System of Accounts" shall mean the Uniform System of Accounts for
the Lodging Industry, Ninth Revised Edition, 1996, as published by the American
Resort & Motel Association, and any successor thereto.
"Varma" shall have the meaning ascribed to it in Section 2.03.
"Working Capital" shall mean funds that are used in the day-to-day
operation of the business of the Resort, including, without limitation, amounts
sufficient for the maintenance of change and petty cash funds, amounts deposited
in operating bank accounts, receivables, amounts deposited in payroll accounts,
prepaid expenses and funds required to maintain Inventories, less accounts
payable and accrued current liabilities.
"WARN Act" shall mean the Worker Adjustment and Retraining Notification
Act, 29 U.S.C. 2101 et seq.
[SIGNATURES ON FOLLOWING PAGES]
55
<PAGE> 60
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
OWNER:
CRESCENT REAL ESTATE FUNDING VIII, L.P.,
a Delaware limited partnership
By: CRE Management VIII, LLC,
a Delaware limited liability company,
its general partner
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation,
its manager
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
MANAGER:
SONOMA MANAGEMENT CORP. I,
a Delaware corporation
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
56
<PAGE> 61
JOINDER BY HOTEL LESSEE
Wine Country Hotel, LLC, referred to in this Agreement as the "Hotel
Lessee," hereby executes this Agreement to evidence that Hotel Lessee hereby (i)
assumes and agrees to perform all of Owner's obligations hereunder during term
of the Hotel Lease, and (ii) accepts the assignment by Owner to Hotel Lessee of
all of Owner's interest in this Agreement during the term of the Hotel Lease.
HOTEL LESSEE:
WINE COUNTRY HOTEL, LLC,
a Delaware limited liability company
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
57
<PAGE> 62
EXHIBIT A
LEGAL DESCRIPTION OF THE SITE
<PAGE> 63
EXHIBIT B
MEMORANDUM OF MANAGEMENT AGREEMENT
This Memorandum of Management Agreement (the "Memorandum") is made and
entered into as of this _______ day of _______, _____ by and between Crescent
Real Estate Equities Limited Partnership, a Delaware limited partnership
("Owner"), with a mailing address at 777 Main Street, Suite 2100, Fort Worth,
Texas 76102 and Sonoma Management Corp. I, a Delaware corporation ("Manager"),
with a mailing address at c/o Sanjay Varma, 306 W. 7th St., Fort Worth, Texas
76102.
W I T N E S E T H :
Owner and Manager have entered into that certain Management Agreement
effective as of _________, 2000 (herein, the "Management Agreement") with
respect to the operation of a Resort on the premises located in Sonoma County,
California as more particularly described in Exhibit "A" attached hereto (the
"Site").
The Management Agreement is in effect. The term of the Management Agreement
expires on __________________. Subject to certain conditions, the term may
thereafter be renewed by Manager, for two (2) successive periods of ten (10)
Fiscal Years each.
The Management Agreement contains terms and restrictions relating to
financing of the Resort. The Management Agreement also contains terms and
conditions relating to Owner's sale of the Resort or the Site.
This Memorandum is not intended to alter or modify in any way the terms and
conditions of the Management Agreement. Terms not specifically defined in this
Memorandum are defined in the Management Agreement.
IN WITNESS WHEREOF, Owner and Manager have caused this Memorandum to be
executed under seal by their duly authorized representatives as of the day first
above written, for the purpose of providing an instrument for recording giving
notice of the Management Agreement and certain of the terms and conditions
thereto.
<PAGE> 64
OWNER:
CRESCENT REAL ESTATE FUNDING VIII, L.P.,
a Delaware limited partnership
By: CRE Management VIII, LLC,
a Delaware limited liability company,
its general partner
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation,
its manager
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
MANAGER:
SONOMA MANAGEMENT CORP. I,
a Delaware corporation
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 65
ACKNOWLEDGMENT
STATE OF ______________)
) ss.
COUNTY OF _____________)
On the ___ day of ___________, 2000, before me, the undersigned, a Notary
Public, in and for the State of ________, personally appeared
___________________________, who acknowledged himself to be the
____________________ of Crescent Real Estate Equities, Ltd., a Delaware
corporation, and the sole general partner of Crescent Real Estate Equities
Limited Partnership, a Delaware limited partnership, and that he, as such
officer, being authorized to do so, executed the foregoing instrument for the
purposes therein contained, and on behalf of said corporation and limited
partnership.
In witness whereof, I hereunto set my hand and official seal.
- ------------------------------
Notary Public
My commission expires:
- -------------------------
ACKNOWLEDGMENT
STATE OF _______________)
) ss.
COUNTY OF _____________ )
On the ___ day of ___________, 2000, before me, the undersigned, a Notary
Public, in and for the State of ________, personally appeared
___________________________, who acknowledged himself to be the
____________________ of Sonoma Management Corp. I, a Delaware corporation, and
that he, as such ____________, being authorized to do so, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as ____________.
In witness whereof, I hereunto set my hand and official seal.
- ------------------------------
Notary Public
My commission expires:
- -------------------------
<PAGE> 66
EXHIBIT "A" TO
MEMORANDUM OF MANAGEMENT AGREEMENT
Legal Descriptions
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 36,973
<SECURITIES> 0
<RECEIVABLES> 60,751
<ALLOWANCES> 463
<INVENTORY> 57,509
<CURRENT-ASSETS> 284,989
<PP&E> 244,974
<DEPRECIATION> 36,370
<TOTAL-ASSETS> 809,960
<CURRENT-LIABILITIES> 225,792
<BONDS> 0
0
0
<COMMON> 114
<OTHER-SE> (23,563)
<TOTAL-LIABILITY-AND-EQUITY> 809,960
<SALES> 167,551
<TOTAL-REVENUES> 167,551
<CGS> 159,578
<TOTAL-COSTS> 159,578
<OTHER-EXPENSES> 7,241
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,014
<INCOME-PRETAX> 6,237
<INCOME-TAX> 1,488
<INCOME-CONTINUING> (1,982)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,982)
<EPS-BASIC> (.19)
<EPS-DILUTED> (.19)
</TABLE>
