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Memorandum of Understanding

New Sports And Entertainment Facility in Sacramento

JCFKK Draft
September 28, 2006


CONFIDENTIAL

MEMORANDUM OF UNDERSTANDING

NEW SPORTS AND ENTERTAINMENT FACILITY IN SACRAMENTO

THIS MEMORANDUM OF UNDERSTANDING (this "MOU") by and among the following "Parties": SACRAMENTO COUNTY, a political subdivision of the State of California (the "County"), the CITY OF SACRAMENTO, a municipal corporation (the "City") and SACRAMENTO KINGS LIMITED PARTNERSHIP, a California limited partnership (the "Kings Partnership") desire to work together to develop a first class, state of the art multi-purpose sports and entertainment facility as part of the City's railyards redevelopment project (the "Railyards") at which the "Sacramento Kings" ("Kings") National Basketball Association ("NBA") franchise and the "Sacramento Monarchs" ("Monarchs") Women's National Basketball Association ("WNBA") franchise will play their home games, and which will host other sports, concert, family entertainment, community and other events similar to those now held at Arco Arena and similar venues across the United States.

The County Supervisors have authorized placement on the November 2006 ballot of an advisory initiative (the "Advisory Initiative") concerning the design, development, construction, lease and management of a sports and entertainment facility as contemplated hereby and an initiative to authorize an increase in the sales tax rate in Sacramento County (the "Tax Initiative").

Set forth below are the understandings of the Parties with respect to the principal terms to be reflected in the definitive documents contemplated by this MOU relating to the process of designing, developing, constructing and managing the Arena Complex, as hereinafter defined (the "Project").

Although this MOU sets forth the major terms of the business relationship between the Parties, the Parties acknowledge that the Project is subject to review under the California Environmental Quality Act ("CEQA"). Notwithstanding the various agreements relating to the various components of the Project, the Parties further acknowledge that the final design and configuration of such components may not be approved until completion of the CEQA process.

The sports and entertainment facility (the "Arena"), the Adjacent Parking and the Arena Marquis, as described herein (collectively, the "Arena Complex") will be owned by a Joint Powers Authority to be formed by the County and City, and possibly other cities in the County, in accordance with California law (the "JPA"), and shall be managed by the Kings Partnership or its designated affiliate ("Tenant"). Management of the Arena Complex by the Tenant shall be achieved through a lease, license or management agreement, as appropriate (the "Arena Complex Lease"). References in this MOU to the City or County, include their respective departments, agencies or instrumentalities, including any, such as the JPA, as to which either has joint control with others or has appointment authority with respect to some or all officers, trustees or members, and references to "Landlord" include the City, County and, upon its formation, the JPA, collectively, for periods prior to the commencement of the Arena Complex Lease and only the JPA for periods following the commencement of the Arena Complex Lease. Upon formation of the JPA it will join as a party to this MOU and each of the definitive documents contemplated hereby.

UNDERSTANDINGS

1. Arena.
A general description of the proposed Arena is set forth in Exhibit A. The Arena will be located in the Railyards as generally depicted on Exhibit B and will be part of an Arena Complex comprising the Arena, Adjacent Parking, and Arena Marquis. The Parties acknowledge that location of the Arena Marquis is subject to negotiation with the Railyards developer, but that the Arena Marquis shall have freeway visibility. Construction of the Arena Marquis is subject to the approval of the appropriate governmental regulatory bodies.

2. Parking.
(a) Landlord will contribute $45 million toward construction of parking adjacent to the Arena which will provide approximately 2,000 parking spaces (the "Adjacent Parking Spaces"), to be controlled by Tenant and from which Tenant will receive and retain all revenues. Landlord hereby agrees to provide up to a maximum of 3,000 Adjacent Parking Spaces to the extent that funds are available in the Project budget. The Adjacent Parking Spaces will be located as generally illustrated in Exhibit B and will be configured to permit a maximum twenty (20) minute exit time ("open field" exit time) for that number of cars following Arena events under normal circumstances.
(b) Landlord and/or the Railyards developer will take all action reasonably required to assure Tenant that, prior to the opening of the Arena, in addition to the Adjacent Parking Spaces, there will be at least 5,000 unrestricted parking spaces available for public parking within approximately a (10) minute walk from the Arena. It is currently contemplated that approximately 3,500 unrestricted parking spaces available for public parking shall be available just south of the Arena in the area generally bounded by Big Four to the North, 5th Street to the South, 6th Street to the East and Bercut to the West. In addition, it is expected that approximately 1,000 unrestricted parking spaces available for public parking shall be located at the Intermodal Facilities. Additional temporary and/or permanent spaces shall be made available, to the extent necessary, to provide a total of 5,000 unrestricted parking spaces available for public parking by good faith negotiations between Landlord, Tenant and the Railyards developer.
(c) The allocation of revenue generated by event-related parking ("Event Parking") from other than Adjacent Parking Spaces shall be determined by October 6, 2006, by good faith negotiations between Landlord, Tenant and the Railyards developer.

3. Arena Plaza.
The "Arena Plaza" will consist of an approximately one acre paved open space in front of the main Arena entrance. The Arena Plaza will be owned and maintained by the Railyards developer or its successor; however, Tenant shall have the right and obligation for year-round programming of, and the right to sell naming rights for, the Arena Plaza. Consistent with Tenant's programming rights, the City and Railyards developer will take whatever action is reasonably required to prohibit vendors from the Arena Plaza during Arena events.

4. Arena Marquis.
The "Arena Marquis" will consist of an electronic marquis having large screen matrix and/or video screens and located in proximity to and visible from Interstate 5. Subject to final design of the Arena Complex and appropriate jurisdictional regulatory approvals and approval by the Railyards developer of the location of the Marquis, the Marquis will either be free standing or attached to the Arena Complex or other building. Tenant will be responsible for routine maintenance and Landlord will be responsible for capital repairs, replacements and improvements of the Arena Marquis.

5. Kings Partnership Commitments.
(a) The Kings Partnership or its affiliates, upon delivery by the JPA to the general contractor of the Arena of a notice to proceed with construction of the Arena, will contribute $20 million toward the cost of the Project by depositing such amount with the JPA.
(b) The Kings Partnership or its designee as Tenant will pay rent of $3.0 million per year, escalating at 2% per year, an aggregate of approximately $122 million during the scheduled term of the Arena Complex Lease.
(c) On or before the commencement date of the Arena Complex Lease, the Kings Partnership or its affiliates, shall repay indebtedness of approximately $72 million, including all amounts necessary to retire the 1997 Lease Revenue Bonds issued by the Sacramento City Financing Authority or any replacement therefor, refinancing or remarketing thereof. The City will consider, but shall have no obligation to participate in a refinancing of all or any portion of such debt or otherwise assist the Kings Partnership in obtaining favorable refinancing terms therefor.
(d) The Kings Partnership will enter into a non-relocation agreement (the "Non-Relocation Agreement") permitting the Landlord to obtain specific performance of such agreement or an injunction against any relocation of the Kings or Monarchs franchise during the term of the Arena Complex Lease, containing Kings Partnership agreement not to contest Landlord's application for such remedies and providing for such security for performance of the non-relocation covenant as the Parties may agree.

6. Arena Complex Design, Development and Construction Process and Collaboration.
The Landlord will have final decision making authority with respect to the design, development and construction of the Arena Complex, subject to the further provisions of this MOU. The Parties intend that the entire Project be conducted as a cooperative, mutual endeavor in which the Parties actively participate and work together, in good faith and with due diligence—a public/private partnership. In furtherance of the general intent of the Parties with respect to the conduct of the Project:
(a) Public Contracting Requirements. The City and County will cause the Project to be conducted in compliance with all applicable public contracting laws, including local regulations, policies and procedures.
(b) Entitlements for Arena Complex. The City and County will expedite, to the extent lawful, processing of all matters necessary to authorize the development, construction and operation of the Arena Complex, including without limitation, any General Plan Amendment, Community Plan Amendment, Rezone, Master Parcel Map, Infrastructure Financing Plan, and such districts as may be required or may facilitate the development and construction of the Arena Complex.
(c) Authorized Representatives. Each of the Landlord, by resolution, and Tenant, by written certificate, will designate one or more persons to serve as its authorized representative(s) to make binding decisions with respect to the Project. Each of Landlord and Tenant shall be permitted to rely on the actions taken by the, or if there is more than one any one of the, authorized representative(s) of the other in connection with any matter relating to the Project, to the extent of the authority set forth in the Landlord's resolution or the Tenant's certificate.
(d) Access to Information and Personnel. The Landlord shall use commercially reasonable efforts to assure that Tenant is kept fully informed on a timely basis with respect to all material issues relating to the Project as part of a collaborative effort in the conduct of the Project. Tenant will be entitled to full disclosure of all material matters relating to the conduct of the Project. Tenant will have reasonable access to all Project managers, architects, engineers, and other experts or consultants ("Key Project Personnel"). Each of the Key Project Personnel will report to Landlord, but will be required to respond promptly to requests for non-privileged, non-confidential information from Tenant and to make periodic reports to Landlord and Tenant during all phases of the Project. Tenant shall have the right to receive notice of and have representatives present at all scheduled non-privileged, non-confidential meetings or briefings involving the Landlord and any Key Project Personnel, whether such meetings or briefings are in person, by telephone or other media. Tenant and its Authorized Representative(s) shall accommodate the scheduling of such meetings and briefings so as not to unduly delay their occurrence. All material non-privileged and non-confidential written and electronic communications from or to the Landlord to or from any of the Key Project Personnel shall include the Tenant on the distribution list and shall promptly be furnished to the Tenant. All material non-privileged and non-confidential documents and other information in all media generated by any of the Key Project Personnel in connection with the Project will be made available to Tenant on a timely basis upon Tenant's request.
(e) Project Management. Landlord will utilize an experienced program management and development firm or individual with a national reputation, substantial experience in the design, development and construction of similar arena complex projects and current capacity and availability to perform as contemplated hereby, as the manager and coordinator of the Project (the "Project Manager"). Landlord will consult with Tenant prior to selecting and contracting with the Project Manager, but Landlord shall have final decision making authority to retain the Project Manager. The Project Manager shall report to Landlord. Tenant, at its sole cost and expense, may retain its own Project management representative ("Tenant's Project Consultant") to assist Tenant in monitoring and making its decisions in connection with the Project. The Parties will cause the Project Manager and Tenant's Project Consultant to cooperate with each other in order to administer the Project in a cost effective and efficient manner.
(f) Design of the Arena Complex.
(i) Design and Quality Standard. The design and quality standard ("Design Standard") for the Arena Complex shall be "first-class, state of the art," comparable to the NBA arenas in Memphis, Charlotte, Indianapolis and Houston (the "Comparable Arenas"). The Design Standard contemplates that the Arena Complex meet the requirements of all applicable laws and regulations and will, among other things: conform to the size, configuration and description of the Arena set forth in Exhibit A and the capacity, configuration and description of the Adjacent Parking, Arena Plaza and Arena Marquis set forth in Sections 2 , 3 and 4; provide for first-class amenities for event patrons and athletes or artists performing at the Arena; provide physical facilities similar to those in the Comparable Arenas designed to accommodate first-class service levels in the Arena Complex (such as avoidance of long lines or unreasonable waiting times for entry to or exit from the Arena, for service at concession stands, ticket booths, clubs, retail facilities, restaurant facilities, suites or club seats, for use of rest room facilities, for seating in clubs or restaurants or for entry to or exit from the Adjacent Parking); provide physical facilities similar to those in the Comparable Arenas designed with the goal of enabling Tenant to maximize revenue opportunities for Tenant within the Arena Complex from all sources including, without limitation, ticket sales, lease or license of suites and club seats, parking fees, sales of food, beverages and merchandise, license of intellectual property and advertising, promotional activities and sponsorship; promote operating and maintenance efficiencies; and provide for structural elements and mechanical systems expected to have long useful lives. The Design Standard encompasses, without limitation, the amount of land (as depicted on Exhibit B) necessary to accommodate the Arena Complex; the siting and configuration of the Arena, Adjacent Parking and Arena Plaza within the Railyards (as depicted on Exhibit B); the size, capacity, configuration and layout of the Arena and its various components and functions; the size, configuration and layout of the Adjacent Parking and Arena Plaza (as depicted on Exhibit B); the location and configuration of the Arena Marquis; pedestrian ingress and egress; and related improvements such as directional signage and lighting of streets and pathways within the Railyards development to be used by Arena patrons, the quality, types of materials and finishes to be used; the capacity, quality and efficiency of mechanical, electrical and communications systems and equipment; the quality and expected useful lives of structural elements and major mechanical systems; and the quality and types of attached fixtures and equipment that will be included in the Arena Complex. The Design Standards shall be subject to applicable local, state and federal requirements, including, without limitation, CEQA, the Americans with Disabilities Act, the City's design review and zoning.
(ii) Principal Architect. By______________, 2006, Landlord will submit to Tenant a list of three (3) architectural firms, each of whom is willing to commit to the Project a senior architect and project team who have had significant experience in the design and construction supervision of significant sports or entertainment facilities and who were otherwise acceptable to Landlord, as the principal architects for the design and construction supervision of the Arena. On or before __________, 2006 (45 days after submission of list), Tenant will designate one of those firms as its preferred principal architect (the "Architect"). On or before _____________, 2007 (30 days after selection), Landlord will enter into contracts with the Architect for the design and construction supervision of the Arena. Tenant may also retain, at its sole cost and expense, architects or other design consultants to assist it in connection with the design process ("Tenant's Design Consultants").
(iii) Design Process. Promptly upon the completion of the contract with the Architect, Landlord and Tenant will cooperatively and in close collaboration with each other, and with due consideration of costs as contemplated in Section 9 hereof, begin to work with the Architect to develop a schematic design, drawings, plans, specifications and a development program for the Arena Complex. The Parties will continue this collaborative process through the preparation of Design Development Plans and Outline Specifications (the "Arena Plans") that Landlord and Tenant each agree (A) as satisfying the Design Standard and Quality Standard and (B) as sufficiently complete to be used in the solicitation of contractor bids for the construction of the Arena, Adjacent Parking and Arena Marquis ("Arena Contracts"). The approval of each of Landlord and Tenant shall be granted or withheld in good faith, without unreasonable delay; provided, however, that if the Arena Plans include the elements in Exhibit A and could reasonably be interpreted to satisfy the Design Standard, Landlord and Tenant shall each approve the Arena Plans. If Landlord and Tenant have not approved the Arena Plans as satisfying the Design Standard and being sufficiently complete for use in soliciting Arena Contracts on or before November 5, 2007, the obligations of the Parties hereunder and under each Arena Complex agreement between the Parties, the Arena Complex Lease, the Non-Relocation Agreement and under any other agreement with respect to the planning, designing or constructing of the Arena Complex by or among the Parties entered into after the November 2006 election (collectively the "Arena Complex Agreements"), will automatically terminate and no Party shall have any further liability hereunder or thereunder.
(g) Construction of the Arena Complex.
(i) Contracting. The Arena Contracts shall be put out for bid to a group of potential general contractors who have had extensive experience constructing significant sports and entertainment facilities and are otherwise acceptable to Landlord. This group shall be pre qualified by Landlord, and such bid process shall be administered by the Project Manager in a manner consistent with Landlord's applicable contracting requirements. The Arena Contracts shall be awarded to a single contractor and will provide for substantial liquidated damages in case of late completion. Each Arena Contract will provide for the payment of prevailing wages, as applicable, and include contingency allowances and other appropriate cost overrun and completion protections as reasonably determined by Landlord. Landlord shall enter into all other contracts for the development and construction of the Arena Complex through a process coordinated by the Project Manager. The selection of and contracts with principal subcontractors, principal engineering, design and other consultants and significant suppliers will be subject to review by the Tenant, but the Landlord shall have final decision-making authority with respect to such matters. If on or before March 31, 2008 Arena Contracts have not been awarded, or if on or before July 31, 2008 the Arena Complex site is not delivered to the Arena contractor with all land use and other approvals generally described in Section 9 having been completed and received and no impediments to the commencement of construction, then in either case, subject to the provisions of Section 8 hereof, the obligations of the Parties hereunder and under each of the Arena Complex Agreements will automatically terminate and no Party shall have any further liability hereunder or thereunder.
(ii) Construction Decisions. It is the Parties' intent to cause the Arena Complex to be constructed and open for events on or before September 1, 2010, in accordance with the Arena Plans and otherwise in accordance with the Design Standard.. Consistent with the foregoing:
(A) Landlord will consult with Tenant during construction in advance of making any material decision to authorize or to withhold authorization of, and will advise Tenant immediately upon making any material decision to authorize or withhold authorization of, (x) any material change or proposed change to the Arena Plans, (y) any material construction or design decision or proposed decision with respect to any element encompassed by the Design Standard that is not fully addressed in the Arena Plans, or (z) any other construction or design decision or proposed decision that will materially extend the construction and completion schedule for the Arena or that will materially and adversely affect the Design Standard as reflected in the Arena Plans as previously modified or supplemented with Tenant's prior approval, including without limitation, the quality of amenities for patrons, athletes or performing artists, or the quality of materials used. Such advance consultation shall be in reasonably sufficient time for Tenant to evaluate the proposed change and notify Landlord of its approval or disapproval. Landlord shall not authorize any material change or decision described in clauses (x) through (z) of this paragraph without Tenant's prior approval, which approval shall not be unreasonably delayed and shall be granted or withheld reasonably and in good faith. Tenant will be given the same notice and opportunity to review and provide comments on all other material Project decisions proposed by Landlord. Landlord will consider in good faith Tenant's comments on any such other material Project decision but Landlord shall otherwise have final decision-making authority.
(B) Tenant may propose changes to the Arena Plans based on advice from the Architect or from Tenant's Design Consultant that aspects of the Arena Plans will not work as well as anticipated or can be improved, and may propose construction or design decisions relating to matters not fully addressed in the Arena Plans. Landlord will authorize such changes or construction or design decisions if (x) such proposed changes involve design proposals that are not materially similar to design proposals that were considered and rejected during the design process prior to the approval of the Arena Plans under Section 6(f)(iii), (y) such changes do not adversely affect the construction schedule or the Arena opening date, and (z) Landlord reasonably determines, in its sole discretion, that the aggregate cost of all such changes and construction and design decisions does not exceed the available budgeted contingency allowance (after due consideration of all current and potential contingency demands on such allowance) or, in the absence of an available budgeted contingency allowance as so determined by Landlord, Tenant agrees to fund, in full, any portion of such aggregate cost in excess of the available budgeted contingency allowance,
(C) Nothing in this MOU shall limit Tenant's or Landlord's right to seek injunctive or other relief in case the other Party fails to comply with the provisions of clauses (A) or (B) immediately preceding.
(h) Disputes with Architect, General Contractor and Other Project Parties. Landlord agrees that Tenant may intervene and join as a party in any action at law of equity or in any arbitration between Landlord and any one or more of the architect, Arena contractor, subcontractors, consultants or suppliers relating to the Project.


7. 2007 Milestone; Acquisition of Arena Complex Real Property.
The Parties intend that by July 1, 2007 (the "Milestone Date"):
(a) the development plans for the Arena Complex, insofar as they relate to its siting, configuration and real property requirements (including those necessary for pedestrian and vehicular access to and egress from the Arena Complex, construction, operation and maintenance of the Marquis sign, and for the performance of any work necessary to accomplish or maintain any offsite improvements to be located in the Railyards) will be substantially complete to the mutual satisfaction of the Parties, to the extent provided elsewhere in this MOU,
(b) Landlord will have acquired site control of such land, easements, licenses and appurtenances as are necessary or appropriate for the Arena Complex development plans (the "Arena Complex Real Property"),
(c) Landlord will have entered into such other agreements with developer of the Railyards (the "Developer") as are necessary or appropriate in order for Landlord to perform and satisfy its obligations under this MOU and any of the Arena Complex Agreements,
(d) Landlord will have concluded whether the projected costs for the Arena Complex, plus the costs of all required land and infrastructure, are too great to proceed, and

8. Alternate Site.
Landlord will use commercially reasonable efforts to provide another site outside of the Railyards, mutually acceptable to Landlord and Tenant, at which an arena can be located consistent with the requirements of this MOU and the economic development goals of Landlord, with such changes to which Tenant approves (which approval will not be unreasonably withheld, conditioned or delayed), if on or before the Milestone Date Landlord provides written notice to Tenant that (A) Landlord has been unable to acquire site control as contemplated by Section 7(b) hereof, or (B) Landlord has determined that cost estimates for the design and construction of the Arena Complex and required infrastructure are unsatisfactory as contemplated by Section 7(d) hereof.
Such alternate site shall be one as to which construction can be commenced and completed on the same schedule as provided herein for the construction and completion of the Arena Complex in the Railyards. If such alternate site is the Arco site, the Parties will negotiate in good faith to resolve any issues relating to the impact, if any, on the value of that portion of the Arco site owned by the Kings Partnership. The Parties acknowledge and agree that either Landlord or Tenant shall have the right to terminate this MOU if, by the Milestone Date, an Arena Complex site or an alternate site and the financial arrangements relating thereto are not acceptable.

9. Projected Range of Arena Costs and Financing.
(a) It is not currently possible to estimate the cost of the design, development and construction of the Arena ("Arena Cost") since the design is not complete and costs will be incurred in the future, subject to unknown inflation in the costs of materials and labor. The Parties believe that the Arena can be designed and constructed, assuming a 2008 construction start, for an aggregate Arena Cost within a range of $377 to $450 million and a total Project cost, not including debt service or other financing costs, within a range of $470 to $543 million. Arena Cost includes costs of the type described in Exhibit C under the captions "Arena Hard Costs" and "Arena Design and Other Development Costs". The Landlord and Tenant will work in good faith to agree upon Arena Plans for the Arena that will result in a final Arena Cost within the above-described range. The projected range of the Arena Cost does not include the following costs, which will be paid by the Landlord, except as otherwise stated: (a) all costs relating to the design, development and construction of the Adjacent Parking up to $45 million and Arena Marquis that are the types of costs included in the projection of the range of costs to be incurred in connection with the design, development and construction of the Arena as set forth on Exhibit C, (b) costs associated with the acquisition or lease of the Arena Complex Real Property, (c) performance of and costs related to environmental, geotechnical, transportation and other impact studies, tests or reports relating to the Arena Complex site and the impact of the development and operation of the Arena Complex, (d) environmental remediation, if any, and other site work required as the result of the studies, tests or reports of the type described in clause (c) of this Section, (e) all work and costs relating to processing through receipt, of all land use (General Plan Amendment, Community Plan Amendment, Rezone, Master Parcel Map, Infrastructure Financing Plan and CalTrans approvals as necessary) and other approvals, including those relating to matters described in clause (c) of this Section necessary to deliver the Arena Complex Site ready, except for issuance of building permits, for commencement of site construction, (f) onsite or offsite storm water retention, (g) offsite improvements, including necessary roadway, highway, storm and sanitary sewers, sidewalk, lighting and signage work, and demolition of Arco Arena and, at Tenant's option, the nearby practice facility, and (h) debt service and other financing costs incurred by any of the City, County, JPA or any department, agency or instrumentality of one or more of them in connection with the Project.
(b) JPA Contribution. The JPA will pay all hard costs and other design and development costs required to construct the Arena, the Adjacent Parking and Arena Marquis, and to demolish the existing Arco Arena and, at Tenant's option, the nearby practice facility.
(c) City Contribution. The City will contribute to the JPA the net proceeds received from the sale of its one hundred (100) acres of land at the existing Arco Arena site.
(d) Kings Partnership Contribution. The Kings Partnership will contribute $20 million to the JPA as required by Section 5(a) hereof. Although it is currently contemplated that such contribution will be deposited to a capital repair, replacement and reserve fund, the JPA will have discretion as to the use of the Kings Partnership contribution.

10. Arena Complex Lease.
Management of the Arena Complex by the Tenant shall be achieved through a lease, license or management agreement, as appropriate.
(a) If Kings Partnership designates an affiliate as Tenant, the Kings Partnership will guarantee the performance and payment of all obligations of Tenant pursuant to the Arena Complex Lease and will execute the Lease as guarantor. The City and County will execute the Lease as principals with respect to matters, if any, requiring performance by the City or County pursuant to the Arena Complex Lease.
(b) Tenant shall be responsible for operating and managing the Arena Complex in a first-class manner, at least equal to the standard of operation and management in the Comparable Arenas.
(c) The Arena Complex Lease will be for a term ending on September 30, 2040. The Arena Complex Lease will contain such terms and conditions as are customary in similar leases and may be terminated based upon customary terms relating to condemnation, major casualties or material breach.
(d) Tenant will pay rent during the term, in the amounts provided in Section 5(b) above, with one half of the rent payable on each of January 1 and June 1 during each year of the term.
(e) Tenant will be responsible and will pay for the day to day operation of the Arena Complex and for the performance of routine maintenance on the Arena, Adjacent Parking and Arena Marquis. Routine maintenance means the performance of all work and incidental repair and replacement of items necessary or appropriate to maintain the Arena Complex as a first-class NBA, sports and entertainment venue, but only to the extent that expenditures for such work and such repair and replacement are not normally capitalized under generally accepted accounting principles.
(f) Landlord will be responsible for all capital repairs, replacements and improvements relating to the Arena Complex or its use, and the Arena Marquis. Capital repairs, replacements and improvements include the performance of all work and cost of all materials necessary or appropriate to maintain the Arena as a first-class NBA, sports and entertainment venue, but only to the extent that expenditures for such work and materials are normally capitalized under generally accepted accounting principles as expenditures that materially add to the value of the Arena, substantially prolong the useful life of the Arena, or adapt the Arena to a new or different use. The Arena Complex Lease will provide a schedule for the replacement of items subject to periodic replacement or other capital repair or improvement. The Parties acknowledge that a comprehensive scheduled improvement program will be required to maintain the Arena as a first-class sports and entertainment venue and agree to cooperate in good faith to develop and implement improvements to achieve that objective at the least possible cost. Notwithstanding the foregoing, the Parties agree that for purposes of this subsection (c), the term "first-class" shall take into account the age of the Arena and the standard then being maintained in the Comparable Arenas.
(g) Tenant will be entitled to receive and retain all cash or in-kind revenues associated with its use or enjoyment of the Arena Complex and, subject to Section 2(c) hereof, the Event Parking. Such revenues include without limitation, all revenues from ticket, seat and suite sales, licenses or rentals, parking fees from all use of the Adjacent Parking Spaces and, subject to Section 2(c) hereof, from the Event Parking, proceeds from the sale of food, beverages and merchandise within the Arena, broadcasting, internet and all other media revenues, revenues from sponsorships, and from fixed or temporary advertising or promotional signage, including the Arena Marquis and other signage inside on the exterior of or on land comprising part of the Arena Complex, and revenues from the use or license of any intellectual property such as naming rights or likenesses of the Arena.
(h)
(i) City will process, for consideration by the City Council in its sole discretion, ordinances or other legislation which, to the extent allowed by applicable law, would permit Tenant or Tenant's licensees to provide outdoor advertising, promotional or sponsorship signage within the Arena Complex and to operate the Arena Marquis. To the extent lawful and feasible, City will take all action reasonably required to establish a Special Planning District within the Sports and Entertainment District (the "District") that will preclude certain inappropriate and non-compatible retail and commercial uses, such as adult entertainment theatres or business, massage parlors, ticket brokerage offices. To the extent that the foregoing matters require the agreement or consent of the Developer, the City will, to the extent lawful and feasible, enter into such agreements with the Developer or will use lawful and good faith efforts to cause the Developer to enter into such agreements with Tenant. Notwithstanding the foregoing, nothing contained in this MOU shall preclude location in the District of a performing arts center with approximately 1,500 permanent seats and a public amphitheatre with no more than 1,200 permanent seats. The Parties acknowledge that the establishment of the District and the Special Planning District are subject to the separate approval of City Council; however, consistent with the execution and delivery of this MOU, the City Manager shall recommend approval thereof to the City Council.
(ii) Landlord and/or the Developer shall cooperate with Tenant throughout the term of Lease to preclude "ambush marketing" of Tenant's Arena Naming Rights Partner and not more than three (3) Founding and/or Major Sponsors and advertising partners (to be defined in definitive agreements) and shall take all action reasonably required to provide Tenant the following "sponsorship protection":
(A) No outdoor advertising, promotional or sponsorship signage in competition with the primary business of the Naming Rights Partner and not more than three (3) Founding and/or Major Sponsors for the Arena shall be allowed in the Railyards development.
(B) Retail establishments and office buildings in the Railyards development shall be permitted to display retail and office building signage, notwithstanding that such signage may be competitive with Tenant's sponsors or advertisers. No other outdoor advertising, promotional or sponsorship signage shall be permitted in the District; provided, however, that the District retail anchor shall have the right to advertise and promote its "national partners" from its retail establishment.
(C) The Developer shall be permitted to locate and display retail and office building tenant directories in the Railyards development, one or more of which directories may be visible from the freeway. The Developer shall also have the right to maintain and have unrestricted display rights on the two (2) billboards it currently owns in the locations specified on Exhibit D.
(D) No outdoor advertising, promotional or sponsorship signage shall be permitted by the Developer or its tenants in the District, except as noted in B and C above. The District shall be generally bounded by Canal Street on the north, Big Four on the south, 6th Street on the east and Bercut on the west, as graphically depicted on Exhibit E. However, the District retail anchor shall have the right to advertise and promote its "national partners" from its retail establishment.
Additional sponsorship protection shall be determined by good faith negotiations
between Landlord, Tenant and the Railyards developer.
(i) Landlord will not propose any legislative action by which the Tenant, patrons of the Arena, Arena or Arena Plaza event promoters, those acting pursuant to license or other agreements with the Tenant in connection with the sale of Event tickets or use of the Arena Complex or Arena Plaza for events, the licensor or licensee of Tenant's intellectual property (including naming rights relating to the Arena Complex), those engaged in the sale of food, beverages or merchandise in the Arena Complex, or performers or professional athletes appearing in events at the Arena Complex, will be required to pay (i) any tax, surcharge, fee or assessment on or measured by the volume of admissions to any portion of the Arena Complex, on parking in the Adjacent Parking, or on or measured by the value or volume of the sale or use of tickets to Arena or Arena Plaza events, (ii) any tax, surcharge, fee or assessment resulting from the creation of any special district such as a sports or entertainment district in which the aggregate assessments levied against or on account of the Arena Complex or any activities related thereto is [__] or more of the aggregate assessments to be levied in such district and (iii) any other tax, fee or assessment that specifically, principally or, in terms of aggregate revenues to be raised, disproportionately in application or rate, affects any such person or entity or any such activity, in each case to the extent that such tax, surcharge, fee or assessment is levied by or pursuant to action of the City, County or JPA (collectively, "Discriminatory Impositions"). Each of the City, County and JPA agree that it will not authorize, impose, enact, levy, collect, or assist others in authorizing, imposing, enacting, levying or collecting any Discriminatory Imposition. Examples of taxes, fees or assessments that are not Discriminatory Impositions include sales, use, income or franchise taxes at rates which may be progressive but are uniformly imposed throughout the City or County on broad categories of goods or services, or on the income or personal property of a broad range of persons or entities, fees and assessment levied by property business improvement and other business improvement districts approved by a vote of the property owners or businesses within such districts, and fees uniformly imposed at uniform rates on vendors of food and beverages throughout the City or County. Landlord will reimburse the amount of any Discriminatory Imposition paid by any of the persons or entities referenced above. Notwithstanding the foregoing, any tax, surcharge, fee or assessment existing on the date hereof and thereafter applicable to the Arena Complex, shall not be deemed a Discriminatory Imposition.
(j) The City and County will take appropriate action to exempt, (or pay on behalf of), the Arena Complex, Tenant and any affiliated entity operating any portion of the Arena Complex on behalf of Tenant, from the payment of any real property tax or assessment and any possessory interest tax, associated with the Arena Complex Lease.
(k) The City or County will provide, at Tenant's cost, appropriate Event security and traffic control outside and in the vicinity of the Arena Complex (including in the Arena Plaza). The City will also provide customary police, fire prevention and, subject to Caltran's cooperation and approval, directional and highway signage, all consistent with existing City and County policy and practice and subject to applicable laws and regulations. To the extent the City and County provides utility, water and sewage service for the Arena Complex, such services will be provided at rates generally applicable to such facilities or other businesses.
(l) During the term, neither of the County or City will directly develop, operate, finance, or subsidize the development or operation of any venue or the expansion of any venue already existing which does or could compete with the Arena for sporting, exhibition, concert, family shows or other events of a type appropriate for the Arena and generally targeted at audiences in excess of 7,500 persons. Notwithstanding the foregoing, nothing in this MOU shall be deemed to preclude any of the foregoing activity by the City or County with respect to (i) the development of a stadium for football, soccer, baseball, or track and field events; (ii) facilities in existence as of the date of this MOU; (iii) facilities that may be constructed for any Olympics; or (iv) non-ticketed (free) events at public venues.
(m) Tenant shall be responsible for operating and managing the Arena for all events at the Arena in a first-class manner, at least equal to the standard of operation and management in the Comparable Arenas. Tenant shall not enter into any contract or grant any rights with respect to the operation of the Arena Complex that extend beyond Tenant's term of occupancy or that are not terminable by Landlord upon notice or default by Tenant under the Arena Complex Lease.
(n) Landlord, and its members, at no cost other than for direct event related costs, including set-up and break-down costs, shall have the right, on dates to be mutually agreed upon by the Parties, to use the Arena Complex for non-revenue generating public or civic events or meetings on not more than [___] days during each calendar year, pursuant to procedures to be agreed upon by the Parties. Landlord shall have no right to use Tenant's offices, training facilities, practice areas or locker rooms.

11. Non-Relocation.
The Kings Partnership, as the owner of the Kings and Monarchs will include in the Non-Relocation Agreement, contemplated in Section 5(d), its commitment to cause the Kings and Monarchs to play pre-season, regular season and play-off home games in the Arena during the term of the Arena Complex Lease, except during temporary periods when the Arena is unavailable because of casualty, condemnation or the conduct of work relating to capital improvements, replacements or repairs, or, subject to Landlord's prior approval which will not be unreasonably withheld, conditioned or delayed, when directed or requested by the NBA or WNBA, as the case may be, to play in neutral venues. The Non-Relocation Agreement will be enforceable by remedies at law or in equity, including injunction or specific performance, which the Kings Partnership acknowledges is the appropriate remedy in case of its breach.


12. Repayment of Tenant Construction Contribution.
If the Arena Contracts are terminated after the commencement of construction of the Arena Complex for any reason other than a default by Kings Partnership or any of its affiliates under the Arena Complex Agreements, then in addition to any other remedy available to Tenant by reason of such termination and notwithstanding any remedy available to the Landlord by reason of such termination, the City and County shall refund to the Kings Partnership $20 million plus interest at the rate earned by the City's Pool A Fund, from the date of payment of the Kings Partnership contribution pursuant to Section 5(a) hereof until the date of repayment by the City and County.

13. NBA/WNBA Approval.
The design of the Arena, and the terms of all definitive documents relating to the matters contemplated hereby are, to the extent required by the constituent documents or generally applicable rules of the NBA or WNBA, subject to and conditioned upon the prior approval of the NBA and WNBA, respectively.

14. Limited Effect; Termination.
(a) This MOU is not intended to create legally binding obligations, except for the obligations:
(i) to engage in good faith negotiations to enter into legally binding, definitive agreements that reflect the provisions of and are otherwise consistent with the transactions and relationships contemplated by this MOU, that conform to generally applicable rules, regulations and requirements of the NBA and WNBA, and that addresses other relevant matters on a basis customary for transactions of this type;
(ii) to engage in good faith in joint and cooperative discussions and negotiations with the Developer concerning the matters contemplated hereby that require agreement or consent by the Developer, including the overall development plan for the Railyards; and
(iii) of the Kings Partnership to use good faith, diligent efforts to achieve a favorable vote on the Advisory and Tax Initiatives.
(b) The obligations of the parties hereunder will terminate as provided in the preceding provisions of this MOU or if:
(i) on October 6, 2006, the City and County provide written notice to Kings Partnership that the projected costs of the Project are unacceptably high;
(ii) the Sales Tax Initiative is defeated in the November 2006 election, otherwise fails to become effective upon passage, or the imposition of the sales tax is subsequently found to be unlawful by a court of competent jurisdiction, which order or judgment is no longer subject to appeal;
(iii) the Advisory Initiative is defeated in the November 2006 election and the City and County provide written notice to the Kings Partnership on or before December 7, 2006, that they are not prepared to go forward with the Project;
(iv) following the successful passage of the Sales Tax Initiative, the County Board of Supervisors does not appropriate tax revenues as needed to further the Project; or
(v) on or before the 60th day after the Milestone Date, the Parties have not duly authorized, executed and delivered the Arena Complex Agreements.
(c) Either party may terminate this MOU if the other has materially breached its obligations to perform in good faith pursuant to paragraph (a) of this Section 14.

15. Remedies.
Upon any breach or termination of this MOU or the Arena Complex Agreements after the November 2006 election and prior to commencement of the term under the Arena Complex Lease, neither Landlord nor Tenant shall be entitled to assert any claim or to recover any damages or reimbursement from the other relating thereto except upon a showing of bad faith conduct in connection with such breach or termination; provided that the preceding is not intended to limit or prevent Tenant's or Landlord's exercise of its election to seek injunctive relief pursuant to Section 6(h)(ii)(C).

16. Additional Provisions
(a) Force Majeure. Should any Party be delayed in, hindered or prevented, in whole or in part, from performing any obligation or condition required by this MOU or any document entered into pursuant to this MOU, other than one for the payment of money, by reason of a Force Majeure Event, that Party shall be excused from performing that obligation or condition for so long as the Party is delayed, hindered or prevented from performing, and for a period of thirty (30) calendar days thereafter, and any affected deadlines shall be similarly extended; provided, however, that Force Majeure shall not apply unless the Party delayed, hindered or prevented from performing notifies the other Party in writing of the full particulars of the Force Majeure Event not later than ten (10) days after the date on which the Force Majeure Event occurred. Failure to so provide the foregoing notice shall be deemed to be a waiver of the right to assert excuse in performance and to claim extension of time to perform with respect to any such delay, hindrance or prevention.
"Force Majeure Event" means any of the following events: any act of God, strike, lockout, freight embargoes or other industrial disturbance during the development and construction of the Arena Complex, but not including a strike by or lockout of NBA basketball players; any act of a public enemy, terrorism, war, insurrection, governmental or military intervention, civil disturbance, explosion or riot; epidemic; landslide, earthquake, fire storm, flood or washout; any litigation or other adversarial proceeding, including, without limitation, litigation or other adversarial proceeding seeking (a) to invalidate the Tax Initiative or, if passed, challenging the right of the County to collect and use the sales tax as contemplated by this MOU or (b) to challenge the approval of the Project or any land use entitlements allowing the implementation of the Railyards development, or any portion thereof, based upon any grounds, including, without limitation, alleged violation of CEQA or any other environmental review requirements; any governmental restraint, action or inaction, either federal, state, county, civil or military, including, without limitation, the adoption of any new law or regulation materially affecting either the ability of the Parties to proceed or the costs of proceeding (but not including any City or County laws or ordinances); any initiative or referendum; and any failure to obtain any necessary federal, state or other required governmental approval.
(b) Termination of Land Use Covenants. The City will work cooperatively with the Kings Partnership to remove of record, prior to [______________], existing, mutual land use restrictions affecting approximately 85 acres of land at the Arco Arena site in North Natomas and approximately 100 acres of adjacent City land in North Natomas. If the Advisory Initiative and Tax Initiative are approved by the electorate, the City agrees to expedite the processing of the Kings Partnership application for land use entitlements resulting in a "highest and best use" land use (including but not limited to General Plan Amendment, Community Plan Amendment, Rezone, Master Parcel Map and Infrastructure Financing Plan) that are consistent with City land use policies, the General Plan, the North Natomas Community Plan, the North Natomas Financing Plan and the environmental review of such entitlements) for all such land in anticipation of a sale or development of such land by the Kings Partnership or the City, respectively.
(c) Joint Planning Agreement. The City and the Kings Partnership will consider entering into a joint planning, entitlement, land sale, cost and revenue sharing agreement relating to such land by [_________________], 2006. If no such agreement is reached, each Party will independently plan, entitle and sell its property and pay its respective costs and expenses incurred in obtaining such entitlements.
(d) Naming Rights. Pursuant to Section 9(f), Tenant shall have the right to designate the name of the Arena Complex and Arena Plaza, subject to the Landlord's approval. Landlord shall not withhold its approval of any name, so long as it does not, in Landlord's reasonable judgment, violate standards of good taste existing in the Sacramento area and shall not otherwise be an embarrassment to Landlord or any of its members. Tenant agrees that the name given to the Arena Complex and Arena Plaza shall not include reference to any proper geographic name, unless such reference is to "Sacramento."
(e) Team Name. The Kings Partnership shall not suffer or permit any addition to, deletion or abbreviation of, or change in the name, "Sacramento Kings," including but not limited to, reference to any other geographic location, or the use of any other trade or assumed name other than the Sacramento Kings, without first obtaining the prior approval of the JPA. In addition, the name of the NBA team operated by the Kings Partnership shall predominantly include "Sacramento" as part of the team name in public references for all marketing, advertising, promotional and other business purposes, subject only to the requirements of the NBA.
(f) Maintenance of Good Standing in NBA. During the term of this MOU and all definitive documents entered into pursuant to this MOU, Kings Partnership shall maintain the Sacramento Kings as a basketball team in good standing as a member of the NBA.
(g) Arena Complex Agreements. The Arena Complex Agreements and other documents required or contemplated by this MOU shall contain such other provisions, representations, warranties, covenants and indemnities as the Parties may agree or as are customarily included in similar documents related to the design, development, construction and operation of NBA arenas.
(h) 1997 Lease Revenue Bonds. Nothing in this MOU shall relieve the Kings Partnership of its obligation to repay indebtedness of approximately $72 million, including all amounts necessary to retire the 1997 Lease Revenue Bonds issued by the Sacramento City Financing Authority or any replacement therefor, refinancing or remarketing thereof.


Executed as of the date first written above.


Attest: THE CITY OF SACRAMENTO


City Clerk
a charter city and municipal corporation
By:
Approved as to form:


City Attorney Its:

THE COUNTY OF SACRAMENTO

______________________________

By:

Its:


SACRAMENTO KINGS LIMITED PARTNERSHIP, a California limited partnership

By: ROYAL KINGS LIMITED PARTNERSHIP, a California limited partnership, its sole general partner

By: MALOOF SPORTS, INC, a California corporation, its sole general partner

By:
Name:
Title:

EXHIBIT A

GENERAL DESCRIPTION OF THE ARENA

SUBJECT TO THE DESIGN STANDARD

• a sports and entertainment facility of approximately the same aggregate square footage as the Memphis NBA arena and its separate office space (an aggregate of approximately 840,000 square feet). However, the Parties expect that the square footage of the Arena will probably be less than that of the Memphis Arena because the Parties agree to attempt to save space by the elimination of free standing office space and the integration of such office space into the Arena.
• approximately 17,000 to 18,000 total seating capacity for basketball, including seating in approximately 50 to 60 luxury suites, 3,000 to 5,000 club seats, and courtside seats, with flexible seating for events requiring smaller seating capacity such as hockey and some concerts or family shows;
• restaurant, banquet, meeting and entertainment spaces and facilities, including club facilities serving the club seats and suites;
• concession, merchandising and service space, including retail stores;
• adequate office space for the Kings, Monarchs, arena operating functions and other sports or entertainment entities identified in the Arena Complex Lease that may be based at the Arena;
• separate locker room facilities for the Kings, Monarchs, visiting NBA or WNBA teams, other sports teams, and participants in tournaments or shows, concerts or exhibitions;
• appropriate NBA/WNBA-quality training facilities for the Kings and Monarchs, including two practice courts;
• scoreboards, message and display boards, and video, sound and telephone communication systems;
• ice making and ice maintenance facilities;
• appropriate dasher boards and other advertising display boards;
• radio and television broadcast and production facilities, excluding over the air TV broadcast equipment customarily included in trucks, but including hook-ups for such equipment customarily included in trucks;
• exterior [electronic and video] event and advertising signage;
• ticket sales booths and related facilities;
• suitable truck docks and load-in and load-out spaces and service areas, including sufficient parking spaces for senior staff and team members; and
• sufficient storage capacity

EXHIBIT B
ARENA LOCATION
EXHIBIT C
GENERAL DESCRIPTION OF ARENA COSTS
Arena Hard Costs
Division 1 - General Requirements
Division 1 - On-Site Staff Personnel
Division 2 - Site Construction
Division 3 - Concrete
Division 4 - Masonry
Division 5 - Metals
Division 6 - Woods & Plastics
Division 7 - Thermal & Moisture Protection
Division 8 - Doors & Windows
Division 9 - Finishes
Division 10 - Specialties
Division 11 - Equipment
Division 12 - Furnishings
Division 13 - Special Construction
Division 14 - Conveying Systems
Division 15 - Mechanical Systems
Division 16 - Electrical Systems
[Arena Allowance Adjustments] ?
Construction Contingency
Permits
Payment & Performance Bond
General Liability Insurance
All Risk, Earthquake & Flood Insurance
Delay Coverage Insurance
Storm Delay and Recovery Allowance
Contractor's Fee
Scoreboard
Dasherboards
Sound System
Telephone/Communications System
Security System
Food, Concession and Merchandise Vending Facilities and Equipment
Catering Kitchen Facilities and Equipment
Audio/Visual Equipment
Broadcast Equipment and Hook-ups
[Event Operations Equipment] ?
Building Operations Equipment
Building Maintenance Equipment


Arena Design and Other Development Costs
Engineering Fees
Design Services
Architectural and Design Services
Travel and Reimbursables
A/E Peer Review
Blueprinting and Reproduction
Program Management
Project Manager
Travel Expenses of the foregoing
PM Preconstruction Fees
Project Legal Counsel
Insurance
Builder's Risk
Professional Liability
Miscellaneous
Utility Service for Temporary Power
Utility Consumption Costs During Construction



EXHIBIT D

BILLBOARD LOCATIONS

EXHIBIT E

DISTRICT BOUNDARIES