TERM SHEET

SANTA MONICA CIVIC AUDITORIUM

17 February, 2011

 

 

 

A.    CITY RIGHTS & RESPONSIBILITIES

 

1.     Facility Improvements: The City will renovate and improve the Civic according to its budget which shall not be less than $25 million. 

 

                           i.          The City will insure that there are 1,000 parking spaces proximate to the Civic to accommodate Civic events on nights and weekends and 630 spaces on weekdays.

2.     Employees: The City shall at its discretion and expense control the City employees at the Civic who will provide for operations and management of the facility.

 

3.     Physical Plant: The City shall at its expense maintain and insure the physical plant of the Civic including such items as: repairs and maintenance, utilities, and capital expenditures.

 

4.     Theater Preservation Fee: The City reserves the right to assess a reasonable theater preservation fee over and above any other ticket surcharge to establish a fund for the ongoing upkeep of the Civic Auditorium.  If a fee is established, the City understands that the combined fee and any ticket surcharge should not place the Civic at a competitive disadvantage to comparable facilities.

 

5.     City Dates: In addition to a limited number of City supported community events, the City reserves the right to utilize the Civic for its own purposes and at City expense throughout the year based upon calendar availability.

 

 

B.  NEDERLANDER RIGHTS & RESPONSIBILITIES

1.     Role: Nederlander shall be the Exclusive Presenter and Booking Manager for the Civic during the term of the agreement.  At its discretion and expense, Nederlander shall be responsible for strategic positioning of the Civic, calendar management, talent buying and coordination, coordination with thirdparty ticket sellers, and Nederlander’s participation at individual events.  Nederlander shall at all times work in close coordination with City Civic staff balancing the following goals: maximize the facility revenue streams, maintain facility and event expenses at reasonable levels and maximize the activity level of the facility with a wide range of events. 

 

2.     Dedicated Civic Staff: Nederlander will work with the City to identify, select and employ as Nederlander employees the appropriate individuals to serve as Special Events Sales Director and Special Events Sales Manager dedicated to attracting special events at the Civic, along with a part-time, per-event Production Manager, and Box Office Manager. The parties will discuss the potential to share the services of the Production Manager and Box Office Manager with other similar venues operated by Nederlander, particularly in the early years when stage events are at their lowest levels. The cost of these individuals will be included into the established formula for Contribution Margin as defined in C.5.

3.     Event Staff:

                                i.     The cost of the event staff shall be deemed an expense of the individual event and will be included into the formula established to calculate Contribution Margin. Unless impracticable, when such staffing is needed for any specific event, Nederlander shall utilize the five City staff employed at the Civic to fill Event Staff needs. Under such arrangement, the City would be reimbursed by the individual event for the cost associated with such personnel based on the number of hours worked on the event multiplied by the agreed upon hourly reimbursement rate or rates for the staff persons utilized. Event staff shall include personnel for facility setup, operations, and breakdown and clean-up, including event supervisor(s) and an event coordinator.

                               ii.     Nederlander will commit to using former Civic employees as additional part-time, hourly employees for events to the extent practicable.

4.     Consulting: Nederlander agrees to provide design and technical consulting support to the City and its design and construction team at no cost to the City during the predevelopment and development phase to ensure the best possible renovation. Details of this relationship and Nederlander scope of services to be articulated in the final agreement. Nederlander also agrees to consult with and advise the Civic management team on operational matters during the term of the Agreement.

5.     PreOpening Sales & Marketing: Nederlander shall perform the preopening marketing and sales efforts necessary to provide the Civic with a strong event mix upon the reopening of the renovated Civic.  The cost of this initial marketing will be included into the established formula for Contribution Margin.

                                i.     In subsequent years institutional venue marketing for all event types will be included into the established formula for Contribution Margin up to an agreed upon limit.

6.     Calendar and Event Review: Nederlander agrees to review the overall calendar of events to be held at the Civic with the City and to consult with the City concerning events proposed to be held at the Civic.

 

 

C.      ADDITIONAL TERMS

 

1.     Contract Term: The initial term of the agreement shall be for sixtythree (63) months, commencing upon completion of the facility improvements, with the first contract period or ‘year’ consisting of fifteen (15) months to allow for appropriate rampup and advance bookings. Each of the subsequent contract years shall be for twelve (12) month periods.

2.     Termination: The City shall have the option to terminate the agreement under the following circumstances:

 

                                     i.     Option to terminate for failure to achieve activity thresholds:  At the end of Contract Years 3 or 4 in the event the following booking thresholds are not achieved:

End of Contract Year 3: During the first thirtynine (39) months of the agreement a total of two hundred (200) events, and no less than forty (40) concert performances, forty (40) legitimate theater performances, and forty (40) special events.

End of Contract Year 4: During Contract Years 2 through 4 a total of two hundred twenty five (225) events, and no less than fortyfive (45) concert performances, fortyfive (45) legitimate theater performances, and fortyfive (45) special events.

                                    ii.     Option to terminate for poor financial performance:  In addition to other City termination rights, after the initial three Contract Years of the Agreement (i.e. first 39 months), the City has an option to terminate the agreement for poor financial performance.  This option, which includes notice to Nederlander, good faith negotiation and an opportunity for it to cure, will be triggered if the Contribution Margin shows a loss for any two consecutive fiscal year periods. This option would not be available if the loss arose principally from force majeure causes, which includes significant economic downturns such as a recession as declared by the National Bureau of Economic Research or successor Agency.

 

3.     Renewal: The agreement shall be renewable at the election of Nederlander for an additional five (5) year term provided that Nederlander meets the agreed upon activity and financial criteria. Activity and financial criteria for the term of the renewal will be developed  at the time of renewal, but will be at a minimum those established for the first five years.

4.     Compensation: Nederlander shall be entitled to receive its share of any positive, annually calculated Contribution Margin subject to the following formula:

                                                    i.     Forty percent (40%) of any annual Contribution Margin up to and including $500,000; PLUS

                                                   ii.     Fifteen percent (15%) of all annual Contribution Margin exceeding $500,000 and up to and including $1.5 million; PLUS

 

                                                  iii.     Thirty percent (30%) of all annual Contribution Margin exceeding $1.5 million and up to $2.25 million: PLUS

 

                                                 iv.     Forty percent (40%) of all annual Contribution Margin exceeding $2.25 million.

5.     Contribution Margin: The term Contribution Margin shall be defined as all Civic revenues, including all event revenue plus annual and periodic revenue, such as sponsorship and signage, LESS event expenses plus other direct expenses incurred in securing such annual and periodic revenue (annual and periodic revenue terms to be fully defined in the final agreement.) The following are notable exceptions to Contribution Margin:

                                          i.     Contribution Margin revenue specifically excludes any and all parking revenue and expenses generated at the Civic as well as any ‘theater preservation fee’ that may be established.

 

                                         ii.     Contribution Margin expenses specifically excludes any and all overhead costs related to the City’s Civic staff for general management and operations of the facility except for the Event Staff reimbursements for individual events as described above.  Contribution margin expenses also specifically exclude any and all overhead costs related to Nederlander’s management and concert talent buying staff.

 

6.     Audit: The parties shall agree upon an independent audit firm experienced in the industry to perform audit procedures that will assure both parties that the accounting controls, allocation methods and expense amounts (including payroll) charged to Civic events is reflective of the agreement between the parties. Cost of the audit is to be allocated per the established formula for Contribution Margin as described in Section C5.