AMENDED AND RESTATED LIMITED LIABILITY LIMITED PARTNERSHIP AGREEMENT

Exhibit 10.43

 

AMENDED AND RESTATED

 

LIMITED LIABILITY LIMITED PARTNERSHIP AGREEMENT

 

OF

 

HDC NORTH BEACH DEVELOPMENT, LLLP

 

Among

 

DTRS NORTH BEACH DEL CORONADO, LLC,

 

DCORO HOLDINGS, LLC,

 

KSL DC NEWCO, LLC

 

AND

 

HDC DC CORPORATION

 

Dated: As of January 9, 2006

TABLE OF CONTENTS

 

 

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AMENDED AND RESTATED

LIMITED LIABILITY LIMITED PARTNERSHIP AGREEMENT

 

THIS AMENDED AND RESTATED LIMITED LIABILITY LIMITED PARTNERSHIP AGREEMENT (this “ Agreement ”) is made and entered into as of January 9, 2006 (the “ Effective Date ”), by and among (i) DTRS NORTH BEACH DEL CORONADO, LLC, a Delaware limited liability company (hereinafter referred to as “ SHC TRS ”), (ii) KSL DC NEWCO, LLC, a Delaware limited liability company (hereinafter referred to as “ KSL Newco ”), (iii) DCORO HOLDINGS, LLC, a Delaware limited liability company (hereinafter referred to as “ KKR LP ”) and (iv) HDC DC CORPORATION, a Delaware corporation (hereinafter referred to as “ DC Corp ”). SHC TRS, KSL Newco, KKR LP and DC Corp are hereinafter referred to as the “ Class A Limited Partners ”. The General Partner and the Class A Limited Partners are hereinafter referred to as the “ Class A Partners ”. DC Corp, SHC TRS and KSL Newco are hereinafter referred to as the “ Class B Limited Partners ”. The Class A Partners and the Class B Limited Partners are hereinafter referred to as the “ Partners ”.

 

RECITALS

 

A. On August 8, 2005, certain of the Partners and other predecessor partners formed CNL KSL North Beach Development, LP (the “ Company ”) as a Delaware limited partnership by filing the Certificate and entered into an Agreement of Limited Partnership on the same date (the “ Original Agreement ”). The Company was formed to purchase the North Beach Property and to complete the North Beach Development Project.

 

B. On the date hereof, the Partners and/or certain of their affiliates have entered into that certain Amended and Restated Limited Partnership Agreement (the “ Hotel Partnership Agreement ”) of SHC KSL Partners, L.P. (the “ Hotel Partnership ”) which governs such partners’ indirect ownership of the Hotel.

 

C. Pursuant to that certain Purchase and Sale Agreement, dated as of October 31, 2005, by and among Recreation (as defined herein), KSL LP and SHC del Coronado, L.L.C. (the “ Purchase Agreement ”), the parties to this Agreement shall own the Partnership Interests described herein.

 

D. The parties hereto desire to enter into this Agreement for the purpose of revising the Original Agreement to reflect the developments described in Recital C . The parties hereto further desire to amend and restate the Company’s certificate of limited partnership and to file a statement of qualification to become a limited liability limited partnership.

NOW, THEREFORE , in consideration of the mutual promises, covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Partners agree as follows:

 

ARTICLE 1.

FORMATION AND CONTINUATION

 

Section 1.1 Organization; Continuation . The Company was organized as a Delaware limited partnership pursuant to the Act on the date set forth in Recital A above.

 

Section 1.2 Agreement; Effect of Inconsistencies with Act . This Agreement amends and restates the Original Agreement in its entirety. This Agreement supersedes the Original Agreement, which shall be of no further force or effect. The Partners agree to the terms and conditions of this Agreement, as it may from time to time be amended, supplemented or restated according to its terms. The Partners intend that this Agreement shall be the sole source of the agreement among the parties with respect to the Property and the Company’s business and purpose. Except to the extent a provision of this Agreement expressly incorporates federal income tax rules by reference to sections of the Code or Regulations or is expressly prohibited or ineffective under the Act, this Agreement shall govern, even when inconsistent with, or different from the provisions of the Act or any other law. To the extent any provision of this Agreement is prohibited or ineffective under the Act, this Agreement shall be considered amended to the smallest degree possible in order to make such provision effective under the Act. If the Act is subsequently amended or interpreted in such a way as to validate a provision of this Agreement that was formerly invalid, such provision shall be considered to be valid from the effective date of such interpretation or amendment. Each Partner shall be entitled to rely on the provisions of this Agreement, and no Partner shall be liable to the Company or to any other Partner for any action or refusal to act taken in good faith reliance on this Agreement. The Partners and the Company agree that the duties and obligations imposed on the Partners as such shall be those set forth in this Agreement, which is intended to govern the relationship among the Company and the Partners, notwithstanding any provision of the Act, fiduciary duties or common law to the contrary.

 

Section 1.3 Name . The name of the Company shall be “HdC North Beach Development, LLLP”, and such name shall be used at all times in connection with the conduct of the Company’s business. The General Partner may, from time to time, change the name of the Company upon notice to the other Partners.

 

Section 1.4 Effective Date . This Agreement shall become effective as of the Effective Date.

 

Section 1.5 Term . The Partnership shall continue until the Company is dissolved and its affairs wound up in accordance with this Agreement and the Act.

 

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Section 1.6 Certificate of Limited Partnership . On or before the date hereof, an amended and restated Certificate was filed with the Secretary of State pursuant to the Act, together with a statement of qualification to become a limited liability limited partnership pursuant to Section 214 of the Act. The General Partner shall take all other actions deemed by it to be necessary or appropriate from time to time to comply with all applicable requirements for the operation and, when appropriate, termination of the Company as a limited liability limited partnership under the Act.

 

Section 1.7 Registered Agent and Office . The Company’s registered agent for service of process and registered office in the State of Delaware shall be that Person and location reflected in the Certificate. The General Partner may, from time to time, change the registered agent or office through appropriate filings with the Secretary of State. If the registered agent ceases to act as such for any reason or the registered office shall change, the General Partner shall promptly designate a replacement registered agent or file a notice of change of address, as the case may be.

 

Section 1.8 Principal Place of Business . The Company’s principal place of business shall be located at the Hotel. The General Partner may change the location of the Company’s principal place of business to anywhere within the United States from time to time. The General Partner shall make those filings and take those other actions required by applicable law in connection with the change and shall give notice to all Partners of the new location of the Company’s principal place of business promptly after the change becomes effective.

 

Section 1.9 Foreign Qualifications . The Company shall qualify to do business as a foreign limited partnership in each jurisdiction in which the nature of its business requires such qualification. The General Partner may select any Person permitted by applicable law to act as registered agent for the Company in each jurisdiction in which it is qualified to do business, and may replace any such Person from time to time.

 

Section 1.10 Partner’s Qualifications . Each Partner shall maintain its respective existence and good standing under the laws of its state of incorporation or formation, and its qualification to do business in such jurisdictions where such qualifications are required.

 

ARTICLE 2.

DEFINITIONS

 

Section 2.1 General Interpretive Principles . For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, (i) the terms defined in this Article shall have the meanings assigned to them in this Article and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other genders; (ii) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP (as defined herein);

 

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(iii) references in this Agreement to “Articles,” “Sections,” “subsections,” “paragraphs” and other subdivisions without reference to a document are to designated Articles, Sections, subsections, paragraphs and other subdivisions of this Agreement; (iv) a reference to a subsection without further reference to a Section is a reference to such subsection as contained in the same Section in which the reference appears, and this rule shall also apply to paragraphs and other subdivisions; (v) the words “hereto,” “herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular provision; (vi) the word “including” means “including, but not limited to”; and (vii) all Schedules and Exhibits to this Agreement are incorporated herein by this reference thereto as if fully set forth herein, and all references herein to this Agreement shall be deemed to include all such incorporated Schedules and Exhibits.

 

Section 2.2 Defined Terms . As used in this Agreement, the following terms shall have the following respective meanings (unless otherwise expressly provided herein):

 

Act : The Delaware Revised Uniform Limited Partnership Act in its present form or as amended from time to time.

 

Actual Closing Costs : Actual costs incurred by the Company in connection with the exercise of any North Beach Put Rights, including, without limitation, (i) any make-whole and/or prepayment penalties payable in connection with the refinancing of any indebtedness and the placing of new indebtedness in connection with satisfying the North Beach Put Rights and (ii) all transfer, stamp and recording taxes imposed on the Transfer and all other closing costs.

 

Additional Capital Contributions : The additional Capital Contributions required to be made by the Partners pursuant to Section 4.3 , including, as applicable, any Capital Contribution made by a Contributing Partner for a Non-Contributing Partner pursuant to Section 10.2 .

 

Additional Contributions : As defined in Section 4.3(c) .

 

Adjusted Basis : The basis for determining gain or loss for federal income tax purposes from the sale or other disposition of property, as defined in Section 1011 of the Code.

 

Adjusted Capital Account Balance : As defined in Section 5.7(a) .

 

Affiliate : and all derivations thereof, shall mean (a) as to any Person which is not an individual, any other Person controlling, controlled by or under common control with such Person, including, without limitation, any partner, member, shareholder, officer or director of such Person, as the case may be, and (b) with respect to any Person who is an individual, such individual’s parents, spouse, direct lineal or adoptive descendants, siblings, nieces, nephews and/or first cousins and/or one or more trusts created solely for

 

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the benefit of such individual or any such family members. For the purposes of this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of a Person, whether through ownership of voting securities or a partnership or membership interest, by contract or otherwise.

 

Agreement : This limited liability limited partnership agreement in its present form or as amended, supplemented or restated from time to time.

 

Approved or Approved by the Class A Partners : Approved in writing (including e-mail) by the Class A Partners holding at least 60% of the Class A Percentage Interests, unless a lesser percentage is herein specified.

 

Assignee : A Person to whom a Partnership Interest is Transferred and who is not admitted as a Partner.

 

Bank Accounts : As defined in Section 7.5 .

 

Business Day : Any day other than a Saturday, a Sunday, a day on which national banks in California or Illinois are not open for business or are authorized by law to close.

 

Capital Account : The capital account of a Partner maintained in accordance with Section 4.4 .

 

Capital Call Notice : As defined in Section 4.3(b) .

 

Capital Contribution : Any money or property from time to time contributed by a Partner to the Company, including the Initial Capital Contribution and Additional Capital Contributions.

 

Capital Transaction : A transaction in which the Company (i) borrows money, (ii) sells, exchanges or otherwise disposes of all or any part of its Property, including a sale or other disposition pursuant to a condemnation, or (iii) receives the proceeds of property damage insurance, or any other transaction that, in accordance with GAAP, is considered capital in nature.

 

Carrying Value : Carrying Value means, with respect to any asset, the Adjusted Basis of the asset, except as follows:

 

(i) the initial Carrying Value of an asset contributed by a Partner to the Company after the Effective Date shall be the gross fair market value of the asset, as agreed to by the Partners at the time the asset is contributed;

 

(ii) the Carrying Values of the Company’s assets shall be adjusted to equal their respective gross fair market values, as reasonably determined by the Partners,

 

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as of the following times: (a) the acquisition of an additional interest in the Company by any new or existing Assignee or Partner in exchange for more than a de minimis Capital Contribution; (b) the distribution by the Company to a Partner or an Assignee of more than a de minimis amount of property as consideration for all or part of a Partnership Interest or an Assignee’s Economic Interest; and (c) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); but adjustments pursuant to clauses (a) and (b) above shall be made only if the Partners reasonably determine that such adjustments are necessary or appropriate to reflect the relative economic interests of the Partners in the Company;

 

(iii) the Carrying Value of an asset of the Company distributed to a Partner shall be adjusted to equal the gross fair market value of the asset on the date of distribution as reasonably determined by the Partners; and

 

(iv) the Carrying Values of the Company’s assets shall be increased (or decreased) to reflect any adjustments to the Adjusted Basis of those assets pursuant to Sections 734(b) or 743(b) of the Code, but only to the extent that those adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and Section 4.4 ; but the Carrying Values shall not be adjusted pursuant to this clause (iv) to the extent the Partners reasonably determine that an adjustment pursuant to clause (ii) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this clause (iv).

 

If the Carrying Value of an asset is determined or adjusted pursuant to clauses (i), (ii) or (iv), such Carrying Value shall thereafter be adjusted by the Depreciation taken into account with respect to the asset for purposes of computing Profit and Loss.

 

Certificate : The Certificate of Limited Partnership of the Company filed with the Secretary of State, as amended from time to time in accordance with the Act.

 

Class A Limited Partner or Class A Limited Partners : As defined in the Preamble.

 

Class A Partners : As defined in the Preamble.

 

Class A Partnership Interests : The Partnership Interests of the Class A Partners.

 

Class A Percentage Interests : The Percentage Interests of the Class A Partners.

 

Class B Limited Partners : As defined in the Preamble.

 

Class B Partnership Interests : The Partnership Interests of the Class B Limited Partners.

 

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Class B Percentage Interests : The Percentage Interests of the Class B Limited Partners.

 

Code : The Internal Revenue Code of 1986, as in effect and hereafter amended.

 

Common Capital: A Class A Partner’s initial Common Capital is reflected in Section 4.1(b).

 

Common Capital Balance: A Class A Partner’s Common Capital Balance, as of any day, shall equal the excess of: (x) the dollar value of the Common Capital assigned to such Class A Partner under Section 4.1(b) , over (y) the amount of cash distributed to such Class A Partner pursuant to Section 5.1(a)(iii) hereof. Such Common Capital Balance shall be decreased based on the date of any actual distribution. In the event a Class A Partner transfers all or any portion of its Class A Partnership Interest in accordance with the terms of this Agreement, its transferee shall succeed to the Common Capital Balance to the extent it relates to the transferred Class A Partnership Interest.

 

Company : The limited liability limited partnership continued pursuant to this Agreement, and any successor limited liability limited partnership that continues the business of the Company, and is a reformation or reconstitution of the Company.

 

Completion Guaranty : As defined in Section 1(c) of the Guaranty Agreement.

 

Contributing Partner : Any Class A Partner other than a Non-Contributing Partner.

 

Contribution Event : As defined in Section 10.1 .

 

DC Corp Shares : All of the common stock of DC Corp owned by the equity owners of DC Corp.

 

Deadlock Response Period : As defined in Section 4.3(c) .

 

Defaulting Partner : A Partner or Partners with respect to which an Event of Default has occurred and is continuing.

 

Demand : As defined in Section 4.3(d).

 

Depreciation : For each Fiscal Year, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such Fiscal Year, except that if the Carrying Value of an asset differs from its Adjusted Basis on the Effective Date or at the beginning of a subsequent Fiscal Year, Depreciation shall be determined in a manner permitted by the Regulations promulgated under Section 704(c). To the extent consistent with such Regulations, Depreciation shall be an amount which bears the same ratio to the beginning Carrying Value as the federal income tax

 

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depreciation, amortization or other cost recovery deduction for the Fiscal Year (or part thereof) bears to such beginning Adjusted Basis.

 

Development Agreement : That certain Development Agreement dated as of the Effective Date between the Company and KSL DC Development Management, LLC, attached hereto as Exhibit E .

 

Development Manager : KSL DC Development Management, LLC, a Delaware limited liability company.

 

Disabling Conduct : As defined in Section 6.3(a) .

 

Distribution or Distributions : A distribution of cash by the Company to a Partner or an Assignee on account of a Partnership Interest pursuant to Section 5.1 or Section 14.3 .

 

Document : As defined in Section 6.6 .

 

Due Date : As defined in Section 4.3(b) .

 

Economic Interest : With respect to an Assignee, the Assignee’s rights to receive allocations of Profits and Losses and Distributions.

 

Effective Date : As defined in the Preamble.

 

Emergency Costs : Costs and expenses required to (a) correct a condition that if not corrected would endanger imminently the preservation or safety of the Property or the safety of owners, tenants, guests or other persons lawfully on or using the Property, (b) avoid the imminent suspension of any necessary service in or to the Property, or (c) prevent any of the Partners from being subjected imminently to criminal or substantial civil penalties or damages.

 

Environmental Indemnity Agreement : That certain Environmental Indemnity Agreement dated as of the date hereof among GMAC and the Guarantors.

 

Equivalent Partner : As defined in Section 8.1(b).

 

Equivalent Percentage : As defined in Section 8.1(b).

 

Event of Default : As defined in Section 10.1 .

 

Excluded Recourse Liability : As defined in Section 4.3(d) .

 

Fair Market Value : For purposes of determining a North Beach Put Price, the amount at which a willing seller would sell and a willing buyer would buy the Property assuming that both parties are well-informed about the Property and the market for the

 

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Property, which amount shall be determined as of the date of the delivery of the applicable put notice or the Strategic/ROFO Sale Notice under the Hotel Partnership Agreement and otherwise as follows:

 

(a) The Company and the party exercising a North Beach Put Right shall attempt in good faith to reach agreement as to the Fair Market Value of the Property. If such parties are unable to reach agreement as to such Fair Market Value within a reasonable period, such parties shall attempt in good faith to agree on the appointment of a single appraiser who shall be instructed to determine such Fair Market Value within thirty (30) days after such appointment.

 

(b) If the Company and the party exercising a North Beach Put Right are unable to agree to the appointment of a single appraiser, then each of such parties shall designate in writing an appraiser. Each such appraiser shall be instructed to submit to its counterpart, within thirty (30) days after designation, its report setting forth such appraiser’s determination of the applicable Fair Market Value (the “ Preliminary Appraised Value ”). If the lower of the two Preliminary Appraised Values is equal to or greater than ninety percent (90%) of the higher of such Preliminary Appraised Values, then the two such Preliminary Appraised Values shall be averaged and the result shall be the Fair Market Value. If the Fair Market Value is not determined pursuant to the preceding sentence, the two appraisers shall within ten (10) days after their reports have been delivered be instructed to designate a third appraiser (the “ Deciding Appraiser ”).

 

(c) The Deciding Appraiser shall be instructed to deliver to each of the Company and the party requesting an appraisal, within 30 days after the appointment of the Deciding Appraiser, its report setting forth its determination of which of the 2 Preliminary Appraised Values shall be the Fair Market Value. The Deciding Appraiser shall be instructed that it must choose 1 of the two 2 Preliminary Appraised Values and may not determine any other value to be the Fair Market Value. The Deciding Appraiser’s determination shall be final and binding upon the parties.

 

(d) Each appraiser appointed pursuant to this Agreement shall be an independent, duly qualified appraiser affiliated with an established real estate appraisal company, and shall have at least five (5) years experience in performing appraisals of luxury hotel properties which are located in California.

 

The costs and expenses of an appraiser appointed pursuant to subsection (a), above, shall be borne by the Company and the party requesting a North Beach Put Right equally. Each of the Company and the party requesting a North Beach Put Right shall pay the costs and expenses of the appraiser designated by such party pursuant to subsection (b), above, but the costs and expenses of the Deciding Appraiser shall be borne by the such parties equally. The Actual Closing Costs, other than the costs and

 

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expenses of an appraiser which shall be allocated as set forth in the preceding sentences, shall be deducted from the calculation of Fair Market Value.

 

FF&E : Furniture, fixtures and equipment.

 

Fiscal Quarter : Each calendar quarter in each Fiscal Year.

 

Fiscal Year : The Fiscal Year means (i) the calendar year, or (ii) any portion of the period described in clause (ii) for which the Company is required to allocate Profits, Losses or other items of Company income, gain, loss or deduction pursuant to Article 5 of the Agreement.

 

GAAP : United States generally accepted accounting principles consistently applied from accounting period to accounting period and within each such accounting period.

 

General Partner : SHC TRS in its capacity as the General Partner of the Company and any successor to SHC TRS as such general partner.

 

GMAC : GMAC Commercial Mortgage Corporation, as agent for the benefit of the certain lenders party to the GMAC Loan.

 

GMAC Loan : That obligations of the Company under that certain Building Loan Agreement dated as of the date hereof among the Company, GMAC and the other lenders party thereto, and any amendment, replacement or substitution thereof.

 

Guarantor : Those certain Partners or their Affiliates identified as Guarantors under the Guaranty Agreement or any substitutes or replacements thereof.

 

Guaranty Agreement : That certain Guaranty Agreement dated as of the date hereof among GMAC and each of the Guarantors, attached hereto as Exhibit F , or any amendment, substitution or replacement thereof.

 

Guaranty Capital Call : As defined in Section 4.3(d) .

 

Hotel : That certain 679-room luxury hotel located in Coronado, California, and known as the Hotel del Coronado, including all land, improvements, fixtures, and appurtenances (as described in detail in the Hotel Partnership Agreement) owned by the Hotel Partnership (or one or more of its Subsidiary Affiliates).

 

Initial Capital Contributions : The Capital Contributions made by the Partners pursuant to Section 4.2 .

 

KKR Interests : As defined in Section 8.7 .

 

KKR North Beach Put Right : As defined in Section 8.7 .

 

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KKR Partners : As defined in Section 8.7 .

 

KKR Put Price : As defined in Section 8.7 .

 

KSL North Beach Put Right: As defined in Section 8.6 .

 

KSL LP Put Price : As defined in Section 8.6 .

 

Lender : The lender under the GMAC Loan or such other lender to which the Company is obligated from time to time.

 

Limited Partner or Limited Partners : The Class A Limited Partners and the Class B Limited Partners.

 

Loan or Loans : Any obligation for borrowed money, and any bonds, debentures, notes or other evidences of indebtedness that constitute an obligation and indebtedness of the Company or its Subsidiary Affiliates, including, without limitation, the GMAC Loan or any line of credit or other credit facility for the Company’s (or its Subsidiary Affiliates’) working capital needs.

 

Loan Documents: Collectively, the security agreements, financing statements and all other related loan documents entered into in connection with a Loan.

 

Loan Guaranty : The obligation of a Guarantor pursuant to any of the Loan Documents, including without limitation pursuant to the Guaranty Agreement or the Environmental Indemnity Agreement.

 

Losses : As defined in Section 5.2 .

 

Management Rights : The rights, if any, of a Partner to participate in the management of the Company, including the rights to receive information, to inspect and audit the books and records, and to vote on, consent to, or approve the action of the Company.

 

Maturity : With respect to any Loan, the maturity date of such Loan as set forth in the Loan Documents, including for this purpose the maturity date or accelerated maturity date, if applicable, that results by virtue of an acceleration of the maturity date of a Loan pursuant to the terms of the Loan Documents.

 

Minimum Gain on Nonrecourse Liability : As defined in Section 5.7(b) .

 

Minimum Gain on Partner Nonrecourse Debt : As defined in Regulations Section 1.704-2(i).

 

Mortgage : Any mortgage, deed of trust, or similar security document securing a Loan.

 

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Necessary Expenditures : (a) all Emergency Costs, (b) all fees and reimbursements owed by the Company under the Development Agreement and (c) all other expenditures whether or not of a recurring nature that are necessary for the Company to preserve, operate, maintain, improve or protect the Property or operate the business of the Company, including insurance payments, real estate tax payments, interest payments on any Loans, utility costs, repair and maintenance costs, costs of compliance with federal, state and local laws, codes, rules or regulations, and any other operating expenses or capital expenses provided for in the Development Agreement or otherwise Approved by the Class A Partners and including payment of the principal balance of a Loan upon its Maturity, but excluding payment of the principal balance of a Loan prior to its Maturity, unless such payment is required pursuant to the terms of the Loan Documents or has otherwise been Approved by the Class A Partners.

 

Net Cash Flow : For any specified period, an amount equal to the sum of (i) all cash revenues received by the Company (directly or through distributions from its Subsidiaries) during such period from any source and (ii) amounts set aside as reserves during earlier periods where, and to the extent, such reserves are determined by the General Partner to be no longer reasonably necessary in the efficient conduct of the Company’s business (including its business conducted through its Subsidiaries, if any) reduced by the sum of (w) cash expenditures by the Company or its Subsidiaries during such period for Development Fees (as defined in the Development Agreement), Development Costs (as defined in the Development Agreement), real estate taxes and other costs and expenses in connection with the normal conduct of the Company’s business, (x) all payments by the Company or its Subsidiaries during such period for all costs and expenses (including legal fees) of obtaining a Loan and of principal of and interest due on all Loans and other obligations of the Company for borrowed money to the extent approved pursuant to the terms of this Agreement and (y) such reserves as commercially reasonably established by the General Partner, but only to the extent the payments and expenditures described in clauses (w) and (x) are not made from funds received as Capital Contributions or from cash reserves of the Company which were established during any earlier period.

 

Nominal Capital Contributions : As set forth on Exhibit D .

 

Non-Contributing Partner : A Partner or Partners with respect to which a Contribution Event has occurred and is continuing.

 

Nondefaulting Partner : Any Partner other than a Defaulting Partner.

 

Nonrecourse Deductions : As defined in Regulations Section 1.704-2(b)(1).

 

North Beach Development Project : That certain limited term occupancy condominium project and related improvements currently under construction on the Property and the related public improvements.

 

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North Beach Property : The real property relating to the North Beach Property described on Exhibit A hereto.

 

North Beach Put Rights : Collectively or individually, as the context indicates, the KSL North Beach Put Right, the KKR North Beach Put Right and the Strategic North Beach Put Right.

 

Original Agreement : As defined in the Recitals.

 

Parallel Transfer : As defined in Section 8.1(c).

 

Partners : The Class A Partners and the Class B Limited Partners.

 

Partnership Interest : With respect to a Partner, the Partner’s entire ownership interest in the Company and its Subsidiary Affiliates, including all of the Partner’s rights and obligations hereunder including, without limitation, its Economic Interest, Management Rights, voting rights and the obligation to comply with the terms and provisions of this Agreement.

 

Percentage Interest : The percentage interest from time to time of each Partner in the Company, as set forth in Section 4.1 , as such percentage interest is adjusted from time pursuant to any provision of this Agreement that provides for such adjustment.

 

Permitted Transferee : An Affiliate of a Partner.

 

Person : An individual, corporation, trust, association, unincorporated association, estate, partnership, joint venture, limited partnership, limited liability company or other legal entity, including a governmental entity.

 

Preferred Capital: A Class B Limited Partner’s initial Preferred Capital is reflected in Section 4.1(c).

 

Preferred Capital Balance: A Class B Limited Partner’s Preferred Capital Balance, as of any day, shall equal the excess of: (x) the dollar value of the Preferred Capital assigned to such Class B Limited Partner under Section 4.1(c) , over (y) the amount of cash distributed to such Class B Limited Partner pursuant to Section 5.1(a)(ii) hereof. Such Preferred Capital Balance shall be decreased based on the date of any actual distribution. In the event a Class B Limited Partner transfers all or any portion of its Class B Partnership Interest in accordance with the terms of this Agreement, its transferee shall succeed to the Preferred Capital Balance to the extent it relates to the transferred Class B Partnership Interest.

 

Preferred Return : means twelve and one-half percent (12.5%) per annum of the average daily balance of each Class B Partner’s Preferred Capital Balance from the Effective Date and thereafter. The Preferred Return shall be determined on the basis of a

 

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year of 365 or 366 days, as the case may be, for the actual number of days in the period for which the Preferred Return is being determined, on a cumulative basis. The Partners agree that the Preferred Return is a market rate as of the Effective Time; provided , however , any Partner can require the Company to retain an independent reputable appraisal firm to determine the market rate for the Preferred Return as of the Effective Date.

 

Profit : As defined in Section 5.2 .

 

Prohibited Result : As defined in Section 15.17 .

 

Property : shall mean all tangible and intangible property, real, personal, or mixed owned by the Company or in which the Company has a beneficial interest, including the North Beach Property.

 

Purchase Agreement : As defined in Recital C .

 

Put Black-Out Period : As defined in Section 8.9 .

 

Recourse Liability : As defined in Section 1(e) of the Guaranty Agreement.

 

Recreation : HdC Recreation Holdings I, LLC.

 

Regulations : The permanent and temporary regulations, and all amendments, modifications and supplements thereof, from time to time promulgated by the Secretary of the Treasury under the Code.

 

Secretary of State : The Secretary of State of the State of Delaware.

 

Specially Designated National or Blocked Person : (i) Persons designated by the U.S. Department of Treasury’s Office of Foreign Assets Control, or other governmental entity, from time to time as a “specially designated national or blocked person” or similar status, (ii) a Person described in Section 1 of U.S. Executive Order 13224 issued on September 23, 2001, or (iii) a Person otherwise identified by government or legal authority as a Person with whom the Partners are prohibited from transacting business.

 

Strategic Interests : As defined in Section 8.8 .

 

Strategic North Beach Put Right : As defined in Section 8.8 .

 

Strategic REIT : means Strategic Hotel Capital, Inc.

 

Subsidiaries, or each a Subsidiary: such wholly-owned Persons, if any, formed by the General Partner as subsidiaries or subsidiary Affiliates of the Company in connection with the business of the Company or any financing entered into by the Company, with each Partner hereto having the same or substantially similar rights under

 

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the governance or organizational documents of such Person as such Partner does under this Agreement.

 

Transfer and Transferred : A sale, assignment, transfer or other disposition (voluntarily or by operation of law) of, or the granting or creating of a lien, encumbrance or security interest in, a Partnership Interest.

 

Unfulfilled Additional Contributions : As defined in Section 4.3(c) .

 

ARTICLE 3.

BUSINESS, PURPOSES AND POWERS

 

Section 3.1 Business and Purpose. (a) The sole business and purpose of the Company shall be:

 

(i) to acquire, own, hold, develop, construct, lease, operate, manage, maintain, mortgage, improve, repair, encumber, finance, refinance, sell, redevelop, rehabilitate, improve and otherwise deal with and dispose of, directly or indirectly, through Subsidiaries, the Property; and

 

(ii) to conduct all activities reasonably necessary or desirable to accomplish the foregoing purposes and to do anything necessary or incidental to any of the foregoing, which in each case, is not a breach of this Agreement;

 

(b) The Company may not engage in any other business or activity without the approval of all of the Class A Partners.

 

Section 3.2 Powers . Except as otherwise provided in this Section 3.2 , the Company shall have all powers of a limited liability limited partnership under the Act and the power to do all things necessary or convenient to operate its business and accomplish its purposes as described in Section 3.1 , including the following:

 

(a) to hold, operate, manage and exercise rights with respect to all Property;

 

(b) to sell, transfer, assign, convey, lease, encumber or otherwise dispose of or deal with all or any part of the Property and any and all rights or interests therein;

 

(c) to incur expenses and to enter into and carry out contracts, agreements and guaranties necessary to accomplish the business and purposes of the Company;

 

(d) to raise and provide such funds as may be necessary to further the business and purposes of the Company and to borrow money, incur liabilities and issue promissory notes and other evidences of indebtedness, and to secure the same by security interest or other lien on all or any part of the Property;

 

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(e) to employ or retain, on behalf of the Company, such Persons as, the General Partner deems advisable in the operation and management of the business of the Company, including such accountants, attorneys and consultants as the General Partner deems appropriate, on such commercially reasonable terms and at such commercially reasonable compensation as the General Partner shall determine;

 

(f) to collect, receive and deposit all sums due or to become due to the Company;

 

(g) to hire and appoint agents and employees of the Company, to define their duties and to establish their compensation;

 

(h) to pay any and all taxes, charges and assessments that may be levied, assessed or imposed upon any Property;

 

(i) to demand, sue for, collect, recover and receive all goods, claims, debts, moneys, interest and demands whatsoever now due or that may hereafter become due or belong to the Company, including the right to institute any action, suit, or other legal proceedings for the recovery of any property, or any part or parts thereof, to the possession of which the Company may be entitled, and to make, execute and deliver receipts, releases and other discharges therefore under seal or otherwise;

 

(j) to make, execute, endorse, accept, collect and deliver any and all bills of exchange, checks, drafts and notes of the Company;

 

(k) to defend, settle, adjust, compound, submit to arbitration and compromise all actions, suits, accounts, reckonings, claims and demands whatsoever that now are or hereafter shall be pending between the Company and any Person (other than disputes between or among Partners), at law or in equity;

 

(1) to form, organize, and operate the Subsidiaries in accordance with their respective organizational documents and resolutions as in effect on the Effective Date or, if later, their respective dates of formation or organization;

 

(m) to enter into and conduct its activities in accordance with the Development Agreement and the GMAC Loan;

 

(n) to secure and maintain insurance against liability and property damage with respect to the activities of the Company; and

 

(o) to do and perform all acts and things necessary, appropriate, proper, advisable, incidental to, or convenient for, the furtherance and accomplishment of the business and purposes of the Company set forth in Section 3.1 .

 

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Section 3.3 Limitations on Scope of Business . Except for the authority expressly granted to the General Partner in this Agreement, no Partner, attorney-in-fact, employee or other agent of the Company shall have any authority to bind or act for the Company or any other Partner in the carrying on of their respective businesses or activities.

 

Section 3.4 GMAC Loan . The Partners acknowledge and agree that, so long as the GMAC Loan is in effect, this Article 3 shall not be amended without GMAC’s prior written consent.

 

ARTICLE 4.

PARTNERS, CAPITAL CONTRIBUTIONS AND FINANCING

 

Section 4.1 Identity of Partners and Percentage Interests .

 

(a) Partners . The Partners of the Company shall be the Class A Partners and the Class B Limited Partners.

 

(b) Class A Percentage Interests . The Class A Percentage Interests for the Class A Partners are as follows:

 

1	Estimates—TBD at closing. The total equity for North Beach is approximately $24,600,000. The allocations among the Class A Partners and the Class B Partners will be based upon the allocations that are applied in the Hotel Partnership Agreement.

 

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(c) Class B Percentage Interests . The initial Class B Percentage Interests and Preferred Capital of the respective Class B Limited Partners are as follows:

 

 

Section 4.2 Capital Accounts . Upon the execution and delivery of this Agreement each Partner will have the Capital Account set forth on Exhibit B .

 

Section 4.3 Additional Capital Contributions . The Class A Partners shall be required to make Additional Capital Contributions to the Company, for the purposes and in accordance with the procedures set forth below in this Section 4.3 :

 

(a) Necessary Expenditures and Other Costs . If at any time and from time to time after the Effective Date, the General Partner determines that the amount of the Company’s Necessary Expenditures exceeds the amount of funds then available to the Company from prior Capital Contributions, Property revenues, Loans and any reserves previously established by the Company, the Class A Partners shall make Additional Capital Contributions to fund such Necessary Expenditures. All such Additional Capital Contributions shall be made by the Class A Partners in cash or current funds, pro rata, in proportion to their respective Percentage Interests.

 

(b) Procedure For Additional Capital Contributions Not Due to Deadlock . (i) If, as and when Additional Capital Contributions are (i) required as determined pursuant to Section 4.3(a) or (ii) Approved by the Class A Partners pursuant to Section 6.4 hereof, the General Partner shall deliver to each Class A Partner a written notice requesting such Additional Capital Contributions (a “ Capital Call Notice ”). Any Capital Call Notice shall specify the date (the “ Due Date ”) on or before which such funds are required by the Company, which shall be at least twenty-five (25) days after delivery of the Capital Call Notice except for Additional Capital Contributions for Emergency Costs, which shall be payable within ten (10) days after delivery of the Capital Call Notice. The Capital Call Notice shall specify the use of the proceeds of the contributions to be made. Each Class A Partner shall, on or before the Due Date, pay to the Company in cash or current funds such Class A Partner’s proportionate share of the amount specified in the Capital Call Notice in accordance with its Percentage Interest. For purposes of Section 10.1(a) , it

2	Estimates—TBD at closing.

 

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shall be a Contribution Event as to a Class A Partner if the Class A Partner does not make the payment required by any Capital Call Notice by the applicable Due Date.

 

(c) Procedure For Additional Contributions In the Event of a Deadlock . In the event the General Partner is not able to obtain the Approval of the Class A Partners for an Additional Capital Contribution and the General Partner determines that the failure to obtain Additional Capital Contributions would have a material and adverse effect on the Company, the General Partner may give written notice (a “ Subscription Notice ”) thereof to the Class A Partners to such effect, setting forth in the Subscription Notice the amount or amounts which it believes to be required by the Company (the “ Additional Contributions ”), and the terms and conditions on which it proposes to obtain the Additional Contributions. The terms and conditions of such Subscription Notice may include preferential rights on distributions and liquidation and class voting. The Subscription Notice shall include a term sheet detailing the terms of the Additional Contributions (the “ Term Sheet ”). The Class A Partners shall have the right, for a period of thirty (30) days after the date of the Subscription Notice (the “ Deadlock Response Period ”), to subscribe for their pro rata share (in accordance with their respective Class A Percentage Interests) of the Additional Contributions. During the Deadlock Response Period, the Class A Partners may commit to subscribe for some or all of any Additional Contributions not taken up within the Deadlock Response Period (the “ Unfulfilled Additional Contributions ”). Any Unfulfilled Additional Contributions shall be either (i) sold to the Class A Partners pursuant to their commitments to purchase such Unfulfilled Additional Contributions or (ii) re-offered to the other Class A Partners who have subscribed to make Additional Contributions as nearly as practicable in accordance with their Percentage Interests. If the Class A Partners do not subscribe for all the requested Additional Contributions, the General Partner may offer to third parties all or some of the Additional Contributions in accordance with the terms and conditions offered to the Partners. If, as a condition to subscribing for such Additional Contributions, a third party conditions its purchase on the acquisition of a minimum amount of Additional Contributions, the General Partner may, in its sole discretion, reduce on a pro rata basis the amounts which the subscribing Class A Partners may acquire. If the General Partner is unable to obtain subscriptions for all of the amount of Additional Contributions (whether from existing Class A Partners or other persons) within ninety (90) days, the General Partner may issue a revised Subscription Notice in accordance with this Section 4.3(c) . Once Additional Contributions are fully subscribed, the General Partner shall prepare an amendment to this Agreement reflecting any terms or any provisions included in the Term Sheet which require such an amendment, if any, and such amendment shall be deemed in full force and effect and the rights of all Partners shall be modified in accordance therewith.

 

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(d) Satisfaction of Loan Guaranty Obligations.

 

(i) General . In the event that a Guarantor receives a demand under or with respect to any Loan Guaranty, including without limitation any Completion Guaranty, any guaranty with respect to a Recourse Liability (other than an Excluded Recourse Liability as described in subsection (iii) below), and any guaranty pursuant to the Environmental Indemnity Agreement (each, a “ Demand ”), such Guarantor (other than the General Partner or its Equivalent Partner) shall notify the General Partner within 3 Business Days after receipt of such Demand. Except for Excluded Recourse Liabilities, if any Demand is made to all of the Guarantors on a several basis in accordance with their respective Percentage Interests, the amount required to satisfy such Demand shall be deemed a Necessary Expenditure of the Company to be funded by the Class A Partners as an Additional Capital Contribution.

 

(ii) Capital Calls for Loan Guaranty Obligations . If a Demand has been made to less than all Guarantors, the General Partner may send a Capital Call Notice to any Guarantor that has not received a Demand setting forth the Guarantor’s several portion of the Loan Guaranty based on such Guarantor’s (or its Equivalent Partner’s) Percentage Interest. Such amount shall be paid by the Guarantor to the Company, or as otherwise directed by the General Partner, within 5 Business Days after receipt of the Capital Call Notice. It shall be a Contribution Event as to any Guarantor (or its Equivalent Partner) that does not make the payment required by any Capital Call Notice within the time period set forth in the preceding sentence. For purposes of calculating the 60-day notice period set forth in Section 10.2 hereof, each Contribution Event contemplated by this Section 4.3(d) shall be deemed to occur on the date of the receipt of a Demand by the applicable Guarantor, or in the case of a Guarantor that has not received a Demand, on the date that the first Demand was received by any other Guarantor with respect to a particular Loan Guaranty. Delivery of a Capital Call Notice pursuant to this Section 4.3(d)(i) and the Additional Capital Contribution arising therefrom are referred to herein as a “ Guaranty Capital Call ”.

 

(iii) Excluded Recourse Liabilities . In the event that a Demand is made with respect to a Recourse Liability, and such Demand has been made to less than all Guarantors, then such Demand shall trigger a Guaranty Capital Call except under the following circumstances (referred to herein as “ Excluded Recourse Liabilities ”): (A) the Recourse Liability arose from an action or omission of a Partner or its Affiliate taken without a reasonable belief by such party that the action or omission was in the best interests of the Company; or (B) the Recourse Liability arose from an action or omission of a Partner or its Affiliate acting in its individual capacity and not on behalf of the Company as a Partner or as the Development Manager (examples of which would include (solely for purposes of illustration and without limitation) delivery by a Guarantor of financial statements of such Guarantor containing material misrepresentations or transfers of ownership interests in the Company as contemplated in Section 1(e)(ix) of the Guaranty Agreement). Accordingly, any amounts paid by a Guarantor under the

 

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circumstances described in the immediately preceding sentence shall not affect the Capital Accounts of the Partners and shall not be subject to dilution under Section 10.2 .

 

(e) Obligations to Make Additional Capital Contributions . The obligations of the Class A Partners to make Additional Capital Contributions pursuant to this Section 4.3 are several and not joint. If no Class A Partner makes an Additional Capital Contribution as required pursuant to clauses (a) and (b) of this Section 4.3 , the General Partner shall attempt to raise such Additional Capital Contributions pursuant to Section 4.3(c). Notwithstanding anything to the contrary herein, no Class A Partner shall be legally compelled to make Additional Capital Contributions pursuant to this Agreement, it being understood that a failure to make an Additional Capital Contribution may result in dilution in accordance with Section 10.2 .

 

Section 4.4 Maintenance of Capital Accounts . (a) The Company shall establish and maintain a Capital Account for each Partner in accordance with the provisions of Section 704(b) of the Code and the Regulations thereunder.

 

(b) Each Partner’s Capital Account shall be maintained in accordance with the following provisions:

 

(i) Each Partner’s Capital Account shall be credited (increased) with the amounts of such Partner’s Capital Contributions (taking into account the amount of cash contributed to the Company by such Partner and the Carrying Value of any property contributed to the Company by such Partner (net of any liabilities secured by such contributed property that the Company is considered to assume or take subject to under Section 752 of the Code)), such Partner’s distributive share of Profits and any items in the nature of income or gain which are specially allocated to the Partner pursuant to Article 5 , and the amount of recourse liabilities of the Company assumed by such Partner as described in Section 1.704-1(b)(2)(iv)(c) of the Regulations or which are secured by any property distributed by the Company to such Partner;

 

(ii) Each Partner’s Capital Account shall be debited (decreased) with the amounts of cash and the Carrying Value of any property distributed by the Company to such Partner pursuant to any provision of this Agreement (net of any liabilities secured by such contributed property that the Company is considered to assume or take subject to under Section 752 of the Code), such Partner’s distributive share of Losses and any items in the nature of expenses or losses which are specially allocated to the Partner pursuant to Article 5 , and the amount of any liabilities of the Partner assumed by the Company as described in Section 1.704-1(b)(2)(iv)(c) of the Regulations;

 

(iii) If all or a portion of a Partner’s Partnership Interest is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the Transferred Partnership Interest; and

 

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(iv) In determining the amount of any liability for purposes of this Section 4.4(b) , Section 752(c) of the Code and any other applicable provisions of the Code and Regulations shall be taken into account.

 

This Section 4.4(b) and other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. If the General Partner, with the advice of the Company’s independent certified public accountants or legal counsel, reasonably determines that it is prudent to modify the manner in which the Capital Accounts, or any charges or credits thereto (including charges or credits relating to liabilities which are secured by contributions or distributed property or which are assumed by the Company or by Partners), are computed in order to comply with such Regulations, the General Partner may make such modification, but only if it is not likely to have a material effect on the amounts to be distributed to any Partner pursuant to Section 5.1 or pursuant to Section 14.3 upon the dissolution of the Company. The General Partner, with the Approval of the Class A Limited Partners, also shall make any adjustments that may be necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(g).

 

Section 4.5 Return of Capital Contributions . No Partner or Assignee shall be entitled to demand the return of the Partner’s or Assignee’s Capital Account or Capital Contribution at any particular time, except upon dissolution of the Company. No Partner or Assignee shall be entitled at any time to demand or receive property other than cash. Unless otherwise provided by law, no Partner or Assignee shall be personally liable for the return or repayment of all or any part of any other Partner’s or Assignee’s Capital Account or Capital Contribution, it being expressly agreed that any such return of capital pursuant to this Agreement shall be made solely from the assets (which shall not include any right of contribution from a Partner or Assignee) of the Company.

 

Section 4.6 No Third Party Beneficiary Rights . The provisions of this Article 4 are not intended to be for the benefit of any creditor or any other Person (other than a Partner in its, his or her capacity as such) to whom any debts, liabilities or obligations are owed by (or who otherwise has any claim against) the Company or any of the Partners; and no such creditor or other Person shall obtain any right under any of such provisions or shall by reason of any of such provisions make any claim in respect of any debt, liability or obligation (or otherwise) against the Company nor any of the Partners. Nothing in this Section 4.6 shall impair or affect any security or pledge agreement granted by the Company to the holder of a Loan.

 

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ARTICLE 5.

ALLOCATIONS AND DISTRIBUTIONS

 

Section 5.1 Distributions . Subject to applicable restrictions in any Loan Documents, Net Cash Flow shall be distributed as follows:

 

(a) Net Cash Flow . The General Partner shall distribute Net Cash Flow among the Partners, quarterly within forty-five (45) days after the end of each Fiscal Quarter in the following order of priority:

 

(i) First, to the Class B Limited Partners, in proportion to their respective Class B Percentage Interests, until each Class B Limited Partner has been distributed under this Section 5.1(a)(i) an amount equal to its aggregate Preferred Return;

 

(ii) Second, to the Class B Limited Partners, in proportion to their respective Class B Percentage Interests, until each Class B Limited Partner’s Preferred Capital Balance is reduced to zero;

 

(iii) Third, to the Class A Partners, in proportion to their respective Common Capital balances, until each Class A Partner’s Common Capital Balance is reduced to zero; and

 

(iv) The balance, to the Class A Partners, in proportion to their respective Class A Percentage Interests.

 

(b) Liquidating Distributions. Subject to Section 14.3 , notwithstanding any provision of this Section 5.1 to the contrary, in the event the Company (or a Partner’s Partnership Interest therein) is “liquidated” within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g), then a distribution of all cash and property, regardless of source, shall be made pursuant to this Section 5.1(b) to the Partners (or such Partner, as appropriate), in accordance with their positive Capital Account balances, after all contributions, distributions and allocations have been made for all periods pursuant to this Agreement, in compliance with Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(2).

 

Section 5.2 Determination of Profits and Losses . For purposes of this Agreement, the profit (“ Profit ”) or loss (“ Loss ”) of the Company for each Fiscal Year shall be the net income or net loss of the Company, as the case may be, for such Fiscal Year as determined for Federal income tax purposes, but computed with the following adjustments:

 

(a) without regard to any adjustment to basis pursuant to Section 743 of the Code (except as provided in Section 5.2(g) );

 

(c) by taking into account items of deduction attributable to any Property of the Company based upon the Carrying Value of the Property;

 

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(d) by including as an item of gross income any tax-exempt income received by the Company;

 

(e) by treating as a deductible expense any expenditure of the Company described in Section 705(a)(2)(B) of the Code;

 

(f) in the event the Carrying Value of a Property is adjusted pursuant to clauses (ii) or (iii) of the definition thereof, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such Property, shall be treated as net gain or net loss referred to in paragraph (b) of this Section 5.2(f) and shall be excluded from the computation of Profit and Loss; and

 

(g) to the extent an adjustment to the Adju