Loading...
HomeMy WebLinkAbout30 - Sales Tax Sharing AgreementCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. -in June 24, 2008 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Planning Leigh M. De Santis, Economic Development Administrator, 949 - 644 -3207, Ldesantis@city.newport-beach.ca.us SUBJECT: Sales Tax Sharing Agreement with Newport European Motorcars, Ltd. of Newport Beach ISSUE: Should the City agree to share future incremental sales tax for a limited duration to make it feasible for Newport European Motorcars to relocate and expand? RECOMMENDATION: Approve the Tax Sharing Agreement and authorize the Mayor to execute the contract, subject to approval of the contract as to form by the City Attorney. DISCUSSION: Background: The City provided an assistance package to Fletcher Jones Motorcars in 1995 to facilitate its expansion within Newport Beach. The City Council subsequently adopted a Resolution establishing an automobile dealership sales tax incentive program (since amended as Resolution No. 99 -64, attached). In 2004 the City, in keeping with its incentive program, entered into an agreement with Newport Lexus to establish that new dealership. Staff has been approached by Newport European Motorcars seeking a sales tax sharing agreement to facilitate their relocation and expansion within Newport Beach. European Motorcars is currently a tenant at 1100 W Coast Highway. They have negotiated to purchase the property located at 4040 Campus Drive. Moving to this location would allow them to better incorporate Lotus, which they have brought over from Costa Mesa this year, and to expand their lines of Rolls Royce and Lotus. Sales Tax Sharing Agreement June 24, 2008 Page 2 Both Lotus and Rolls Royce will be unveiling new models in 2009, which they believe will lead to increased sales. The current site on Coast Highway is not large enough to meet Rolls Royce dealership standards for the new models, and Rolls Royce is requiring the dealership to find a new location. Because of high acquisition costs and tenant improvement costs, Mr. David Murphy and Mr. Jerry Johnson, representing the European Motorcars partnership, are requesting that the City share a portion of the incremental sales tax to be generated by the relocated and expanded dealership for a limited duration, so that the project will be more feasible. The Site: It has been difficult to find a site to acquire in Newport Beach, and Newport European Motorcars has contacted staff periodically for years regarding potential sites. European Motorcars requires enough space to house both a showroom and inventory. It will maintain its repair facility in Costa Mesa. The property, at 4040 Campus Drive, is across from the airport and not far from the newly created Land Rover repair facility. It has been occupied by Brabus, a company that upgrades expensive automobiles by adding features such as luxury interiors, sound systems and bullet - proofing. The existing building will be upgraded to showroom status and quality. The existing zoning of the property is Administrative, Professional, Financial (APF), which would not allow car sales as a primary use. Brabus operates under a use pen-nit that was approved based on car sales being an ancillary use. However, the new General Plan defines this area as Airport Office (AO) and lists automobile sales a primary use in this location. The new zoning ordinance will be written to support the changes in the General Plan. In the interim, until the new zoning ordinance is adopted, European Motor Cars will, at its own risk, apply for a Temporary Use Permit. Their plan is to open for operations at the Campus Drive site in January 2009. Proposed Terms of Agreement: The proposed terms for a sales tax sharing agreement are as follows: European Motor Cars: • Will acquire title to the site and develop a Rolls Royce and Lotus dealership within specified timeframes. • Will continue to operate a Rolls Royce and Lotus dealership on the site, shall designate the site. as the point of sale for all sales transactions, and shall use best efforts to designate the site as the situs for all leasing transactions. • Will provide the City with copies of all reports filed with the State Board of Equalization. Sales Tax Sharing Agreement June 24, 2008 Page 3 The City: • Will pay European Motor Cars 50% of the incremental increase over a base year of 2008 of the local sales tax generated at the site on a quarterly basis, for a period not to exceed ten years. • May make its payments from any source of funds. The full Agreement and Covenant are provided as Attachment A. Analysis: Newport European Motorcars' submitted sales projections and a pro forma for the project, as required by Resolution No. 99 -64. Staff had the submittal. reviewed, by Keyser Marston Associates (KMA). KMA has extensive experience reviewing and negotiating automobile dealership transactions in other Southern California cities and Newport Beach. KMA concluded that the assistance the City could provide under its program is minimal. Also, its benefit could potentially be lessened by the imposition of prevailing wage requirements because of the use of public funds for the project. While the dealer is analyzing the applicability of prevailing wage requirements to the project, the dealer does not believe that this would have a significant impact. Therefore, the dealer is still seeking City assistance. The KMA analysis supports the project development costs as in keeping with Newport Beach land values. The acquisition and initial improvement costs are approximately $6 million which translate to an occupancy cost without assistance of 2.40% of sales and an average occupancy cost of 1.87% of sales over the ten years of the proposed agreement. With assistance the cost of occupancy would be lowered to 2.36% of sales initially and average 1.78% over the ten years. This cost of occupancy is significantly above the national average of 1.05% as suggested by the National Association of Automobile Dealerships. KMA's experience suggests (though no hard data exists for just CA) that new dealers in Southern California can cover costs in the range being discussed and operate in the black. Lexus cost of occupancy was lowered to 2.4% by City assistance however, they are a high - volume dealer and Newport European Motorcars is not. Also assuming City assistance as requested, profit is projected at 1.3% of sales and without assistance just 1.2 %, both below the national average of 1.7% of sales. European Motorcars qualifies for assistance under Resolution 99 -64 establishing an Automobile Sales Tax Incentive Program (Attachment B). The expansion of the dealership will generate an estimated $712,091 cumulative new incremental sales tax in current dollars over the life of the agreement. European Motorcars would receive approximately $356,046 (50% of increment) in current dollars over the ten years. The City's would receive more - 100% of base year sales tax and Sales Tax Sharing Agreement June 24, 2008 Page 4 50% of incremental sales tax for approximately $380,681 in current dollars over the ten years. For the City of Newport Beach the project has several non - monetary benefits that make it attractive and worth pursuing. • First, it will begin implementing the new General Plan land use plan for the Campus Tract. • Second, it has the potential to be a catalyst for additional economic development and upgrades to this area. + Third, it puts Mercedes Benz, Lexus, Rolls Royce and Lotus all within a two mile radius of each other, clearly establishing Newport Beach as the place to come to shop for a luxury car. Each has the potential to fuel the sales of the other. • Fourth, Rolls Royce has been pushing European Motorcars to move for several years. RR is demanding better indoor and outdoor display space, improved signage and a special floor. It has taken European Motorcars that long time to find a place in Newport Beach. If this deal fails they fear they could be forced out of Newport Beach as they would not be able to accommodate the two new models of Rolls Royce set for introduction into the market between now and 2010. • Fifth, at this new location the opportunity exists for European Motorcars to either purchase another dealership in the future or expand pre -owed vehicle sales. Proiect Schedule: European Motorcars has requested that the City approve the terms of a sales tax sharing agreement before they close on acquisition of the land. It will then have to begin the land use entitlement process, and incur costs for plan development and other studies as needed. The will assume the risk of getting land use approvals and the risk that further evaluation of prevailing wage requirements could result in a decision not to accept any assistance. Conclusion: Staff believes that the Fletcher Jones and Newport Lexus experience has demonstrated that assisting high sales tax generating businesses, especially luxury automobile dealerships, has been a good investment for the City. Although Newport European Motorcars is not a high - volume dealer and although .the City would forego some sales tax revenue potential the first ten years, the non - monetary benefits of the development and the portion of the sales tax the City would retain along with the base sales tax Sales Tax Sharing Agreement June 24, 2008 Page 5 currently earned by European Motorcars makes this a viable deal. In later years, the City would retain 100% of the sales tax. Environmental Review: The proposed agreement is not a project as defined by CEQA. The land use entitlements for the proposed dealership will be subject to environmental review. Prepared by: c Leigh . De Santis, Economic Development Administrator Submitted by: �...v " — P aron Z. Wood, Assistant City Manager Attachments: A. Sales Tax Sharing Agreement & Covenant B. Resolution 99 -64 TAX SHARING AGREEMENT (NEWPORT EUROPEAN MOTORCARS) This SALE TAX SHARING AGREEMENT (the "Agreement ") is entered into this _ day of June 2008, by and between the CITY OF NEWPORT BEACH, a California municipal corporation ( "City "), and NEWPORT EUROPEAN MOTORCARS, Ltd., a California corporation located at 11300 Rodney Parkhan Road, Suite 300, Little Rock, Arkansas 72212 ( "NEM" or "DEALERSHIP ") and collectively the ( "Parties ") RECITALS A. NEM has the contractual right to acquire that certain real property consisting of approximately _ U acres of land area located at 4040 Campus Drive in the City of Newport Beach, County of Orange, State of California, Assessor Parcel Number 427 - 131 -06 which is more particularly described in the legal description attached hereto as Exhibit "A" (the "Site "). The Site is owned by a third party who is not a Parry to this Agreement (the "Owner "). B. Assuming NEM acquires the Site from the Owner and obtains the necessary governmental permits and approvals from all governmental agencies with jurisdiction, including City, NEM intends to develop on the Site a new and used Rolls Royce and Lotus automobile dealership with related showroom, inventory, and parking, landscaping, and related amenities (the "Newport European Motorcars Dealership "). Repair facilities will not be located at the Site. C. In consideration for NEMs conveyance to City of the interest in the Site set forth in the Covenant (as defined hereinbelow), City has agreed to make certain periodic payments to NEM in an amount equal to a portion of the Sales Tax generated by the Dealership, subject to and in accordance with the other terms and conditions set forth in this Agreement and the Covenants, Conditions, and Restrictions Affecting Interests in Real Property attached hereto as Exhibit `B" (the "Covenant "). D. By its approval of this Agreement, the City Council of the City of Newport Beach has found and determined as follows: (i) that, notwithstanding any other provision set forth in this Agreement or the Covenant to the contrary, City's approval and execution of this Agreement shall not constitute a prejudgment or precommitment by City with respect to any of the discretionary City permits and approvals that may be required for the Dealership, including without limitation any General Plan Amendment, Planned Community ( "PC ") Development Plan text amendment, use permit, and zoning code amendment, and the environmental reviews and approvals in conjunction therewith that are required to accommodate the Newport European Motorcars Dealership on the Site, and City reserves its full and unfettered discretion with respect thereto to the same extent it would have such discretion in the absence of this Agreement; (ii) subject to the foregoing, City recognizes that the City payments provided for in the Covenant are necessary to make the Dealership business financially feasible; (iii) the value to City of NEM's performance of its obligations set forth in the Covenant in each fiscal year during which City payments are to be made (in terms of economic revitalization, generation of additional local tax revenues that will help to fund vital public services, provision of expanded and more accessible automobile purchase, leasing, service, for the residents of the City, and job growth and 1121017801 .0003 507403.03 06/08/04 I retention) will be not less than the amount of such payments; and (iv) that the imposition of the covenants and use restrictions upon the Site pursuant to the Covenant in exchange for the payments to be made by City constitutes a valid public purpose. COVENANTS Based upon the foregoing Recitals, which are incorporated herein by this reference, and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by both Parties, City and NEM hereby agree as follows: 1. Defined Terms. Any capitalized terms contained in this Agreement which are not defined in this Agreement shall have the meanings ascribed to such terms in the Covenant. 2. Execution and Recordation of Covenant. Within (10) days after the later to occur of the following events (collectively, the "Covenant Conditions "), City and NEM shall fill in the blanks, date, and execute the Covenant in recordable form and NEM shall record the Covenant against the Site and provide a copy of the recorded Covenant to City: (i) the date NEM acquires fee title to the Site from the Owner and provides satisfactory evidence of such ownership to City; and (ii) the date City issues its final administrative approval of all discretionary land use permits and approvals required to accommodate the Newport European Motorcars Dealership on the Site (including without limitation any General Plan Amendment, Planned Community ( "PC') Development Plan text amendment, use permit, and zoning code amendment and environmental reviews and approvals in conjunction therewith, but specifically excluding NEM's performance of any conditions of approval imposed on any such discretionary permit, any demolition permit, grading permit, encroachment permit for work or improvements to occur within public rights -of- way, foundation permit, plan check or inspection for public or private improvements to be constructed as part of or in conjunction with the Newport European Motorcars Dealership project, building permit, and similar ministerial or minor administrative permits). City agrees to cooperate in the recordation of the Covenant against the Site, at no cost to City and the City Manager or his designee is hereby authorized on behalf of City to execute all documents and take all actions necessary or appropriate to implement this Agreement. 3. Termination of Agreement. NEM shall have no obligation hereunder to acquire the Site and NEM's failure for any reason to acquire the Site shall not constitute a default by NEM. If, however, the Covenant Conditions are not satisfied on or before December 31, 2009, or such later deadline as may be mutually approved in writing prior to that date by City and NEM, this Agreement shall automatically terminate and be of no further force or effect at such time without the requirement of any further action by either Party, and thereafter neither Party shall have any further rights or obligations hereunder. In addition, prior to the satisfaction of the Covenant Conditions, NEM shall have the right to terminate this Agreement, without cause, by providing written notice to the City in the manner provided herein Parry and, in such event, neither Party shall have any further rights against or obligations to the other Party arising out of this Agreement. 4. Covenant. Upon NEM's timely satisfaction of the Covenant Conditions and recordation of the Covenant, the rights and obligations of the Parties shall be as set forth in the Covenant. 1171017801 -0003 507403.03 06108/04 -2- 5. Assignment. NEM shall not be entitled without City's written consent to assign its rights and obligations set forth in this Agreement. The sale, assignment, transfer or other disposition of any of the issued and outstanding capital stock of NEM which results in changing the control of NEM shall be considered an assignment for purposes of this Agreement. Control means fifty percent (50 %) or more of the voting power or twenty -five percent (25 1/o) or more of the assets of the corporation. 6. Integration and Amendment. This Agreement and the Covenant attached hereto constitute the entire Agreement by and between the Parties pertaining to the subject matter hereof, and supersede all prior agreements and understandings of the Parties with respect thereto. This Agreement may not be modified, amended, or otherwise changed except by a writing executed by both Parties. 7. Notices. Notices to be given by City or NEM hereunder may be delivered personally or may be delivered by certified mail or by reputable overnight delivery service providing a delivery confirmation receipt, with mailed notices to be addressed to the appropriate address(es) hereinafter set forth or to such other address(es) that a Parry may hereafter designate by written notice. If served by overnight delivery service or certified mail, service will be considered completed and binding on the Party served on the date set forth in the confirmation or certification receipt. If notice is to City: City of Newport Beach 3300 Newport Boulevard P.O. Box 1768 Newport Beach, CA 92658 -8915 Attention: City Manager with a copy to: City of Newport Beach 3300 Newport Boulevard P.O. Box 1768 Newport Beach, CA 92658 -8915 Attention: City Attorney If notice is to NEM: Jerry G. Johnson c/o NEM Co., Inc. 71 -387 Highway 111 Rancho Mirage, CA 92270 8. NEM shall at its own cost and expense comply with all statutes, ordinances, regulations and requirements of all governmental entities, including federal, state, county or municipal, whether now in force or hereinafter enacted including, but not limited to, prevailing wage laws, provided that NEM does not waive its right to challenge the validity or applicability thereof to NEM or the Site. 111/017801.0003 507403.03 06/08/04 (SIGNATURES ON NEXT PAGE) !x11 I IN WITNESS WHEREOF, City and NEM have executed this Agreement to be effective as of the date first set forth above. "City„ ATTEST: City Clerk APPROVED AS TO FORM: City Attomey 112/017801 -0003 507403.03 06/08/04 13 CITY OF NEWPORT BEACH, a California municipal corporation Lo "NEWPORT EUROPEAN MOTORCARS" David B. Murphy, President NEWPORT EUROPEAN. MOTORCARS Jerry G. Johnson Q FOMMI ISM LEGAL DESCRIPTION OF SITE ATTACHED: 112/017801 -0003 507403.03 06/08/04 ID order M : asa- 3os7614 (1e) 1t*C7_IjU71:& fkaj4l =1Ti AM 427 - 131-05 111/017801-0003 507403.03 06/08/14 frrst.9� TA* kx RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: , CA 92 Attention: EXHIBIT "B" COVENANTS, CONDITIONS, AND RESTRICTIONS AFFECTING INTERESTS IN REAL PROPERTY above for This COVENANTS, CONDITIONS, AND RESTRICTIONS AFFECTING INTERESTS IN REAL PROPERTY (the "Covenant ") is entered into as of this day of 200_, by and between the CITY OF NEWPORT BEACH, a California municipal corporation ( "City ") and a ( "Owner ") (individually a "Party" and collectively the "Parties "). RECITALS A. Owner is the owner of that certain real property consisting of approximately _ ( -) acres of land area located AT 4040 Campus Drive in the City of Newport Beach, County of Orange, State of California, Assessor Parcel Number 427 - 131 -06, which is more particularly described in the legal description attached hereto as Exhibit "A" and incorporated herein by this reference (the "Site "). B. On or about June , 2008, City and Owner entered into that certain unrecorded Sales Tax Sharing Agreement (Newport European Motorcars Dealership) (the "Agreement ") authorizing the recordation of this Covenant against the Site upon the timely satisfaction of the "Covenant Conditions" identified therein. The Covenant Conditions have been satisfied. C. Owner intends to develop and operate on the Site a new and used Rolls Royce and Lotus automobile dealership with showroom, inventory, and parking, landscaping, and related amenities, and, at Owner's option, additional new and incidentally related used vehicle lines in addition to Rolls Royce and Lotus that are not being sold in the City of Newport Beach as of the Effective Date (collectively, the "Dealership "), pursuant to the following land use permits and approvals issued by City on or about 200_: [insert] (collectively, the "Entitlements'). D. In consideration for Owner's conveyance to City of the interest in the Site set forth in this Covenant, City has agreed to make certain payments to Owner, the amount of which is measured by the Sales Tax generated by the Retail Uses on the Site. City and Owner have 112/017801 -0003 507403.03 06/08/04 3 1� agreed that the portion of Sales Tax required to be paid by City to Owner hereunder annually for the Operating Period provided for herein is a fair exchange for the consideration to be furnished by Owner to City in that year. COVENANTS Based upon the foregoing Recitals, which are incorporated herein by this reference, and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by both Parties, City and Owner hereby agree as follows: DEFINED TERMS. The following terms when used in this Covenant shall have the meanings set forth below: The term "Affiliated Third Parry" shall mean (i) any construction contractor or subcontractor involved in the construction of the Rolls Royce and Lotus Dealership on the Site and (ii) any entity that finances the leasing of vehicles for which the lease transaction originates from the Dealership on the Site; provided, that there is no requirement that an Affiliated Third Parry have any common ownership interest with or control by Owner. The term "Agreement" shall have the meaning ascribed in Recital B of this Covenant. The term "Commencement Date" shall have the meaning ascribed in Section 2 of this Covenant. The term "Covenant Payments" shall mean the amounts to be paid by City to Owner on an annual basis during the Operating Period. The term "Default" shall have the meaning ascribed in Section 5.1 of this Covenant. The term "Effective Date" shall mean the date this Covenant is executed by the latter of the two Parties to sign, which date shall be inserted in the preamble to this Covenant. The term "Entitlements" shall mean those discretionary. City land use permits and approvals required to authorize development and operation of the Rolls Royce and Lotus Dealership on the Site which are referred to in Recital C of this Covenant, as the same may be amended from time to time. The term "Fiscal Year" shall mean City's fiscal year, which commences on July 1 and ends on the next succeeding June 30. The term "Force Majeure" shall have the meaning ascribed in Section 6.6 of this Covenant. The term "Holder" shall have the meaning ascribed in Section 5.1(b) of this Covenant. The term "Quarter" shall mean (i) any of the three (3) month periods during a Fiscal Year commencing July 1, October 1, January 1, or April 1, or (ii) the quarterly or other periods used 112/017801 -0003 507403.03 06/08104 �3 by the State Board of Equalization in calculating or making Sales Tax payments to City, if such periods differ from City's fiscal quarters described in clause (i) hereinabove. The term "Rolls Royce, and Lotus Dealership" shall mean the project described in Recital C of this Covenant, together with such incidental related uses that comply with the Entitlements and applicable provisions of City's Municipal Code. The term "Operating Period" refers to the period between the Commencement Date and the Termination Date. The term "Sales Tax" means, for a given Quarter during the Operating Period, the sum of (i) that portion of sales and use taxes allocated, paid to, and received by City from the imposition of the Bradley -Burns Uniform Sales and Use Tax Law (Part 1 of Division 2 of the California Revenue and Taxation Code commencing at Section 6001), or any successor law thereto, that arises from taxable sales and lease transactions generated by the construction and operation of the Rolls Royce and Lotus Dealership on the Site and (ii) the City's Portion of Replacement Sales Tax Revenues. As used herein, the term "City Portion of Replacement Sales Tax Revenues" shall mean identifiable and quantifiable tax revenues or subventions actually paid to and received by City that arise from the operation of the Rolls Royce and Lotus Dealership on the Site due to a change in California law occurring after June 1, 2008, and as a substitute for or replacement of Sales Tax that would have been allocated, paid to, and received by City as a result of taxable sales and lease transactions occurring on the Site based on California law in effect as of June 1, 2008, but which Sales Tax is not so allocated, paid to, and received by City due to a change in California law occurring after June 1, 2008. Notwithstanding the foregoing, the term "Sales Tax" shall not include (i) the portion of sales or use taxes attributable to the Site that are retained by the State Board of Equalization as an administrative, processing, or handling charge (calculated at the same percentage of gross revenues as is applicable City - wide); nor (ii) the portion of such revenues (including without limitation City's Portion of Replacement Sales Tax Revenues, if applicable) which in fixture years may be allocated and paid to City but which is restricted by law (but not contract) by an entity other than City (and binding upon City) to be used for specific uses (other than the uses provided for in this Covenant including without limitation disaster relief, transportation improvements, or otherwise); nor (iii) any portion of sales tax previously paid but refunded because of overpayment of such tax. The term "Sales Tax Statement" refers to each quarterly statement to be prepared by Owner or any Affiliated Third Party, in a form reasonably acceptable to City, and submitted to the SBE and City identifying the portion of Sales Tax generated from the Site during the previous Quarter as a result of taxable sales and lease transactions, as provided in Section 3.6 of this Covenant. The term "SBE" shall mean the California State Board of Equalization or successor agency with the responsibility of collecting and administering the distribution and payment to City of Sales Tax. The term "Site" shall have the meaning ascribed in Recital A of this Covenant. 1121017801 -0003 507403.03 06/08M 5 ,1 7� The term "Termination Date" shall mean the date that is the earliest of (i) the date that is ten (10) years following the Commencement Date; or (ii) the date on which this Covenant is terminated pursuant to Sections 5.2 or 5.3, as applicable. 2. CONDITION TO OWNER'S RIGHT TO RECEIVE COVENANT PAYMENTS. As a condition to Owner's right to receive the Covenant Payments, Owner shall be required to complete or cause to be completed (as evidenced by a certificate or certificates of occupancy) construction of the Rolls Royce and Lotus Dealership on the Site, and open or cause said dealership to be opened for business to the public, all in substantial compliance with the Entitlements. The first day of the Fiscal Year that occurs after the date on which the aforesaid condition is satisfied shall constitute the "Commencement Date," at which time Owner's obligations pursuant to Section 3 of this Covenant and City's obligations pursuant to Section 4 of this Covenant shall commence. Notwithstanding any other provision set forth in this Covenant, and subject to extension for events of Force Majeure as provided in Section 6.6, (i) if the condition set forth in the first sentence of the preceding paragraph is not satisfied on or before the date that is twelve (12) months after the issuance of the first building permit for the Rolls Royce and Lotus Dealership project, or (ii) if a building permit is not issued for the Rolls Royce and Lotus Dealership project on or before the date that is twelve (12) months after the Effective Date, either Owner or City may terminate this .Covenant by delivery of written notice of termination to the other Party and, in such event, neither Parry shall have any further rights against or obligations to the other Party arising out of this Covenant. 3. OWNER'S OBLIGATIONS. 3.1 Continuous Operation; Site As Point of Sale. Owner covenants and agrees to exercise commercially reasonable efforts to continuously operate the Rolls Royce and Lotus Dealership on the Site or to cause such dealership to be continuously operated on the Site during normal business hours (subject to temporary interruptions for casualty losses, repairs, and the like) during the entire Operating Period, with inventory and sales personnel sufficient to satisfy and respond to customer demand. To the maximum extent permitted by law, Owner shall designate the Site on its Sales Tax Statements as the point of sale for all sales transactions arising out of the business conducted on the Site. In addition, Owner shall exercise commercially reasonable diligence in an effort to cause each Affiliated Third Party to designate the Site (and the City of Newport Beach) on reports they are required to file with the SBE as the situs of the construction contract(s) for the Rolls Royce and Lotus Dealership or the leasing of any new or used motor vehicles where the transaction is generated from the Site, as applicable. 12 Use Restriction. During the entire Operating Period, the Site shall not be put to any use other than the operation of the Rolls Royce and Lotus Dealership and incidental related uses that comply with the Entitlements and applicable provisions of City's Municipal Code. 33 Maintenance and Repair of Site. During the entire Operating Period, Owner, at its sole cost and expense, shall keep and maintain the Site and the improvements thereon and all facilities appurtenant thereto in first class condition and repair and free from accumulations of I IM17801 -0003 507403.03 06108/04 6 debris, weeds, graffiti, and waste materials, and with landscaping in a healthy condition. During such period, Owner shall not abandon any portion of the Site or leave the Site unguarded or unprotected, and shall not otherwise act or fail to act in such a way as to unreasonably increase the risk of any damage to the Site or of any other impairment of City's interest set forth in this Covenant. 3.4 Compliance with Laws. Owner shall at its own cost and expense comply with all statutes, ordinances, regulations and requirements of all governmental entities, including federal, state, county or municipal, whether now in force or hereinafter enacted including, but not limited to, prevailing wage laws, provided that Owner does not waive its right to challenge the validity or applicability thereof to Owner or the Site. 3.5 Government Code Section 53084 Compliance; Indemnification. Owner warrants and represents to City that no other vehicle dealership owned or operated in whole or in part by Owner or any person or entity affiliated with Owner will be "relocating" from another jurisdiction in the "market area" to the City of Newport Beach within the meaning of California Government Code Section 53084 as a result of Owner's activities pursuant to the Agreement or this Covenant and, accordingly, that the Agreement and this Covenant will not result in a violation of said statute. Owner agrees to indemnify, defend, and hold City and its officers, employees, and agents free and harmless from and against any and all claims, liabilities, and losses arising out of any violation or breach of the foregoing representation and warranty. 3.6 Provision of Sales Tax Statements to City. During the Operating Period, Owner shall deliver and exercise commercially reasonable efforts to cause each Affiliated Third Party to deliver to City true and correct copies of all reports that Owner and such Affiliated Third Parties file with the California State Board of Equalization ( "SBE ") with regard to taxable sales and lease transactions occurring on and with respect to the Rolls Royce and Lotus Dealership construction and operation on the Site (the "Sales Tax Statements "), each of which statements identifies the amount of Sales Tax upon which the Covenant Payment amount should be calculated. Said Sales Tax Statements shall be provided to City concurrently with their submittal to SBE. In addition, if any such Sales Tax Statements are amended or Owner receives notice from SBE regarding any over - reporting or under- reporting of Sales Tax with respect to the Site, Owner shall provide such information to City within a reasonable period not to exceed thirty (30) calendar days. In the event that there is any private business or customer information on the Sales Tax Statement that is not reasonably necessary to enable City to verify the accuracy thereof for purposes of performing its obligations and enforcing its rights set forth in this Covenant, Owner and the Affiliated Third Parties shall be permitted to redact such information from the copy of the document provided to City. With respect to Sales Tax Statements to be obtained from Affiliated Third Parties, it is understood that to the extent a Sales Tax Statement to be filed by an Affiliated Third Party with the SBE contains information unrelated to the Rolls Royce and Lotus Dealership on the Site the copy of such statement to be filed with City may be redacted to remove references to information that is irrelevant to the purposes of this Agreement, so long as such statement is sufficient to enable City to verify the Sales Tax attributable to the Rolls Royce and Lotus Dealership and the Site, as reasonably determined by City. In addition, it is understood that in no event shall Owner be deemed to be in Default hereunder if one or more Affiliated Third Parties fails to submit a satisfactory Sales Tax Statement or Statements to City; in such event, if City reasonably determines it is unable to verify its receipt of Sales Tax 1121017801-0003 507403.03 0M8N4 7 k� attributable to such Affiliated Third Party or the amount thereof its recourse shall simply be that it shall not be required to include any unverified amounts in its calculation of Sales Tax for purposes of calculating the amount of the Covenant Payment(s) due to Owner hereunder. 3.7 Non - Discrimination. In the development and operation of the Rolls Royce and Lotus Dealership, NEM agrees not to violate applicable laws that prohibit discrimination against any person or class of persons by reason of gender, marital status, race, color, creed, mental or physical disability, religion, age, ancestry, or national origin. 4. OBLIGATIONS OF CITY. 4.1 Covenant Payments to Owner. 4.1.1 Amount of Covenant Payments, consideration for Owner's undertakings pursuant to this Covenant and City's acquisition of the interest in the Site set forth in this Covenant, City shall make the following Covenant Payments to Owner after the end of each Fiscal Year during the Operating Period: (a) The Covenant Payments with respect to each Fiscal Year shall be in an amount equal to fifty percent (50 %) of the Sales Tax Increment in excess of $ ( "Base Sales Tax "). Upon each anniversary date of the Commencement Date, the Base Sales Tax amount shall be adjusted in proportion to changes in the Consumer Price Index. Such adjustment shall be made by multiplying the original Base Sales Tax by a fraction, the numerator of which is the value of the Consumer Price Index for the calendar month three (3) months preceding the calendar month for which such adjustment is to be made and the denominator of which is the value of the Consumer Price Index for the same calendar month immediately prior to Commencement Date. For example, if the adjustment is to occur effective July 1, 2009, the index to be used for the numerator is the index for the month of April 1, 2009 and the index to be used for the denominator is the index for the month of April preceding the Commencement Date. However, in no event shall the base amount be reduced below the Base Sales Tax in effect immediately preceding such adjustment. The "Consumer Price Index" to be used in such calculation is the Consumer Price Index, All Urban Consumers (All Items), for the Los Angeles Anaheim Riverside Metropolitan Area, published by the United States Department of Labor, Bureau of Labor Statistics (1982 84 = 100). If both an official index and one or more unofficial indices are published, the official index shall be used. If said Consumer Price Index is no longer published at the adjustment date, it shall be constructed by conversion tables included in such new index. (b) At the end of the ten (10) year Operating Period or as of the Termination Date, whichever occurs sooner, City shall have no further obligation after that time to make additional Covenant Payments. 4.1.2 Source of Pavments. The Covenant Payments may be paid from any source of funds legally available to City. In this regard, it is understood and agreed that the Sales Tax that is generated from the operation of the Rolls Royce and Lotus Dealership on the Site is being used merely as a measure of the amount of the Covenant Payments that are periodically 1121017801 -0003 507403.03 06/08104 8 1� owing by City to Owner and that City is not pledging any portion of the Sales Tax generated from the Site to Owner. 4.1.3 Payment Procedure. After the end of each Quarter during the Operating Period, Owner shall deliver to City a copy of its Sales Tax Statement at the same time it delivers the original Sales Tax Statement to the SBE and Owner shall exercise commercially reasonable efforts to cause each Affiliated Third Party to do the same, all in accordance with the provisions of Section 3.6 of this Covenant. In addition, if California law or regulations change after the Effective Date with respect to the time or frequency for the filing of Sales Tax Statements, the governmental entity with which Sales Tax Statements must be filed, or otherwise, this Covenant automatically shall be deemed amended to conform to those changed procedures. Finally, if after filing a Sales Tax Statement with respect to a particular Quarter Owner discovers that the information set forth in said Sales Tax Statement was in error or the SBE notifies Owner that said Sales Tax Statement was or could be in error, Owner shall notify City within a reasonable time. City shall exercise its best efforts to verify the amount of Sales Tax attributable to the Site and City's receipt of payment from the SBE as soon as reasonably practicable after City's receipt of a copy of each quarterly Sales Tax Statement from Owner and the Affiliated Third Parties. Not later than six (6) months after the end of each Fiscal Year during the Operating Period, City shall pay the Covenant Payment for said Fiscal Year to Owner. Each such payment shall be accompanied by a statement identifying (i) the amount of Sales Tax upon which the Covenant Payment amount was calculated, itemized separately for Owner and Affiliated Third Parties; and (ii) in the event the portion of Sales Tax attributable to taxable sales and lease transactions that City uses as the basis for its Covenant Payment differs from the Sales Tax Statements provided by Owner and the Affiliated Third Parties for said Fiscal Year, a detailed explanation of the reasons for the difference. It is understood that the amount of City's annual Covenant Payments to Owner shall be based upon the amount of Sales Tax that City shall have been able to reasonably confirm it actually has received from the SBE within fifteen (15) days prior to the applicable payment date. If and to the extent that City has not been able to confirm receipt of Sales Tax revenues prior to that date after and despite its exercise of reasonable diligence to do so, its subsequent receipt of Sales Tax with respect to a particular Fiscal Year shall be included in the next succeeding payment(s) required to be made to Owner hereunder. In addition, if after any such annual payment is made, either City or Owner obtains information that the amount of City's payment was in error, the Party obtaining such information shall promptly notify the other Party and shall provide such detailed information as may be necessary to explain the discrepancy. The discrepancy then shall be taken into consideration by means of an adjustment to the next annual payment to be made by City (either an additional payment in the event City has underpaid a prior Covenant Payment that is due or a credit against the subsequent Covenant Payment in the event City has overpaid); provided, however, that in the event an adjustment needs to be made in excess of Ten Thousand Dollars ($10,000), the Parry entitled to said sum shall be entitled to deliver a written notice to the other Party requesting an immediate adjustment and in such event 1121017801 -0003 501403.03 06/08104 9 l`� the other Parry shall make an appropriate payment within fifteen (15) days from receipt of said notice. 4.1.4 Books and Records. Upon the written request of either Party, the other Parry shall make available for inspection (at City Hall in the event of a review of City records and at Owner's place of business in Orange County in the event of a review of Owner's records) such of its books and records as the requesting Party may reasonably determine must be reviewed in order determine whether the correct amount of Covenant Payments have been made or are being made hereunder. Notwithstanding the foregoing, City shall not be required to produce any books or records that it is prohibited from producing by law and Owner shall not be required to produce information that violates the privacy rights of individual customers. In addition, the City shall have the right to audit such books and records of Owner once a year. Such audit shall be at the City's sole cost and expense, provided, however, that if such audit determines that the actual Sales Tax received by City is two percent (2 %) or more less than that reported by Owner, Owner shall reimburse City for such audit cost and expense. 4.1.5 No Acceleration; Preyayment. It is acknowledged by the Parties that any payments by City provided for in this Covenant are in consideration for the performance by Owner during the time period(s) for which payments are due. Therefore, City's failure to timely make any payments or City's failure to perform any of its other obligations hereunder shall not cause the acceleration of any anticipated future Covenant Payments by City to Owner. 4.2 Additional Condition Precedent to City's Obligations. In addition to the provisions set forth in Section 2 of this Covenant, City's obligation to make the Covenant Payments pursuant to Section 4..1 of this Covenant for any Fiscal Year during the Operating Period shall be contingent and conditional upon Owner's performance of its obligations set forth in Section 3 of this Covenant. 5. DEFAULTS AND REMEDIES. 5.1 Defaults. (a) Subject to Section 6.6 of this Covenant, the occurrence of any of the following shall constitute a Default: (i) the failure by either Parry to perform any obligation of such Party for the payment of money under this Covenant if such failure is not cured within fifteen (15) calendar days after the nonperforming Parry's receipt of written notice from the other Parry that such obligation was not performed when due; or (ii) the failure by either Party to perform any of its obligations (other than obligations described in clause (i) of this Section 5.1) set forth in this Covenant, if such failure is not cured within thirty (30) days or, if such failure is of a nature that cannot reasonably be cured within thirty (30) days, the failure by such Parry to commence such cure within thirty (30) days and thereafter diligently prosecute such cure to completion; or 112/017801 -0003 507403.03 06/08104 10 0 (iii) any representation or warranty by a Party set forth in this Covenant proves to have been incorrect in any material respect when made; or (iv) the Rolls Royce and Lotus Dealership is materially damaged or destroyed by fire or other casualty during the Operating Period and Owner fails to commence restoration of the improvements within a reasonable time or thereafter fails to diligently proceed to complete such restoration in accordance with this Covenant; or (v) Owner is enjoined or otherwise prohibited by any governmental agency from occupying the Site during the Operating Period and such injunction or prohibition continues unstayed for ninety (90) days or more for any reason. (b) In the event Owner fails to perform any of its obligations under this Covenant and City sends a notice of such failure to Owner, concurrently therewith City shall send a copy of such notice to any mortgagee or deed of trust holder with respect to the Site (herein the "Holder ") (the name and address of which Holder shall be furnished by Owner or such Holder to City) and thereafter the Holder shall have the same period of time as is available to Owner to remedy such breach or failure under this Covenant. City shall accept any proper cure of a breach or failure tendered by the Holder. 5.2 City's Remedies Upon Default by Owner. Upon the occurrence of any Default by Owner, and after Owner's receipt of written notice of default and expiration of the time for Owner to cure such Default as provided in Section 5. 1, City may at its option: (i) suspend the payment of Covenant Payments otherwise due and payable to Owner hereunder for the period that Owner remains in Default. If City has so suspended its payments in accordance with the terms of this clause (i), then upon Owner's cure of such Default, City shall resume its payment obligations, but shall have no obligation to make payments for any Fiscal Year or portion thereof during which City's obligation to make payments was so suspended; or (ii) if the Default continues uninterrupted for a period of one (1) year, City may terminate this Covenant, in which case City's obligation to make payments to Owner for any period of time after the occurrence of the Default shall be finally terminated and discharged. In no event, however, shall City have the right to specifically enforce Owner's covenants set forth in Section 3 of this Covenant, to prevent Owner's conversion of the Site to another lawful use (even if such use would be inconsistent with this Covenant), or to sue Owner or to recover from Owner any amount that is actually or allegedly attributable to loss of anticipated Sales Tax or other revenues, whether because the amount of Sales Tax generated from the Site is less than projected by Owner or City, or because Owner does not operate the Rolls Royce and Lotus Dealership on the Site for the entire Operating Period, or otherwise. 5.3 _Owner's Remedies Upon Default by City. Upon the occurrence of any Default by City, and after City's receipt of written notice of Default from Owner and expiration of the time for City to cure such Default as provided in Section 5.1, Owner may terminate this Covenant by 112/017801-0003 507403.03 06/08104 11 aV written notice to City and/or seek whatever legal or equitable remedies may be available to Owner, subject to the provisions of Section 4.1.5. 5.4 Cumulative Remedies; No Waiver. Except as expressly provided herein, the nondefaulting Party's rights and remedies hereunder are cumulative and in addition to all rights and remedies provided by law from time to time and the exercise by the nondefaulting Parry of any right or remedy shall not prejudice such Parry in the exercise of any other right or remedy. None of the provisions of this Covenant shall be considered waived by either Parry except when such waiver is delivered in writing. No waiver of any Default shall be implied from any omission by City to take action on account of such Default if such Default persists or is repeated. No waiver of any Default shall affect any Default other than the Default expressly waived, and any such waiver shall be operative only for the time and to the extent stated. No waiver of any provision of this Covenant shall be construed as a waiver of any subsequent breach of the same provision. A Parry's consent to or approval of any act by the other Parry requiring further consent or approval shall not be deemed to waive or render unnecessary the consenting Parry's consent to or approval of any subsequent act. A Party's acceptance of the late performance of any obligation shall not constitute a waiver by such Party of the right to require prompt performance of all further obligations. A Party's acceptance of any performance following the sending or filing of any notice of Default shall not constitute a waiver of that Parry's right to proceed with the exercise of its remedies for any unfulfilled obligations. A Party's acceptance of any partial performance shall not constitute a waiver by that Parry of any rights relating to the unfulfilled portion of the applicable obligation. 5.5 Limitations on City's Liability. Owner acknowledges and agrees that: (i) this Covenant shall not be deemed or construed as creating a partnership, joint venture, or similar association between Owner and City, the relationship between Owner and City pursuant to this Covenant is and shall remain solely that of contracting Parties, and City neither undertakes nor assumes any responsibility pursuant to this Covenant to review, inspect, supervise, approve, or inform Owner of any matter in connection with the development or operation of the Rolls Royce and Lotus Dealership on the Site other than as expressly provided for herein, including matters relating to architects, designers, suppliers, or the materials used by any of them; and Owner shall rely entirely on its own judgment with respect to such matters; provided, that nothing herein is intended to release City from whatever obligations it may have pursuant to applicable laws independent of this Covenant; (ii) by virtue of this Agreement, City shall not be directly or indirectly liable or responsible for any loss or injury of any kind to any person or property resulting from any construction on, or occupancy or use of, the Site (except to the extent proximately caused by City's active negligence or intentional misconduct), whether arising from: (a) any defect in any building, grading, landscaping, or other onsite or offsite improvement; (b) any act or omission of Owner or any of Owner's agents, employees, independent contractors, licensees, lessees, or invitees; or (c) any accident on the Site or any fire or other casualty or hazard thereon; and (iii) by accepting or approving anything required to be performed or given to City under this Covenant, including any certificate, survey, appraisal, or insurance policy, City shall not be deemed to have warranted or represented the sufficiency or legal effect of the same, and no such acceptance or approval shall constitute a warranty or representation by City to anyone. 1171017801 -0003 507403.03 06108!04 12 �1 5.6 Litigation Expenses. In the event of any litigation or arbitration proceeding arising out of or related to this Covenant, the prevailing party shall be entitled to recover all of its reasonable litigation expenses in addition to whatever other relief to which it may be entitled, including without limitation attorney's fees, expert witness fees, costs of investigation and discovery, and other costs, whether or not the same would be recoverable under California Code of Civil Procedure Section 1033.5 in the absence of this Covenant. 6. GENERAL PROVISIONS 6.1 Integration and Amendment. This Covenant and the Agreement constitute the entire agreement by and between the Parties pertaining to the subject matter hereof, and supersede all prior agreements and understandings of the Parties with respect thereto. This Covenant may not be modified, amended, supplemented, or otherwise changed except by a writing executed by both Parties. 6.2 Cation. Section headings used in this Covenant are for convenience of reference only and shall not affect the construction of any provisions of this Covenant. 6.3 Binding Effect. Successors and Assigns, Assignments. This Covenant shall run with the land and shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns. Owner shall be entitled to assign its right to receive the Covenant Payments to any Holder for security purposes or to any lessee or business owning and operating the Rolls Royce and Lotus Dealership on the Site. In the event of an assignment for security purposes to a Holder, City agrees that this Covenant be subordinated to the lien of said Holder's deed of trust or mortgage and City agrees to cooperate with Owner in executing an appropriate subordination agreement. In the event that the Holder forecloses on its deed of trust or mortgage or accepts a deed in lieu of foreclosure, then upon the request of such Holder or its successor or assignee, City agrees to enter into a new Covenant on the same terms and conditions set forth herein for the balance of the Operating Period. Nothing in this Covenant is intended to prohibit Owner from selling or leasing the Site to a third party, nor shall City approval be required with respect thereto; provided, that as a condition to its obligation to accept an assignment of the rights and obligations set forth in this Covenant, City shall be entitled to require that the assignor and assignee execute an appropriate assignment and assumption agreement in a form reasonably approved by the City Attorney of City and in no event shall City be required to make any of the Covenant Payments to any person or entity other than the fee owner of the Site unless and until such assignment and assumption agreement is executed and delivered. In the event of any assignment, the references in this Covenant to "Owner" shall be deemed to refer to the assignee. 6.4 Counterparts. This Covenant may be executed in two or more counterparts, each of which when so executed and delivered shall be deemed an original and all of which, when taken together, shall constitute one and the same instrument. 6.5 Governing Law and Venue. This Covenant shall be governed by and construed in accordance with the internal laws of the State of California without regard to conflict of law 1121017801.0003 507403.03 06/08/04 13 M principles. The Parties further agree that Orange County, California is the proper place for venue for the adjudication of any matter related in any way to this Agreement 6.6 Force Maieure. Notwithstanding any other provision set forth in this Covenant to the contrary, in no event shall a Party be deemed to be in Default of its obligations set forth herein where delays or failures to perform are caused by circumstances without the fault and beyond the reasonable control of such Parry, which circumstances shall include, without limitation, fire /casualty losses; strikes; litigation; unusually severe weather; inability to secure necessary labor, materials, or tools; delays of any contractor, subcontractor, or supplier; unjustified acts or failure to act by City or other governmental agency in the processing or approval of plans or permits or inspection or approval of the construction of the Rolls Royce and Lotus Dealership project; litigation by third Parties challenging the validity or enforceability of the Agreement or this Covenant or the Entitlements; and acts of God (collectively, events of "Force Majeure"). Adverse market conditions or Owner's inability to obtain financing or approval from the manufacturer of Rolls Royce and Lotus automobiles to operate the Rolls Royce and Lotus Dealership shall not constitute events of Force Majeure. In the event of an event of Force Majeure, the Party so delayed shall notify the other Party of the circumstances and cause of the delay within a reasonable time period after commencement of the delay, it shall keep the other Party informed at reasonable intervals upon request regarding the status of its efforts to overcome said delay, and it shall exercise commercially reasonable diligence to perform as soon as practicable thereafter. 6.7 Notices. Notices to be given by City or NEM hereunder may be delivered personally or may be delivered by certified mail or by reputable overnight delivery service providing a delivery conformation receipt, with mailed notices to be addressed to the appropriate address(es) hereinafter set forth or to such other address(es) that a Party may hereafter designate by written notice. If served by overnight delivery service or certified mail, service will be considered completed and binding on the Party served on the date set forth in the confirmation or certification receipt. 112/017801 -0003 507403.03 06=104 If notice is to City: City of Newport Beach 3300 Newport Boulevard P.O. Box 1768 Newport Beach, CA 92658 -8915 Attention: City Manager with a copy to: City of Newport Beach 3300 Newport Boulevard P.O. Box 1768 Newport Beach, CA 92658 -8915 Attention: City Attorney If notice to Owner: Jerry G. Johnson c/o NEM Co., Inc. 71 -387 Highway 111 Rancho Mirage, CA 92270 14 6.8 Further Acts. Each Party agrees to take such further actions and to execute such other documents as may be reasonable and necessary in the performance of its obligations hereunder; reserving to City, however, its lawful discretionary and police power authority. Without limiting the generality of the foregoing, upon the expiration or termination of the Operating Period, City will execute and deliver such instruments as may be prepared by Owner at Owner's expense to release the cloud upon title to the Site created by this Covenant; provided, however, that any such document shall be in a form reasonably acceptable to the City Attorney of City. 6.9 Estoppels. At the request of Owner or any Holder, City shall promptly execute and deliver to Owner or such Holder a written statement of City as to any of the following matters as to which Owner or Holder may inquire: (i) that no Default exists hereunder or would exist with the passage of time, or giving of notice, or both, by Owner pursuant to this Covenant, if such be the case; (ii) the total amount of Covenant Payments made by City to Owner pursuant to this Covenant prior to the date of such written statement; (iii) if City has determined that Owner is in Default hereunder, the nature of such Default and the action or actions required to be taken by Owner to cure such Default; and (iv) any other matter affecting Owner's or Holder's rights or obligations hereunder as to which Owner or Holder may reasonably inquire. The form of any estoppel letter or certificate shall be prepared by Owner or Holder at its sole cost and expense and shall be reasonably acceptable in form and content to City. 6.10 Third Party Beneficiaries. With the exception of the specific provisions set forth in this Covenant for the benefit of Holder and successors and assigns of Owner, there are no intended third party beneficiaries under this Covenant and no such other third parties shall have any rights or obligations hereunder. 6.11 Severability. If any term or portion of this Covenant is held to be invalid, illegal, or otherwise unenforceable by a court of competent jurisdiction, the remaining provisions of this Covenant shall continue in full force and effect. 6.12 Interpretation. The terms of this Covenant shall be construed in accordance with the meaning of the language used and shall not be construed for or against either party by reason of the authorship of the Covenant or any other rule of construction which might otherwise apply. 112/017801-0003 507403.03 06108/04 (SIGNATURES ON NEXT PAGE) 15 IN WITNESS WHEREOF, the Parties have executed this Covenant to be effective as of the Effective Date. "CITY" CITY OF NEWPORT BEACH, a California municipal corporation M Its: ATTEST: City Clerk APPROVED AS TO FORM: 0 City Attorney "OWNER' By: Its: By: Its: 112/017801 -0003 507403.03 06108/07 16 STATE OF CALIFORNIA ) ss COUNTY OF ) On personally appeared before me, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is /are subscribed to the within instrument and acknowledged to me that he /she/they executed the same in his/her /their authorized capacity(ies), and that by his/her /their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. Notary Public [SEAL] STATE OF CALIFORNIA ) ss COUNTY OF ) On before me, personally appeared personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is /are subscribed to the within instrument and acknowledged to me that he /she /they executed the same in his/her /their authorized capacity(ies), and that by his/her /their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. Notary Public [SEAL] 112/017801 -0003 507403.03 06/08/04 17 STATE OF CALIFORNIA ) ss COUNTY OF On before me, personally appeared personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she /they executed the same in his/her /their authorized capacity(ies), and that by his/her /their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. Notary Public [SEAL] 112MI7801-0003 507403.03 06/08104 18 �1 EXHIBIT "A" LEGAL DESCRIPTION OF SM ATTACHED: 1121017801 -0003 507403.03 06/08114 s Order Number: OSA- 3057614 (18) Page Nr: 8 LEGAL DESCRIPTION RQa Property In ft QtY of Umvpmt Beads, Cmndy of Orange, State of Cai brde oAr d as (boom: LOT 17 OF TRACT NO. 320L IN THE CITY OF NEWPORT EEEi CHS COUNTY OF ORAHM STATE. OF C WF;DRNTA, AS PER MAP RECORDED IN BOOK 130, PAGES 25, 26, 27, 28,29 AND 30 OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT A1�.�: f AND ALL OI4 OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS'. BY WHATSOEVER NAME IDNOWN, GEOTHHUMAL STEAM, AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR UNDER THE LAND, TOGETIIER VVITA THE PERPETUAL RIGHT OF ORILIING, MINING, EXPLORING AND OPERATING THEREFOR AND 51MM IN AND REMOVING THE _SAME PROM THE LAND Oft ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND PINE FROM LANDS OTHER THAN THOSE CONVEYED HERESY, OIL OR GAS VVELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND, AND TO BOTTOM. SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRTLL., RETLINNEL, EQUIP, MAINTAIN, REFALR, DEEPEN AND OPERATE ANY SUCH VVELI S OR MINES; WITHOUT, HOVNEVER, THE RIGHT TO DRILL, MINE, STORE,:ECPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE BF THE LAND, AS R25ERVED IN THE DEED FROM THE IRVINE COMPANY, A MICHIGAN CORPORATION, RECORDED SEPTEMBER 24, 1933 AS INSTRUMENT NO, 93- 0647619, OFFICIAL RECORDS. APN: 427 -131-06 FastA� Infa 1121017801.0003 - 507403.03 12/04/00 20 FILE COPY RESOLUTION NO. 99- 64 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH ESTABLISHING AN AUTOMOBILE DEALERSHIP SALES TAX INCENTIVE PROGRAM WHEREAS, the City Council adopted Resolution No. 96 -88, which Resolution established an Automobile Dealership Sales Tax Incentive Program; and WHEREAS, the City Council wishes to amend certain provisions of said Program; and WHEREAS, in adopting this Resolution the City Council makes the following findings and determinations: 1. FINDINGS: A. The City has the legal authority to adopt this Resolution and provide qualified businesses with sales tax incentives by virtue of the laws and constitution of the State of California and the Charter of the City of Newport Beach. B. Public entities are, to an ever increasing extent, offering financial assistance and other incentives to encourage major retailers to locate, relocate or expand within their jurisdiction. C. The City of Newport Beach has adopted an aggressive program of economic development and endorses the concept of granting financial assistance to qualified businesses to preserve and enhance municipal revenues. D. Many public entifies are able to readily provide financial assistance through redevelopment agencies, an option not presently available to Newport Beach. E. The provision of financial assistance through sales tax rebates will preserve and enhance municipal revenues in that 1. Existing businesses will be encouraged to expand their operations and increase retail sales; 2. The .City may retain existing businesses that would otherwise relocate to another jurisdiction; -1- 3. The City will attract major sales tax generators that would otherwise remain in or relocate to; other jurisdictions; 4. Assistance will be provided only to reimburse businesses for project costs that may make their expansion in or relocation to Newport Beach feasible. 5. Assistance will only be provided from incremental sales tax generated by the business expansion or relocation. B. Covenants and commitments associated with sales tax rebates require a long term commitment to the community and use of business practices which maximize sales tax revenue. NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Newport Beach establishes an Automobile Dealership Sales Tax Incentive Program, as follows: DEFINITIONS: A. "Automobile dealership shall mean the business of selling new automobiles and/or light trucks pursuant to a franchise, license or similar agreement granted by an automobile manufacturer and ancillary uses such as the sale of previously owned vehicles, the repair of vehicles, the sales of parts and automotive merchandise, the leasing of new or used vehicles, and automobile dealership administration. B. "Base sales tax" shall mean: (1) that portion of sales taxes received by the City from the imposition of the Bradley -Bums Uniform Local Sales and Use Tax Law (commencing with section 7200 of the Revenue and Taxation Code of the State of California) from the operation of an automobile and/or light truck dealership on a parcel of land within the City of Newport Beach during the most recent twelve (12) month period (four quarters) for which sales tax revenue for the site has been reported to the City; or (ii) a sum established by the City Council based upon an analysis by staff or consultant of the amount of sales tax revenue that would be generated by the automobile and/ or light truck dealership in the absence of enhancements or improvements funded in whole or in part by the sales tax increment, but in no event less than the amount necessary to satisfy the criteria for a "qualified business." C. "Business" means any organization, individual, association; corporation, partnership, venture or other entity, its subsidiary or affiliate which exists for profit making purposes and to otherwise secure economic advantage. -2- D. "California Sales and Use Tax Law" shall mean the Bradley -Bums Uniform Local Sales and Use Tax Law (commencing with section 7200 of the Revenue and Taxation Code of the State of California), or any similar or successor law. E. "Commencement date" shall mean the date of a Reimbursement Agreement as indicated in the introductory paragraph to the Agreement, irrespective of the date of execution by one or all the parties. F. "Cost" or "Costs ", as applied to any project assisted pursuant to this program , means any and all reasonable or necessary costs incurred by or on behalf of a qualified business to: (i) Obtain any property right or interest necessary to operate an automobile dealership from a parcel of land in the City of Newport Beach (but excluding the monthly lease payments themselves and any insurance, taxes, and maintenance cost required to be paid by' the qualified business pursuant to the lease or similar agreement); (ii) The construction, installation, reconstruction, rehabilitation or improvement of the project, including all costs associated with feasibility studies, surveys, architectural and engineering services, and attorney's fees, construction insurance and bonds; (iii) Interest on any indebtedness incurred to implement the project prior to, during, and for a reasonable period of time following construction of the project; (iv) Reserves for debt service and for repairs, replacements, additions and improvements to the project; and (v) Such other costs or expenses as may be specifically provided for in the Reimbursement Agreement and which are related to the constriction or operation of the project. G. "Fiscal year" shall mean any twelve (1.2) month period (four quarters) for which sales tax information is available from the State Board of Equalization commencing on the first day of any quarter. H. "Governmental approvals" shall mean permits, consents, authorizations and other entitlements required to be issued by, or obtained from, any governmental agency having jurisdiction over the project. -3- 0� I. "Project development schedule" shall mean the schedule for completion of any Project. J. The term "Qualified business" shall mean any business which meets the following criteria: () Is authorized pursuant to an agreement with an automobile manufacturer to sell new automobiles within all or a portion of the City of Newport Beach; (i) Has received all Governmental Approvals required for the operation of an automobile dealership within the City of Newport Beach; (iii) Operates or intends to operate, an automobile dealership whose primary business is the sale or lease of new motor vehicles. ('iv) Is a major sales tax generator or produces evidence that the business could become a major sales tax generator. (v) Owns, leases or otherwise controls a parcel or parcels of land within the City of Newport Beach zoned for use as an automobile dealership or establishes, to the satisfaction of the City, that an ownership or leasehold interest in property zoned for an automobile dealership will be acquired within a reasonable period of time. (vi) Demonstrates the financial ability to establish a new, or operate an expanded, automobile dealership including the financial ability to pay for project improvements as well as operating expenses from projected revenue and sales tax reimbursement. K. The term "quarter" means any one of the three month periods during a fiscal year commencing July 1, October 1, January 1 and April 1. L. "Sales tax increment" means, for each fiscal year the amount of sales and use taxes received by the City from the imposition of the Bradley -Bums Uniform Local Sales and Use Tax taw from the operation of the dealership(s) by the qualified business within the City of Newport Beach less the base sales tax revenue. The term sales tax increment shall not include any of the following: () Any portion of taxes derived by the City from the operation of the dealership(s) by the qualified business that the City may be required to pay, transfer, assign or allocate to any other entity or entities by law (but not by contract or agreement); and A- (i) The State Board of Equalization's administrative and processing fee attributable to the City's portion of such taxes (calculated at the same percentage as applied City wide). The sales tax increment shall not be considered to have been received by the City until the City is able to confirm receipt of the taxes from the State Board of Equalization. 2. APPUCATIONS'. A. Any prospective qualified business may apply to the City for a reimbursement agreement pursuant to this Chapter by filing an application with the City in such form and setting forth such information as the City may require in order to enable the City to evaluate the applicant, the project, its proposed costs and public benefits. Such information shall include, without limitation, the following: (1) Information regarding the experience, expertise and financial capability of the business and its contractors, consultants and agents in completing and operating similar projects; (ii) Basic concept plans for the proposed project; (iii) The status of agreements with manufacturers for the sale of new motor vehicles on the project site; and (iv) An economic pro forma detailing the sources and uses of funds, including, but not limited to, estimated development costs, operating income and expenses, sources of financing, and economic returns. B. Applications must be filed prior to City issuance of any building permit for the project 3. A. The City Manager shall, upon receipt of a completed application, evaluate the proposal and may direct analysis by an independent consultant Fallowing the evaluation of the proposal, the matter will be presented to the City Council. The City Council shall, in its sole discretion, have the authority to reject the application or approve a reimbursement agreement. The City Council may indicate its tentative acceptance of an application and direct staff to prepare a reimbursement agreement to be submitted. to City Council for review and approval. -5- B. The City Council shall, in its sole discretion, have the authority to approve, disapprove or modify the proposed reimbursement agreement. The reimbursement agreement shall be consistent with the terms and provisions of this program and shall: (1) provide for rebates to qualified businesses of a portion of the sales tax increment, *0 any; (2) specify that the rebate shall be for the sole purpose of reimbursing the qualified businesses for costs incurred for a project necessary to make the project financially feasible; (3) specify that the rebate shall expire on the earliest of the following dates: (a) ten (10) years from the commencement of operation of a project; or (b) full reimbursement of the costs incurred by a qualified business for a project that the City has agreed to reimburse; (c) such earlier date as may be agreed to by the City and the qualified business; or (d) the end of the City's then - current fiscal year, unless the City appropriates funds for the rebate for the following fiscal year (4) Identify the costs incurred or to be incurred by a qualified business for a project; (5) contain a covenant by the qualified business to complete the project, to .remain and operate the project for a specified period of time; (6) contain a covenant to maximize the City as the point - of -sale for goods and services sold as a result of business activities on any portion of the project site consistent with applicable requirement of law. 4. ADDITIONAL POWERS: In addition to all other powers specifically enumerated by this Resolution, the City Council is authorized to contract for and do all things necessary or convenient to carry out the purposes of this Resolution, provided, however, that the City shall not have the power to operate a project under this Resolution as a business. S. ADDITIONAL INCENTIVES: The City Council may in a reimbursement agreement waive payment of all or a portion. of any fee otherwise required to be paid to the City pursuant to the Newport Beach Municipal Code. 6. CONFIDENTIALITY PROVISION: Documents provided to the City by any prospective qualified business, or pursuant to a reimbursement agreement, and which are deemed proprietary in nature shall be considered confidential and shall not be disclosed unless required by law. -6- 7. INTERPRETATION: This program shall not be interpreted, construed or applied to conflict with any provision of State law which preempts local regulation of the subject matter. ADOPTED, this 13th day of September , 199 t r 4Znnis O'Neil, Mayor ATTEST: LaVonne, City Cler J F.Umm%wt\shamdWa\ResdvWn W ubDSalesT&XW,OM.doo -7- I