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6/25/2008 - STAFF REPORTS - 1.D.
OF,?ALAI wro..e Citz Council Staff Report DATE: JUNE 25, 2008 NEW BUSINESS SUBJECT: APPROVAL OF A CONTRACTUAL SERVICES AGREEMENT FOR AN INTERNATIONAL HOTEL AND CONVENTION CENTER MARKETING AND RESERVATION PROGRAM WITH HH PALM SPRINGS LLC, A DELAWARE LIMITED LIABILITY CORPORATION FOR A PERIOD OF TWENTY-FIVE (25) YEARS FROM: David H. Ready, City Manager BY: Community & Economic Development Department SUMMARY: The City of Palm Springs, as a part of its Convention Center complex, entered into a long term sublease of the site for the Wyndham Hotel (the "Hotel') adjacent to the Convention Center. In order to maximize the sales of the Hotel and the Convention Center, the City and its Convention Center managers have determined that there is a need for access to and participation in a robust and upscale international hotel and convention center sales, marketing and reservation program (the "Program") for the Hotel. A Program with a well respected, stable and identifiable hotel brand is a key component to reaching and attracting group hotel convention business of the size and quality appropriate to Palm Springs. The current owner of the Hotel has agreed to acquire and provide access to and participation in a Program for the Hotel at 888 East Tahquitz Canyon Way, which will benefit the Convention Center. The Agreement is for a period of twenty-five (25) years and the cost to the City for the Program is Three Million Four Hundred Twenty Five Thousand Dollars, ($3,425,000). RECOMMENDATION: APPROVE AGREEMENT NO. CONTRACTUAL SERVICES AGREEMENT FOR AN INTERNATIONAL HOTEL AND CONVENTION CENTER SALES, MARKETING AND RESERVATION PROGRAM WITH HH PALM SPRINGS LLC, A DELAWARE LIMITED LIABILITY CORPORATION, FOR A PERIOD OF TWENTY- FIVE (25) YEARS AND AUTHORIZE THE CITY MANAGER TO EXECUTE ALL DOCUMENTS RELATED TO THIS AGREEMENT. ;i dN�J ��✓r5/0/J STAFF ANALYSIS: The property for the Convention Center and Hotel was assembled in 1984 under a Master Lease (PSL-315) by SENCA Palm Springs, LLC and the Community Redevelopment Agency ("Original Lease") for the purpose of developing a Convention Center and an attached convention center hotel. The City of Palm Springs is now the Master Lessee under the Original Lease, which has been amended three times and is commonly referred to as the "Master Lease." SENCA and the City reversed positions in the Lease in 1989, after the Convention Center opened, whereby SENCA became the sublessee on Parcel 4 and the City assumed the Master Lease obligations on the Convention Center and the Wyndham Hotel. The swap saved the City hundreds of thousands of dollars per year in lease payments and allowed SENCA to not have to make any lease payments on the undeveloped portion of land until it developed. SENCA's sublease on Parcel 4 was acquired by a private developer in 1993, and is now commonly referred to as the Suitt/Block Parcel; in September 2007 the Community Redevelopment Agency purchased the sublease interest on that parcel from PS Venture Caballeros/Amado, LLC for future Convention Center-related development, including parking and a potential new hotel. In 1991, the City of Palm Springs refinanced debt incurred to construct the City's Convention Center (Facility) and financed an expansion of the Facility. In 2002, the City began planning for an additional expansion of the Facility and issued $62,395,000 in Lease Revenue Bonds (2004 Series A, Convention Center Expansion Project) to fund the approximately 100,000 square feet of additional lobby, pre-function, meeting, exhibit space, food service and circulation areas, increasing the size of the Facility by 60%. In 2004, construction began on the expansion of the Convention Center. The expansion generated additional developer interest in the area surrounding the facility, including the expected development of two new hotels — the Hard Rock Hotel and the Mondrian Hotel. Further, the Agua Caliente Spa and Casino is planning on a greatly expanded facility in the immediate area. None of the new hotels, however, will be physically attached to the Convention Center as the Wyndham is. Highland Hospitality Corporation, a publicly traded Real Estate Investment Trust which owns over 8,900 hotel rooms, acquired the Wyndham Palm Springs Hotel in the summer of 2005. The property is held by HH Palm Springs, LLC (the "Contractor"), which is the holder of its Sublease with the City. The Contractor is the successor in interest to AP/APH Palm Springs, L.P., a Delaware limited partnership, from which it purchased the Hotel. The Highland acquisition occurred as the Wyndham brand was divesting itself of hotel properties and significantly curtailing its national marketing program in the meetings industry. As the headquarter Convention Center hotel since the opening of both facilities, Wyndham once produced approximately 40% of the Convention Center's leads from its National Sales Offices and national reservations system. However, through corporate restructuring, the Wyndham brand has eliminated key National Sales Offices and reduced its National Sales force presence, refocusing its efforts on leisure travel rather than on group sales. The change in market emphasis by the Wyndham brand has resulted in a substantial decline in sales leads to the Hotel, in turn resulting in a proportional decline in bookings. The Hotel now relies almost entirely on group sales leads generated by the CVA, the Convention Center and the in-house Wyndham sales staff with little assistance at the national level either from National Sales Office staff or the Wyndham reservation system. These factors negatively affect both the Convention Center and surrounding convention hotels. The Convention Center and CVA must rely on local lead generation sources to capture convention center business, which lacks the reach of the sales systems provided by large national and international brands that regularly cultivate the meetings market through advertising and affinity programs, national sales efforts, and comprehensive marketing. These factors have substantially diminished the Hotel's performance, its stature and its marketplace recognition. The Hotel now negatively impacts the City's ability to market its newly expanded and remodeled Convention Center as well as the City's other convention hotels. Large group bookings which have been lost in recent years include: the International Council of Shopping Centers (ICSC), the Airline Owners and Pilots Association (AOPA), the Public Agencies Risk Management Association (PARMA), as well as IBM and ESRI. These groups have not been replaced by similar corporate or association groups. Last year Highland Hospitality Corporation itself was acquired by a fund of JER Partners, a private real estate investment company, which initiated a comprehensive review of the Wyndham Palm Springs. JER and Highland are committed to revitalizing the image of the Hotel property. The Wyndham franchise agreement expires in November 2008. The Contractor and the City have explored a number of scenarios that would provide maximum longterm benefit for the City, Convention Center and the Hotel based upon strong belief in the significant contributions that an international hotel and convention center sales, marketing and reservation program would bring in terms of a National Sales effort and the overall consumer perception of an internationally recognized brand_ The goal of the City is the improved profitability for both the Convention Center and the City overall, through increased bookings and higher room revenue at the Hotel and other group meeting hotels, as well as increased spending within the community. In order to improve the overall marketability of the Hotel and the Convention Center, the City and its Convention Center managers have determined that there is a need for access to and participation in an international hotel and convention center sales, marketing reservation. program for the Hotel. An effective Program would provide a meaningful catalyst in the sale and marketing of the City and the Convention Center as a high quality group meeting destination. The existence of a strong high quality image, combined with an international sales effort and reservation system can propel the success of a hotel property through its reach to a wider target audience. Such a Program will also help increase the City's Transient Occupancy Tax revenue. There are several nationally recognized leading brands with a loyal customer base of meeting planners, corporate groups and business travelers that have a proven track record of lead generation for hotels which in turn impact CVAs and Convention Centers. Such a Program drives business to the local hotel and hence the Convention Center through its extended National and Regional sales offices, which also feature loyalty programs specifically targeted to Meeting Planners. Implementation of such a Program by January 2009 would immediately allow for dual marketing of the Hotel and Convention Center properties., CVA staff, Convention Center staff, as well as Program sales staff could begin to book rooms for the future Target Sell Date and beyond. Another benefit of such a Program is that it will typically drive an increase in the Hotel's Average Daily Rate (ADR) and Occupancy Rate. It is conservatively estimated that the Program would increase the Average Daily Rate in the Group Meeting category from $125.00 per night today, to $145.00 per night by July, 2010. Projections made by JER in the improvement in both of those performance categories would produce an increase in Transient Occupancy Tax (TOT) of over $700,000 per year. Staff believes a more conservative model is appropriate, which would provide approximately '/2 of the JER projection or $350,000 of new TOT per year. The basic outline of the components of the international hotel and convention center sales, marketing and reservation program is described in the Contract attached to this staff report. Pursuant to the terms of the proposed agreement, the City will make the following payments totaling $3,425,000 once the Owner commences the implementation of the Program described in the Contract: • A refund of the 2007-08 Land Lease payment of $855,000, plus a payment of an additional $445,000, for a total of $1,300,000, would be made after the Program is implemented, including access to the Program by the City's Convention Center managers for booking and reservation purposes. • The Owner would be rebated the 2008-09 Land Lease payment of $855,000 due in December 2008. • The Owner would be rebated the 2009-10 Land Lease payment of $855,000 due in December 2009. • The final payment of $415,000 would be paid no later than February 28, 2010. • Once the National Marketing and International Reservation Program was placed into service on behalf of the Hotel, if the Program were suspended, terminated, or otherwise ceased operation, the Owner would pay the City $10,000 for each full month of non-operation or a pro-rated amount for each partial month of non- operation. FISCAL ANALYSIS The Maximum Contract Amount is based on the net present value of the incremental City-wide value of Transient Occupancy Tax in the Group Meeting category, based on the conservative assumption that the increased reservation horsepower procured through the Program would increase Convention Center bookings by at least 15% over the 2006 actual number of 67,886 room nights. It is also conservatively estimated that such an increase in bookings would also help increase the Average Daily Rate in the Group Meeting category from $126-00 per night today to $145.00 per night by July, 2010. The present value of the 25 year benefit stream to the City, in terms of additional TOT, would be $3,425,321. While the City is "prepaying" for the additional TOT, other hotels that benefit from Convention Center bookings will be helped economically, and the City will see the benefit from the upside of any performance at the Hotel or in the Group Meeting Hotels sector that exceeds these conservative estimates. /1&0*VL- ;u rj)�r_rlj J hn S. ay on , Director of Thomas J. qj9on C ity & conomic Development Assistant Ci Manager •� t DAVID H- READ City Manager Attachments: Spreadsheet, Economic Benefit Contractual Services Agreement AL OFp IL�gp� i m c U y, Citv Council Staff Repo DATE: JUNE 25, 2008 NEW BUSINESS SUBJECT: APPROVAL OF A CONTRACTUAL SERVICES AGREEMENT FOR AN INTERNATIONAL HOTEL AND CONVENTION CENTER MARKETING AND RESERVATION PROGRAM WITH HH PALM SPRINGS LLC, A DELAWARE LIMITED LIABILITY CORPORATION FOR A PERIOD OF TWENTY-FIVE (25) YEARS FROM: David H. Ready, City Manager BY: Community & Economic Development Department SUMMARY: The City of Palm Springs, as a part of its Convention Center complex, entered into a long term sublease of the Wyndham Hotel (the "Hotel") site immediately adjacent to the Convention Center. In order to maximize the overall sales efforts of the Hotel and the Convention Center, the City and its convention center managers have determined that there is a need for access to and participation in a robust and upscale national hotel and sales room reservation program (the "Program") for the hotel property attached to the convention center. An effective sales reservation program with a well respected, stable and identifiable hotel brand is a key component to reaching and attracting group hotel convention business of size and quality appropriate to Palm Springs. The current owner of the hotel sublease has agreed to acquire and provide access to and participation in an international hotel and convention center sales, marketing and reservation program (the "Program") for the Hotel property at 888 East Tahquitz Canyon Way, Palm Springs, California which will benefit the City's Convention Center. The Agreement is for a period of twenty-five (25) years from the effective date of this Agreement and the maximum cost to the City for this program will be Three Million Four Hundred Twenty Five Thousand Dollars, ($3,425,000). RECOMMENDATION: APPROVE AGREEMENT NO. CONTRACTUAL SERVICES AGREEMENT FOR AN INTERNATIONAL HOTEL AND CONVENTION CENTER SALES, MARKETING AND RESERVATION PROGRAM WITH HH PALM SPRINGS LLC, A DELAWARE LIMITED LIABILITY CORPORATION, FOR A PERIOD OF TWENTY- _R,Ec%,5-&-:2) i .Z, FIVE (25) YEARS AND AUTHORIZE THE CITY MANAGER TO EXECUTE ALL DOCUMENTS RELATED TO THIS AGREEMENT. STAFF ANALYSIS: The land under the Convention Center and the Hotel was assembled in 1984 under a master Lease (PSL-315) by SENCA Palm Springs, LLC and the Community Redevelopment Agency for the purpose of developing a Convention Center and the attached convention center hotel. The City of Palm Springs is the Master Lessee under Business Lease No. PSL 315 ("Original Lease"). The Master Lease has been amended pursuant to: 1) Amendment No. 1 to PSL-315 approved by the BIA on October 13, 1995; 2) the First Amendment to Business Lease-315, dated April 7, 2004, and approved by the BIA on May 26, 2004; and 3) the Second Amendment to Business Lease No. PSL 315, dated February 9, 2006, and approved by the BIA on February 9, 2006. The Original Lease as amended by the three amendments are collectively referred to in this Agreement as the "Master Lease." SENCA and the City reversed positions in the Lease in 1989, after the Convention Center opened, whereby SENCA became the sublessee on Parcel 4 and the City assumed the Master lease obligations on the Convention Center and the Wyndham Hotel. The swap saved the City hundreds of thousands of dollars per year in lease payments and allowed SENCA to not have to make any lease payments on the undeveloped portion of land until it developed. SENCA's sublease on Parcel 4 was acquired through a bankruptcy proceeding by a private developer in 1993; in September 2007 the Community Redevelopment Agency purchased the sublease interest from PS Venture Caballeros/Amado, LLC (the "Parcel 4 Sublessee") for future Convention Center-related development, including parking and a potential new hotel. HH Palm Springs LLC ("Contractor") is the current owner of the Wyndham Hotel and holder of a Sublease (Hotels I—XI) between the City (successor in interest to SENCA Palm Springs, Inc., a California corporation), as sublandlord, and Contractor (successor in interest to AP/APH Palm Springs, L.P., a Delaware limited partnership; successor in interest to The Community Redevelopment Agency of the City of Palm Springs, California), as subtenant, dated December 31, 1984 (as amended and supplemented, the "Land Lease"). In 1991, the City of Palm Springs refinanced debt incurred to construct the City's Convention Center (Facility) and financed an expansion of the Facility. In 2002, the City began planning for an expansion of the Facility. In 2004, the City determined that absent the advance of certain additional sums by the City toward lease payments to secure lease revenue bonds to finance the Facility expansion, the expansion could not occur. The City issued $62,395,000 Lease Revenue Bonds, 2004 Series A (Convention Center Expansion Project) to fund the approximately 100,000 square feet of additional lobby, pre-function, meeting, exhibit space, food service and circulation areas, increasing the size of the Facility by 60%. In 2004, construction began on the expansion of the City's Convention Center, The Convention Center expansion generated additional developer interest in the area surrounding the facility, including the expected development of two new hotels — the Hard Rock Hotel and the Mondrian Hotel. Further, the Agua Caliente Spa and Casino is planning on a greatly expanded facility in the immediate area. Highland Hospitality Corporation, a publicly traded Real Estate Investment Trust which owns over 8,900 hotel rooms, acquired the Wyndham Palm Springs Hotel in the summer of 2005. The property is held by HH Palm Springs, LLC. The Highland acquisition occurred as Wyndham was divesting itself of its hotel properties and significantly curtailing its national marketing program in the meetings industry. As the headquarter Convention Center hotel since the opening of both facilities, Wyndham once produced approximately 40% of the Convention Center's leads from its National Sales Offices and national reservations system. However, through corporate restructuring, the Wyndham brand has eliminated key National Sales Offices and reduced its National Sales force presence, refocusing its efforts on leisure travel rather than on group sales.. The change in market emphasis by the Wyndham brand has resulted in a substantial decline in sales leads to the local hotel, in turn resulting in a proportional decline in bookings. The local hotel now relies almost entirely on group sales leads generated by the CVA, the Convention Center and the in-house Wyndham sales staff with little assistance at the national level either from National Sales Office staff or the Wyndham reservation system. These factors negatively affect both the Convention Center and surrounding convention hotels. The Convention Center and CVA must rely on local lead generation sources to capture convention center business which lacks the reach of the sales systems provided by large national and international brands that regularly cultivate the meetings market through advertising and affinity programs, national sales efforts, and comprehensive marketing. These factors have substantially diminished the Hotel's performance, its stature and its marketplace recognition. The Hotel now negatively impacts the City's ability to market its newly expanded and remodeled Convention Center as well as the City's other convention hotels. Large group bookings which have been lost in recent years include: the International Council of Shopping Centers (ICSC), the Airline Owners and Pilots Association (AOPA), the Public Agencies Risk Management Association (PARMA), as well as IBM and ESRI. These groups have not been replaced by similar corporate or association groups. Last year Highland Hospitality Corporation was acquired by a fund of JER Partners, a private real estate investment company, which initiated a comprehensive review of the Wyndham Palm Springs. JER and Highland are committed to revitalizing the image of the Hotel property. The Wyndham agreement expires in November 2008. The Contractor and the City have explored a number of scenarios that would provide the maximum longterm benefit for the City, Convention Center and the Hotel based upon strong belief in the significant contributions that an international hotel and convention center sales, marketing and reservation program would bring in terms of a National Sales effort and the overall consumer perception of an internationally recognized brand. The goal of the City is the improved profitability for both the Convention Center and the City overall, through increased bookings and higher room revenue at the Hotel and other group meeting hotels as well as increased spending within the community. In order to improve the overall marketability of the Hotel and the Convention Center, the City and its Convention Center managers have determined that there is a need for access to and participation in an international hotel and convention center sales, marketing reservation program (the "Program") for the Hotel property. An effective marketing reservation program would provide a meaningful catalyst in the sale and marketing of the City and the Convention Center as a high quality group meeting destination. . The existence of a strong high quality image, combined with an international sales effort and reservation system can propel the success of a hotel property through its reach to a wider target audience. Such a Program will also help increase the City's Transient Occupancy Tax revenue. There are several nationally recognized leading brands with a loyal customer base of meeting planners, corporate groups and business travelers that have a proven track record of lead generation for hotels which in turn impact CVAs and Convention Centers. Such a Program drives business to the local hotel and hence the Convention Center through its extended National and Regional sales offices, which also feature loyalty programs specifically targeted to Meeting Planners. Implementation of such a Program by January 2009 would immediately allow for dual marketing of the hotel and Convention Center properties., CVA staff, Convention Center staff, as well as Program sales staff could begin to book rooms for the future Target Sell Date and beyond. . Another benefit of such a Program is that it will typically drive an increase in the Hotel's Average Daily Rate (ADR) and Occupancy Rate. It is conservatively estimated that the Program would increase the Average Daily Rate in the Group Meeting category from $125.00 per night today, to $145.00 per night by July, 2010. Projections made by JER in the improvement in both of those performance categories would produce an increase in Transient Occupancy Tax (TOT) of over $700,000 per Year, Staff believes a more conservative model is appropriate, which would provide approximately ''/2 of the JER projection or$350,000 of new TOT per.year. The basic outline of the components of the international hotel and convention center sales, marketing and reservation program is described in the Attachment to this staff report. Pursuant to the terms of the proposed agreement, the City will make the following payments totalling $3,425,000 once the Owner commences the implementation of an International Marketing and International Reservation Program ("Program") as described in the Attachment, • A refund of the 2007-08 Land Lease payment of $855,000, plus a payment of an additional $445,000 for a total of $1,300,000, would be made after the basic Program is implemented, including access to the Program by the City's Convention Center managers for booking and reservation purposes. • The Owner would be rebated the 2008-09 Land Lease payment of $855,000 due in December 2008. • The Owner would be rebated the 2009-10 Land Lease payment of $855,000 due in December 2009. • The final payment of$415,000 would be paid no later than February 28, 2010. • Once the National Marketing and International Reservation Program was placed into service on behalf of the Hotel, if the Program were suspended, terminated, or otherwise ceased operation, the Owner would pay the City $10,000 for each full month of non-operation or a pro-rated amount for each partial month of non- operation. FISCAL ANALYSIS The Maximum Contract Amount is based on the net present value of the incremental City-wide value of Transient Occupancy Tax in the Group Meeting category, based on the conservative assumption that the increased reservation horsepower procured through the Program would increase Convention Center bookings by 15% over the 2006 actual number of 67,886 room nights. It is also conservatively estimated that such an increase in bookings would also help increase the Average Daily Rate in the Group Meeting category from $125.00 per night today to $145.00 per night by July, 2010. The present value of the 25 year benefit stream to the City, in terms of additional TOT, would be $3,425,321. While the City is "prepaying" for the additional TOT, other hotels that benefit from Convention Center bookings will be helped economically, and the City will see the benefit from the upside of any performance that exceeds these conservative estimates. ohn S Ra m nd, Director of Thomas Y ilson om nity conomic Development Assistant City Manager DAVID H. REA City Manager CONTRACTUAL SERVICES AGREEMENT INTERNATIONAL HOTEL AND CONVENTION CENTER MARKETING AND RESERVATION PROGRAM THIS CONTRACTUAL SERVICES AGREEMENT (hereinafter "Agreement") is made and entered into, to be effective this day of July, 2008, by and between the CITY OF PALM SPRINGS, a California Charter City, (hereinafter referred to as "City") and HH PALM SPRINGS LLC, a Delaware Limited Liability Company, (together with its successors and assigns, hereinafter referred to as "Contractor"). City and Contractor are sometimes hereinafter individually referred to as "Party" and are hereinafter collectively referred to as the "Parties." RECITALS A. City has determined that there is a need for access to and participation in an international hotel and convention center marketing reservation program (the "Program") for the hotel property owned by the Contractor ("Contractor's Property") and the City's Convention Center(collectively, the "Property"). B. The Contractor's Property is subject to a Sublease(hotels I—XI) between the City (successor in interest to SENCA Palm Springs, Inc., a California corporation), as sublandlord, and Contractor (successor in interest to AP/APH Palm Springs, L.P., a Delaware limited partnership; successor in interest to The Community Redevelopment Agency of the City of Palm Springs, California), as subtenant, dated December 31, 1984 (as amended and supplemented, the "Land Lease"). C. Contractor proposes to provide such a Program for the Property pursuant to the terms of this Agreement. D. Contractor is qualified by virtue of its experience, training, education, reputation, and expertise to acquire and provide these services and has agreed to provide such services as provided herein. E. City desires to retain Contractor to provide such professional services. NOW, THEREFORE, in consideration of the promises and mutual obligations, covenants, and conditions contained herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows: AGREEMENT 1. SERVICES OF CONTRACTOR 1.1 Scope of Services. In compliance with all teens and conditions of this Agreement, Contractor agrees to perform the services set forth in the Scope of Services described in Exhibit "A," which is attached hereto and is incorporated herein by reference (hereinafer referred to as the "Services"). As a material inducement to the City entering into this Agreement, Contractor represents and warrants that Contractor is an experienced owner of 5832251 first class hotels and will provide or may contract for the provision of a Program of the highest quality and standards of operation in performing the services required herein. For purposes of this Agreement "highest quality and standards of operation" shall mean those standards of practice recognized as high quality among well-qualified and experienced professionals perfonning.similar work under similar circumstances. 1.2 Contract Documents. The Agreement between the Parties shall consist of this Agreement and all Exhibits thereto. 1.3 Compliance with Law. Contractor warrants that all Services rendered hereunder shall be performed in accordance with all applicable federal, state, and local laws, statutes, and ordinances and all lawful orders, rules, and regulations promulgated thereunder. 1.4 Licenses, Permits, Fees, and Assessments. Contractor represents and warrants to City that it has or will obtain all licenses, permits, qualifications, and approvals of whatever nature that are legally required to perform the Services required by this Agreement. Contractor represents and warrants to City that Contractor shall, at its sole cost and expense, keep in effect at all times during the tern of this Agreement, any license, permit, qualification, or approval that is legally required for Contractor to perform the Services under this Agreement. 1.5 Familiarity with Services. By executing this Agreement, Contractor warrants that Contractor (a) has thoroughly investigated and considered the Scope of Services to be performed, (b) has carefully considered how the Services should be performed, and (c) fully understands the facilities, difficulties, and restrictions attending performance of the Services under this Agreement. 1.6 Further Responsibilities of Parties. Both Parties agree to use reasonable care and diligence to perform their respective obligations under this Agreement. Both Parties agree to act in good faith to execute all instruments, prepare all documents, and take all actions as may be reasonably necessary to carry out the purposes of this Agreement_ 2. COMPENSATION 2.1 Maximum Contract Amount. For the Services rendered pursuant to this Agreement, Contractor shall be compensated by City in accordance with the Schedule of Compensation, which is attached hereto as Exhibit `B" and is incorporated herein by reference, but not exceeding the Maximum Contract Amount of Three Million Four Hundred Twenty Five Thousand Dollars, ($3,425,000) (hereinafter referred to as the "Maximum Contract Amount")- The method of compensation shall be as set forth it Exhibit "D." The Maximum Contract Amount of City's payment obligation under this section is the amount specified herein. 2.2. Method of Payment. Method of payment is specified in the Schedule of Compensation(Exhibit "B"). 2.3 Changes in Scope. Any change or changes in the Scope of Services requires the consent of both of the Parties in a written amendment to this Agreement, setting forth with 563225 1 2 particularity all terns of such amendment, including, but not limited to, any additional compensation. 3. SCHEDULE OF PERFORMANCE 3.1 Wigent Performance. Contractor shall prosecute diligently the Services provided in this Agreement according to the agreed Schedule of Performance (Exhibit"C,). 3.2 Schedule of Performance. Contractor shall commence the Services pursuant to this Agreement as established in the Schedule of Performance, which is attached hereto as Exhibit "C" and is incorporated herein by reference. When requested, extensions to the times specified in the Schedule of Performance may be approved in writing by the City; however, the City shall not be obligated to grant any extensions. 3.3 Term. Unless earlier terminated as provided elsewhere in this Agreement, this Agreement shall commence upon the effective date of this Agreement and continue in full force and effect for the tern of twenty-five (25) years. 4. COORDINATION OF WORK 4.1 Representative of Contractor. The following principal of Contractor is hereby designated as being the principal and representative of Contractor authorized to act in its behalf with respect to the Services to be perfonmed under this Agreement and make all decisions in connection therewith: D. hick Adams, Senior Vice President, Asset Management. The foregoing principal or his successor shall be responsible during the term of this Agreement for directing all activities of Contractor and devoting sufficient time to personally supervise the services performed hereunder. The Contractor shall notify the City in writing when the principal changes. 4.2 Contract Officer. The Contract Officer shall be such person as may be designated by the City Manager of City, and is subject to change by the City Manager. It shall be the Contractor's responsibility to ensure that the Contract Officer is kept fully in formed of the progress of the performance of the Services, and the Contractor shall refer any decisions which must be made by City to the Contract Officer. Unless otherwise specified herein, any approval of City required hereunder shall mean the approval of the Contract Officer. 4.3 Subcontracting or Assignments. The experience, knowledge, capability, expertise, and reputation of Contractor, was a substantial inducement for City to enter into this Agreement, Therefore, Contractor shall not assign the perfonnance of this Agreement, nor any part thereof, nor any monies due hereunder, voluntarily or by operation of law, without the prior written consent of City; provided, however, that Contractor may assign this Agreement without the consent of the City to any current or future owner, operating lessee, or mortgage or mezzanine lender of the Contractor's Property on the same tetras and under the same conditions as pennitted under the Land Lease. Contractor shall not contract with any other entity to perform the Services required without prior written consent of City provided; however, that Contractor may contract with hotel management companies, brands or franchisors_ If Contractor subcontracts any part of this Agreement by City, Contractor shall be responsible to City for the 583225 1 3 acts and omissions of its subcontractor(s) in the same manner as it is for persons directly employed. Nothing contained in this Agreement shall create any contractual relationships between any subcontractor and City. City will deal directly with and will make all payments to Contractor. In addition, neither this Agreement nor any interest herein may be transferred, assigned, conveyed, hypothecated, or encumbered voluntarily or by operation of law, whether for the benefit of creditors or otherwise, without the prior written consent of City; provided, however, that Contractor may transfer, assign, convey, hypothecate, or encumber this Agreement without the consent of the City to any future owner, operating lessee, or mortgage or mezzanine lender of the Contractor's Property on the same terns and under the same conditions as pennitted under the hand Lease. Transfers restricted hereunder shall include the transfer to any person or group of persons acting in concert of more than twenty five percent (25%) of the present ownership and/or control of Contractor, taking all transfers into account on a cumulative basis. In the event of any such unapproved transfer, including any bankruptcy proceeding, this Agreement shall be void. No approved transfer shall release Contractor or any surety of Contractor from any liability hereunder without the express written consent of City, but any transfer permitted without City consent shall automatically release the transferor from any liabilities accruing after the date of transfer to a transferee so long as Contractor's obligations hereunder have been fully assigned to, and assumed by, such transferee, for the time period after the date of such transfer. 4.4 Independent Contractor. A. The legal relationship between the Parties is that of an independent contractor, and nothing herein shall be deemed to make Contractor a City employee. During the performance of this Agreement, Contractor and its officers, and agents shall act in an independent capacity and shall not act as City officers or employees. The personnel performing the Services under this Agreement on behalf of Contractor shall at all times be under Contractor's direction and control. Neither City nor any of its officers, employees, or agents shall have control over the conduct of Contractor or any of its officers, or agents, except as set forth in this Agreement. Contractor, its officers, or agents shall not maintain an office or any other type of fixed business location at City's offices. City shall have no voice in the selection, discharge, supervision, or control of Contractor's management companies, franchisors, or of their servants, representatives, or agents, or in fixing their number, compensation, or hours of service. Contractor shall pay all amounts due service providers in connection with this Agreement and shall be responsible for all reports and obligations respecting them. City shall not in any way or for any purpose be deemed to be a partner of Contractor in its business or otherwise a joint venturer or a member of any joint enterprise with Contractor. B. Contractor shall not incur or have the power to incur any debt, obligation, or liability against City, or bind City in any manner- C. No City benefits shall be available to Contractor, its officers, or agents in connection with any performance under this Agreement. Except for professional fees paid to Contractor as provided for in this Agreement, City shall not pay salaries, wages, or other compensation to Contractor for the performance of Services under this Agreement_ City shall not be liable for compensation or indemnification to Contractor, its officers, or agents, for injury or sickness arising out of perfonning Services hereunder. If for any reason any court or 593225 1 4 governmental agency determines that the City has financial obligations, other than pursuant to Section 2 and Subsection 1.8 herein, of any nature relating to salary, taxes, or benefits of Contractor's officers, servants, representatives, subcontractors, or agents, Contractor shall indemnify City for all such financial obligations. 5. RESERVED 6. INDEMNIFICATION To the fullest extent permitted by law, Contractor shall indemnify, defend (at Contractor's sole cost and expense), protect and hold harmless City and its officers, council members, officials, employees, agents and volunteers and all other public agencies whose approval of the Project is required, (individually "Indemnified Party"; collectively "Indemnified Parties") against any and all liabilities, claims,judgments, arbitration awards, settlements, costs, demands, orders, and penalties (collectively "Claims"), including but not limited to Claims arising from injuries or death of persons (Contractor's employees included) and damage to property, which Claims arise out of, pertain to, or are related to the negligence, recklessness, or willful misconduct of Contractor, its agents, employees, or subcontractors, or arise from Contractor's negligent, reckless, or willful performance of or failure to perform any term, provision, covenant, or condition of this Agreement ("Indemnified Claims"), but Contractor's liability for Indemnified Claims shall be reduced to the extent such Claims arise from the gross negligence or willful misconduct of the City, its officers, council members, officials, employees, or agents. Contractor shall reimburse the Indemnified Parties for any reasonable expenditures, including reasonable attorneys' fees, expert fees, litigation costs, and expenses that each Indemnified Party may incur by reason of Indemnified Claims. Upon request by an Indemnified Party, Contractor shall defend with legal counsel reasonably acceptable to the Indemnified Party all Claims against the Indemnified Party that may arise out of, pertain to, or relate to Indemnified Claims, whether or not Contractor is named as a party to the Claim proceeding. The determination whether a Claim "may arise out of, pertain to, or relate to Indemnified Claims" shall be based on the allegations made in the Claim and the facts known or subsequently discovered by the Parties. In the event a final judgment, arbitration award, order, settlement, or other final resolution expressly determines that Claims did not arise out of, pertain to, nor relate to the negligence, recklessness, or willful misconduct of Contractor to any extent, then City shall reimburse Contractor for the reasonable costs of defending the Indemnified Parties against such Claims, except City shall not reimburse Contractor for attorneys' fees, expert fees, litigation costs, and expenses that were incurred defending Contractor or any parties other than hndemnified Parties against such Claims. Contractor's indemnification obligation hereunder shall survive the expiration or earlier termination of this Agreement until all actions against the Indenn iied Parties for such matters indemnified hereunder are fully and finally barred by the applicable statute of limitations or, if an action is timely filed, until such action is final. This provision is intended for the benefit of third party Indemnified Parties not otherwise a party to this Agreement. !91M5 1 5 7. RESERVED. S. ENFORCEMENT OF AGREEMENT 8.1 California Law and Venue. This Agreement shall be construed and interpreted both as to validity and as to performance of the Parties in accordance with the laws of the State of California. Legal actions concerning any dispute, claim, or matter arising out of or in relation to this Agreement shall be instituted in the Superior Court of the County of Riverside, State of California, or any other appropriate court in such County, and Contractor covenants and agrees to submit to the personal jurisdiction of such court in the event of such action. 8.2 Interpretation. This Agreement shall be construed as a whole according to its fair language and common meaning to achieve the objectives and proposes of the Parties. The terms of this Agreement are contractual and the result of negotiation between the Parties. Accordingly, any rule of construction of contracts (including, without limitation, California Civil Code Section 1654) that ambiguities are to be construed against the drafting party, shall not be employed in the interpretation of this Agreement. The caption headings of the various sections and paragraphs of this Agreement are for convenience and identification purposes only and shall not be deemed to limit, expand, or define the contents of the respective sections or paragraphs_ 8.3 Termination. Provided there is no breach under this Agreement as of the date of termination, either party may terminate this Agreement by written notice thereof to the other party at any time after the later to occur of(i) the date the Contractor has entering into an agreement with a first class hotel brand (a "Brand") approved by the City (such consent not to be unreasonably withheld, conditioned nor delayed, with Marriott International, Inc., and its affiliates, hereby pre-approved) with a term of not less than 25 years, and the Brand has commenced "Pre-Opening Marketing and Booking" as defined in Exhibit A attached hereto, (ii) the date the Contractor's Property opens operating under the Brand and (iii) the date the City has made all payments due Contractor under this Agreement. Otherwise, neither the City nor the Contractor may terminate this Agreement except as expressly provided herein . The City or Contractor reserves the right to terminate this Agreement upon a material default by the other party. The effectiveness of this Agreement is contingent upon Contractor obtaining the required consents of its lenders to this Agreement, which Contractor agrees to use commercially reasonable efforts to obtain. In the event such consents are not obtained by July 31, 2008, either party may terminate this Agreement until such consents are obtained by written notice thereof to the other. 8.4 Default of City or Contractor. A. City or Contractor's material failure to comply with any material provision of this Agreement shall constitute a default after express written notice of such failure and the farther failure of the City or Contractor to reasonably cure such failure within a reasonable period of time. 5 112,_5 1 6 B. If the City Manager, or his/her designee, or the Contractor, or his/her Representative determines that the City or Contractor is in default in the performance of any of the terms or conditions of this Agreement, he/she shall notify the other party in writing of such default. The party shall have ten (10) days, or such longer period as reasonably necessary or desirable provided the defaulting party is diligently pursuing a cure, to cure the default by rendering satisfactory performance. In the event the defaulting party fails to cure its default witbin such period of time, the non-defaulting party shall have the right, notwithstanding any other provision of this Agreement, to terminate this Agreement upon notice to the defaulting party and without prejudice of any remedy to which it may be entitled at law or in equity, or under this Agreement_ The defaulting party shall be liable for any and all reasonable costs incurred by the non-defaulting party as a result of such default. Compliance with the provisions of this section shall not constitute a waiver of any City or Contractor right to take legal action in the event that the dispute is not cured. 8.5 Waiver. No waiver of any provision of this Agreement shall be effective unless in writing and signed by a duly authorized representative of the Party against whore enforcement of a waiver is sought. Any waiver by the Parties of any default or breach of any covenant, condition, or term contained in this Agreement, shall not be construed to be a waiver of any subsequent or other default or breach, nor shall failure by the Parties to require exact, full, and complete compliance with any of the covenants, conditions, or terms contained in this Agreement be construed as changing the terms of this Agreement in any manner or preventing the Parties from enforcing the full provisions hereof. 8.6 Ri¢hts and Remedies Cumulative. The rights and remedies of the Parties are cumulative and the exercise by either Party of one or more of such rights or remedies shall not preclude the exercise by it, at the same or different tirnes, of any other rights or remedies for the same default or any other default by the other Party. 8.7 Legal Action. In addition to any other rights or remedies, either Party may take legal action, in law or in equity, to cure, correct, or remedy any default, to recover damages for any default, to compel specific performance of this Agreement, to obtain declaratory or injunctive relief, or to obtain any other remedy consistent with the purposes of this Agreement. Such legal actions must be instituted in the Superior Court of the County of Riverside, State of California. 5aaa251 7 8.8 Applicable Law; Interpretation. The laws of the State of California shall govern the interpretation and enforcement of this Agreement. This Agreement has been negotiated at arm's length and between persons sophisticated and knowledgeable in the matters dealt with herein. In addition, each party has been represented by experienced and knowledgeable legal counsel_ Accordingly, any rule of law (including California Civil Code Section 1654) or legal decision that would require interpretation of any ambiguities in this Agreement against the party that has drafted it is not applicable and is waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the purposes of the parties and this Agreement. 8.9 Acceptance of Service of Process. In the event that any legal action is commenced by the Contractor against the City, service of process on the City shall be made by personal service upon the City Manager or in such other mamrer as may be provided by law. In the event that any legal action is commenced by the City against the Contractor, service of process on the Contractor shall be made by personal service upon the Contractor or in such other manner as may be provided by law and shall be valid whether made within or without the State of California. 8.I0 Attornev Fees. In the event any dispute between the Parties with respect to this Agreement results in litigation or any non judicial proceeding, the prevailing Party shall be entitled, in addition to such other relief as may be granted, to recover from the non-prevailing Party all reasonable costs and expenses, including but not limited to reasonable attorney fees, expert Contractor fees, court costs and all fees, costs, and expenses incurred in any appeal or in collection of any judgment entered in such proceeding. To the extent authorized by law, in the event of a dismissal by the plaintiff or petitioner of the litigation or non-judicial proceeding within thirty (30) days of the date set for trial or hearing, the other Party shall be deemed to be the prevailing Party in such litigation or proceeding. 9. CITY OFFICERS AND EMPLOYEES: NON-DISCRIMINATION 9.1 Non-liability of City Officers and Employees. No officer or employee of the City shall be personally liable to the Contractor, or any successor-in-interest, in the event of any default or breach by the City or for any amount which may become due to the Contractor or to its successor, or for breach of any obligation of the teens of this Agreement. 9.2 Conflict of Interest. No officer or employee of the City shall have any financial interest, direct or indirect, in this Agreement nor sliall any such officer or employee participate in any decision relating to the Agreement which effects his/her financial interest or the financial interest of any corporation, partnership, or association in which he/she is, directly or indirectly, interested in violation of any state statute or regulation. Contractor warrants that it has not paid or given and will not pay or give any third party any money or other consideration in exchange for obtaining this Agreement. 9.3 Covenant Against Discrimination. In connection with its performance under this Agreement, Contractor shall not discriminate against any employee or applicant for employment because of race, religion, color, sex, age, marital status, ancestry, or national origin. Contractor shall ensure that applicants are employed, and that employees are treated during their 5s.;2s51 8 employment, without regard to their race, religion, color, sex, age, marital status, ancestry, or national origin. Such actions shall include, but not be limited to, the following: employment, upgrading, demotion or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship_ 10. MISCELLANEOUS PROVISIONS 10.1 Notices. All notices or other communications required or pennitted hereunder shall be in writing, and shall be personally delivered, sent by registered or certified mail, postage prepaid, return receipt requested, or delivered or sent by facsimile with attached evidence of completed transmission, and shall be deemed received upon the earlier of(i) the date of delivery to the address of the person to receive such notice if delivered personally or by messenger or overnight courier; (ii) five (5) business days after the date of posting by the United States Post Office if by mail; or (iii) when sent if given by facsimile. Any notice, request, demand, direction, or other communication sent by facsimile must be confirmed within forty-eight (48) hours by letter mailed or delivered. Other forms of electronic transmission such as e-mails, text messages, instant messages are not acceptable manners of notice required hereunder. Notices or other communications shall be addressed as follows: To Citv: City of Palm Springs Attention: City Manager P.O. Box 2743 Palm Springs, California 92263 Telephone: (760) 322-8350 Facsimile: (760) 323-8207 With a Cody to: Douglas C. Holland, Esq., City Attorney Woodruff, Spradlin& Smart 555 Anton Boulevard, Suite 1200 Costa Mesa, California 92626 Telephone: (714) 415-1042 Facsimile: (714) 415-1142 To Contractor: D. Rick Adams, Senior Vice President Highland Hospitality Corporation 8405 Greensboro Drive, Suite 500 McLean, Virginia 22102 Telephone: (703) 336-4917 Facsimile: (703) 336-4950 With a copy to JFR Partners 1650 Tyson,,, Boulevard, Suite 1600 McLean, Virginia 22102 Attn: Legal Department Telephone: 703-714-8000 Facsimile: 703-714-8102 583225 1 9 With�` to: Rich Banjo, Vice President JER Partners 1650 Tysons Boulevard, Suite 1600 McLean, Virginia 22102 Telephone: (703) 714-8161 Facsimile: (703) 714-8107 10.2 Entire Agreement. This Agreement constitutes the entire agreement between the Parties and supersedes all prior negotiations, arrangements, agreements, representations, and understandings, if any, made by or among the Parties with respect to the subject matter hereof No amendments or other modifications of this Agreement shall be binding unless executed in writing by both Parties hereto, or their respective successors, assigns, or grantees. 10.3 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be determined to be invalid by a final judgment or decree of a court of competent jurisdiction, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the reminder of that provision, or the remaining provisions of this Agreement unless the invalid provision is so material that its invalidity deprives either Party of the basic benefit of their bargain or renders this Agreement meaningless. 10.4 Successors in Interest, Subordination. This Agreement shall be binding upon and inure to the benefit of the Parties' successors and assignees. This Agreement is subordinate to any existing or future mortgage or mezzanine loan with respect to the Contractor's Property. 10.5 Third Partp Beneficiary. Except as may be expressly provided for herein, nothing contained in this Agreement is intended to confer, nor shall this Agreement be construed as conferring, any rights, including, without limitation, any rights as a third-party beneficiary or otherwise, upon any entity or person not a party hereto. 10.6 Recitals. The above-referenced Recitals are hereby incorporated into the Agreement as though fully set forth herein and each Party acknowledges and agrees that such Patty is bound, for purposes of this Agreement,by the same. 10.7 Corporate Authority. Each of the undersigned represents and warrants that (i) the Party for which he or she is executing this Agreement is duly authorized and existing, (ii) he or she is duly authorized to execute and deliver this Agreement on behalf of the Party for which he or she is signing, (iii) by so executing this Agreement, the Party for which he or she is signing is formally bound to the provisions of this Agreement, and (iv) the entering into this Agreement does not violate any provision of any other Agreement to which the Party for which he or she is signing is bound_ 53=51 10 IN WITNESS WHEREOF, the Parties have executed and entered into this Agreement as of the date first written above. "CITY" CITY OF PALM SPRINGS a Califomia Charter City DAVID READY City Manager ATTEST: (SEAL) JAMES THOMPSON City Clerk APPROVED AS TO FORM: DOUGLAS C. HOLLAND City Attorney "CONTRACTOR" HH Palm Springs, LLC By: Name: Title: By: Secretary 553225 1 l 1 EXHIBIT "A" SCOPE OF SERVICES The Contractor shall obtain access to and participation in an international hotel and convention center marketing and reservation program (the "Program") for the hotel property owned by the Contractor at 888 East Tahquitz Canyon Way, Palm Springs, California and the Palm Springs Convention Center attached thereto at 275 North Avenida Caballeros, Palm Springs, California (collectively, the "Property"), for a period of twenty-five (25) years from the effective date of this Agreement. The Program shall provide at all times no less than the services set forth and described as follows as of the date hereof, subject to reasonable changes over time consistent with changes made by first class hospitality brands changes in international hotel and convention center marketing and reservation programs: The reservation system must contain the minimum ability to enable Reservation Associates to make reservations at any property within the portfolio of Brands. It is also must have the capacity to incorporate an Inventory & Revenue management system for use by the Revenue Leaders at each property or controlling office. The reservation system must contain the minimum ability to allow local and worldwide reservations centers as well as travel agencies and internet users to make reservations at airy Brand X hotel world-wide. The reservation system must also be linked directly to the Brand X website_ An individual Guest must have the minimum ability to book/change/cancel reservations and receive email confirmation of their reservations directly through the Internet site. The reservation system must be linked with the global distribution systems (GDS) operated by major airlines and travel organizations, offering real-time availability. Brand X combined with its parent organization, must hold a minimum .5% of the worldwide supply of hotel rooms_ A guest malting a reservation through the reservation system must be able to make and confirm reservations up to a minimum of 51 weeks from the current date, provided that the requested hotel has inventory available for the requested dates. The reservation system must also allow for Revenue and/or Inventory Management of each property to have very accurate control over the rooms &rates available to sell for the next 51 weeks. The reservation system must allow for control of availability of rooms by room pool and/or rate program code, by length of stay restrictions, black out dates, closed-to-arrival and in addition has the functionality to ensure that conflicting restrictions are not in place. The reservation system must contain the minimum ability to create Customer Profiles which can be tracked within the system_ A Brand Loyalty program trust have memberships tracked giving users access to customers' reservation preferences at a glance. The reservation system must have 9$3225 1 the profiles for these frequent guests in the system to speed the process of rnaking reservations, improving guest service and tracking the guest's usage_ The reservation system must also contain the ability to track travel agency, wholesaler, and preference plus profiles in the system, making the reservation process more efficient. The reservation system must allow for strict control over the rates, availability and up to the minute impact on how to sell the hotel to maximize revenue. For the purpose of this Agreement and this Exhibit "A" to the Agreement, the term "Brand V shall mean a first class hotel approved by the City (such consent not to be unreasonably withheld, conditioned nor delayed, with Marriott International, Inc., and its affiliates, hereby pre- approved), and the term "reservation system" shall not mean the hotel room booking services provided solely by any online travel company, including without limitation, Expedia, Travelocity, Priceline, or Orbitz. The phrase "Pre-Opening Marketing and Booking" shall mean: • The Contractors Property specific inventory information shall be built and loaded in the Brands Reservation Program with an established inn code that exclusively identifies the Contractors Property within the international hotel reservation program • The Contractors Property target sell date shall be established with the Brand that will allow for reservation booking to occur on or after such target sell date via the Brands Reservation Program • The Contractors Property will appear on the Brands web site and the web site page for Contractors property shall include specific information about said property and the established sell date • Transient and Group customers will have the ability to use the Reservation Program to book reservations that are within eleven and one-half months into the future; after the Contractors Property opens and is operating under the Brand, Group reservations can be entered for any future date • A Pre-Opening Sales and Marketing meeting will be conducted with the Brands Sales Team to ensure that the Reservation Program and booking channels are identified and understood, pricing strategies are communicated, reservations sales lead sharing process and other sales activities are understood and coordinated with the on site management team 593225 1 EXHIBIT "B" SCHEDULE OF COMPENSATION A payment of $855,000, plus a payment of an additional $445,000 for a total of $1,300,000, would be made upon the completion of the Pre-Opening Marketing and Booking criteria as established in Exhibit A A payment of$855,000 due on December 31, 2008. A payment of$855,000 due on December 31, 2009. The final payment of$415,000 in cash would be paid no later than February 28, 2010. Once the international hotel and convention center marketing and reservation program is placed into service on behalf of the Contractor's Property, if the Program were suspended, terminated, or otherwise ceased operation, the original Contractor would pay the City $10,000 for each full month of non-operation or a pro-rated amount for each partial month of non-operation for the period prior to termination of this Agreement (unless termination is due to breach of this Agreement by Contractor). 593225 1 EXHIBIT "C" SCHEDULE OF PERFORMANCE Item To Be Performed Time for Estimated Performance Date 1. Contractor executes and delivers On or before July 31, July 31, 2008 Contractual Services Agreement for 2008 an International Hotel and Convention Center Marketing and Reservation Program to City 2• Contractor executes and delivers On or before July 31, July 31, 2008 Hotel Franchise Agreement with 2008 International Hotel Brand to City Attorney _ 3. Evidence that the Property is permitted to Within 90 days after September commence Pre-Opening Marketing and execution of Contract 3D, 2008 Bookin It is understood that the foregoing Schedule of Performance is subject to all of the terms and conditions set forth in the text of the Agreement. The summary of the items of performance in this Schedule of Performance is not intended to supersede or modify the more complete description in the text; in the event of any conflict or inconsistency between this Schedule of Performance and the text of the Agreement, the text shall govern. The time periods set forth in this Schedule of Performance may be altered or amended only by written agreement signed by both Contractor and City. A failure by either party to enforce a breach of any particular time provision shall not be construed as a waiver of any other time provision. The City Manager shall have the authority to approve extensions of time without City Council action not to exceed a cumulative total of 180 days as provided in this Agreement. 5g3??5.1 F VALMSARi Z V N i �o `C cA`'F°�`''P City Council Staff Report DATE: JUNE 25, 2008 NEW BUSINESS SUBJECT: APPROVAL OF A CONTRACTUAL SERVICES AGREEMENT FOR AN INTERNATIONAL HOTEL AND CONVENTION CENTER MARKETING AND RESERVATION PROGRAM WITH HH PALM SPRINGS LLC, A DELAWARE LIMITED LIABILITY CORPORATION FOR A PERIOD OF TWENTY-FIVE (25) YEARS FROM: David H. Ready, City Manager BY: Community & Economic Development Department SUMMARY: The City of Palm Springs, as a part of its Convention Center complex, entered into a long term Sublease with the immediately adjacent and attached Wyndham Hotel site. In order to improve the overall marketability of the Hotel and the Convention Center, the City and its Convention Center managers have determined that there is a need for access to and participation in an international hotel and convention center marketing reservation program (the "Program") for the Wyndham Hotel property. An effective marketing reservation program would assist the City in the marketing of the Convention Center and the other convention service hotels in Palm Springs. The current owner of the Wyndham Hotel Sublease has agreed to acquire and provide access to and participation in an International Hotel and Convention Center Marketing and Reservation Program (the "Program") for the Wyndham Hotel property at 888 East Tahquitz Canyon Way, Palm Springs, California, which will benefit the City's Convention Center. The Agreement is for a period of twenty-five (25) years from the effective date of this Agreement and the maximum cost to the City for this program will be Three Million Four Hundred Twenty Five Thousand Dollars, ($3,425,000). RECOMMENDATION: APPROVE AGREEMENT NO. CONTRACTUAL SERVICES AGREEMENT FOR AN INTERNATIONAL HOTEL AND CONVENTION CENTER MARKETING AND RESERVATION PROGRAM WITH HH PALM SPRINGS LLC, A DELAWARE LIMITED LIABILITY CORPORATION FOR A PERIOD OF TWENTY-FIVE (25) YEARS AND ITEM NO. ; AUTHORIZE THE CITY MANAGER TO EXECUTE ALL DOCUMENTS RELATED TO THIS AGREEMENT. STAFF ANALYSIS: The basic outline of the components of the International Hotel and Convention Center Marketing and Reservation Program is described in the Attachment to this Staff Report. Pursuant to the terms of the proposed agreement, The City will make the following payments to HH Palm Springs LLC, the current owner of the sublease of the Wyndham Hotel property, the amount of $3,425,000 once the Owner commences the implementation of an International Marketing and International Reservation Program ("Program") as described in the Attachment. 1. A refund of the 2007-08 Land Lease payment of $855,000, plus a payment of an additional $445,000 for a total of $1,300,000, would be made after the basic Program is implemented, including access to the Program by the City's Convention Center managers for booking and reservation purposes. 2. The Owner would be relieved of the 2008-09 Land Lease payment of $855,000 due in December 2008. 3. The Owner would be relieved of the 2009-10 Land Lease payment of $855,000 due in December 2009. 4. The final payment of $415,000 would be paid no later than February 28, 2010. 5. Once the National Marketing and International Reservation Program was placed into service on behalf of the Hotel, if the Program were suspended, terminated, or otherwise ceased operation, the Owner would pay the City $10,000 for each full month of non-operation or a pro-rated amount for each partial month of non-operation. FISCAL ANALYSIS The Maximum Contract Amount is based on the net present value of the incremental City-wide value of Transient Occupancy Tax in the Group Meeting category, based on the conservative assumption that the increased reservation horsepower procured through the Program would increase Convention Center bookings by 15% over the 2006 actual number of 67,886 room nights. It is also conservatively estimated that such an increase in bookings would increase the Average Daily Rate in the Group Meeting category from $125.00 per night today to $145.00 per night by July, 2010. The present value of the 25 year benefit stream to the City, in terms of additional TOT, would be $3,425,321. While the City is "prepaying" for the increased Wyndham Hotel site TOT, other hotels will also benefit from increased Convention Center bookings resulting in increased TOT citywide. CVoh , R y and, Director of Thomas J. Wilson C munit Economic Development Assistant City Manager 000011 DAVID H. READY, .D. City Manager Attachments: 1. T.O.T. Graph 2. Contract WON Current ADR of$125.00 Present Value of Various Income Streams Due to Selected Increases in Convention Center Room Nights Booked, with 2% Annual Increase Current with 10% with 15% ' New ADR with 10% with 15% New AUR with 10% with 15% Year $ 125.00 Difference Difference I.5 135.00 Difference Difference _ $ 145.06 Difference Difference 1 $1,145,576 $114,558 $171,836 $1,237,222, $123,722 $185,583 $1,328,868 $132,887 $199,330 2 $1,168,488 $116,849 $175,273 $1,261,967 $126,197 $189,295 $1,355,446 $135,546 $203,317 3 $1,191,858 $119,186 $178,779 $1,287,206 $128,721 $193,081 $1,382,555 $138,255 $207,383 4 $1,215,695 $121,569 $182,354 $1,312,950 $131,295 $196,943 $1,410,206 $141,021 $211,531 5 $1,240,009 $124,001 $186,001 $1,339,209 $133,921 $200,881 $1,438,410 $143,841 $215,761 6 $1,264,809 $126,481 $189,721 $1,365,993 $136,599 $204,899 $1,467,178 $146,718 $220,077 7 $1,290,105 $129,010 $193,516 $1,393,313 $139,331 3208,997 $1,496,522 $149,652 $224,478 8 $1,315,907 $131,591 $197,386 $1,421,180 $142,118 $213,177 $1,526,452 $152,645 $228,968 9 $1,342,225 $134,223 $201,334 $1,449,603 $144,960 $217,440 $1,556,981 $155,698 $233,547 10 $1,369,070 $136,907 $205,350 $1,478,595 5147,860 $221,789 $1,588,121 $158,812 $238,218 11 $1,396,451 $139,645 $209,468 $1,508,167 $150,817 $226,225 $1,619,883 $161,988 $242,982 12 $1,424,380 $142,438 $213,657 $1,538,330 $153,833 $230,750 $1,652,281 $165,228 $247,842 13 $1,452,868 $145,287 $217,930 $1;569,097 $156,910 $235,365 $1,685,327 $168,533 $252,799 14 $1,481,925 $148,193 $222,289 $1,600,479 $160,048 $240,072 $1,719,033 $171,903 $257,855 15 $1,511,564 $151,156 $226,735 $1,632,489 $163,249 $244,873 $1,753,414 $175,341 $263,012 16 $1,541,795 $154,179 $231,269 $1,665,138 $166,514 $249,771 $1,788,482 $178,848 $268,272 17 $1,572,631 $157,263 $235,895 $1;698,441 $169,844 S254,766 $1,824,252 $182,425 $273,638 18 $1,604,083 $160,408 $240,612 $1,732,410 $173,241 $259,861 $1,850,737 $186,074 $279,110 19 $1,636,165 $163,616 $245,425 $1,767,058 $176,706 $265,059 $1,897,951 $189,795 $284,693 20 $1,668,888 $166,889 $250,333 $1,802,399 $180,240 $270,360 $1,935,910 $193,591 $290,387 21 $1,702,266 $170,227 $255,340 $1,838,447 $183,845 3275,767 $1,974,629 $197,463 $296,194 22 $1,736,311 $173,631 $260,447 $1,875,216 $187,522 $281,282 $2,014,121 $201,412 $302,118 23 $1,771,038 $177,104 $265,656 S1,912,721 $191,272 S286,908 $2,054,404 $205,440 $308,161 24 $1,806,458 $180,646 $270,969 $1,950,975 $195,098 $292,646 $2,096,492 $209,549 $314,324 25 $1,842,588 $184,259 $276,388 $1,989,995 $198,999 $298,499 $2,137,402 $213,740 $320,510 Net Present $1,968,575 $2,952,863 $2,126,061 $3,189,092 $2,283,547 $3,425,321 Value CD 0 0 µti CONTRACTUAL SERVICES AGREEMENT INTERNATIONAL HOTEL AND CONVENTION CENTER MARKETING AND RESERVATION PROGRAM THIS CONTRACTUAL SERVTCFS AGREEMENT (hereinafter "Agreement") is made and entered into, to be effective this day of .Tune, 2008, by and between the CITY OF PALM SPRINGS, a California Chatter City, (hereinafter referred to as "City") and HH PALM SPRINGS LLC, a Delaware Limited Liability Company, (together with its successors and assigns, hereinafter referred to as "Contractor"). City and Contractor arc sometimes hereinafter individually referred to as "Party" and are hereinafter collectively referred to as the "Parties." RECITALS A. City has determined that there is a need for access to and participation in an international hotel and convention center marketing reservation program (the "Program") for the hotel property owned by the Contractor ("Contractor's Property") and the City's Convention Center (collectively, the "Property"), B. The Contractor's Property is subject to a Sublease (Hotels I—XI) between the City (successor in interest to SENCA Pahn Springs, Inc., a California corporation), as sublandlord, and Contractor (successor in interest to AP/APH Palm Springs, L.P., a Delaware limited partnership; successor in interest to The Community Redevelopment Agency of the City of Palm Springs, California), as subtenant, dated December al, 1984 (as amended and supplemented, the "Land Lease"), C. Contractor proposes to provide such a Program for the Property pursuant to the terms of this Agreement. D. Contractor is qualified by virtue o r its experience, training, education, reputation, and expertise to acquire and provide these services and has agreed to provide such services as provided herein. E. City desires to retain Contractor to provide such professional services. NOW, THEREFORE, in consideration of the promises and mutual obligations, covenants, and conditions contained herein, and other valuable consideration, the receipt and sufficiency of which are hereby aelmowledged, the Parties agree as follows: AGREEMENT 1. SERVICES OF CONTRACTOR 1.1 Scope of Services. In compliance with all terms and conditions of this Agreement, Contractor agrees to perform the services set forth in the Scope of Services described in Exhibit "A," which is attached hereto and is incorporated herein by reference (hereinafter referred to as the "Services")- As a material inducement to the City entering into this Agreement, Contractor represents and warrants that Contractor is an experienced owner of 5e„n i 1 0000235 first class hotels and will provide or may contract For the provision of a Program of the highest quality and standards of operation in performing the services required herein. For purposes of this Agreement "highest quality and standards of operation" shall mean those standards of practice recognized as high quality among well-qualified and experienced professionals performing similar work under similar circumstances. 1.2 Contract Documents. The Agreement between the Parties shall consist of this Agreement and all Exhibits thereto. 1.3 Compliance with Law. Contractor warrants that all Services rendered hereunder shall be performed in accordance with all applicable federal, state, and local laws, statutes, and ordinances and all lawful orders, rules, and regulations promulgated thereunder. 1.4 Licenses, Permits, Fees, and Assessments. Contractor represents and warrants to City that it has or will obtain all licenses, permits, qualifications, and approvals of whatever nature that are legally required to perform the Services required by this Agreement. Contractor represents and warrants to City that Contractor shall, at its sole cost and expense, keep in effect at all times during the term of this Agreement, any license, pernut, qualification, or approval that is legally required for Contractor to perform the Services under this Agreement. 1.5 Familiarity with Services. By executing this Agreement, Contractor warrants that Contractor (a) has thoroughly investigated and considered the Scope of Services to be performed, (b) has carefully considered how the Services should be performed, and (c) fully understands the facilities, difficulties, and restrictions attending performance of the Services tinder this Agreement. 1.6 Further Responsibilities of Parties. Both Parties agree to use reasonable care and diligence to perform their respective obligations tinder this Agreement. Both Parties agree to act in good faith to execute all instruments, prepare all documents, and take all actions as may be reasonably necessary to carry out the purposes of this Agreement. 2. COMPENSATION 2.1 Maximum Contract Amount. For the Services rendered pursuant to this Agreement, Contractor shall be compensated by City in accordance with the Schedule of Compensation, which is attached hereto as Exhibit "B" and is incorporated herein by reference, but not exceeding the Maximum Contract Amount of Three Million Four Hundred Twenty Five Thousand Dollars, ($3,425,000) (hereinafter referred to as the "Maximum Contract Amount"). The method of compensation shall be as set forth in Exhibit "D." The Maximum Contract Amount ofCity's payment obligation tinder this section is the amount specified herein. 2.2. Method of Payment. Method of payment is specified in the Schedule of Compensation (Exhibit"B"). 2.3 Changes in Scope. Any change or changes in the Scope of Services requires the consent of both of the Parties in a written amendment to this Agreement, setting forth with w^_zu� i 2 particularity all terms of such amendment, including, but not limited to, any additional compensation. 3. SCHEDULE OF PERFORMANCE 3.1 Diluent Performance. Contractor shall prosecute diligently the Services provided in this Agreement according to the agreed Schedule of Performance (Exhibit "C"). 3.2 Schedule of Performance. Contractor shall commence the Services pursuant to this Agreement as established in the Schedule of Performance, which is attached hereto as Exhibit "C" and is incorporated herein by reference. When requested, extensions to the times specified in the Schedule of Performance may be approved in writing by the City; however, the City shall not be obligated to grant any extensions. 3.3 Term. Unless earlier terminated as provided elsewhere in this Agreement, this Agreement shall commence upon the effective date of this Agreement and continue in full force and effect for the term of twenty-five (25) years. 4. COORDINATION OF WORK 4.1 Representative of Contractor. The following principal of Contractor is hereby designated as being the principal and representative of Contractor authorized to act in its behalf with respect to the Services to be performed under this Agreement and make all decisions in connection therewith: D. Rick Adams, Senior Vice President, Asset Management. The foregoing principal or his successor shall be responsible during the tern of this Agreement For directing all activities of Contractor and devoting sufficient time to personally supervise the services performed hereunder. The Contractor shall notify the City in writing when the principal changes. 4.2 Contract Officer. The Contract Officer shall be such person as may be designated by the City Manager of City, and is subject to change by the City Manager. 1t shall be the Contractor's responsibility to ensure that the Contract Officer is kept Fully informed of the progress of the perfonnance of the Services, and the Contractor shall refer any decisions which must be made by City to the Contract Officer. Unless otherwise specified herein, any approval of City required hereunder shall mean the approval of the Contract Officer. 4.3 Subcontracting or Assignments. The experience, knowledge, capability, expertise, and reputation of Contractor, was a Substantial inducement for City to enter into this Agreement. Therefore, Contractor shall not assign the performance of this Agreement, nor any part thereof, nor any monies due hereunder, voluntarily or by operation of law, without the prior written consent of City; provided, however, that Contractor may assign this Agreement without the consent of the City to any current or future owner, operating lessee, or mortgage or mezzanine lender of the Contractor's Property on the same terns and under the same conditions as permitted under the Land Lease. Contractor shall not contract with any other entity to perform the Services required without prior written consent of City provided; however, that Contractor may contract with hotel management companies, brands or franchisors. If Contractor subcontracts any part of this Agreement by City, Contractor shall be responsible to City for the Dn"ii.1 3 006007 acts and omissions of its subcontractor(s) in the same manner as it is for persons directly employed- Nothing contained in this Agreement shall create any contractual relationships between any subcontractor and City. City will deal directly with and will make all payments to Contractor. In addition, neither this Agreement nor any interest herein may be transferred, assigned, conveyed, hypothecated, or encumbered voluntarily or by operation of law, whether for the benefit of creditors or otherwise, without the prior written consent of City; provided, however, that Contractor may transfer, assign, convey, hypothecate, or encumber this Agreement without the consent of the City to any future owner, operating lessee, or mortgage or mezzanine lender of the Contractor's Property on the same terns and tinder the same conditions as permitted under the Land Lease. Transfers restricted hercunder shall include the transfer to any person or group of persons acting in concert of more than twenty five percent (25%) of the present ownership and/or control of Contractor, taking all transfers into account on a cumulative basis. In the event of any such unapproved transfer, including any bankruptcy proceeding, this Agreement shall be void. No approved transfer shall release Contractor or any surety of Contractor from any liability hereunder without the express written consent of City, but any transfer permitted without City consent shall automatically release the transferor from any liabilities accruing after the date of transfer to a transferee so long as Contractor's obligations hereunder have been fully assigned to, and assttmed by, such transferee, for the time period after the date of such transfer. 4.4 independent Contractor. A. The legal relationship between the Parties is that of an independent contractor, and nothing herein shall be deemed to make Contractor a City employee. During the perfon-nance of this Agreement, Contractor and its officers, and agents shall act in an independent capacity and shall not act as City officers or employees. The personnel performing the Services under this Agreement on behalf of Contractor shall at all times be under Contractor's direction and control. Neither City nor any of its officers, employees, or agents shall have control over the conduct of Contractor or any of its officers, or agents, except as set forth in this Agreement. Contractor, its officers, or agents shall not maintain an office or any other type of fixed business location at City's offices. City shall have no voice in the selection, discharge, supervision, or control of Contractor's management companies, frauchisors, or of their servants, representatives, or agents, or in fixing their number, compensation, or hours of service. Contractor shall pay all amounts due service providers in connection with this Agreement and shall be responsible for all reports and obligations respecting them. City shall not in any way or for any purpose be deemed to be a partner of Contractor in its business or otherwise a joint venturer or a member of any joint enterprise with Contractor. 13. Contractor shall not incur or have the power to incur any debt, obligation, or liability against City, or bind City in any manner. C- No City benefits shall be available to Contractor, its officers, or agents in connection with any perfonnance under this Agreement. Except for professional fees paid to Contractor as provided for bi this Agreement, City shall not pay salaries, wages, or other compensation to Contractor for the perfonnance of Services under this Agreement. City shall not be liable for compensation or indemnification to Contractor, its officers, or agents, for injury or sickness arising out of performing Services hereunder. If for any reason any court or 4 Goo 041j, 8, goverrrinental agency determines that the City has financial obligations, other than pursuant to Section 2 and Subsection 1.8 herein, of any nature relating to salary, taxes, or benefits of Contractor's officers, servants, representatives, subcontractors, or agents, Contractor shall indemnify City for all such financial obligations. S. RESERVED 6. INDEMNIFICATION To the fullest extent permitted by law, Contractor shall indemnify, defend (at Contractor's sole cost and expense), protect and hold harmless City and its officers, council members, officials, employees, agents and volunteers and all other public agencies whose approval or the Project is required, (individually "Indemnified Party"; collectively "Indemnified Parties") against any and all liabilities, claims,judgments, arbitration awards, settlements, costs, demands, orders, and penalties (collectively "Claims"), including but not limited to Claims arising from injuries or death of persons (Contractor's employees included) and damage to property, which Claims arise out of, pertain to, or are related to the negligence, recklessness, or willful misconduct of Contractor, its agents, employees, or subcontractors, or arise from Contractor's negligent, reckless, or willful performance of or failure to perform any term, provision, covenant, or condition of this Agreement ("Indeminified Claims"), but Contractor's liability for hidemrvfied Claims shall be reduced to the extent such Claims arise from the gross negligence or willful misconduct of the City, its officers, council members, officials, employees, or agents. Contractor shall reimburse the Indemnified Parties for any reasonable expenditures, including reasonable attorneys' fees, expert fees, litigation costs, and expenses that each Indemnified Party may incur by reason of Indemnified Claims. Upon request by an Indemnified Party, Contractor shall defend with legal counsel reasonably acceptable to the Indemnified Party all Claims against the Indemnified Party that may arise out of, pertain to, or relate to Indemnified Claims, whether or not Contractor is named as a party to the Claim proceeding. The determination whether a Claim "may arise out of, pertain to, or relate to Indemnified Claims" shall be based on the allegations made in the Claim and the facts known or subsequently discovered by the Parties. in the event a final judgment, arbitration award, order, settlement, or other final resolution expressly determines that Claims did not arise out of, pertain to, nor relate to the negligence, recklessness, or willful misconduct of Contractor to any extent, then City shall reimburse Contractor for the reasonable costs of defending the Indemnified Parties against such Claims, except City shall not reimburse Contractor for attorneys' fees, expert fees, litigation costs, and expenses that were incurred defending Contractor or any parties other than Indemnified Parties against such Claims. Contractor's indemnification obligation hereunder shall survive the expiration or earlier termination of this Agreement until all actions against the Indemnified Parties for such matters indermrified hereunder are fully and finally barred by the applicable statute of limitations or, if an action is timely filed, until such action is final. This provision is intended for the benefit of third party Indemnified Parties not otherwise a party to this Abrccment. 7. RESERVED. 5 00©© CS. 8. ENFORCEMENT OF AGREEMENT 8.1 California Law and Venue. This Agreement shall be construed and interpreted both as to validity and as to performance of the Parties in accordance with the laws of the State of California. Legal actions concerning any dispute, claim, or matter arising out of or in relation to this Agreement shall be instituted in the Superior Court of the County of Riverside, State of California, or any other appropriate court in such County, and Contractor covenants and agrees to submit to the personal jurisdiction of such court in the event of such action. 8.2 interpretation. This Agreement shall be construed as a whole according to its fair language and common meaning to achieve the objectives and purposes of the Parties. The terns of this Agreement are contractual and the result of negotiation between the Parties. Accordingly, any rule of construction of contracts (including, without limitation, California Civil Code Section 1654) that ambiguities are to be construed against the drafting party, shall not be employed in the interpretation of this Agreement. The caption headings of the various sections and paragraphs of this Agreement are for convenience and identification purposes only and shall not be deemed to limit, expand, or define the contents of the respective sections or paragraphs. 8.3 Termination. Provided there is no breach under this Agreement as of the dale of tennination, either party may terminate this Agreement by written notice thereof to the other party at any time after the later to occur of(i) the dale the Contractor has entering into an agreement with a first class hotel brand (a "Brand") approved by the City (such consent not to be unreasonably withheld, conditioned nor delayed, with Marriott International, Inc-, and its affiliates, hereby pre-approved) with a term of not less than 25 years, and the Brand has commenced "Pre-Opening Marketing and Booking" as defined in Exhibit A attached hereto, (ii) the date the Contractor's Property opens operating under the Brand and (iii) the date the City has made all payments due Contractor under this Agreement. Otherwise, neither the City nor the Contractor may terminate this Agreement except as expressly provided herein . The City or Contractor reserves the right to terminate this Agreement upon a material default by the other party. The effectiveness of this Agreement is contingent upon Contractor obtaining the consent of its lenders to this Agreement, which Contractor agrees to use commercially reasonable efforts to obtain. In the event such consents are not obtained by July 31, 2008, either party may terminate this Agreement until such consents are obtained by written notice thereof to the other. 8.4 Default of City or Contractor. A. City or Contractor's material failure to comply with any material provision of this Agreement shall constitute a default after express written notice of such failure and the further failure of the City or Contractor to reasonably cure such failure within a reasonable period of time. 54,22,,i 1 6 ll ry '1 R 9 B. If the City Manager, or his/her designee, or the Contractor, or his/her Representative determines that the City or Contractor is in default in the performance of any of the terms or conditions of this Agreement, he/she shall notify the other party in writing of such default. The party shall have ten (10) days, or such longer period as reasonably necessary or desirable provided the defaulting party is diligently pursuing a cure, to cure the default by rendering satisfactory performance. In the event the defaulting party fails to cure its default within such period of time, the non-defaulting party shall have the right, notwithstanding any other provision of this Agreement, to terminate this Agreement upon notice to the defaulting party and without prejudice of any remedy to which it may be entitled at law or in equity, or under this Agreement. The defaulting party shall be liable for any and all reasollable costs incurred by the non-defaulting party as a result of such default. Compliance with the provisions of this section shall not constitute a waiver of any City or Contractor right to take legal action in the event that the dispute is not cured. . 8.5 Waiver. No waiver of any provision of this Agreement shall be effective unless in writing and signed by a duly authorized representative of the Party against whom enforcement of a waiver is sought. Any waiver by the Parties of any default or breach of any covenant, condition, or tern contained in this Agreement, shall not be construed to be a waiver of any subsequent or other default or breach, nor shall failure by the Parties to require exact, full, and complete compliance with any of the covenants, conditions, or terms contained in this Agreement be construed as ebaugiang the terns of this Agreement in any manner or preventing the Parties from enforcing the full provisions hereof. 8.6 Rights and Remedies Cumulative. The rights and remedies of the Parties are cumulative and the exercise by either Party of one or more of such rights or remedies shall not preclude the exercise by it, at the same or di fferent times, of any other lights or remedies for the same default or any other default by the other Party. 8.7 Legal Action. In addition to any other rights or remedies, either Party may take legal action, in law or in equity, to cure, correct, or remedy any default, to recover damages for any default, to compel specific performance of this Agreement, to obtain declaratory or injunctive relief, or to obtain any other remedy consistent with the purposes of this Agreement. Such legal actions must be instituted in the Superior Court of the County of Riverside, State of California. Q0011; II 8.8 Applicable Law; Interpretation. The laws of the State of California shall govern the interpretation and enforcement of this Agreement. This Agreement has been negotiated at arm's length and between persons sophisticated and knowledgeable in the matters dealt with herein. In addition, each party has been represented by experienced and knowledgeable legal counsel. Accordingly, any rule of law (including California Civil Code Section 1654) or legal decision that would require interpretation of any ambiguities in this Agreement against the party that has drafted it is not applicable and is waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the purposes of the parties and this Agreement. 8.9 Acceptance of Service of Process. In the event that any legal action is cormmenced by the Contractor against the City, service of process on the City shall be made by personal service upon the City Manager or in such other manner as may be provided by law. In the event that any legal action is commenced by the City against the Contractor, service of process on the Contractor shall be made by personal service upon the Contractor or in such other mariner as may be provided by law and shall be valid whetlier made within or without the State of Califomia. 8.10 Attorney Fees. In the event any dispute between the Parties with respect to this Agreement results in litigation or any non judicial proceeding, the prevailing Party shall be entitled, in addition to such other- relief as may be granted, to recover fi-orn the non-prevailing Party all reasonable costs and expenses, including but not limited to reasonable attorney fees, expert Contractor fees, court costs and all fees, costs, and expenses incurred in any appeal or in collection of any judgment entered in such proceeding. To the extent authorized by law, in the event of a dismissal by the plaintiff or petitioner of the litigation or non-judicial proceeding within thirty (30) days of the date set for trial or hearing, the other Party shall be deemed to be the prevailing Party in such litigation or proceeding. 9. CITY OFFICERS AND EMPLOYEES. NON-DISCRIMINATION 9.1 Non-liability of Citv Officers and Employees. No officer or employee of the City shall be personally liable to the Contractor, or any successor-in-interest, in the event of any default or breach by the City or for any amount which may become due to the Contractor of to its successor, or for breach of any obligation of the tern-is of this Agreement. 9.2 Conflict of Interest. No officer or employee of the City shall have any financial interest, direct or indirect, in this Agreement nor shall any such officer or employee participate in any decision relating to the Agreement which effects his/her financial interest or the financial interest of any corporation, partnership, or association in which he/she is, directly or indirectly, interested in violation of any state statute or regulation. Contractor warrants that it has not paid or given and will not pay or give any third party any money or other consideration irk exchange for obtaining this Agreement. 9.3 Covenant Against Discrimination. in connection with its performance under this Agreement, Contractor shall not discriminate against any employee or applicant for employment because of race, religion, color, sex, age, marital status, ancestry, or national origin. Contractor shall ensure that applicants are employed, and that employees are treated during their employment, without regard to their race, religion, color, sex, age, marital status, ancestry, or national origin. Such actions shall include, but not be limited to, the following: employment, upgrading, demotion or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. 10. MISCELLANEOUS PROVISIONS 10.1 Notices. All notices or other communications required or permitted hereunder shall be in writing, and shall be personally delivered, sent by registered or certified mail, postage prepaid, return receipt requested, or delivered or sent by facsimile with attached evidence of completed transmission, and shall be deemed received upon the earlier of(i) the date of delivery to the address of the person to receive such notice if delivered personally or by messenger or overnight courier; (ii) Eve (5) business days after the date of posting by the United States Post Office if by mail; or (iii) when sent if given by facsimile. Any notice, request, demand, direction, or other communication sent by facsimile must be confinned within forty-eight (48) hours by letter mailed or delivered. Other forms of electronic transmission such as e-mails, text messages, instant messages are not acceptable manners of notice required hereunder. Notices or other communications shall be addressed as follows: To City: City of Palm Springs Attention: City Manager P.O. Box 2743 Palm Springs, California 92263 Telephone: (760) 322-8350 Facsimile: (760) 323-8207 With a Conv to: Douglas C. Holland, Esq., City Attomey Woodruff, Spradlin & Smart 555 Anton Boulevard, Suite 1200 Costa Mesa, California 92626 Telephone: (714) 415-1042 Facsimile: (714) 415-1142 To Contractor: D. Rick Adams, Senior Vice President Highland Hospitality Corporation 8405 Greensboro Drive, Suite 500 McLean, Virginia 22102 Telephone: (703) 336-4917 Facsimile: (703) 336-4950 With a copy to JER Partners 1650 Tysons Boulevard, Suite 1600 McLean, Virginia 22102 Attn: Legal Department Telephone: 703-714-8000 rn 9 Facsimile: 703-714-8102 With a Copy to: Rich Banjo, Vice President JER Partners 1650 Tysons Boulevard, Suite 1600 McLean, Virginia 22102 Telephone: (703) 714-8161 Facsimile: (703) 714-8107 10.2 Entire Agreement. This Agreement constitutes the entire agreement between the Parties and supersedes all prior negotiations, arrangements, agreements, representations, and understandings, if any, made by or among the Parties with respect to the subject matter hereof. No amendments or other modifications of this Agreement shall be binding unless executed in writing by both Parties hereto, or their respective successors, assigns, or grantees. 10.3 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be determined to be invalid by a final judgment or decree of a court of competent jurisdiction, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the reminder of that provision, or the remaining provisions of this Agreement unless the invalid prnvisionn is so material that its invalidity deprives either Party of the basic benefit of their bargain or renders this Agreement meaningless. 10.4 Successors in Interest, Subordination. This Agreement shall be binding upon and inure to the benefit of the Parties' successors and assignees. This Agreement is subordinate to any existing or future mortgage or mezzanine loan with respect to the Contractor's Property. 10.5 Third Par Beneficiary. Except as may be expressly provided for herein, nothing contained in this Agreement is intended to confer, nor shall this Agreement be construed as conferring, any rights, including, without limitation, any rights as a third-party beneficiary or otherwise, upon any entity or person not a party hereto. 10.6 Recitals. The above-referenced Recitals arc hereby incorporated into the Agreement as though hilly set forth herein and each Party acknowledges and agrees that such Party is bound, for purposes o C this Agreement, by the same. 10.7 Corporate Authority. Each of the undersigned represents and warrants that (i) the Party for which he or she is executing this Agreement is duly authorized and existing, (ii) he or she is duly authorized to execute and deliver this Agreement on behalf of the Party for which he or she is signing, (iii) by so executing this Agreement, the Party for which he or she is signing is formally bound to the provisions of this Agreement, and (iv) the entering into this Agreement does not violate any provision of any other Agreement to which the Party for which be or she is signing is bound. ,, 10 IN WITNESS WHEREOF, the Parties have executed and entered into this Agreement as of the date first written above. "CITY" CITY OF PALM SPRINGS a California Charter City DAVID READY City Manager ATTEST: (SEAL) JAMES THOMPSON City Clerk APPROVED AS TO FORM: DOUGLAS C. HOLLAND City Attorney "CONTRACTOR" HH Palm Springs, LLC By: Name: Title: By: Secretary snaa,a i 11 EXHIBIT "A" SCOPE OF SERVICES The Contractor shall obtain access to and participation in an international hotel and convention center marketing and reservation program (the "Program") for the hotel property owned by the Contractor at 888 East Tahquitz Canyon Way, Palm Springs, California and the Palm Springs Convention Center attached thereto at 275 North Avenida Caballeros, Palm Springs, California (collectively, the "Property"), for a period of twenty-five (25) years from the effective date of this Agreement. The Program shall provide at all times no less than the services set forth and described as follows as of the date hereof, subject to reasonable changes over time consistent with changes made by first class hospitality brands changes in international hotel and convention center marketing and reservation programs: The reservation system must contain the minimum ability to enable Reservation Associates to make reservations at any property within the portfolio of Brands. Ti is also must have the capacity to incorporate air Inventory & Revenue management system for use by the Revenue Leaders at each property or controlling office. The reservation system must contain the minimum ability to allow local and worldwide reservations centers as well as travel agencies and internet users to make reservations at any Brand X hotel world-wide. The reservation system must also be linked directly to the Brand X website. An individual Guest must have the minimum ability to book/change/cancel reservations and receive email confirmation of their reservations directly through the Internet site. The reservation system must be linked with the global distribution systems (GDS) operated by major airlines and travel organizations, offering real-time availability. Brand X combined with its parent organization, must hold a minimum .5% of the worldwide supply of hotel rooms. A guest making a reservation through the reservation system must be able to make and confirm reservations up to a minimum of 51 weeks from the current date, provided that the requested hotel has inventory available for the requested dates. The reservation system must also allow for Revenue and/or Inventory Management of each property to have very accurate control over the rooms & rates available to sell for the next 51 weeks. The reservation system must allow for control of availability of rooms by room pool and/or rate program code, by length of stay restrictions, black out dates, closed-to-arrival and in addition has the functionality to ensure that conflicting restrictions are not in place. The reservation system must contain the minimum ability to create Customer Profiles which can be tracked within the system. A Brand Loyalty program must have memberships tracked giving users access to customers' reservation preferences at a glance. The reservation system must have 000aiE the profiles for these frequent guests in the system to speed the process of making reservations, improving guest service and tracking the -guest's usage. The reservation system must also contain the ability to track travel agency, wholesaler, and preference plus profiles in the system, malting the reservation process more efficient. The reservation system must allow for strict control over the rates, availability and up to the minute impact on how to sell the hotel to maximize revenue. For the purpose of this Agreement and this Exhibit "A" to the Agrcement, the tenn "Brand X" shall mean a first class hotel approved by lbe City (such consent not to be unreasonably withheld, conditioned nor delayed, with Mairiott International, hic., and its affiliates, hereby pre- approved), and the term "reservation system" shall not mean the hotel room booking services provided solely by any online travel company, including without limitation, Expedia, Travelocity, Prlceline, or Orbitz. The phrase "Pre-Opening Marketing and Booking" shall mean: ■ The Contractors Property specific inventory information shall be built and loaded in the Brands Reservation Program with an established inn code that exclusively identifies the Contractors Property within the international hotel reservation program • The Contractors Property target sell date shall be established with the Brand that will allow for reservation booking to occur on or after such target sell date via the Brands Reservation Program • The Contractors Property will appear on the Brands web site and the web site page for Contractors property shall include specific information about said property and the established sell date • Transient and Group customers will have the ability to use the Reservation Program to book reservations that are within eleven and one-half months into the future; after the Contractors Property opens and is operating under the Brand, Group reservations can be entered for any firhrre date • A Pre-Opening Sales and Marketing meeting will be conducted with the Brands Sales Team to ensure that the Reservation Program and booking channels are identified and understood, pricing strategies are communicated, reservations sales lead sharing process and other sales activities are understood and coordinated with the on site management team 66GO] 7 EYJ1IBIT «B„ SCHEDULE OF COMPENSATION A payment of $855,000, plus a payment of an additional $445,000 for a total of $1,300,000, would be made upon the completion of the Pre-Opening Marketing and Booking criteria as established in Exhibit A A payment of$855,000 due on December 31, 2008. A payment of 5855,000 due on December 31, 2009 The final payment of$415,000 in cash would be paid no later than February 28, 2010. Once the intemational hotel and convention center marketing and reservation program is placed into service on behalf of the Contractor's Property, if the Program were suspended, terminated, or otherwise ceased operation, the original Contractor would pay the City 510,000 for each full month of non-operation or a pro-rated amount for each partial month of non-operation for the period prior to termination of this Agreement (unless termination is due to breach of this Agreement by Contractor). Siil3�l I EXHIBIT "C" SCHEDULE OF PERFORMANCE Item To Be Performed Time for Estimated Performance Date 1. Contractor executes and delivers On or before July31, July 31, 2008 Contractual Services Agreement for 2008 an International Hotel and Convention Center Marketing and Reservation Program to City 2. Contractor executes and delivers On or before July 31, July 312008 Hotel Franchise Agreement with 2008 International Hotel Brand to City Attorney 3. Evidence that the Property is permitted to Within 90 days after September commence Pre-Opening Marketing and execution of Contract 30, 2008 Baokin It is understood that the foregoing Schedule of Performance is subject to all of the terms and conditions set forth in the text of the Agreement. The summary of the items of performance in this Schedule of Performance is not intended to supersede or modify the more complete description in the text; in the event of any conflict or inconsistency between this Schedule of Performance and the text of the Agreement, the text shall govern. The time periods set forth in this Schedule of Performance may be altered or amended only by written agreement signed by both Contractor and City. A failure by either party to enforce a breach of any particular time provision shall not be construed as a waiver of any other time provision. The City Manager shall have the authority to approve extensions of time without City Council action not to exceed a cumulative total of 180 days as provided in Section