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A REGlSTFRED LIMITED LIABILITY PARTNERSHIP INCLUDING LlMITED LIABILITY PARTNERSHIPS 3400 Bank of America Plaza 901 Main Street, LB 125 Dallas, Texas 75202-3796 214-939-2000 FAX: 214-939-2090
Direct Dial Number
Writer's E-Mail Address parker.youn email@example.com
June 8, 2012 Via E-Mail Mr. Carl Klinke Munsch Hardt Kopf & Harr, P.C, 3800 Lincoln Plaza 500 North Akard Street Dallas, Texas 75201 Re: Second Amended and Restated Entertainment Center Development Agreement, as amended, between the City of Irving (the "City"] and Las Colinas Group, LP ("LCG")
Dear Carl: We received your email yesterday with the new proposal that describes yet another proposed re-structuring and amendment of the Development Agreement. Apparently you misunderstood what I was trying to say in our call yesterday, The City's concern is not simply that the proposals from your side were coming from FIFLP or TDI, rather than LCG. Instead, the issue was that LCG has obviously been posturing itself from a legal perspective regarding the current contract and has repeatedly threatened the City and its officials with litigation. Before the City invests the time, effort, and expense of considering fundamental changes to the terms of the deal that has already been struck, it wants to know that it is not going to get sued by your clients down the road if the parties cannot eventually agree upon a revised deal structure. That concern applies regardless of which entity is technically making the alternative proposals. This is now the fourth different re-structuring proposal the City has received or heard about from your clients in the last two weeks, including several proposals which LCG encouraged the City to discuss and negotiate with a possible Replacement Developer. All of the proposals include material revisions to the parties' existing agreement. This seems to indicate that LCG is now focusing its efforts on pursuing alternative financing structures and business arrangements to complete the project, not on proceeding to close the transaction on the terms currently contemplated by the Development Agreement.
Mr. Carl Klinke June 8,2012 Page 2
At the same time that LCO and its associates have been submitting multiple new proposals to the City, however, the City also received LCG's letter of June 4, 2012, in which LCG states that it "does not agree that it is no longer able to complete its obligations under the Development Agreement or that it desires to terminate the Development Agreement." If LCO truly believes that it is able to fulfill all of its obligations necessary to close the transaction by the August 6, 2012, Closing Date, then the City prefers that it do so, rather than pursuing other proposals that include lengthy delays to the project and substantial revisions to a financial structure that both parties have already agreed to. As you know, LCG is currently obligated to fund all Total Entertainment Center Costs in excess of the Net Bond Proceeds. The Net Bond Proceeds, of course, cannot exceed the amount which the City can legally issue. The law requires an investment grade rating on bonds issued by the City, and the Development Agreement accordingly recognizes that the City is under no obligation to issue bonds that do not have an investment grade rating. The City was advised on May so" that a "B" rating would be assigned to the bonds if they were issued in the amount that would be necessary to complete the project based upon an estimated $80 million Partnership Contribution. Thus, the City cannot legally issue bonds in that amount. The Development Agreement does not limit the Partnership Contribution to only $80 mil1ion, so LCG could certainly commit to a greater contribution if it chose to do so. The conflicting positions taken by LCG and the recent bond rating developments present an obvious question: Is LCO able and prepared to fund an increased estimated Partnership Contribution under the financial structure of the existing agreement and close by August 6th? If so, when can the City expect to receive from LCO the Loan Commitment required by Section 1.28 of the Development Agreement?
If LeO is unwilling or unable to increase its Partnership Contribution to the
amount that would be necessary under the present agreements, and the parties both agree that the August 6 Closing Date therefore cannot be met, then the City will certainly be interested in exploring other possible ways to complete the Entertainment Center. But it is not interested in considering or negotiating alternative deal structures that fundamentally change the respective rights and obligations of the parties while it remains under the threat of possible claims and litigation from LCG or THG if a new structure is not eventually agreed upon. The City proposed that the parties enter into full and complete mutual releases before discussing alternative financial arrangements for the project. You have indicated this morning that LCO and THO are unwilling to exchange releases with the City. If that remains their position, then the City will, of course,
Mr. Carl Klinke
June 8, 2012 Page 3
continue to communicate and work with LCG in connection with the parties' obligations under the existing terms of the Development Agreement while it remains effective. Obviously, if the August 6th Closing Date is to be met, time is of the essence to get these issues resolved. I look forward to hearing from you on these matters as soon as possible.
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June 15, 2012
Via Electronic Mail
Parker D. Young, Esq. Figari & Davenport, L.L.P. Attorneys At Law 3400 Bank of America Plaza 910 Main Street, LB 125 Dallas, Texas 75202-3796
Second Amended and Restated Entertainment Center Development Agreement, as amended (the Development Agreement), between the City of Irving (the City) and Las Colinas Group, LP (LCG)
Dear Parker: As you know, I represent LCG, who asked to respond to your letter of June 8, 2012 addressing the City's position with regard to the negotiations under the Development Agreement. First, there is no misunderstanding on our side. LCG and its Replacement Developer have one overriding goal - to construct and operate the Entertainment Center under the Development Agreement. In turn, this will bring thousands of new jobs to the City, increase the City's tax revenues, and provide a focal point for our community. Second, as you know, there are existing agreements in place under which the parties have duties and obligations. One of the City's obligations under the Development Agreement is to determine its Estimated Net Bond Proceeds and notify LCG of that amount. Because it has failed to do so, the City has prevented us from finalizing our financing. You acknowledged in your letter that we have submitted several proposals to the City indicating our willingness to reduce the required City Contribution and increase our Partnership Contribution to the Entertainment Center. However, it is still impossible to move forward because the City refuses to meet with us and discuss the proposals. Third, in order to avoid any possible confusion on the part of the City as to what we currently propose, enclosed is our latest proposal for consideration by the City. The fact that each of the proposals we delivered to the City has been more favorable to the City than each prior proposal should make it clear that we are doing our best to make the construction and operation of the Entertainment Center possible for the benefit of the City and all the citizens of Irving. Our enclosed proposal reduces the City Contribution from $170M to $17M, plus the refinancing of approximately $23M of the City's outstanding Bonds related to the Entertainment Center, and increases our Partnership Contribution from $80M to $21 OM. I remind you that TDI has capitalized $11 B of real estate transactions over the last two decades. Our proposal also
Mr. Parker D. Young June 15, 2012 Page 2
eliminates the Development Agreement requirement that the City's 7% HOT be pledged to secure its proposed bonds on a subordinate basis in response to concerns voiced by Council Members. Fourth, we are ready. willing, and able to fund our increased Partnership Contribution if given sufficient time to do so after the City gives notice of its Estimated Net Bond Proceeds and obtains an investment grade rating for its bonds. We cannot complete our financing without knowing the exact amount of the Partnership Contribution we will be required to fund. Fifth, from a business viewpoint, we find it very unusual that the City has changed its position by introducing this new component. We do not understand why the City is demanding that LCG deliver additional waivers and releases to the City as a condition precedent to the City honoring its existing contractual obligations to notify LCG of its Estimated Net Bond Proceeds and to obtain an investment grade rating for its bonds. We have never been involved in negotiations where a city demands a full release for whatever it thinks it has done wrong as a condition to continuing negotiations under existing contracts. Our goal is to finance, construct, and operate the Entertainment Center, which would reenergize Las Colinas Urban Center, create thousands of new jobs in Irving, and support the City's declining commercial tax base, not to engage in litigation with the City. According to an Article in Dallas Morning News yesterday: "At the end of the first quarter, Las Colinas had about a 20 percent office vacancy rate, double the percentage in West Plano and Frisco. And quoted rental rates in the Irving market were about 20 percent lower than along the north end of the tollway." Once again, we respectfully request that the City Manager and his team work in good faith and meet with us to find the best way to finance and construct the Entertainment Center on terms significantly more advantageous to the City than the existing terms under the Development Agreement. Time is of the essence. Thank you.
Carl Klinke Enclosure CC/enc: Mayor Beth Van Duyne City Manager City Council Members Dallas Morning News
Estimated Net Bond Proceeds reduced to net $40M. Developer Contribution increased to net $21 OM. $40M Bonds secured only by 2% HOT and applicable EC tax rebates and guaranteed by Developer. 7% HOT and other City credit or revenues not pledged. Excess revenues pledged to secure Bonds used to reimburse eligible Venue Project Costs. Developer has one year to close and fund from the date City receives an investment grade bond rating for tax exempt Bonds. Developer may obtain new operators, concert promoter and producer, consultants, and contractors for lEG. Developer may commence work on lEe prior to expiration of current building permit. Developer and available 2% HOT split costs 50-50, up to maximum of $2M.
MHDocs 3857725_110827 12
Parker Young, Esq. Figari & Davenport Attorneys at Law 901 Main St Ste 3400 Dallas, TX 75202-3776 Re: Dear Parker: I'm writing on behalf of my client, Las Colinas Group, LP ("LCG"), who has asked me to contact you in connection with your recent communications regarding its current Development Agreement and Lease Agreement (collectively "the Agreements") with the City of Irving (the "City"). As you know, both of these Agreements have been approved by the City of Irving several times and executed by the Mayor and my clients. The City and LCG are essentially "business partners" in connection with the design, development, financing, maintenance, and operation of a multi-functional theater, restaurants, hotel, and community and entertainment center (the "Las Colinas Entertainment Center"). Both of our clients have worked hard and spent a lot of time and money on this project to date. My clients want to complete the project and want the project to succeed. Their goal is to finance and develop tbe Las Colinas Entertainment Center - - which would reenergize the Las Colinas Urban Center, create over 2,700 jobs in Irving, and increase the City'S declining commercial tax base. In addition, this project would also support the City of Irving's new Convention Center, and enhance the Convention Center's ability to attract larger and more varied groups and events to the City of Irving. In order for my Client to fulfill its obligations under the Agreements, my Clients must be able to communicate directly with the City staff on a daily and meaningful basis. In particular, my Clients have been working hard to overcome the City's inability to meet financing obligations and secure the investment grade bond rating it is required to bring to the table under the Development Agreement. Therefore, to compensate for the City's failures, LCG has submitted several sensible proposals to the City lowering the City's required compensation from $170 million to $40 million and increasing LCG's contribution from $80 million to $210 million. My clients' willingness to compromise on these matters and increase its own cash contribution, further demonstrates its commitment to the success of the Project. Las Colinas Group, LP & City of Irving
5301 SPRINGVALLEYRD. SUITE200
Parker Young, Esq. June 22,2012 Page 2 LCG is performing in good faith, has demonstrated its commitment to the Project, and is ready, willing and able to go forward, Unfortunately, you have made it impossible to go forward when you unilaterally cut off all communications between my Client and the City staff. Not only is that an unauthorized modification of the Agreements without my Client's consent, a violation of the Agreement and a breach of contract, it also creates an artificial and an extra-contractual condition as a prerequisite to discussions and an unnecessary barrier to progress - - not to mention that it is also a repudiation of the existing Agreements and an anticipatory breach. However, my client is not focused on your clients breaches; to the contrary, my client feels strongly that the focus should not be on looking for ways to avoid fulfilling the parties' obligations under the Agreements, but on how each party can meet its contractual obligations as quickly and as efficiently as possible. To that extent, I am requesting that you immediately lift your ban on communications between our clients and allow the businessmen and women to move the project forward in the best interests of the City of Irving. I am asking for your help in accomplishing that goal. Let's work together to make this Project a success. Thank you.
I TRVIX N.G E A5
July 6, 2012
Mr. lawrence J. Friedman Friedman & Felger Attorneys at Law 5301 Spring Valley Road, Suite 200 Dallas, Texas 75254 Re: LasCollnas Group
Dear Mr. Friedman: I am writing In response to your letter of July 3, 2012, to Parker Young. The City of Irving shares Las Collnas Group's desire to construct the entertaInment venue. The City has worked wIth Las Collnas Group [LeG) on a dally basis for four years to that end. We have met every obligation, and acceded to every request from your client. Unfortunately, LCG has missed every timellne for showing Its ability to provide Its financial contribution. When your client was unable to meet Its obligation to provide the Loan Commitment by Februarv 6, 2012, the City Council agreed with LeG's request for an extension. The parties aareed on February 13, 2012, to one final extension and opportunity for your dient to secure investors and financIng. The parties agreed to a six month extension and all deal points would conclude August 6, 2012, If the financing was not secured by that date. On the heels of that last amendment, your client began the threatening letters with claims against the City. Even so, City staff has continued dally work with LeG and the CIty Council conducted numerous meetings to advance the project. Now as August 6 draws near, your client does not present any evidence of flnandng or capital capacity, but seeks another year's extension. I want to assure you that we have not cut off communication between LeG and the City about the current development agreement. Mr. Page, a representative of your client, has had regular contact with Mr. Bazan on the project. Mr. Bazan remains available for any assistance related to the existing agreement.
Cltv of Irving
I 825 W.lrving
I Irving. TX 75060 I (9721721 -2600 I www.cityofirvlng.org
Mr. lawrence J. Friedman July 6, 2012
As to your request to talk about the recent series of proposals, you are correct my client does not wish to conduct those discussions with the contInued threat of litigation. I encourage you to consider a release substantially In the form of the document Mr. Young provIded.
Very truly yours,
Karen H. Brophy Senior Assistant City Attornev kbropb¥@cltyofirvlng.Qrg, Munsch Hardt Kopf Be Harr, P.C. 3800 Uncaln Plaza 500 North Akard Street Dallas, Texas 75201 Attention: carl Klinke
July 9, 2012
VIA EMAIL: kbrohv@Citvofirving.org Ms. Karen Brophy Senior Assistant Attorney City of Irving 825 W. Irving Blvd. Irving, Texas 75060 Re: Las Colinas Group, L.P. & The City of Irving "Irving Entertainment Center"
Dear Ms. Brophy: I am writing in response to your letter of July 6, 2012. I am glad that the City of Irving ("City") has placed the matter back in your hands instead of outside litigation counsel. You know, of course, that I disagree with your statement of facts and reserve the right to address it in detail at a later date if it becomes necessary. At this time, however, I do not wish to argue with you; alternatively, I view this occasion as an opportunity to do something heroic for our clients. Instead of having the City and the Las Colinas Group ("LCG") attacking each other and the City creating an obstacle to negotiations between them, why not allow the City to expend the same time and energy jointly attacking the outstanding business issues with my client? If the City would reconsider its approach, withdraw its demand for a release as a pre-condition to further negotiations, and allow our clients to communicate again, they could get to work immediately on identifying each other's needs and concerns and explore different options for reaching mutually satisfactory agreements in an efficient and amicable manner. As you know,joinl problem solving can generate better results for both of our clients and increase the likelihood of a successful resolution of the outstanding issues and completion of the Proj ect. It will also save the City and LCG time, energy, and money by cutting out the posturing, eliminating unnecessary legal fees and avoiding the aggravation and uncertainty of litigation. It would most likely also lead to a better working relationship between our clients in the future. Getting a deal done of this magnitude is like sailing. You can rarely get to your destination by heading straight for it. In between you and your goal are strong winds, tides, reefs and shoals, not to mention storms and squalls. To get where you want to go, you have to zigzag your way toward your destination. The same is true in business. To complete the lEe, you have to zigzag your way toward your destination. On the way you have to advocate, calculate, educate, evaluate, mitigate, update, reevaluate and accommodate. .
5:301 SPRINGVALLEY RD, SUITE 200
DALLAS, TEXAS 75254
Ms. Karen Brophy July 9, 2012 Page 2
There is no downside to OUT clients sitting together and addressing and concerns. In fact, every other alternative I can think of is worse. LCG able to go forward in good faith and complete the Project and address all and concerns, but my client cannot do so without the City's full commitment
each other's interests is ready, willing, and of the City'S interests and cooperation.
You also know that it is the policy of the State "to encourage peaceable resolutions of disputes" and early settlement of disputes through voluntary settlement procedures. One method that we could recommend to help our clients would be the use of a mediation where the parties could take advantage of a non-judicial, informally conducted forum, with the help of an impartial third party - - a mediator. Mediation has a structure, a timetable, and dynamics that ordinary negotiations lack. Mediation facilitates communication between the parties to promote reconciliation, settlement, and understanding among them. A mediator, as you know, is not an arbitrator. The mediator is a neutral third-party who does not make any decisions or impose his/her own judgment on the issues for that of the parties. The mediator facilities rather than directs the parties. He/she acts like Henry Kissinger and uses various techniques to open and improve dialogue between the parties with the ultimate goal of bringing the parties together to a voluntary agreement. My client desires to attend mediation immediately and proposes to submit the following disputed issues to non-binding mediation as well as any other issues that the City believes is in dispute: 1) the determination of the maximum amount of investment grade bonds by the City; 2) the City's agreements; duty to meet and negotiate in "good faith" during the term of the
3) whether the City can impose a requirement to execute a full release prior to further "good faith" negotiations; 4) whether the City can terminate the concessionaire agreements "without cause;" 5) the negative impact of the City' disclosures to S&P on bond capacity; 6) the lawfulness of the City Manager's refusal to meet in "good faith" with LCG; and, 7) all other current disputed issues. Although my client is not required to do so, it has provided you with releases for all current discussions and is happy to consider any additional releases for current negotiations to make sure that the City is completely comfortable with on-going talks and mediation. I would encourage you to withdraw your demand for a release from prior years as a pre-condition to further negotiations, and allow our clients to communicate again; they could get to work immediately on identifying each other's needs and concerns and explore different options for reaching mutually satisfactory agreements in an efficient and amicable manner.
Ms. Karen Brophy July 9, 2012
Finally, I know that you are aware that there are several viable alternatives that would alleviate the pressures on the parties-one of which might be that the parties could agree to a short extension, without prejudice to any rights or remedies that they may have, in order to give the parties a reasonable amount of time to explore their options and find a business solution.
Thank you for your kind consideration. Let's help bring the parties together and complete Thank you.
I look forward to hearing from you. Very truly yours,
Lawrence J. Friedman cc: Carl Klinke, Esq. Parker Young, Esq. James Krause, Esq.
(Of the Firm)
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