EL CONQUISTADOR PARTNERSHIP L.P.
DEVELOPMENT SERVICES AND MANAGEMENT AGREEMENT
DATED JANUARY 12, 1990
EL CONQUISTADOR PARTNERSHIP L.P
DEVELOPMENT SERVICES AND MANAGEMENT AGREEMENT
TABLE OF CONTENTS
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ARTICLE PAGE
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1. DEVELOPMENT OF THE RESORT..................................................................... 2
1.1. The Renovation....................................................................... 2
1.2. Certain Definitions.................................................................. 3
1.2.1. "Commencement Date"........................................................... 3
1.2.2. "Construction Management Agreement"........................................... 3
1.2.3. "Construction Manager"........................................................ 4
1.2.4. "Consultants"................................................................. 4
1.2.5. "Contractors"................................................................. 4
1.2.6. "Project"..................................................................... 4
1.3. Technical and Development Services................................................... 4
1.4. Pre-Opening Program.................................................................. 5
1.5. Working Capital and Supplies......................................................... 6
1.6. Reimbursable Costs and Expenses...................................................... 6
1.7. Partnership's Pre-Approval........................................................... 8
1.8. Pre-Opening Budgets.................................................................. 10
1.9. Compensation for Technical and Development Services.................................. 11
1.10. Obligations Separate................................................................. 13
2. APPOINTMENT AS MANAGER OF THE RESORT.......................................................... 14
2.1. Appointment and Term................................................................. 14
2.2. Relation of the Parties.............................................................. 15
3. BUDGETS....................................................................................... 16
3.1. General Policy....................................................................... 16
3.2. Fiscal Year.......................................................................... 16
3.3. Annual Budgets....................................................................... 16
3.4. No Guarantee......................................................................... 21
4. OPERATION..................................................................................... 21
4.1. Operational Standards, Etc........................................................... 21
4.1.1. First Class Resort............................................................ 21
4.1.2. Non-Disturbance............................................................... 22
4.2. Permits.............................................................................. 23
4.3. Personnel............................................................................ 24
4.3.1. Employees of Partnership...................................................... 24
4.3.2. Employees of Manager.......................................................... 24
4.3.3. Key Managers.................................................................. 25
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4.3.4. Reimbursement for Third Party Costs........................................... 25
4.4. Sales and Promotion.................................................................. 26
4.4.1. Sales......................................................................... 26
4.4.2. Promotion..................................................................... 26
4.5. Maintenance and Capital Replacement.................................................. 26
4.6. Operating, Supply and Maintenance Contracts.......................................... 27
4.7. Accounting Services.................................................................. 28
4.7.1. Books and Records............................................................. 28
4.7.2. Annual Financial Information.................................................. 28
4.7.3. Monthly Reports............................................................... 29
4.7.4. Quarterly Financial Information............................................... 29
4.7.5. Meetings...................................................................... 30
4.8. Bank Accounts........................................................................ 30
4.9. Concessions.......................................................................... 30
4.10. Working Capital...................................................................... 31
4.11. Legal Actions........................................................................ 32
4.12. Expenses............................................................................. 32
4.12.1. Partnership's Financial Obligations.......................................... 32
4.12.2. No Obligation to Fund........................................................ 33
4.12.3. Taxes........................................................................ 33
4.12.4. Funding Deficits............................................................. 33
4.13. Consent and Approvals................................................................ 34
5. COMPENSATION OF MANAGER....................................................................... 34
5.1. Basic Compensation for Management Services........................................... 34
5.2. Incentive Management Fees............................................................ 35
5.3. Fee Adjustment....................................................................... 35
5.4. Subordination of Incentive Management Fees........................................... 35
5.4.1. Subordination................................................................. 35
5.4.2. Payment of Loans.............................................................. 38
5.5. Losses............................................................................... 38
5.6. Manager Loans........................................................................ 38
5.7. Certain Definitions.................................................................. 39
5.7.1. Resort Gross Revenues......................................................... 39
5.7.2. Resort Operating Profits...................................................... 40
5.7.3. Venture Agreement............................................................. 41
6. INSURANCE..................................................................................... 41
6.1. Insurance............................................................................ 41
6.2. Insurance Standards and Requirements................................................. 41
6.3. Indemnification...................................................................... 42
6.3.1. Indemnification of Manager.................................................... 42
6.3.2. Indemnification of the Partnership............................................ 43
6.3.3. Procedure for Indemnification................................................. 44
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7. DAMAGE TO RESORT AND CONDEMNATION............................................................. 46
7.1. Casualty Damage...................................................................... 46
7.1.1. The Partnership to Restore.................................................... 46
7.1.2. Limitation on Restoration..................................................... 47
7.2. Condemnation......................................................................... 47
7.2.1. Total Condemnation............................................................ 47
7.2.2. Partial Condemnation.......................................................... 48
8. TERMINATION................................................................................... 48
8.1. Right of Termination................................................................. 48
8.2. Payments............................................................................. 50
8.3. Manager's Liquidation Share.......................................................... 51
8.4. Null and Void........................................................................ 52
9. MISCELLANEOUS................................................................................. 52
9.1. Entire Agreement..................................................................... 52
9.2. Counterparts......................................................................... 53
9.3. Notices.............................................................................. 53
9.4. Waivers.............................................................................. 55
9.5. Severability......................................................................... 55
9.6. Choice of Law........................................................................ 55
9.7. Non-Assignability.................................................................... 55
9.8. Captions............................................................................. 56
9.9. Non-Recourse to Partners............................................................. 56
9.10. Limitation of Remedies............................................................... 56
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DEVELOPMENT SERVICES AND MANAGEMENT AGREEMENT
THIS AGREEMENT, made as of the 12th day of January 1, 1990, by and
between EL CONQUISTADOR PARTNERSHIP L.P., a limited partnership formed pursuant
to the limited partnership law of the State of Delaware (the "Partnership"), and
▇▇▇▇▇▇▇▇ HOSPITALITY MANAGEMENT CORPORATION, a Delaware Corporation ("Manager").
W I T N E S S E T H:
WHEREAS, the Partnership is acquiring and renovating a hotel and casino
resort in Fajardo, Puerto Rico, formerly known as the "El Conquistador Hotel" to
develop the property as a first class, luxury destination mega-resort (the
"Resort"); and
WHEREAS, the Resort is currently closed and will undergo extensive
remodeling, renovation, refurbishing and construction (the "Renovation") as
generally outlined in Exhibit A annexed hereto, prior and subsequent to its
scheduled re-opening in December, 1991; and
WHEREAS, the parties mutually desire Manager to provide technical
assistance and development services during the Renovation and to control,
supervise and direct the operation and management of the Resort on behalf of the
Partnership after the opening of the Resort;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereby agree as follows:
1. DEVELOPMENT OF THE RESORT.
1.1. THE RENOVATION. The Partnership shall proceed diligently
to acquire the land and buildings contemplated for the Resort and to use its
best efforts to effect the Renovation in accordance with plans and
specifications approved by the Partnership so that the Resort may be ready for
operation as a first class, luxury destination mega-resort as quickly as
practical. Manager shall use its best efforts to assist the Partnership by
performing the Technical and Development Services (as hereafter defined)
provided in this Section 1 as and when requested by the Partnership and will
work closely and coordinate its services with the Partnership and the
Construction Manager (as hereafter defined) so that the Resort may be ready for
operation as a first class, luxury destination mega-resort as quickly as
practical. The parties acknowledge that the Partnership has prepared an
estimated budget (the "Development Budget"), a copy of which is annexed hereto
as Exhibit B, for all "hard costs" and "soft costs" to be incurred in connection
with the Renovation and equipping of the Resort. The parties believe that the
Project (as hereafter defined) can be completed within the parameters of the
Development Budget. To the extent practical, the Partnership and Manager shall
make decisions and recommendations, perform their obligations hereunder and
otherwise use their best efforts to complete the
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Renovation and perform the Technical and Development Services within the
parameters of the Development Budget. Notwithstanding the foregoing, it shall be
the Partnership's obligation, subject to the provisions of Section 9.10 hereof,
to complete the Renovation, approve Pre-Opening Budgets (as hereafter defined)
and deliver to the Manager for management as hereafter provided, a fully
equipped, first class, luxury destination mega-resort having substantially all
the facilities described in Exhibit A annexed hereto, even if the costs and
expenses thereof exceed the Development Budget. From time to time the
Partnership may revise the Development Budget without the approval or consent of
Manager but such revision shall not affect any previously approved Pre-Opening
Budget without the consent of the Manager. The Partnership shall notify Manager
promptly of all changes, modifications and refinements to the Development
Budget. All references herein to the Development Budget shall refer to such
budgets as amended by the Partnership from time to time.
1.2. CERTAIN DEFINITIONS.
1.2.1. "COMMENCEMENT DATE" means the first day the
Resort opens to the general public and commences business.
1.2.2. "CONSTRUCTION MANAGEMENT AGREEMENT" shall
refer to the contract to be entered into between the Partnership and the
"Construction Manager" for construction management services in connection with
the Renovation.
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1.2.3. "CONSTRUCTION MANAGER" shall refer to KG
(Caribbean) Corporation.
1.2.4. "CONSULTANTS" shall refer to any an all
various architectural, landscape, design, engineering or other professional
consultants retained by or on behalf of the Partnership for the overall or
separate aspects of the Project.
1.2.5. "CONTRACTORS" shall refer to any and all
of the various general and specialty contractors, suppliers, trade contractors
or other construction related firms or entities retained by or on behalf of the
Partnership for the overall or separate aspects of the Renovation.
1.2.6. "PROJECT" means all matters relating to
the acquisition of the land and buildings for the Resort, all things associated
with completion of the Renovation and to fully equip the Resort and make it
fully operational as a first-class, luxury destination mega-resort having
substantially all the facilities described in Exhibit A annexed hereto.
1.3. TECHNICAL AND DEVELOPMENT SERVICES. In connection with
the Project, and subject to the terms of this Section 1, Manager shall make
available and provide to the Partnership the technical and development services
("Technical and Development Services") as are described on Exhibit C annexed
hereto. Manager will use its best efforts in rendering such services as and when
requested by the Partnership and will work closely with and coordinate its
activities with the Construction Manager except that Manager
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makes no representation or warranty as to its ability to perform the Technical
and Development Services. Manager will make available all of its sources of
supply to the Partnership and shall make reasonably available all of its
expertise in connection with the Project. To the extent it is able and subject
to any other provisions of this Section 1, Manager will provide personnel as
needed for the rendering of its Technical and Development Services and for the
coordination of its obligations with other parties involved in the Renovation
including the Construction Manager. Manager understands that the Partnership may
request Manager to render assistance to the Partnership in all phases and
aspects of the Renovation and that Manager will be working closely on a day to
day basis with the Construction Manager. In some cases, the responsibilities of
Manager and the Construction Manager overlap and it is the parties intention
that the Manager and the Construction Manager will coordinate their activities
in a manner so as to provide the best results to the Partnership. Any conflicts
between the Manager and the Construction Manager shall be resolved by the
Partnership. Manager shall use its best efforts, subject to the limitations and
constraints of this agreement, in rendering the Technical and Development
Services consistent with completion of the Project as contemplated and to the
extent practical, consistent with the Development Budget.
1.4. PRE-OPENING PROGRAM. Prior to the Commencement
Date, Manager shall develop and implement a pre-opening program for the
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Resort in accordance with Pre-Opening Budgets to be developed and approved
pursuant to Section 1.8 hereof and as part of such program shall on behalf of
the Partnership (a) recruit, hire and train the initial staff of the Resort
using such training techniques as Manager shall reasonably deem advisable, (b)
organize the Resort's operations and services, including licensees and
concessionaires, and (c) provide a marketing program for the Resort, which shall
include advertising, promotions, literature, travel, business entertainment and
opening celebration ceremonies (all of the foregoing begin referred to herein as
the "Pre-Opening Program").
1.5. WORKING CAPITAL AND SUPPLIES. Prior to the Commencement
Date and consistent with the Development Budget and the Pre-Opening Budgets
approved by the Partnership as provided in Section 1.8, the Partnership shall
provide all necessary working capital and all necessary inventories of
chinaware, silverware, utensils, glasses, linens, towels, uniforms, food,
beverage, paper products, soap, cleaning supplies, cards, chips, dice and other
casino supplies, golf and marina supplies and other operating supplies and
consumables as Manager deems reasonably necessary to operate the Resort as a
first class, luxury destination mega-resort.
1.6. REIMBURSABLE COSTS AND EXPENSES. Subject to pre-approval
by the Partnership as provided in Section 1.8, all costs, fees and expenses
incurred by Manager in performance of its duties under this Section 1, including
the Pre-Opening Program and Technical and Development
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Services, shall be borne by the Partnership and shall not be the responsibility
of Manager. Manager shall receive monthly reimbursement payments from the
Partnership in respect thereof, or, at Manager's request, the Partnership shall
pay such costs, fees or expenses directly upon submission of third party
invoices therefor. Such costs shall include, but not be limited to, the
following:
(A) travel, meals, lodging and other living
expenses in connection with travel outside of Puerto Rico;
(B) salaries personnel of Manager other than ▇▇▇▇
▇▇▇▇▇▇▇, to the extent directly involved in the performance of services
hereunder;
(C) reproductions, postage and handling of
drawings, plans, specifications and other documents;
(D) Manager's computer and duplicating services at
its usual and customary hourly rate or the actual cost of use of outside data
processing, computer or duplicating services;
(E) photography and video procedures, whether by
Manager or third parties;
(F) renderings, models and work-ups;
(G) cost of establishing and maintaining an
on-site office for Manager and/or the Partnership's use including furnishings,
equipment and utilities in connection therewith;
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(H) local and long distance phone charges and
telecommunication costs;
(I) entertainment and promotional expenses,
particularly in connection with the Pre-Opening Program;
(J) advertising expenses;
(K) salaries and fees of third parties such as
accounting, law, architectural, design, engineering and decorating firms;
(L) overtime work requiring higher than regular
rates;
(M) insurance, if any, carried by Manager in
connection with its services;
(N) transportation to and from or otherwise in
connection with the Project and the performance of Manager's obligations under
this Section 1; and
(O) any other expense incurred by Manager in
connection with performance of its obligations under this Section 1.
1.7. PARTNERSHIP'S PRE-APPROVAL. Manager acknowledges that
the Partnership intends to perform the Renovation and otherwise complete the
Project within strict budgetary guidelines evidenced by the Development Budget.
Accordingly, Manager will assist the Partnership and the Partnership's agents to
set up budgets to the extent reasonably practical for all expenses for which
Manager expects to be reimbursed in connection with
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performance of its obligations under this Section 1, and to be incurred by the
Partnership in connection with the Project, including staffing, allocation of
resources and contingencies. Manager shall only incur such expenses and perform
such services under this Section 1 as shall be provided for in a Pre- Opening
Budget approved by the Partnership. All of Manager's staffing, allocation and
assignment of personnel to the performance of services under this Section 1
shall be subject to the Partnership's prior approval through the Pre-Opening
Budget process, which approval shall not be unreasonably withheld. Except as set
forth herein, Manager shall not incur or be entitled to reimbursement for any
costs or expenses or enter into any contracts, or engage the services of any
professionals, consultants or other third parties without the Partnership's
prior approval thereof through the Pre-Opening Budget approval process.
Manager's obligation to render Technical and Development Services and establish
and carry out the Pre-Opening Program is expressly limited by and conditioned
upon the Partnership's approval of the costs and expenses associated therewith
evidenced by its approval of a Pre-Opening Budget containing such costs and
expenses. The Partnership's obligation to pay or reimburse Manager therefor is
expressly subject to the Partnership's prior approval thereof as aforesaid and
to its obligations as provided in Section 1.1 but the Pre-Opening Budget
approval process and Manager's compliance therewith shall not impair, impede or
otherwise affect the payments to Manager of the Development Fee as provided in
Section 1.9 hereof.
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1.8. PRE-OPENING BUDGETS.
1.8.1. From time to time Manager shall prepare and
deliver to the Partnership cost estimates and budgets ("Pre-Opening Budgets")
detailing costs and expenses which Manager intends to incur in connection with
its rendering of Technical and Development Services and establishment of the
Pre-Opening Program and may provide for unanticipated contingencies. These
Pre-Opening Budgets may be in various forms and formats depending upon the
nature of the expenditure for which approval is sought. For example, a Pre-
Opening Budget may consist of a request to engage a specific professional such
as an architect or designer at a specific price or rate of compensation, may be
a request to hire a specific individual or unidentified individuals at specific
rates of compensation, or may be in the nature of line items of a general nature
such as travel, secretarial services, equipment, landscape, architects, etc.
Manager shall identify the expenditures for which approval is sought and provide
the Partnership with such detail and explanations to support such requests as
may reasonably be requested by the Partnership.
1.8.2. The initial Pre-Opening Budget shall be submitted
to the Partnership promptly following the execution of this agreement but prior
to Manager's performance of any additional Technical and Development Services
other than the continuation of services already in progress. The Partnership
acknowledges that Manager has heretofore performed Technical and Development
Services in connection with the Project and made
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expenditures and commitments in connection therewith. The Partnership hereby
approves such services, expenses and commitments and shall reimburse Manager for
the expenses incurred in connection therewith promptly following the execution
of this agreement and hereby assumes the commitments, all as set forth in
Exhibit D annexed hereto. All subsequent Pre-Opening Budgets shall be submitted
to the Partnership for its approval sufficiently in advance of the date by which
the expenses are expected to be incurred so as to permit the Partnership an
adequate opportunity to fully evaluate and take action with respect to such
Pre-Opening Budget. The Partnership shall respond promptly to Manager's requests
for approval of Pre-Opening Budgets by approving, disapproving or proposing
changes for or modifications to all requests for approval of Pre-Opening Budgets
so that there is no unreasonable delay in Manager's performance of its
obligations hereunder.
1.8.3. Pre-Opening Budgets shall be prepared by the
Manager so as to effect the Renovation and completion of the Project as a first
class, luxury destination mega-resort and to be ready for the Commencement Date
as quickly as practical.
1.9. Compensation for Technical and Development Services.
1.9.1. In consideration for all services rendered by
Manager under this Section 1, the Partnership shall pay to Manager a fee (the
"Development Fee") equal to Three Million Two Hundred Thirty Eight Thousand
($3,238,000) Dollars. In addition to the Development Fee, Manager
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shall receive monthly payments on account of reimbursable expenses as set forth
in Section 1.6 hereof. The Development Fee shall be deemed earned by and shall
be paid to Manager in twenty-four (24) equal monthly installments of One Hundred
Thirty Four Thousand Nine Hundred Sixteen Dollars and Sixty Seven Cents
($134,916.67) each on the first day of each calendar month commencing December,
1989 and ending November, 1991; provided, however, that the Partnership shall
not pay and is not required to pay any portion of the Development Fee unless and
until the Partnership acquires the land and buildings on which the Resort shall
be located and upon the closing with respect to such acquisition, the
Partnership shall pay to the Manager that portion of the Development Fee deemed
earned by Manager from December 1, 1989 through the date of such closing.
1.9.2. Subject to Section 1.9.1 and any provisions to
the contrary which may be required by the lender of the First Mortgage Loan, as
defined in the Venture Agreement (as hereafter defined), the Partnership shall
pay the Development Fee to Manager as and when earned. The parties acknowledge
that the Development Fee shall be paid from funds available to the Partnership
including capital contributions to the Partnership and proceeds of loans
received by the Partnership from lenders for the Project and that
notwithstanding any provision in this Section 1.9 to the contrary, payment of
the Development Fee to the Manager as provided herein shall be made only to the
extent and in the manner permitted by such lenders; provided, however,
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that the Partnership shall make every effort to include the Development Fee
within such loans and to permit payment of the Development Fee as provided
herein under the terms of such loans. The Partnership shall promptly advise
Manager of any limitation or objection by its lenders with respect thereto.
1.9.3. Subject to Section 1.9.2, payments to Manager
under this Section 1, both of the Development Fee and for reimbursement of
expenses, shall be made on the basis set forth herein in full without retainage
of other withholding.
1.10. OBLIGATIONS SEPARATE. The obligations of Manager under
this Section 1 are separate and severable from the obligations of Manager during
the Management Term (as hereafter defined). No default or claimed default by
Manager in the performance of its obligations under Section 1 hereof shall in
any way affect or operate to terminate Manager's rights and obligations with
respect to the Management Term, affect Manager's right to commence management of
the Resort on the Commencement Date, nor be asserted against Manager or entitle
the Partnership to deduct from, offset or withhold any amounts required to be
paid to Manager in respect of the Management Term. Provided this agreement has
not bee terminated prior to the Commencement Date as provided in Section 8.1.1,
8.1.4 or 8.1.5 hereof, Manager's right to commence management of the Resort on
the Commencement Date as hereafter provided is absolute and unconditional and
neither the Partnership nor any partner of the Partnership shall assert any
claim
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to the contrary. No deductions shall be made from the Development Fee or other
compensation or from any expenses due Manager on account of penalty, liquidated
damage or other sums withheld from payments to Consultants or Contractors, or on
account of the cost of changes in work comprising the Project.
1.11. If the Partnership observes or otherwise becomes aware
of any fault or defect in the Project, or nonconformance with the applicable
contract documents, the Partnership shall give prompt written notice thereof to
Manager.
1.12. Manager shall be entitled to rely upon the expertise of
all third party Contractors and Consultants in connection with the Project.
Under no circumstances shall the Partnership seek to hold Manager responsible
for any acts or omissions of any Contractor or Consultant or for the quality of
their performance or lack thereof.
2. APPOINTMENT AS MANAGER OF THE RESORT.
2.1. APPOINTMENT AND TERM. The Partnership hereby appoints and
employs Manager to act as its agent for the supervision, direction and control
of the operation and management of the Resort on the Partnership's behalf, upon
the terms and conditions hereinafter set forth, for a term of 20 years beginning
on the Commencement Date (the "Management Term"). Manager hereby accepts such
appointment and shall supervise, direct and control the operation and management
of the Resort during the Management
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Term upon the terms and conditions hereinafter set forth. As used herein, the
Resort shall include substantially all the facilities currently contemplated by
the Partnership as set forth in Exhibit A annexed hereto to the extent
constructed. The Partnership shall also include in the Resort for purposes of
Manager's services hereunder as and when built the up to 100 condominium units
(each unit to be capable of rental as three separate hotel rooms) currently
contemplated by the Partnership to be built in four sections of 25 units each
during the years 1992 through 1995, the net rental income from which is
contemplated to be included within the Resort's Gross Revenues (as hereafter
defined), and such other additional facilities as may be added to the Resort at
the election of the Partnership from time to time. Manager shall have no right
by virtue of this agreement to manage such other additional facilities unless
the Partnership shall have elected to include such facilities in the Resort.
2.2. RELATION OF THE PARTIES. In performing its duties during
the Management Term, Manager shall be deemed to act only as the appointed agent
or representative of the Partnership, and nothing in this agreement shall be
construed as creating a tenancy, partnership, joint venture or any other
relationship between the parties hereto except that of principal and agent. All
debts and liabilities incurred by Manager within the scope and in accordance
with the performance of its obligations hereunder as manager of the Resort shall
be the debts and obligations of the Partnership only and shall be borne by the
Partnership and shall not be the responsibility of Manager.
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3. BUDGETS.
3.1. GENERAL POLICY. It is the intention of the parties to
operate the Resort at all times in accordance with pre-established budgets
approved by the Partnership and Manager shall not incur on behalf of the
Partnership any debts, liabilities, costs, expenses or commitments except within
such budgetary restraints or which are otherwise specifically approved by the
Partnership except as otherwise contemplated by this agreement. All budgeting,
planning and accounting records and reports prepared by Manager will be based
upon generally accepted accounting principles consistently applied and the
Uniform System of Accounts for Hotels, copyrighted by the Hotel Association for
New York City, 8th edition of 1986, as amended from time to time (the "Uniform
System of Account for Hotels") and shall, to the extent practical, be
coordinated with the Partnership's books and records.
3.2. FISCAL YEAR. For all purposes under this agreement, the
Resort's fiscal year ("Fiscal Year") shall be the twelve-month period ending on
March 31 or such other period as the Partnership shall designate, which period
shall be reasonably acceptable to Manager.
3.3. ANNUAL BUDGETS.
3.3.1. For each Fiscal Year or part thereof during the
Management Term, Manager shall submit to the Partnership 60 days before the
beginning of each such Fiscal Year, or, with respect to the Fiscal Year in which
the Commencement Date occurs, 45 days before the Commencement
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Date, reasonably detailed operating budgets (the "Operating Budgets") and
capital expenditures budgets (the "Capital Budgets") (the Operating Budgets and
Capital Budgets are referred to herein collectively as the "Annual Budgets"),
each in comparable detail to the Operating Budgets and Capital Budgets now
prepared by Manager in respect of the El San ▇▇▇▇ Hotel and Casino and the
Condado Plaza Hotel and Casino. Capital Budgets shall contain all items of a
capital nature as determined under generally accepted accounting principles and
Operation Budgets shall contain all other items. Within 30 days after its
receipt of any Annual Budget, the Partnership shall notify Manager in writing of
its approval of the Operating Budget and Capital Budget comprising the Annual
Budget or items therein or of any objections, changes, revisions or other
comments it may have with respect thereto. The Partnership may approve or object
to all or any portion of an Annual Budget. To the extent that any budget is
approved, in whole or in part, in writing by the Partnership, such budget or
portion thereof so approved shall constitute an approved budget ("Approved
Budget") for purposes of this agreement and Manager shall be entitled to incur
expenses and made commitments consistent with such Approved Budget. To the
extent that the Partnership has failed to approve any Annual Budget or portion
thereof, Manager and the Partnership shall meet with each other to agree upon a
mutually satisfactory Operating Budget or Capital Budget, as the case may be, or
portion thereof in accordance with the principle set forth in Section 3.3.5 and,
once so agreed, the budget
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or portion thereof so agreed to shall become an Approved Budget for purposes of
this agreement. Subject to Section 9.10, the Partnership shall not, however, be
entitled to unilaterally require the reduction of the amount of the total
Operating Budget, excluding Variable Charges, (as hereafter defined), below the
amount of the total Operating Budget, excluding Variable Charges, contained in
the most recent Approved Budget and shall not be entitled to unilaterally
require the reduction of the total amount of the Variable Charges so as to
reduce the Variable Charges as a percent of projected revenues in the proposed
Annual Budget below the amount of the Variable Charges as a percentage of
revenues in the most recent Approved Budget. The Partnership shall have absolute
discretion to approve or disapprove items in a Capital Budget except the
Partnership shall approve portions of the Capital Budgets consistent with the
principle set forth in Section 4.5 hereof. No proposed Capital Budget or
Operating Budget or portion thereof shall constitute an Approved Budget unless
and until it shall be approved by the Partnership as herein provided.
3.3.2. After approval of a Capital Budget, Manager may
not exceed the expenditures therein without the prior written approval of the
Partnership.
3.3.3. The parties acknowledge that the Operating
Budgets shall consist of certain charges which are not expected to fluctuate
based upon occupancy or use of the Resort's facilities ("Stable Charges") and
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certain charges which will fluctuate based upon occupancy or use of the Resort's
facilities ("Variable Charges"). Variable Charges include, but are not limited
to, utilities, water, laundry, personnel and food and beverage. Stable Charges
include, but are not limited to, marketing and advertising expenses, property
taxes and insurance. Within each Operating Budget, Manager shall be entitled to
establish a reserve amount which it deems sufficient to cover any cost overruns
in connection with the Stable Charges. Accordingly, Manager shall not exceed the
total amount of Stable Charges, including such reserve, reflected in an Approved
Budget without the prior written consent of the Partnership. Variable Charges
shall be reflected in Operating Budgets both as a dollar amount and as a
percentage of projected revenues. Manager shall be entitled to incur Variable
Charges in an aggregate amount above or below the aggregate dollar amounts
reflected in an Approved Budget provided, however, that the aggregate amount of
actual Variable Charges as a percentage of projected revenues reflected in the
Approved Budget by more than five (5) percentage points.
3.3.4. If the Partnership fails to approve Annual
Budgets or any portion thereof for any Fiscal Year, Manager may continue to
operate the Resort and made expenditures for such Fiscal Year within the
parameters of (i) the Operating Budget, including Variable Charges as a
percentage of revenues, and (ii) the amount set forth for replacement of
furniture, fixtures and equipment in the Capital Budget, each contained in the
Approved Budgets
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for the most recently completed Fiscal Year until full Approved Budgets shall
have been established except that Manager shall be entitled to incur increased
expenses in the ordinary course of business for matters set forth in the
operating Budget if such increases are due to factors beyond the control of
Manager such as utility rate increases, increased insurance premiums, tax
increases, interest rate increases, supplier price increases and the like.
3.3.5. Manager shall prepare Annual Budgets and the
Partnership shall act to approve budgets for the purpose of establishing
Approved Budgets so as to enable the Resort to operate as a first class, luxury
destination mega-resort.
3.3.6. In some cases Annual Budgets and therefore
Approved Budgets may be broken down by month or quarter. All tests for whether
Manager has complied with the Approved Budgets shall be made on an annual basis
and not a monthly or quarterly basis. Such more detailed breakdown shall be
solely for information purposes.
3.3.7. During the course of any Fiscal Year during the
Management Term it may be appropriate to modify portions of an Approved Budget
based upon actual operations and experience, unforeseen events or otherwise. In
such event, Manager shall be entitled to request changes or modifications to
Approved Budgets using the same procedures for requests for approval of Annual
Budgets as provided above.
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3.4. NO GUARANTEE. Manager makes no guarantee, warranty or
representation whatsoever with respect to any Annual or Approved Budgets,
including whether there will be profits or losses from the operation of the
Resort or the amount of revenues to be derived. Manager shall use due care in
preparing Annual Budgets so that such budgets shall reflect Manager's best
estimate of costs and expenses to be incurred and revenues to be generated. The
amounts, however, shall be only estimates and Manager shall have no liability to
the Partnership with respect to such amounts absent gross negligence, wilful
misconduct or fraud in connection with the preparation of such Annual Budgets or
in connection with the performance of Manager's obligations during the
Management Term.
4. OPERATION.
4.1. OPERATIONAL STANDARDS, ETC.
4.1.1. FIRST CLASS RESORT. Manager shall, at the expense
of the Partnership and subject to Approved Budgets and the provisions of Section
9.10 hereof, use its best efforts to operate the Resort as a first class, luxury
destination mega-resort in accordance with the provisions of this agreement and
consistent with such standards, other comparable properties in the area and
customary practices in the resort industry. Subject to the provisions of Section
9.10 hereof, the Partnership shall conduct its affairs, provide funds and all
other matters necessary for the operation of the Resort as a first class, luxury
destination mega-resort.
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4.1.2. NON-DISTURBANCE. Subject to Section 9.10, the
Partnership hereby warrants to Manager uninterrupted control and operation of
the Resort during the Management Term except as otherwise set forth herein,
unless this agreement is earlier terminated as herein provided. The Partnership
shall comply with all obligations to lenders to the Partnership so as to
preserve ownership of the Resort and to permit the Partnership to fund its
obligations hereunder. Except as otherwise set forth herein, Manager shall have
complete control and discretion in the management of the Resort and the
Partnership shall not interfere or involve itself with the day-to-day operation
and affairs of the Resort. Manager shall operate the Resort free of molestation,
eviction, disturbance by the Partnership or any third party claiming by, through
or under the Partnership. Manager shall have absolute discretion in the
determination of room rates, food and beverage menu prices, and charges to
guests for other services performed by the Resort for guests and may alter room
rates or other charges without prior consultation with the Partnership. Manager
shall have control and discretion with regard to the use of the Resort for all
customary purposes, including, the terms of admittance to the Resort for rooms,
for commercial purposes, for privileges of entertainment, employee rules and
practices and all phases of publicity and promotion. No influence shall be
brought on Manager by the Partnership relating to the granting or extension of
credit. Credit facilities shall be given by Manager in its discretion and in
accordance with Manager's standard
22
practice. All of the foregoing shall be consistent with Manager's obligation to
operate a first class, luxury destination mega-resort for the benefit of the
Partnership as provided hereunder and within Approved Budgets.
4.2. PERMITS. Manager shall, on behalf of and with the
cooperation of the Partnership and at the Partnership's sole expense, obtain all
necessary licenses, findings of suitability, approvals and permits from the
applicable governmental authorities (the "Government Authorities"), including
the Secretary of the Treasury of the Commonwealth of Puerto Rico and any other
governmental body or agency having authority over gaming, as may be required for
the operation of the Resort throughout the Management Term, including without
limitation, such liquor, bar, restaurant, gaming, marina, sign and hotel
licenses as may be required for the operation of the Resort as a first class,
luxury destination mega-resort. All such licenses, approvals and permits shall,
to the extent possible, be obtained in the name of the Partnership. Manager
shall notify the Partnership prior to obtaining any license, approval or permit
in the name of anyone other than the Partnership. Manager undertakes to comply
in all material respects with the rules, regulations and orders of the
Government Authorities and with any conditions set out in any such licenses and
permits and at all times to operate and manage the Resort in accordance with
such conditions and any other requirements of law. Upon receipt by Manager of
notice from the Partnership or any Government Authority that either the Manager
or the Resort is not in compliance with the
23
rules, regulations and orders of any Government Authority or any condition in
any license or permit, Manager, subject to the Approved Budgets, shall take such
action as may be necessary to fully comply therewith.
4.3. PERSONNEL.
4.3.1. EMPLOYEES OF PARTNERSHIP. Subject to the Approved
Budgets, Manager, as agent for the Partnership, shall hire, supervise, direct
the work of, discharge, and determine the compensation and other benefits of all
personnel working in the Resort during the term hereof, all of whom shall be in
the sole employ of the Partnership and not in the employ of Manager. Manager
shall be the sole judge of the fitness and qualifications of such personnel and
shall have absolute discretion in the hiring, supervision, direction,
discharging and determination of the compensation and other benefits of such
personnel during the course of their employment. Manager shall in no way be
liable to such personnel for their wages, compensation or other benefits
(including, without limitation, severance, vacation and termination pay), nor to
the Partnership, and the Partnership shall not interfere with or give orders or
instructions to personnel employed at the Resort. Manager shall not, however,
without the written consent of the Partnership, enter into any negotiations with
any collective bargaining units or enter into any collective bargaining
agreements.
4.3.2. EMPLOYEES OF MANAGER. Manager shall employ such
of its personnel as deemed necessary by Manager for the performance of
24
its duties hereunder. During the term hereof, Manager shall be reimbursed by the
Partnership for the salary, expenses and other compensation or benefits of such
personnel, consistent with Approved Budgets. If such personnel perform services
for other hotels or resorts managed by Manager, such personnel's salary,
expenses and other compensation and benefits shall be fairly allocated by
Manager, consistent with allocation methods used with other facilities managed
by Manager. Manager shall keep the Partnership advised as to the personnel and
services which it performs and shall fully advise the Partnership of allocation
procedures used. Manager shall have the right to grant complimentary rooms and
food and beverages to key personnel and their families, or to others wherein
such is customary in the hotel industry or in Manager's standard practice or
policy.
4.3.3. KEY MANAGERS. Notwithstanding the foregoing, the
Partnership shall have the right to disapprove of Manager's choice for hiring or
designation of key managers of the Resort, whether such managers shall be
employees of the Partnership or Manager. Such key managers shall include the
Resort's general manager, food and beverage manager, casino manager, controller,
executive assistant manager and other managers whose annual compensation exceeds
$100,000 per year.
4.3.4. REIMBURSEMENT FOR THIRD PARTY COSTS. The costs,
fees, compensation or other expenses of any persons engaged by the Partnership
or Manager in connection with the operations of the Resort and the
25
continuing obligations of the Manager, to perform duties of a specialist in
nature related to the operation, maintenance or protection of the Resort, such
as engineers, designers, attorneys, independent accountants and the like, shall
be borne by the Partnership in accordance with Approved Budgets and shall not be
the responsibility of Manager. Such costs, fees, compensation and other expenses
shall be included in the Approved Budgets.
4.4. SALES AND PROMOTION.
4.4.1. SALES. Manager, on behalf of the Partnership and
at the sole expense of the Partnership, shall institute and supervise a sales
and marketing program which shall be reflected in the Operating Budgets included
in the Approved Budgets.
4.4.2. PROMOTION. Manager may cause the Resort, on
behalf of the Partnership and at the sole expense of the Partnership in
accordance with Approved Budgets, to participate in sales and promotional
campaigns and activities involving complimentary rooms, food, beverages and the
use of other facilities of the Resort to travel agents, tourist officials and
airline representatives.
4.5. MAINTENANCE AND CAPITAL REPLACEMENT. The Partnership and
Manager recognize the necessity of establishing a continuing program of
replacement of furnishings and equipment and the need to cause the Resort to be
furnished, equipped and landscaped as a first class, luxury destination
mega-resort. The parties acknowledge that the Partnership has
26
estimated that such program during the early years of the Management Term will
be approximately 1% of revenues per year and thereafter increase up to
approximately 3% of revenues per year. The actual amount shall be fixed each
year under the procedures for Approved Budgets. However, the foregoing is
intended to establish the Partnership's obligation to approve a budget
implementing such program and to set forth the parties' expectation of the scope
of such program as of the date hereof. The program shall be reflected in the
Capital Budgets prepared by Manager and shall be included in the Approved
Budgets consistent with the principles set forth in this Section 4.5 and Section
3.3.5 hereof.
4.6. OPERATING, SUPPLY AND MAINTENANCE CONTRACTS. Manager is
authorized to make and enter into in the name of, for the account of, and at the
expense of the Partnership all such contracts and agreements as are in Manager's
opinion necessary for the operation, supply and maintenance of the Resort,
except that prior written approval of the Partnership shall be required if such
contract or agreement is for a term greater than one year and cannot be
terminated without payment or penalty upon not more than 90 days notice. Manager
is authorized to pay amounts due under such contracts and agreements when due
from the Resort's accounts, consistent with the Approved Budgets. Manager shall
be required to obtain the consent of the Partnership before entering into any
contract, agreement or purchase involving any structural repair, alteration or
rehabilitation of the Resort or the repair or
27
replacement of any furnishings, fixtures or equipment contained therein if not
provided for in the Approved Budgets.
4.7. ACCOUNTING SERVICES.
4.7.1. BOOKS AND RECORDS. As an expense of the
Partnership, Manager shall maintain an accurate accounting system in connection
with its management of the Resort which shall be reasonably coordinated with the
accounting system used by the Partnership. The books and records regarding the
operation of the Resort shall be kept in accordance with Section 3.1 of this
agreement, shall be maintained at the Resort, and shall be the property of the
Partnership. As an expense of the Partnership and as reflected in the Approved
Budgets, Manager shall comply with all requirements in respect of internal
controls and accounting and shall prepare all required reports under the rules
and regulations of the Government Authorities or any other applicable law or
regulation. In connection with the foregoing and consistent with the Approved
Budgets, Manager shall, in connection with its obligations under this Section
4.7.1, exercise due care and diligence, consistent with the level of operations
of the Resort contemplated by this agreement.
4.7.2. ANNUAL FINANCIAL INFORMATION. As an expense
of the Partnership, Manager shall direct that a certified audit of the accounts
of the Resort shall be performed annually by Ernst and Young or another
independent accounting firm mutually acceptable to the Partnership and Manager
and shall instruct such accounting firm to deliver at least one copy
28
thereof, consisting of a balance sheet, income statement and statement of cash
flows, to the Manager and the Partnership, at the addresses set forth on Exhibit
E annexed hereto, as the same may be amended from time to time, no later than 90
days after the end of each Fiscal Year. Nothing herein contained shall prevent
Manager's shareholders or the Partnership's general partners or their duly
authorized designees or their independent accounting firms from examining the
books and records of the Resort at all reasonable times.
4.7.3. MONTHLY REPORTS. On or before the 25th day of
each month, Manager shall furnish the Partnership at the addresses set forth on
Exhibit E annexed hereto with a statement for the preceding calendar month of
the gross income received from rooms, food and beverages, gaming, marina, golf
course, condominiums and other sources, guest room occupancy percentage, average
room rate and total expenses paid by category during the said month, such
statement to be prepared in accordance with the Uniform System of Accounts for
Hotels. Monthly reports furnished by Manager pursuant to this Section will be in
comparable detail to those reports now prepared by Manager for the El San ▇▇▇▇
Hotel and Casino and the Condado Plaza Hotel and Casino.
4.7.4. QUARTERLY FINANCIAL INFORMATION. On or before
the expiration of 45 days following the end of each fiscal quarter of the
Resort, Manager shall furnish to the Partnership unaudited financial statements
of the Resort for that quarter consisting of a balance sheet, income statement
and
29
statement of cash flows, prepared in accordance with Section 3.1 of this
agreement.
4.7.5. MEETINGS. During the Management Term and at
the request of the Partnership or either of the General Partners thereof, the
Manager shall cause its representatives to meet in Puerto Rico with
representatives of the Partnership or such General Partners, as the case may be,
no more frequently than once per month, for the purpose of reviewing the
financial results of the operations of the Resort and to otherwise respond to
all reasonable inquiries of the Partnership or such General Partners concerning
the operations of the Resort.
4.8. BANK ACCOUNTS. Manager shall establish such bank accounts
as Manager deems appropriate for the operation of the Resort. Such bank accounts
shall relate solely to the Resort, all Resort Gross Revenues or other
Partnership funds shall be deposited, maintained and segregated by the Manager
in such accounts and Manager shall not commingle such funds with any of the
Manager's funds or any funds of any other person or entity. Such bank accounts
shall be established only at financial institutions approved by the Partnership.
4.9. CONCESSIONS. Manager is authorized to consummate, in the
name of and for the benefit of the Partnership, arrangements and leases with
concessionaires, licensees, tenants and other intended users of any facilities
related to the Resort. Copies of all such arrangements and leases
30
shall be furnished to the Partnership. The terms of such arrangements or leases
shall be subject to the prior approval of the Partnership although Manager shall
have absolute discretion in choosing or selecting the type of facility that
shall be given to and conducted by such third party. Manager customarily uses a
standard form for such arrangements, however, the terms and provisions thereof
as well as in each case the specific economic and additional terms thereof,
shall be subject to the Partnership's prior approval which approval shall not be
unreasonably withheld. For instance, if Manager deems it appropriate that the
Resort have an Italian restaurant run by a third party, the Partnership shall
have the right to approve the economic and additional terms of the agreement to
be entered into by Manager on behalf of the Partnership as aforesaid but the
Partnership shall not be entitled to disapprove of the Manager's decision that
the restaurant be run by a third party and be an Italian style restaurant, that
decision being recognized as being within the scope of Manager's expertise as a
manager of first class, luxury resorts.
4.10. WORKING CAPITAL. The Partnership shall, at its sole
expense, provide Manager will sufficient working capital during the Management
Term for the uninterrupted and efficient operation of the Resort as a first
class, luxury destination mega-resort and in accordance with the Approved
Budgets.
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4.11. LEGAL ACTIONS. Manager may institute, at its sole
option, in its name or the Partnership's name, but at the sole expense of the
Partnership, legal actions or other proceedings to collect charges or rents, to
oust guests or tenants, or to terminate leases or agreements. Manager shall give
the Partnership written notice prior to instituting any action or proceeding
involving in excess of $25,000 and which relates to the ordinary course of
operations of the Resort, other than routine collection matters. Without the
prior written consent of the Partnership, Manager shall not institute any legal
actions or other proceedings which involve matters outside the ordinary course
of operations of the Resort or which are otherwise of an extraordinary or non-
routine nature.
4.12. EXPENSES.
4.12.1. PARTNERSHIP'S FINANCIAL OBLIGATIONS. All
costs, expenses, funding of operating deficits and working capital, debts,
obligations and liabilities of the Partnership or the Resort under this
agreement (the "Partnership's Financial Obligations") shall be the sole and
exclusive responsibility and obligation of the Partnership. It is understood
that statements in this agreement indicating that Manager shall furnish, provide
or otherwise supply, present or contribute items or services hereunder shall not
be interpreted or construed to mean that Manager is liable or responsible to
fund or pay for such items or services.
32
4.12.2. NO OBLIGATION TO FUND. The Partnership shall
reimburse Manager upon demand for any money or other property which Manager may
in its discretion pay out for any reason whatsoever in performing its duties as
manager of the Resort hereunder as provided for in the Approved Budgets whether
the payment is for operating expenses or any other charges or debts and whether
or not designated herein as an obligation of the Manager, the Partnership or the
Resort; provided, however, that it is understood and agreed that Manager shall
have no obligation or duty to fund or pay for any of the Partnership's Financial
Obligations or advance any of its own funds for the operation of the Resort.
4.12.3. TAXES. As agent for the Partnership and at
the Partnership's sole expense, Manager shall cause to be paid all taxes, fees
and other charges due by the Partnership to the Government Authorities and other
federal, commonwealth, state and local authorities in respect of the operation
of the Resort. The Partnership shall retain the right to contest or cause the
Manager to contest such taxes, fees and other charges.
4.12.4. FUNDING DEFICITS. With respect to any
deficits which may arise as a result of operations of the Resort, the
Partnership shall be obligated to fund and pay such deficits which are not
covered by the Resort income, within 30 days after written request therefor by
Manager. If the Partnership fails or delays in furnishing funds to cover such
deficits, Manager shall have no responsibility or liability, and the Partnership
shall indemnify and
33
hold harmless Manager with respect to any liability, however arising, which may
arise out of or relate to, directly or indirectly, such failure or delay in
funding such deficits. The foregoing obligation is subject to the provisions of
Section 9.10 hereof.
4.13. CONSENT AND APPROVALS. In acting under this agreement in
all matters relative to this agreement and in approving or consenting to any
matter under this agreement, the Partnership and Manager shall act in a
reasonable manner and consistent with the operation of a Resort as a first
class, luxury destination mega-resort. The Partnership shall take into account
Manager's advice stemming from its experience as a manager of first class,
luxury resorts, and conditions prevailing generally in the hotel and casino
resort industry.
5. COMPENSATION OF MANAGER.
5.1. BASIC COMPENSATION FOR MANAGEMENT SERVICES. In
consideration for all services rendered by Manager as manager of the Resort
pursuant to this agreement on and after the Commencement Date, the Partnership
shall pay to Manager, subject to the provisions of Section 5.3 of this
agreement, a basic management fee (the "Basic Management Fee") of three and one
half (3.5%) percent of Resort Gross Revenues (as hereinafter defined in Section
5.7). The Basic Management Fee shall be payable monthly on the 25th day
following the end of each month based upon the monthly operating statements
prepared and delivered in accordance with Section 4.7 of
34
this agreement, subject, however, to adjustment as provided in Section 5.3 of
this agreement.
5.2. INCENTIVE MANAGEMENT FEES. Subject to the provisions of
Section 5.3 and 5.4 of this agreement, for each Fiscal Year during the term of
this agreement, the Partnership shall pay Manager an incentive management fee
(the "Incentive Management Fee") of ten (10%) percent of Resort Operating
Profits (as hereinafter defined), which Incentive Management Fee shall be
payable annually on the earlier to occur of (a) five days after the
Partnership's receipt of audited financial statements for such Fiscal Year or
(b) 120 days after the end of such Fiscal Year.
5.3. FEE ADJUSTMENT. Basic Management Fees paid or payable to
Manager prior to the end of any Fiscal Year will be subject to verification and
adjustment after receipt of the audited financial statements for the applicable
Fiscal Year. If the Management Term is in effect for less than any full Fiscal
Year then the Basic Management Fee and the Incentive Management Fee with respect
to such partial Fiscal Year shall be based upon actual operations for the
portion of the Fiscal Year included in the Management Term.
5.4. SUBORDINATION OF INCENTIVE MANAGEMENT FEES.
5.4.1. SUBORDINATION.
(A) Notwithstanding anything herein to the
contrary, no Incentive Management Fee with respect to any Fiscal Year shall
35
be paid by the Partnership or accepted by Manager until (i) all of the interest
and principal due and payable during such month or Fiscal Year, as the case may
be, with respect to the First Mortgage Loan and the Subordinated Mortgage Loan
(as those terms are defined in the Venture Agreement) (the "Loans") shall have
been paid or provided for by the Partnership, and (ii) all interest and
principal on any Additional Loan or Deficiency Loan and payments of any
Preferred Return and Deferred Preferred Return, as those terms are defined in
the Venture Agreement, due for such Fiscal Year and any prior Fiscal Year shall
have been paid or provided for by the Partnership (all of the foregoing being
herein referred to as "Senior Obligations"). All payments of the Incentive
Management Fee with respect to any Fiscal Year shall be subordinate to the
Senior Obligations in accordance with this Section 5.4 and any payments received
by Manager in violation of the foregoing shall be held in trust by Manager for
the benefit of the holders of the Senior Obligations and shall be paid over or
delivered to the holders of the Senior Obligations in accordance with their
respective payment priorities. In addition, in the event of (a) a default under
the Loans causing acceleration of the Loans or (b) a sale by the Partnership of
all or substantially all of the Resort or (c) the condemnation or insured
casualty loss of all or substantially all of the Resort or (d) the liquidation,
dissolution or winding up of the Partnership, no Incentive Management Fee shall
be paid to Manager until all Senior Obligations have been paid in full.
36
(B) In the event that notwithstanding the
provisions of this Section 5 subordinating the payment of the Incentive
Management Fee to the Senior Obligations in the circumstances set forth herein,
Manager shall receive any payment in respect of the Incentive Management Fee at
a time when such payment is prohibited by this Section 5 because the
subordination provisions of Section 5.4.1 are deemed invalid or unenforceable by
a court of competent jurisdiction, then and in such event such payment shall be
received and held in trust by Manager for the benefit of the holders of the
Senior Obligations and shall be paid over or delivered to the holders of the
Senior Obligations in accordance with their respective payment priorities. In
such event, Manager shall become subrogated to the rights of such holders to the
extent it has turned over payments so received.
(C) Any Incentive Management Fee
due Manager but which is not paid by the Partnership by reason of the foregoing
subordination shall be accrued and carried over, with simple interest at the
rate of 10% per annum, until the Partnership shall have paid or provided for
payment of the Senior Obligations to the extent provided in this Section 5.4.1
and shall thereafter be paid to Manager. If requested, Manager shall enter into
an appropriate subordination agreement evidencing the foregoing if requested by
the lenders of the First Mortgage Loan and/or Subordinated Mortgage Loan. Except
for the Loans, the Deficiency Loans, the Additional Loans, the Preferred Return
and Deferred Preferred Return, the Partnership shall not,
37
without the prior written consent of Manager, enter into any agreement which
requires the Partnership to subordinate the Basic Management Fee or the
Incentive Management Fee.
5.4.2. PAYMENT OF LOANS. Subject to Section 9.10
hereof, the Partnership shall pay or provide for the payment, when due, of all
principal and interest and other amounts under the Senior Obligations so that
the Partnership shall be entitled to pay the Incentive Management Fees provided
for by this agreement.
5.5. LOSSES. Losses in any Fiscal Year shall be borne
exclusively by the Partnership and shall not reduce the amount of any
compensation which Manager may be entitled to receive pursuant to this agreement
for any prior or subsequent Fiscal Year. No part of such loss shall be charged
against, recaptured out of or otherwise serve to diminish or affect the Resort
Gross Operating Profit for any prior or subsequent Fiscal Year.
5.6. MANAGER LOANS. In the event the General Partners of the
Partnership make Deficiency Loans prior to the expiration of five years from the
Commencement Date and the KG General Partner makes KG Loans, as those terms are
defined in the Venture Agreement, then, so long as such KG Loans remain
outstanding, Manager shall make non-recourse loans ("Manager Loans") to the WKA
General Partner, as that term is defined in the Venture Agreement, out of
payments received by it in respect of the Basic Management Fee to the extent and
in an amount equal to 1% of Resort Gross Revenues as
38
provided in the agreement (the "Manager Loan Agreement") to be executed
concurrently herewith among Manager, the WKA General Partner and Kumagai
Caribbean, Inc. in the form annexed hereto as Exhibit F. Manager hereby
authorizes and directs the Partnership, for so long as the KG Loans remain
outstanding, to pay that portion of the Basic Management Fee required to be
loaned to the WKA General Partner as Manager Loans directly to the KG General
Partner at the address provided in the Venture Agreement. Notwithstanding the
payment of such sums to the KG General Partner, such sums shall be deemed to
satisfy, to the extent thereof, the obligation of the Partnership to Manager
under the terms hereof with respect to the Basic Management Fee. It is
understood and agreed that the KG General Partner is an express third party
beneficiary of the foregoing agreement.
5.7. CERTAIN DEFINITIONS. For purposes of this agreement:
5.7.1. RESORT GROSS REVENUES. "Resort Gross Revenues"
shall mean all gross revenues from all operations of the Resort, including,
without limitation, all revenues from rooms, golf course (including dues and the
first $5,000 of each initiation or membership fee but not amounts in excess
thereof), marina, food and beverage, telephone, telex, interest, casino net
wins, condominium net rentals, rentals or other payments from lessees,
licensees, or concessionaires (but not including the licensees' or
concessionaires' receipts), proceeds of business interruption insurance, and all
other receipts (exclusive of tips, service charges added to a customer's ▇▇▇▇ or
39
statement in lieu of gratuities, which are payable to Resort employees, taxes
collected and remitted to others, and the value of complimentary rooms, food and
beverages, except those purchased by the casino), minus actual credits and
refunds made to customers, guests or patrons. Subject to the foregoing
adjustments, Resort Gross Revenues shall be determined in accordance with
generally accepted accounting principles and the Uniform System of Accounts for
Hotels as set forth in Section 3.1 of this agreement, except that in the event
of conflict the definition of "Resort Gross Revenues" herein shall be
controlling.
5.7.2. RESORT OPERATING PROFITS. "Resort Operating
Profits" shall mean Resort Gross Revenues less all operating expenses of the
Resort whether designated herein as an obligation of Manager, the Partnership or
the Resort,, including, without limitation, (a) the Basic Management Fee; (b)
marketing expenses; (c) repair and maintenance; (d) utility charges; (e) reserve
for replacement of furniture, fixtures and equipment; (f) administrative and
general expenses (including bad debt reserve) and (g) premiums for accident,
health, workers compensation and other insurance furnished to or for the benefit
of employees of the Resort and premiums for insurance of a similar nature; but
prior to deducting (i) premiums for liability, property and casualty insurance;
(ii) depreciation of building, plant, furniture, fixtures and equipment; (iii)
amortization of pre-opening expenses; (iv) financing costs including interest
charges, principal payment and debt service; (v) capital
40
expenditures and payments on leases other than amounts included in the reserve
for replacement of furniture, fixtures and equipment; (vi) property taxes and
taxes on income; (vii) the Incentive Management Fee; (viii) real property
rentals.
5.7.3. VENTURE AGREEMENT. The "Venture Agreement"
shall mean that certain joint venture agreement dated January 12, 1990 between
Kumagai Caribbean, Inc. and WKA El Con Associates pursuant to which the
Partnership was formed.
6. INSURANCE.
6.1. INSURANCE. Manager shall procure and maintain, on behalf
of and at the expense of the Partnership, consistent with the Approved Budgets,
at all times during the Management Term, all such insurance as Manager and the
Partnership shall deem advisable including, without limitation, fidelity
liability insurance covering all of the Resort's employees authorized to deal
with Resort funds, and the premiums for such insurance shall be included in the
Annual Budgets and Approved Budgets. The Partnership shall maintain all
necessary insurance for the Resort and the premiums therefor shall be included
in the Approved Budgets. Manager shall not be required to maintain separate
insurance.
6.2. INSURANCE STANDARDS AND REQUIREMENTS. The Partnership and
Manager shall keep each other advised of applicable laws, rules or regulations
and third parties having the right to determine insurance
41
requirements for the Resort, including without limitation, the agreements under
which the Loans are made and all insurance procured pursuant to Section 6.1 of
this agreement shall meet or exceed any requirements of such applicable laws,
rules or regulations and third parties having the right to determine insurance
requirements for the Resort. Insurance procured hereunder shall be placed with
insurance companies believed by Manager to be reputable and financially sound.
All insurance hereunder shall name both Manager and the Partnership, as their
interests shall appear and to the extent permitted by the insurance carrier
shall name Manager as an additional insured at least to the extent of the
Partnership's obligations under Section 6.3.1 hereof.
6.3. INDEMNIFICATION.
6.3.1. INDEMNIFICATION OF MANAGER. The Partnership
shall defend and promptly indemnify Manager and save and hold it harmless from,
against, for and in respect of and pay any and all damages, losses, obligations,
liabilities, claims, encumbrances, deficiencies, costs and expenses, including
without limitation, actual attorneys' fees and other costs and expenses incident
to any suit, action, investigation, claim or proceeding, suffered, sustained,
incurred or required to be paid by Manager by reason of (a) any breach or
failure of any observance or performance of any representation, warranty,
covenant, agreement or commitment made by the Partnership hereunder or relating
to or as a result of any such representation, warranty, covenant, agreement or
commitment being untrue or incorrect in any respect,
42
(b) injury or death to persons or damage or destruction of property due to any
cause whatsoever, either in or about the Resort or elsewhere, as a result of the
performance of this agreement by Manager, its agents, officers, directors or
employees, or otherwise, irrespective of whether alleged to be caused, wholly or
partially, by Manager, its agents, officers, directors or employees or (c) for
any money or other property which Manager is required to pay out for any reasons
whatsoever in performing its duties under this agreement, whether the payment is
for operating expenses or any other charges or debts incurred or assumed by
Manager or any other party, or judgments, settlements, or expenses in defense of
any claim, civil or criminal action, proceedings, charge, or prosecution made,
instituted or maintained against Manager or the Partnership, jointly or
severally, because of the condition or use of the Resort, or acts or failures to
act of Manager, its agents, officers, directors or employees, or arising out of
or based upon any law, regulation, requirement, contract or award.
Notwithstanding the foregoing, the Partnership shall not be liable to Manager
pursuant to this Section 6.3.1 if any liability described above results from the
willful misconduct, fraud or gross negligence by Manager, its officers,
directors or employees who are not employed substantially full time in the
management or operation of the Resort.
6.3.2. INDEMNIFICATION OF THE PARTNERSHIP. Manager
shall defend and promptly indemnify the Partnership and save and hold it
harmless from, against, for an in respect of and pay any and all damages,
43
losses, obligations, liabilities, claims, encumbrances, deficiencies, costs and
expenses, including without limitation, actual attorneys' fees and other costs
and expenses incident to any suit, action, investigation, claim or proceeding,
suffered, sustained, incurred or required to be paid by the Partnership by
reason of any injury or death of any person or damage or destruction of property
due to the willful misconduct, gross negligence or fraud of Manager, its
officers, directors or employees who are not employed substantially full time in
the management or operation of the Resort.
6.3.3. PROCEDURE FOR INDEMNIFICATION. For purposes of
this Section 6.3, the party entitled to indemnification shall be known as the
"Injured Party" and the party required to indemnify shall be known as the "Other
Party." If the Other Party shall be obligated to the Injured Party pursuant to
this Section 6.3 or if a suit, action, investigation, claim or proceeding is
begun, made or instituted as a result of which the Other Party may become
obligated to the Injured Party hereunder, the Injured Party shall give prompt
written notice to the Other Party of the occurrence of such event. The Other
Party shall defend, contest or otherwise protect against any suit, action,
investigation, claim or proceeding at the Other Party's own cost and expense.
The Injured Party shall have the right, but not the obligation, to participate
at its own expense in the defense thereof by the counsel of its own choice. If
the Other Party fails timely to defend, contest or otherwise protect against any
suit, action, investigation, claim or proceeding, the Injured Party
44
shall have the right to defend, contest or otherwise protect against the same
and upon ten days' written notice to the Other Party may make any compromise or
settlement thereof and recover the entire cost thereof from the Other Party
including without limitation, actual attorneys' fees, disbursements and all
amounts paid as a result of such suit, action, investigation, claim or
proceeding or compromise or settlement thereof. In the event the Injured Party
elects at any time not to seek or continue to rely on indemnification from the
Other Party with respect to any claim, suit, action or proceeding, it shall have
the right to defend, contest or otherwise protect against the same at its sole
cost and expense and the Other Party shall have no liability to the Injured
Party in respect of such claim, suit, action or proceeding and no right to
defend or participate in the defense of such claim, suit, action or proceeding.
Anything to the contrary herein notwithstanding, prior to finally settling any
such claim, suit, action or proceeding, the Other Party shall give the Injured
Party notice of its intention to settle same and the terms of such proposed
settlement. If the Injured Party shall object to such proposed settlement within
ten days after its receipt of such notice, then the Injured Party shall
thereafter, at its sole expense, assume the control and defense of such claim,
suit, investigation action or proceeding. In such event, the Other Party shall
not be relieved from its obligations hereunder but such obligation shall be
limited with respect to the amount of such claim, suit, investigation action or
proceeding in the sense that it may not be greater than the amount for which the
same
45
could have been settled as proposed by the Other Party and will not be greater
than the amount for which it is ultimately resolved. If the Injured Party does
not object to the terms of the proposed settlement within the aforesaid ten day
period, then the Other Party shall have the right to consummate such proposed
settlement upon the terms set forth in the aforesaid notice. Failure to give the
Other Party timely notice of any claim, suit, action or proceeding shall in no
way relieve such party from its obligation to indemnify the Injured Party except
to the extent of losses actually caused to the Other Party by reason of such
failure.
7. DAMAGE TO RESORT AND CONDEMNATION.
7.1. CASUALTY DAMAGE.
7.1.1. THE PARTNERSHIP TO RESTORE. The Partnership
shall, subject to the provisions of this Section 7.1, repair, restore, rebuild
or replace any damage to, or impairment or destruction of the Resort from fire
or other casualty provided, however, that such obligation shall be limited to
the amount of insurance proceeds actually received by the Partnership in respect
of such casualty plus $3,000,000. If the Partnership fails to undertake such
work within 90 days after the casualty, or shall fail to complete the same
diligently, Manager may, but shall not be obligated to, undertake or complete
such work for the account of the Partnership and shall be entitled to be repaid
by the Partnership therefor, and the proceeds of insurance shall be made
available to Manager for such purpose. If the Partnership fails to undertake
46
such work within 90 days after fire or other casualty, or shall fail to complete
the same diligently, Manager, without prejudice to its rights against the
Partnership arising from any breach by the Partnership of its obligations under
this Section 7, may, at its election, terminate this agreement upon five days'
written notice to the Partnership.
7.1.2. LIMITATION ON RESTORATION. If the Resort shall
be wholly destroyed or Substantially Destroyed (as hereafter defined) during the
term of this agreement by fire or other casualty, the Partnership shall have the
right and option, upon notice served upon Manager within 90 days after such fire
or other casualty, to decide not to make any repair, restoration, rebuilding or
replacement and to terminate this agreement upon 30 days' written notice. For
purposes of this Section, "Substantially Destroyed" shall mean damage to the
Resort in excess of $40,000,000.
7.2. CONDEMNATION.
7.2.1. TOTAL CONDEMNATION. If the whole of the Resort
shall be taken or condemned in any eminent domain, condemnation, compulsory
acquisition or like proceeding by any competent authority for any public or
quasi-public use or purpose, or if such of the Resort's facilities shall be so
taken or condemned resulting in the Resort being Substantially Destroyed or if
such a portion of the Resort shall be taken or condemned so as to make it
imprudent or unfeasible, in Manager's reasonable opinion, to use the remaining
portion as a resort of the type and class immediately preceding such
47
taking or condemnation, then in any of such cases, at the Partnership's election
given in writing to Manager, the term of this agreement shall cease and
terminate as of the later of the date of such taking or condemnation or
Manager's receipt of notice of the Partnership's election to terminate this
agreement.
7.2.2. PARTIAL CONDEMNATION. If such taking or
condemnation results in the Resort not being deemed Substantially Destroyed and
such taking or condemnation does not make if unfeasible or imprudent, in
Manager's reasonable opinion, to operate the remainder as a resort of the type
and class immediately preceding such taking or condemnation, this agreement
shall not terminate, but the Partnership, to the extent of the condemnation
award plus $3,000,000, shall repair any damage to the Resort, or any part
thereof, or alter or modify the Resort, or any part thereof, or reconstruct any
facility so taken or condemned so as to render the Resort a complete and
satisfactory architectural unit as a resort of the same type and class as it was
immediately preceding the taking or condemnation.
8. TERMINATION.
8.1. RIGHT OF TERMINATION.
8.1.1. Notwithstanding anything herein to the
contrary, Manager may terminate this agreement if the Partnership shall fail to
keep, observe or perform any covenant, agreement or provision of this agreement
required to be kept, observed or performed by the Partnership, such
48
termination to become effective thirty days after Manager shall have given to
the Partnership written notice of such failure, and such failure remains uncured
by the Partnership during such thirty-day period or, if such failure cannot be
cured within such thirty-day period, the Partnership has failed during such
thirty-day period to proceed promptly and diligently to cure such failure.
8.1.2. The Partnership shall have the right to
terminate this agreement upon thirty (30) days prior written notice to Manager
in the event that (a) WKA El Con Associates fails to pay at maturity (nine years
after the Commencement Date) the full amount of all outstanding KG Loans, as
that term is defined in the Venture Agreement; (b) WKA El Con Associates fails
to immediately apply amounts received by it from the Partnership in respect of
Deficiency Loans in repayment of outstanding KG Loans; (c) WKA El Con Associates
fails to immediately apply the proceeds of Manager Loans in repayment of
outstanding KG Loans or (d) Manager fails to make any required Manager Loan
immediately upon its receipt of the Basic Management Fee as provided in Section
5.6 hereof and the Manager Loan Agreement. Such right shall be exercisable only
during the 180 day period immediately following such default.
8.1.3. The Partnership shall have the right to
terminate this agreement upon thirty (30) days prior written notice to Manager
in the event that Manager shall have failed to meet the Performance Standards,
as hereafter defined, for any two consecutive Fiscal Years commencing with the
49
sixth full Fiscal Year during the Management Term. Manager shall be deemed to
have failed to meet the Performance Standards in any Fiscal Year if the average
revenues per room and average occupancy levels of the Resort are both less than
80% of the average revenues per room and average occupancy levels of Hyatt
Dorado Beach Hotel and Candelero Hotel at Palmas del Mar, collectively, during
the comparable period.
8.1.4. The Partnership shall have the right to
terminate this agreement effective upon a consummation of a sale by the
Partnership of all or substantially all of the Resort, provided the Partnership
shall have given Manager at least 30 days prior written notice and provided
further that if such sale occurs during the Management Term, the Partnership
shall pay Manager the Liquidation Share (as hereafter defined).
8.1.5. This agreement may be terminated upon 30 days
prior written notice to Manager in connection with a sale or other disposition
of the Resort in connection with proceedings to foreclose the First Mortgage
Loan or any other mortgage constituting a first lien of the Resort.
8.2. PAYMENTS. Upon termination of this agreement for any
cause or reason including those set forth in Section 7 and Section 8.1 hereof,
all amounts owing from the Partnership to Manager pursuant to this agreement for
all periods prior to the date of termination, including the Basic Management
Fee, the Incentive Management Fee and all expenses for which Manager is entitled
to reimbursement, shall become immediately due and
50
payable provided, however, that the Incentive Management Fee shall be payable
only in accordance with Section 5.4.1(A) hereof. The Partnership shall promptly
determine and pay such amounts and if this agreement shall have been terminated
as provided in Section 8.1.4, the Partnership shall immediately pay Manager an
amount equal to Manager's Liquidation Share at the date of termination.
Effective upon such termination, the Management Term shall cease and Manager and
the Partnership shall cease to have any continuing obligations to each other
except with respect to such payments, causes of action by reason of any breach
prior to such termination and the indemnification obligations set forth in
Section 6.3 hereof. The payment by the Partnership of amounts due upon
termination shall not operate as a waiver of any claims the Partnership may have
against Manager for any breach by Manager of the terms of this agreement.
8.3. MANAGER'S LIQUIDATION SHARE. For purposes of this Section
8, "Manager's Liquidation Share" shall be an amount equal to 75% of the sum of
the Individual Year Amounts for each Fiscal Year or portion thereof remaining
between the date of determination ("Determination Date") and the date occurring
20 years after the Commencement Date. The "Individual Year Amount" for any
Fiscal Year shall be an amount equal to the average of the Basic Management Fees
and the Incentive Management Fees payable (whether actually paid or accrued) to
Manager hereunder for the three full Fiscal Years which shall have passed
immediately prior to the
51
Determination Date (or the average of all Fiscal Years if at least three full
Fiscal Years have not passed prior to the Determination Date or $3,000,000 if at
least one full Fiscal Year has not passed prior to the Determination Date)
discounted to the Determination Date assuming an 8% simple interest factor and
assuming further that each year's payment would have been made on the first day
of such year.
8.4. NULL AND VOID. If (a) the Partnership shall not acquire
the land and buildings for the Resort before September 30, 1990, or (b) the
Partnership elects to abandon the Project or sell the Resort after such
acquisition but prior to the Commencement Date, then in either of such events
this agreement shall be deemed cancelled and of no force and effect and no party
hereto shall have any obligation to the other hereunder except that the
Partnership shall reimburse Manager for expenses incurred prior thereto which
are otherwise expenses of the Partnership pursuant to the terms hereof and if
the Project is abandoned or the Resort sold prior to the Commencement Date, the
Partnership shall pay to the Manager any portion of the Development Fee earned
through the date of termination.
9. MISCELLANEOUS.
9.1. ENTIRE AGREEMENT. This agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof. No change,
modification, amendment, addition or termination of this agreement or any part
52
thereof shall be valid unless in writing and signed by or on behalf of the party
to be charged therewith.
9.2. COUNTERPARTS. This agreement may be executed in one or
more counterparts, and shall become effective when one or more counterparts has
been signed by each of the parties.
9.3. NOTICES. Except as otherwise provided herein, any and all
notices or other communications or deliveries required or permitted to be given
pursuant to any of the provisions of this agreement shall be deemed to have been
duly given for all purposes if sent by certified or registered mail, return
receipt requested and postage prepaid, sent by express mail or other responsible
overnight delivery service, hand delivered or sent by telegraph, telex or
telephone facsimile as follows:
If to the Partnership, at:
c/o WMS Industries Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: President
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
and
Kumagai Caribbean, Inc.
c/▇ ▇▇▇▇▇▇▇▇ Hospitality
Management Corp.
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: President
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
53
▇▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇, Day, ▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to Manager, at:
c/o ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ Hospitality
Management Corp.
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
or at such other address as any party may specify by notice given to other party
in accordance with this Section 9.3. The date of giving of any such notice shall
be three business days following the date sent by certified or registered mail,
the next business day following delivery to a responsible overnight delivery
service, the date hand delivered, the date sent by telegraph, telex or telephone
facsimile.
54
9.4. WAIVERS. No waiver of the provisions hereof shall be
effective unless in writing and signed by the party to be charged with such
waiver. No waiver shall be deemed a continuing waiver or waiver in respect of
any subsequent breach or default, either of similar or different nature, unless
expressly so stated in writing.
9.5. SEVERABILITY. Should any clause, section or part of this
agreement be held or declared to be void or illegal for any reason, all other
clauses, sections or parts of this agreement which can be effected without such
illegal clause, section or part shall nevertheless continue in full force and
effect.
9.6. CHOICE OF LAW. This agreement shall be governed,
interpreted and construed in accordance with the laws of the State of Delaware.
9.7. NON-ASSIGNABILITY. This agreement and the various rights
and obligations arising hereunder shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns except that
no assignee or successor of the Partnership shall be entitled to enforce any of
the Partnership's rights under Section 9.10 hereof. This agreement shall not be
assignable by any of the parties hereto without the prior written consent of all
other parties hereto and any attempt to assign this agreement shall be void and
of no effect, except that (i) Manager shall have the right, without consent of
the Partnership, to assign all or any part of this agreement to a wholly owned
subsidiary of Manager which shall assume the
55
obligations of Manager hereunder but such assignment shall not relieve Manager
of any liability hereunder and (ii) the Partnership shall have the right to
assign this agreement after the Commencement date without the consent of Manager
in connection with a sale of the entire Resort provided that the purchaser of
the Resort shall assume and be responsible only for the obligations hereunder
with respect to periods following the date of such sale and the Partnership
shall be responsible under this agreement only for obligations hereunder with
respect to periods prior to the date of such sale. The Partnership shall not be
responsible for obligations hereunder for periods following the date of such
sale.
9.8. CAPTIONS. The headings or captions under sections of
this agreement are for convenience and reference only and do not in any way
modify, interpret or construe the intent of the parties or effect any of the
provisions of this agreement.
9.9. NON-RECOURSE TO PARTNERS. The obligations of the
Partnership hereunder shall be non-recourse to the General Partners of the
Partnership and Manager shall look solely to the assets of the Partnership to
satisfy such obligations.
9.10. LIMITATION OF REMEDIES. The general partners of the
Partnership have agreed to make capital contributions to the Partnership of not
less than $30,000,000 and to make Deficiency Loans to the Partnership of up to
$20,000,000 in principal amount outstanding, all as provided in the Venture
56
Agreement and each of the general partners of the Partnership hereby covenants
with Manager to make such capital contributions and Deficiency Loans as and to
the extent provided in the Venture Agreement. Neither the Partnership nor the
General Partners of the Partnership shall have any obligations to make, or any
liability to Manager for damages incurred by Manager as a result of any failure
to refusal by the General Partners to make, any additional loans or capital
contributions or otherwise provide financing to the Resort except that
Partnership shall remain responsible to Manager for amounts payable under
Section 5.1, 5.2, 4.12.2 and 6.3 hereof. The parties acknowledge that
notwithstanding such contributions and Deficiency Loans and the proceeds of
Loans, the possibility exists that the Partnership may have insufficient funds
available to complete the Project as contemplated or that such funds, together
with revenues generated from the operations of the Resort may be insufficient to
enable the Partnership to fully perform certain of its obligations during the
Management Term including those obligations set forth in Sections 3.3.1, 3.3.5,
4.1.1, 4.1.2, 4.5, 4.10, 4.12.1, 4.12.2, 4.12.4 and 4.13 hereof. If, despite the
fact that the capital contributions and proceeds of Deficiency Loans and the
Loans have all been used in connection with the Project and the operations of
the Resort, the Partnership has insufficient funds available to meet its
obligations under the Loans and/or this agreement, other than the obligation to
pay the Basic Management Fee as provided in Section 5 hereof and to reimburse
Manager for expenses under Section 4.12.2 hereof,
57
at the Partnership's request, Manager shall refrain from enforcing its rights
under such sections, other than the right to be paid the Basic Management Fee
under Section 5.1 hereof and to be reimbursed for expenses under Section 4.12.2
hereof, to the extent necessary to afford the Partnership the opportunity to
continue to operate the Resort, to meet its obligations to its lenders, or to
obtain refinancing or additional financing, as the Partnership shall determine.
Manager understands that in such event certain measures may be required to be
taken by the Partnership to cut back on the expenses associated with the
operation of the Resort which may adversely affect the operation of the Resort
as a first class, luxury destination mega-resort and notwithstanding anything to
the contrary in this agreement, Manager shall cooperate with the Partnership to
reduce expenses revise budgets including Approved Budgets and otherwise comply
with all reasonable requests of the Partnership designed to continue the Resort
as a going concern. All revised budgets, when approved by the Partnership, shall
thereafter constitute Approved Budgets for purposes of this agreement, including
Section 4.12.2 hereof. In such event, Manager shall nevertheless continue
management of the Resort subject to the terms of this agreement, unless and
until this agreement has been terminated as provided herein; however, Manager's
obligations to operate the Resort as a first class, luxury destination
mega-resort and to otherwise perform certain obligations hereunder shall be
correspondingly suspended to the extent funds are not available for such level
of operation.
58
The parties acknowledge that Manager's undertaking not to enforce its remedies
under such circumstances is extraordinary and shall not be broadly construed.
Nothing in this Section shall be deemed to constitute a waiver of any of
Manager's rights to receive the Basic Management Fee and to be reimbursed for
its expenses as provided in Section 4.12.2 hereof. This Section is only an
agreement by Manager to temporarily refrain from asserting certain of its rights
under this agreement and to claim damages as a result thereof. All such rights
shall be reinstated in full on a going forward basis and Manager shall be
entitled to require full compliance by the Partnership with its obligations
under this agreement when the Partnership's financial circumstances permit. In
the event expenses or operations of the Resort are curtailed under this Section
9.10 so that the Resort cannot be operated at a first class, luxury level, the
Partnership's right to terminate this agreement under Section 8.1.3 hereof shall
have no force and effect during the period that such expenses or operations were
curtailed and once such expenses and operations have returned to normal, shall
be applicable only to Fiscal Years commencing one full Fiscal Year after they
shall have returned to normal. Nothing in this Section 9.10 shall be deemed to
limit or curtail Manager's right to terminate this agreement under the
provisions of Section 8.1.1 in the event the Partnership is unable to perform
its obligations for any reason whatsoever, including those referred to in this
Section 9.10.
59
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
signed on the date and year first above written.
EL CONQUISTADOR PARTNERSHIP L.P.
By: WKA EL CON ASSOCIATES,
a general partner
By: WMS EL CON CORP., Partner
By: /s/____________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
President
and
By: KUMAGI CARIBBEAN, INC.,
a general partner
By: /s/____________________________
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Chairman
▇▇▇▇▇▇▇▇ HOSPITALITY MANAGEMENT
CORPORATION
By: /s/____________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
60
FIRST AMENDMENT TO THE DEVELOPMENT SERVICES
AND MANAGEMENT AGREEMENT BETWEEN
EL CONQUISTADOR PARTNERSHIP L.P. AND
▇▇▇▇▇▇▇▇ HOSPITALITY MANAGEMENT CORPORATION
This amendment ("Amendment") is made and entered into as of
the 30th day of September 1990, by and between El Conquistador Partnership L.P.,
a Delaware limited partnership ("Partnership"), and ▇▇▇▇▇▇▇▇ Hospitality
Management Corporation, a Delaware corporation ("Manager").
W I T N E S S E T H :
WHEREAS, the Partnership and the Manager are parties to a
development services and management agreement dated January 12, 1990 with
respect to the El Conquistador Hotel to be acquired and developed by the
Partnership in Fajardo, Puerto Rico; and
WHEREAS, the Partnership and the Manager desire to amend the
Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants set forth herein, the parties hereto hereby agree as follows:
Section 8.4, paragraph (a), clause (i) of the Agreement is
hereby amended to change the date of September 30, 1990 set forth therein to
January 31, 1991.
All other provisions of the Agreement shall remain in full
force and effect except as amended hereby.
EL CONQUISTADOR PARTNERSHIP, L.P., a
Delaware limited partnership
By: WKA El Con Corp., General Partner
By: /s/___________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
By: Kumagai Caribbean, Inc.,
General Partner
By: /s/___________________________
Shunsuke Nakane
▇▇▇▇▇▇▇▇ HOSPITALITY
MANAGEMENT CORPORATION
By: /s/__________________________
▇▇▇▇ ▇▇▇▇▇▇▇, President
SECOND AMENDMENT TO THE DEVELOPMENT SERVICES
AND MANAGEMENT AGREEMENT BY AND BETWEEN
EL CONQUISTADOR PARTNERSHIP L.P.
AND ▇▇▇▇▇▇▇▇ HOSPITALITY MANAGEMENT CORPORATION
THIS AGREEMENT is made and entered into as of the 31st day of January
1991, by and between El Conquistador Partnership L.P., a Delaware limited
partnership (the "Partnership"), and ▇▇▇▇▇▇▇▇ Hospitality Management
Corporation, a Delaware corporation (the "Manager").
W I T N E S S E T H :
WHEREAS, the Partnership and the Manager are parties to a
development services and management agreement dated January 12, 1990, as amended
by agreement dated September 30, 1990 (the "Agreement"), with respect to, among
other things, the construction, renovation and development by the Partnership of
the El Conquistador Resort and Country Club in Fajardo, Puerto Rico (capitalized
terms used herein and not otherwise defined shall have the same meaning ascribed
to such terms in the Agreement); and
WHEREAS, the Partnership's acquisition of the land and
buildings on which the Resort will be located has been delayed beyond January
31, 1991; and
WHEREAS, the Manager has requested that the Partnership not
permit the Agreement to automatically terminate as a result of the Partnership's
failure to acquire the land and buildings for the Resort by January 31, 1991 as
currently provided in Section 8.4 of the Agreement; and
WHEREAS, the Partnership has requested that as a condition to
continuing the Agreement beyond January 31, 1991, that the Manager defer payment
of portions of the Development Fee; and
WHEREAS, the Partnership and the Manager believe it is
mutually beneficial to amend the Agreement to accommodate their respective
requests.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and in consideration of
the premises and mutual covenants set forth herein, the parties hereto agree as
follows:
1. Section 8.4 of the Agreement is hereby amended to change
the date on which the Agreement shall be deemed to automatically terminate by
reason of the failure by the Partnership to acquire to land and buildings on
which the resort will be located from January 31, 1991 to February 15, 1991.
3. Except as specifically set forth above all other provisions
of the Agreement are hereby ratified and confirmed and shall remain in full
force and effect.
IN WITNESS WHEREOF the parties hereto have set their hand and
seal as of the date and year first above written.
EL CONQUISTADOR PARTNERSHIP L.P.
Delaware limited partnership
By: WKA El Con Associates,
General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Authorized Signatory
By: Kumagai Caribbean, Inc.,
General Partner
By: /s/ Shunsuke Nakane
----------------------------------------
Shunsuke Nakane, President
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▇▇▇▇▇▇▇▇ HOSPITALITY MANAGEMENT
CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
3
