COMPOSITE CONFORMED COPY
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
4th 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 (1/117th) 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 (10th),
fifteenth (15th), twentieth (20th) and twenty-fifth (25th)
anniversaries of the Alternative Gaming Commencement Date, and on each
successive 5th 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 connection with its "Senior Debt" or
"Mezzanine Financing", and will provide usual and customary rights to
permitted leasehold mortgagees (the "Leasehold Mortgagees") of notice
and the right to cure an event of default and the right to enter into a
replacement lease (subject to regulatory approval). Leasehold
Mortgagees will be limited to recognized banks, insurance companies,
pension funds and similar institutional investors.
(i) Subordination. Neither the fee title to the Property nor the
Minimum Rent will be subordinate to the Partnership's Leasehold
Mortgages.
(j) Casualty/Condemnation. The PREIT Lease will contain customary
casualty and condemnation provisions with the Partnership being
required to rebuild the Improvements in the case of a partial
condemnation or casualty. Proceeds not used for rebuilding shall be
paid first to the leasehold mortgagees, next to PREIT to the value of
its interest, and any excess will be paid to the Partnership.
(k) Assignment. The PREIT Lease may be assigned by the lessee
without PREIT's consent to a licensed Track and Alternative Gaming
facility operator which assumes all of the lessee's obligations
thereunder. The PREIT Lease may be assigned by PREIT without lessee's
consent to an affiliate of PREIT, to any entity in connection with a
merger or sale of substantially all of its assets of Pennsylvania Real
Estate Investment Trust and to any other financially qualified and
reputable owner and operator of real estate. Any such assignment by
PREIT shall be subject to any required approval by the Track and
Alternative Gaming regulators.
(l) Defaults. The PREIT Lease shall contain usual and customary
rights and remedies of a lessor upon the default of a lessee.
(m) Restriction. The PREIT Lease will prohibit the Partnership, any
partner in the Partnership, any principal in the Partnership or any
affiliate of any thereof (collectively, a "Related Party") from
acquiring any property adjacent to or in the vicinity of the Property
and operating Alternative Gaming facilities thereon. The PREIT Lease
will also prohibit PREIT, the Partnership or any Related Party from
owning or operating any other facility for any use within a two (2)
mile radius of the Property.
(n) Lease Form. The initial draft of the PREIT Lease will be
prepared by PREIT, but it shall be consistent with the provisions of
this MOU and otherwise satisfactory in form and substance to PREIT and
the Partnership.
6. Development Fee. The Partnership shall pay to PREIT-Rubin, Inc. or
an affiliate thereof (the "Developer") a development fee (the "Development Fee")
of Three Million Dollars ($3,000,000). If the development of the Property is
phased, the Development Fee shall be divided between the phases in proportion to
the estimated capital costs of each phase. The Development Fee for the first
phase shall be paid in equal quarterly installments in arrears based upon the
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estimated time between the award of the Racing License and the Alternative
Gaming Commencement Date, commencing in the calendar quarter in which the Racing
License is awarded. The Development Fee for the second phase will be paid in
equal quarterly installments in arrears based on the estimated length of the
second phase, from the date on which the Developer commences to spend
considerable time on the planning of the second phase to the projected date for
the completion of construction of the second phase. If the second phase is not
commenced by the end of the third anniversary of the Alternative Gaming
Commencement Date, the balance of the Development Fee shall be paid to the
Developer in 81 equal monthly installments until such balance of the Development
Fee plus interest thereon has been paid in full. The Partnership and the
Developer will enter into a Development Agreement pursuant to which the
Developer shall agree to provide customary management services for all aspects
of the development and construction phases, as reasonably directed by the
Partnership, including, without limitation, conducting all bid processes,
selecting contractors, negotiating contractor agreements and bonds, procuring
insurance, bonding and licensing, architectural and engineering planning, design
and approval, monitoring and authorizing contractor progress payments and
services, on-site supervision of all construction activities, reporting to the
Partnership and the applicable regulatory authorities as directed by the
Partnership. The Development Agreement will also provide that all contracts will
be in the name and for the account of the Partnership, all project personnel
will be employees of the Partnership, the Partnership will purchase liability
insurance (naming the Developer, PREIT and the lessee as additional insureds)
and builders' risk insurance and the liability of the Developer shall be limited
to its fees. Notwithstanding the foregoing, the Development Fee for the first
phase will accrue, and not be paid, until the closing of the first tranche of
Senior Debt and/or Mezzanine Financing, at which time such accrued Development
Fee shall be paid.
7. Cooperation. PREIT will upon written request promptly file and
submit (a) all applications and information as Centaur advises are reasonably
necessary to enable the Partnership to obtain the Racing License and all other
licenses and permits necessary for it to lease and operate the Track in the
Commonwealth of Pennsylvania and to operate Alternative Gaming facilities; and
(b) all information reasonably requested by Centaur in order for it to comply
with the requirements of any regulatory authority to which it or any of its
affiliates is or are subject in any other jurisdiction. Centaur agrees to keep
PREIT's information confidential, unless and to the extent disclosure is
required by law or any regulatory authority having jurisdiction over Centaur or
any of its affiliates.
8. Unsuitability.
(a) PREIT. In the event that PREIT is subject to regulatory
investigation and fails to participate in such investigatory process or
is otherwise deemed unsuitable by any applicable regulatory authority
at any time, and if PREIT cannot cure such unsuitability to the
satisfaction of such regulatory authority within any applicable cure
period given therefor, the Partnership shall have the right to purchase
PREIT's entire interest in the Property for a price equal to: (i) if
such unsuitability condition occurs prior to the Alternative Gaming
Commencement Date, an amount equal to the sum of (x) the Aggregate
PREIT Payments as of such date, and (y) accrued and unpaid Rent; and
(ii) if such unsuitability condition occurs on or after the Alternative
Gaming Commencement Date, an amount equal to 90% of the fair market
value of PREIT's fee simple interest in the Property, taking into
account its interest as landlord under the PREIT Lease, but not less
than the sum of (x) the Aggregate PREIT Payments as of such date, plus
(y) accrued and unpaid Rent.
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(b) The Partnership. In the event the Partnership is subject
to regulatory investigation and is deemed unsuitable by any applicable
regulatory authority at any time to operate the Track and/or the
Alternative Gaming facility, and if the Partnership cannot cure such
unsuitability to the satisfaction of such regulatory authority within
any applicable cure period given therefor, the Partnership shall sell
its entire interest in the PREIT Lease, transfer its Racing License and
its license to conduct Alternative Gaming, assign the Management
Agreement, and sell all other interests it has or may have in the
businesses conducted at the Property to a purchaser which is deemed
suitable by the applicable regulatory authorities for a price not in
excess of (i) if such unsuitability condition occurs prior to the
Alternative Gaming Commencement Date, an amount equal to the sum of (x)
any partner of the Partnership's capital contributions which have not
been reimbursed by PREIT, plus (y) all accrued and unpaid management
fees owed to Centaur or any of its affiliates; and (ii) if such
unsuitability condition occurs on or after the Alternative Gaming
Commencement Date, an amount equal to 90% of the fair market value of
the Partnership, but not less than the sum of (x) any partner of the
Partnership's capital contributions which have not been reimbursed by
PREIT, plus (y) all accrued and unpaid management fees owed to Centaur
or any of its affiliates.
(c) Determination of Fair Market Value. For the purposes of this
Section 8, the fair market value of the Property or of the Partnership,
as the case may be, shall be determined pursuant to the agreement of
PREIT and the Partnership or, to the extent that such agreement could
not be reached, pursuant to an appraisal process whereby each of the
parties selects an appraiser. If the results of the parties' appraisers
are within 5% of each other, then the average of such appraisals shall
be final; however, if the results differ more than 5%, then the
parties' appraisers shall select a third independent appraiser whose
result shall be final on the parties.
9. Centaur's Matters. To induce PREIT to enter into this MOU, Centaur
represents and warrants to PREIT that:
(a) Centaur is in good standing (where such concept is meaningful)
under all licenses currently held by Centaur or any affiliate of
Centaur to conduct racing, gaming or other regulated business, and that
neither Centaur nor any affiliate of Centaur presently is the subject
of a proceeding by a regulatory authority seeking the suspension or
revocation of its license to conduct racing, gaming or other regulated
business, or seeking any other sanction for the violation of the laws
or regulations governing such racing, gaming or other regulated
business.
(b) Centaur shall cause the Partnership to raise sufficient capital
to pay its obligations under this MOU and if and to the extent the
Partnership is unable to raise such capital from third parties, Centaur
shall contribute the necessary amounts to cause the Partnership to pay
the amount of its obligations hereunder in full.
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10. Confidentiality; Permitted Disclosure; Securities Laws.
(a) Confidentiality. Without the prior consent of the other parties
hereto, each party hereto agrees to keep confidential and not to
disclose to third parties the existence of this MOU, the negotiations
and terms of the Definitive Agreements or any of the terms, conditions
or other facts concerning the subject matter of the MOU.
(b) Permitted Disclosure. Notwithstanding the foregoing: Centaur
may disclose this MOU to: (i) regulatory authorities in connection with
the application for the Racing License or any license for Alternative
Gaming, and may file a copy of this MOU as a part of such application
if required by law or regulation, or to any other regulatory
authorities having jurisdiction over Centaur or any of its affiliates,
and (ii) proposed lenders or equity investors, provided such proposed
lenders or equity investors agree to keep the same confidential; and
PREIT and its affiliates may disclose this MOU, including the making of
press releases or other public announcements, and may file a copy of
this MOU, to the extent that PREIT or any affiliate reasonably believes
such disclosure or filing is required by law or by the applicable rules
of any securities exchange.
(c) Securities Laws. PREIT's ultimate parent, Pennsylvania Real
Estate Investment Trust ("Parent"), is a public company whose stock is
traded on the New York Stock Exchange. Centaur acknowledges that it is
aware, and shall advise its employees, officers, consultants and agents
who receive a copy of this MOU or are informed as to the subject
matters contained herein, that the securities laws of the United States
prohibit any person who has received material non-public information
from purchasing or selling securities of the Parent, or from
communicating such information to any other person under circumstances
in which it is reasonably foreseeable that such person is likely to
purchase or sell such securities, so long as such information has not
been disclosed to the public.
11. Failure to Execute Definitive Agreements. This MOU is intended to
be legally binding upon the parties hereto as to the terms and provisions set
forth herein. If the parties hereto fail to enter into the Definitive Agreements
by reason of their inability to agree on material business or legal provisions
not dealt with herein, no party shall have liability to another party on account
thereof.
12. No Partnership or Joint Venture. PREIT's rights and obligations
hereunder shall be as a landlord. PREIT shall not be deemed to be a partner in
the Partnership and the provisions hereof shall not be construed in such a
fashion as to treat PREIT as a partner in, or joint venturer with, the
Partnership.
13. Severability. If any provision contained in this MOU shall, to any
extent, be invalid or unenforceable, the remainder of this MOU (and the
application of such provision to persons or circumstances, if any, other than
those in respect of which it is invalid or unenforceable) shall not be affected
thereby, and each and every provision of this MOU shall be valid and enforceable
to the fullest extent permitted by law.
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14. Construction. The parties agree that each and every provision of
this MOU has been mutually negotiated, prepared and drafted, each party has been
represented by counsel, and in connection with the construction of any
provisions hereof or deletions herefrom, no consideration shall be given to the
issue of which party actually prepared, drafted, requested or negotiated any
provision or deletion.
15. Counterpart Copies. This MOU may be signed in counterpart copies
which shall be taken together as one and the same instrument.
16. Entire Agreement; Amendment. This MOU supersedes all previous
written agreements, all proposals and drafts and all oral agreements and
discussions with respect to the subject matter hereof. This MOU cannot be
amended or modified except in a writing signed by all parties hereto. Any
purported oral amendment or modification of this MOU shall be null and void, and
shall have no effect unless and until reduced to writing and signed by all
parties hereto.
17. Contribution Agreement. After the execution of this MOU and the
payment by PREIT of the Initial PREIT Payment, but prior to the advance by PREIT
of any further funds, PREIT and the Partnership shall enter into a Contribution
Agreement consistent with the provisions hereof which, inter alia, shall have a
definitive form of the Ground Lease attached thereto as an exhibit.
[signature page follows]
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This Binding Memorandum of Understanding is entered into on this 7th
day of October, 2004, intending to be legally bound.
VALLEY VIEW DOWNS, LP
By: Centaur Pennsylvania, LLC,
its general partner
By: /s/John J. McLaughlin
----------------------------
Name: John J. McLaughlin
Title: Manager
CENTAUR PENNSYLVANIA, LLC
By: /s/John J. McLaughlin
----------------------------
Name: John L. McLaughlin
Title: Manager
PR VALLEY VIEW DOWNS, L.P.
By: PR Valley View Downs LLC,
its general partner
By: /s/Douglas S. Grayson
----------------------------
Name: Douglas S. Grayson
Title: Executive Vice President
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