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BINDING MEMORANDUM OF UNDERSTANDING

Letter of Intent

BINDING MEMORANDUM OF UNDERSTANDING | Document Parties: PENNSYLVANIA REAL ESTATE INVESTMENT TRUST | Centaur Pennsylvania, LLC | PR Valley View Downs, LP You are currently viewing:
This Letter of Intent involves

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST | Centaur Pennsylvania, LLC | PR Valley View Downs, LP

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Title: BINDING MEMORANDUM OF UNDERSTANDING
Date: 8/10/2009
Industry: Real Estate Operations     Sector: Services

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Exhibit 10.8

BINDING MEMORANDUM OF UNDERSTANDING

THIS BINDING MEMORANDUM OF UNDERSTANDING (“ MOU ”) is entered into by and between Valley View Downs, LP, a Pennsylvania limited partnership (the “ Partnership ”), Centaur Pennsylvania, LLC, an Indiana limited liability company (“ Centaur ”), and PR Valley View Downs, L.P., a Pennsylvania limited partnership (“ PREIT ”). Subject to the limitations set forth below, the parties hereto intending to be legally bound hereby, and each having received good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, agree as follows:

1. Binding Nature . This MOU is LEGALLY BINDING AND ENFORCEABLE on the Partnership, Centaur and PREIT. The parties acknowledge that this MOU contains the material business terms of the transaction described herein and that they will use their respective good faith business efforts to enter into one or more mutually satisfactory formal written agreements embodying the terms of this MOU (“ Definitive Agreements ”), which may also contain additional customary terms and conditions regarding the subject matter hereof.

2. Background . The Partnership has acquired options (the “ Property Options ”) on land in Beaver County, Pennsylvania (the “ Property ”) and made an application for a Harness Racing License (the “ Racing License ”) in the Commonwealth of Pennsylvania (the facility at which such activities will be conducted, the “ Track ”). A list of the Property Options, and the material terms of each, is attached hereto as Exhibit “A”. If the Racing License is awarded, the Partnership intends to build the Track on the Property. In addition, if the Partnership is awarded a license to conduct alternative gaming (“ Alternative Gaming ”) at the Track, the Partnership intends to construct facilities for the operation of Alternative Gaming on the Property (the construction of the Track and the construction of Alternative Gaming facilities on the Property, the “ Improvements ”). The Partnership hereby represents and warrants to PREIT that all of the Property Options are held (whether through assignment or otherwise) in the name of the Partnership, and that the real property subject to the Property Options comprise all of the land necessary for construction of the Improvements.

3. Initial PREIT Payment .

(a) Upon the execution and delivery of this MOU, PREIT shall pay to the Partnership $982,988 which is an amount equal to 20% of (i) the Current Total Equity (as hereinafter defined) less all Property Costs, divided by (ii) 0.80 (the “ Initial PREIT Payment ”).

(b) For purposes of this MOU:

(i) “ Current Total Equity ” means, as of the date hereof, the total cash amount contributed to the Partnership or paid for or on behalf of the Partnership by (A) Centaur or any of its affiliates, including, without limitation, all Property Costs, and (B) all other limited partners of or investors in the Partnership, which is equal to $4,519,199; and


(ii) “ Property Costs ” means, as of the date hereof, the sum of all amounts paid by or on behalf of the Partnership (A) to acquire and/or extend the Property Options, (B) in respect of Property related due diligence costs such as environmental studies, soil tests, zoning, title, surveys, and legal fees, or (C) to rezone the Property, which is equal to $587,247.

The actual amounts of Current Total Equity and Property Costs are set forth with specificity in Exhibit “B” attached hereto and made a part hereof.

(c) The Partnership shall distribute the proceeds of the Initial PREIT Payment to Centaur in an amount not to exceed the Property Costs.

(d) Neither the Initial PREIT Payment, nor any advances by PREIT of the Improvement Allowance, shall be deemed to be a loan to the Partnership.

4. Acquisition of the Property .

(a) If, prior to receipt by the Partnership of the Racing License, it is necessary for the Partnership to acquire the Property (for example, because of the expiration of the Property Options or because it is not possible to extend the Property Options, it being agreed that the Partnership shall use commercially reasonable efforts to extend any Property Options expiring prior to the date on which it is anticipated the Partnership will receive the Racing License), the Partnership may exercise such options and acquire the Property. In such case, subject to Section 5(d) below, PREIT shall pay the Partnership 20% of all costs incurred by the Partnership in exercising the Property Options and acquiring the Property (the “ Property Acquisition Costs ”). Thereafter, once the Partnership acquires the Racing License, the Partnership shall transfer the Property to PREIT and PREIT shall reimburse the Partnership for all Property Acquisition Costs paid by the Partnership and not previously reimbursed by PREIT.

(b) If, after receipt by the Partnership of the Racing License, the Partnership has not yet acquired the Property, the Partnership shall assign the Property Options to PREIT and PREIT shall (at the direction of the Partnership) exercise such options and acquire the Property. In such case, subject to Section 5(d) below, PREIT shall pay all Property Acquisition Costs.

(c) The Partnership shall not select a site in lieu of the Property for the Track or the conduct of Alternative Gaming activities unless the Property is unacceptable to regulatory authorities for the conduct of horse racing and Alternative Gaming. In the event that the Partnership selects an alternative site, PREIT shall have the same rights and obligations as those described herein with respect to such other property (and such other property shall be considered the “ Property ” hereunder) and PREIT shall be given credit for all amounts expended by PREIT with respect to the original Property or Property Options.

 

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(d) For purposes of this MOU, “ Total Equity ” means, as of any date of determination, (i) the aggregate amount theretofore paid to or for the benefit of the Partnership by PREIT (including, without limitation, all amounts paid under Sections 3(a) , 4(a) and 4(b) above), and (ii) any and all cash capital contributions of the partners of the Partnership (or their affiliates), including, without limitation, Centaur made prior to or on such date. A list of such cash capital contributions as of the date hereof is attached as Exhibit “C” hereto.

5. Lease of the Property . Simultaneously with the acquisition of the Property by PREIT as described in Section 4 above, PREIT and the Partnership shall enter into a ground lease for the Property (the “ PREIT Lease ”) containing the following principal terms:

(a) Triple Net Ground Lease . The PREIT Lease will be a triple net ground lease pursuant to which PREIT, as lessor, will lease the Property to the Partnership, as lessee, and thereafter, the Partnership, as lessee, shall be responsible for all costs and expenses of the ownership and operation of the Property, including, without limitation, all costs of the construction of Improvements (subject to the Improvements Allowance, as hereinafter defined) and the payment of taxes, insurance, utilities, maintenance, repair and other costs of the ownership and operation of the Property; it being the intent of the parties that all Rent (as hereinafter defined) shall be payable to PREIT net of all costs associated with the Property.

(b) Improvements; Use . The PREIT Lease will obligate the Partnership, as lessee, to make all site improvements, construct on the Property at its sole cost and expense, subject to the Improvements Allowance, the Track, an Alternate Gaming facility and ancillary parking and facilities. The Property must be used and operated by the Partnership solely as a Track and an Alternative Gaming facility.

(c) Improvements Allowance . PREIT shall contribute toward the cost of the Improvements an amount (the “ Improvements Allowance ”) equal to 20% of the costs of such Improvements which amount shall be paid to the Partnership at the same times and in the same proportion as the remaining 80% of such costs are paid by the Partnership; provided , however , that if at any time after the Partnership has obtained funding of the first tranche of the Senior Debt and/or Mezzanine Financing, an Improvements Allowance payment is required to be made by PREIT, and the aggregate amount theretofore paid to or for the benefit of the Partnership by PREIT (including, without limitation, all amounts paid under Sections 3(a) , 4(a) and 4(b) above, such as the Initial PREIT Payment or in respect of Property Acquisition Costs, or in respect of Improvements Allowances) (the “ Aggregate PREIT Payments ”) is greater than 20% of Total Equity, PREIT would not be required to make any Improvement Allowance payments until the Aggregate PREIT Payments represent only 20% of Total Equity, after which PREIT would be obligated to make Improvements Allowance payments as set forth above.

(d) Limitations on Aggregate PREIT Payments . Notwithstanding anything to the contrary herein set forth, in no event shall PREIT have any obligation to make any payments to or for the benefit of the Partnership (whether under Sections 3(a) , 4(a) or 4(b) above, such as the Initial PREIT Payment or in respect of Property Acquisition Costs, in respect of Improvements Allowances, or otherwise) to the extent that making any such payment would cause the Aggregate PREIT Payments to exceed $10 million.

 

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(e) Rent . Rent (“ Rent ”) under the PREIT Lease shall consist of minimum rent (“ Minimum Rent ”) and additional rent in amounts required to be paid by the Partnership under the PREIT Lease for real estate taxes, insurance and other expenses of the operation of the Property. Until three (3) months following the commencement of Alternative Gaming activities at the Property (the “ Alternative Gaming Commencement Date ”), Minimum Rent shall accrue at ten percent (10%) per annum on all Aggregate PREIT Payments and Improvements Allowance advanced by PREIT. Beginning three (3) months following the commencement of Alternative Gaming at the Property (the “ Minimum Rent Trigger Date ”), Minimum Rent shall be Three Million Dollars ($3,000,000) per annum for the next twenty-four (24) months, then Four Million Dollars ($4,000,000) per annum for the next twelve (12) months, then Five Million Dollars ($5,000,000) per annum for the next twelve months and thereafter for the remainder of the term, as the term may be extended, Five Million Dollars ($5,000,000) plus an annual CPI escalation from the end of the 4 th lease year. Except as otherwise set forth herein, Minimum Rent shall be paid monthly in advance without set off, deduction, abatement or adjustment. One One Hundred Seventeenth (1/117 th ) of the Minimum Rent which has accrued prior to the Minimum Rent Trigger Date, plus interest thereon at ten percent (10%) per annum from the date accrued to the date paid, shall be paid monthly on the same date as Minimum Rent is payable beginning on the Minimum Rent Trigger Date and continuing on the first day of the next following one hundred sixteen (116) months until all such accrued Minimum Rent, plus interest thereon, has been paid.

(f) Term . The term of the PREIT Lease shall continue for a period of 29 years and 11 months. The Partnership shall have options to extend such term in 10 year increments, with a maximum term of 99 years.

(g) Purchase/Call Option . The Partnership will have the continuing right at any time beginning ten (10) years after the Alternative Gaming Commencement Date to purchase all but not less than all of PREIT’s interest in the Property (including its fee simple and landlord interests) for an amount equal to ten (10) times the average Rent paid or accrued for the preceding two (2) calendar years but excluding for such purposes 50% of the amount by which the average Rent exceeded $5 Million (the “Buyout Amount”). PREIT shall have a parallel right at any time during the 90-day periods immediately following the tenth (10 th ), fifteenth (15 th ), twentieth (20 th ) and twenty-fifth (25 th ) anniversaries of the Alternative Gaming Commencement Date, and on each successive 5 th year anniversary of the Alternative Gaming Commencement Date, to put the Property to the Partnership for an amount equal to the Buyout Amount. All costs and expenses of any such purchase and sale shall be paid by the purchaser. The Buyout Amount, in the case of a call, shall be paid by wire transfer of immediately available funds at closing, which shall be held on the later of ninety (90) days following the exercise of the call, or 5 days following regulatory approval. The Buyout Amount, in the case of a put, shall be paid in equal installments of principal and interest over two (2) years with interest at 2% per annum in excess of the prime rate. In such case, PREIT shall convey to Property to the Partnership at the closing, which shall occur on the same schedule as a closing would occur in a call, and the Partnership shall grant PREIT a first priority mortgage lien on the Property to secure such payments.

 

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(h) Leasehold Mortgages . The PREIT Lease will permit the Partnership to grant leasehold mortgages in conn


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