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HomeMy WebLinkAbout2004-51 - Lexus DealershipRESOLUTION NO. 2004-51 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT APPROVING AN AGREEMENT WITH DAVE WILSON PROVIDING FOR THE PAYMENT OF A PORTION OF SALES TAX GENERATED BY THE OPERATION OF A LEXUS DEALERSHIP IN THE CITY OF NEWPORT BEACH WHEREAS, Dave Wilson (Wilson) is the owner and operator of numerous automobiles dealerships and would like to open a Lexus dealership in the City of Newport Beach; WHEREAS, Wilson has, after an extensive search, located property in Newport Beach that is suitable in terms of size, location and access for a Lexus dealership; WHEREAS, according to an economic analysis conducted by Keyser Marston, the establishment of a Lexus dealership on the property is not financially feasible in the absence of financial assistance from the City in the form of payments from revenue derived from the sale or lease of automobiles from the site. WHEREAS, the City Council has determined that approval of the agreement that is attached to this resolution as Exhibit A is in the best interests of the citizens of Newport Beach and that the establishment of a new Lexus dealership on the property is not a relocation as that term is defined in Section 50384 of the Government Code of the State of California. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH RESOLVES AS FOLLOWS: 1. The Mayor of the City of Newport Beach is authorized to execute the Agreement attached to this Resolution as Exhibit A. 2. This Resolution takes precedence over any prior action or decision of the City Council pertaining to the payment of sales or use taxes as an incentive to the establishment of a new automobile dealership. ADOPTED this 8"' day of June, 2004. ATTEST: CITY CLERK -1- MAYOR AGREEMENT (NEWPORT LEXUS DEALERSHIP) This AGREEMENT (NEWPORT LEXUS DEALERSHIP) (the "Agreement ") is entered into this 8t' day of June, 2004, by and between the CITY OF NEWPORT BEACH, a California municipal corporation ( "City "), and DAVID W. WILSON, an individual ( "DWW ") (individually a "Party" and collectively the "Parties "). RECITALS A. DWW has the contractual right to acquire that certain real property consisting of approximately eight (8) acres of land area located generally at the southwest comer of MacArthur Boulevard and Jamboree Road in the City of Newport Beach, County of Orange, State of California, 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 Party to this Agreement (the "Owner "). B. Assuming DWW acquires the Site from the Owner and obtains the necessary governmental permits and approvals from all governmental agencies with jurisdiction, including City, DWW intends to develop on the Site a new and used Lexus automobile dealership with related parts, service, and repair operations, and parking, landscaping, and related amenities (the " Lexus Dealership "). C. In consideration for DWW's 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 DWW in an amount equal to a portion of the Sales Tax generated by the Lexus 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 City 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 Lexus Dealership, including without limitation any General Plan Amendment, Planned Community ( "PC ") Development Plan text amendment, and use permit, and the environmental reviews and approvals in conjunction therewith that are required to accommodate the Lexus 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 in order to make the Lexus Dealership business financially feasible; (iii) the value to City of DWW'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 112/017801 -0003 507403.03 06/08/04 public services, provision of expanded and more accessible automobile purchase, leasing, service, repair, and parts shopping opportunities for the residents of the City, and job growth and 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 DWW 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 DWW shall fill in the blanks, date, and execute the Covenant in recordable form and DWW shall record the Covenant against the Site and provide a copy of the recorded Covenant to City: (i) the date DWW 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 Lexus Dealership on the Site (including without limitation any General Plan Amendment, Planned Community ( "PC ") Development Plan text amendment, use permit (if applicable), and environmental reviews and approvals in conjunction therewith, but specifically excluding DWW'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 Lexus 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. DWW shall have no obligation hereunder to acquire the Site and DWW's failure for any reason to acquire the Site shall not constitute a default by DWW. If, however, the Covenant Conditions are not satisfied on or before December 31, 2005, or such later deadline as may be mutually approved in writing prior to that date by City and DWW, 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. 4. Covenant. Upon DWW'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. 112/017801 -0003 507403.03 06/08/04 -2- 5. Assignment. DWW shall be entitled without City's consent to assign its rights and obligations set forth in this Agreement to the person or entity that takes legal title to the Site and/or the lessee of the Site that owns and operates or that plans to own and operate the Lexus Dealership, provided that David W. Wilson (including any immediate family members of David W. Wilson and/or any family trust) directly or indirectly owns and controls a minimum fifty -one percent (51 %) of the assignee. DWW shall notify City in the event of any such assignment prior to recordation of the Covenant and at City's request DWW and its assignee shall execute and deliver to City an assignment and assumption agreement in a form reasonably approved by the City Attorney of City. 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 DWW 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 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. 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 DWW: David W. Wilson c/o DWW Co., Inc. 1400 North Tustin Avenue Orange, CA 92867 with a copy to: Rutan & Tucker, LLP 611 Anton Boulevard, 14th Floor Costa Mesa, CA 92626 Attention: Jeffrey M. Oderman, Esq. (SIGNATURES ON NEXT PAGE) 112JOI 7801 -0003 50740.9.03 06/08/04 -3- IN WITNESS WHEREOF, City and DW W have executed this Agreement to be effective as of the date first set forth above. "City" ATTEST: City Clerk APPROVED AS TO FORM: M City Attorney CITY OF NEWPORT BEACH, a California municipal corporation "D'WW,. David W. Wilson 112/017801 -0003 507403.03 06/08/04 -4- EXHIBIT "A" LEGAL DESCRIPTION OF SITE ALL THAT CERTAIN LAND SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF ORANGE, CITY OF NEWPORT BEACH, DESCRIBED AS FOLLOWS: PARCEL A: PARCEL 2, AS SHOWN ON MAP FILED IN BOOK 61, PAGE 9 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF ORANGE COUNTY, CALIFORNIA. •s;QXIM PARCEL 1 ON PARCEL MAP RECORDED IN BOOK 64, PAGE 26 OF ORANGE COUNTY PARCEL MAPS, RECORDS OF ORANGE COUNTY. 112/017801-0003 507403.03 06/08/04 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Rutan & Tucker, LLP 611 Anton Boulevard, 14th Floor Costa Mesa, CA 92626 Attention: Jeffrey M. Oderman, Esq. [Space above for Recorder.] COVENANTS, CONDITIONS, AND RESTRICTIONS AFFECTING INTERESTS IN REAL PROPERTY 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 "Parry" and collectively the "Parties "). RECITALS A. Owner is the owner of that certain real property consisting of approximately eight (8) acres of land area located generally at the southwest corner of MacArthur Boulevard and Jamboree Road in the City of Newport Beach, County of Orange, State of California, 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—, 2004, City and Owner [if Agreement and Covenant are assigned prior to recordation of Covenant, insert correct information re: assignment] entered into that certain unrecorded Agreement (Newport Lexus 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 Lexus automobile dealership with related parts, service, and repair operations, and parking, landscaping, and related amenities, and, at Owner's option, additional new and incidentally related used vehicle lines in addition to Lexus that are not being sold in the City of Newport Beach as of the Effective Date (collectively, the " Lexus Dealership "), pursuant to the following land use permits and approvals issued by City on or about , 200_: [insert] (collectively, the "Entitlements ") 112/017801 -0003 507403.03 06/08/04 2 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 agreed that the portion of Sales Tax required to be paid by City to Owner hereunder during each Quarter of the Operating Period provided for herein is a fair exchange for the consideration to be furnished by Owner to City in that Quarter. 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 Party" shall mean (i) any construction contractor or subcontractor involved in the construction of the Lexus Dealership on the Site and (ii) any entity that finances the leasing of vehicles for which the lease transaction originates from the Lexus Dealership on the Site; provided, that there is no requirement that an Affiliated Third Party 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 with respect to each Quarter of the Operating Period. The term "Covenant Payments Cap Amount" shall have the meaning ascribed in Section 4.1.1(b) of this Covenant. 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 Lexus 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. 112/017801.0003 507403.03 06/08/04 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 "Lexus 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 "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 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 "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 Lexus 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 Lexus Dealership on the Site due to a change in California law occurring after January 1, 2004, 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 January 1, 2004, but which Sales Tax is not so allocated, paid to, and received by City due to a change in California law occurring after January 1, 2004. 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 future 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. 112/017801 -0003 507403.03 06/08/04 4 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. The term "Termination Date" shall mean the date that is the earliest of (i) the date that is twenty (20) years following the Commencement Date; (ii) the date that the Covenant Payments Cap Amount is paid in full; or (iii) 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 Lexus 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 fast day of the first Quarter 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 fast sentence of the preceding paragraph is not satisfied on or before the date that is eighteen (18) months after the issuance of the first building permit for the Lexus Dealership project, or (ii) if a building permit is not issued for the Lexus Dealership project on or before the date that is eighteen (18) 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 Party 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 Lexus 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 sites of the construction contract(s) for the Lexus Dealership or the leasing of any new or used motor vehicles where the transaction is generated from the Site, as applicable. 112/017801 -0003 507403.03 06/08/04 5 3.2 Use Restriction. During the entire Operating Period, the Site shall not be put to any use other than the operation of the Lexus Dealership and incidental related uses that comply with the Entitlements and applicable provisions of City's Municipal Code. 3.3 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 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. During the entire Operating Period, Owner shall operate the Lexus Dealership on the Site in conformity with all valid and applicable federal, state, and local laws, ordinances, and regulations, 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 Citv. 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 Lexus 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) 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 Lexus Dealership on the Site the copy of such statement to be filed with City may be redacted to remove references to 112/017801 -0003 507403.03 06/08/04 6 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 Lexus 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 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 Lexus Dealership, DWW 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; Cap. In 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 Quarter during the Operating Period: (a) Subject to subparagraph (b) below, the Covenant Payments with respect to each Quarter shall be in an amount equal to fifty percent (50 %) of the Sales Tax for that Quarter. (b) Notwithstanding any other provision set forth in this Covenant to the contrary, in no event shall the total amount of Covenant Payments made by City to Owner exceed the sum of Nine Million Five Hundred Thousand Dollars ($9,500,000) of assumed "principal" plus imputed "interest" on the unpaid "principal" balance of said sum at the rate of five percent (5 %) per annum from 200_ (the date Owner closed escrow and acquired the fee interest in the Site) until the entire amount of imputed interest and unpaid imputed principal have been paid in full (the "Covenant Payments Cap Amount "). In this regard, it is understood and agreed that the Covenant Payments are in consideration of Owner's performance during each Quarter of the Operating Period and are not repayments of a loan. (c) Notwithstanding any other provision set forth in this Covenant to the contrary, even in the event the Covenant Payments Cap Amount has not been reached at the end of the Operating Period, City shall have no further obligation after that time to make additional Covenant Payments. 4.1.2 Source of Payments. 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 construction and operation of the Lexus Dealership on the Site is being used merely as a measure of the amount of the Covenant Payments that are periodically 112/017801 -0003 507403.03 06/08/04 7 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 the each Quarter during the Operating Period, City shall pay the Covenant Payment for said Quarter 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; (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 Quarter, a detailed explanation of the reasons for the difference; and (iii) a cumulative total comparing how the Covenant Payment in question, together with all prior Covenant Payments, relate to the Covenant Payment Cap Amount. It is understood that the amount of City's.quarterly 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 Quarter shall be included in the next succeeding payment(s) required to be made to Owner hereunder. In addition, if after any such quarterly 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 quarterly 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 Party entitled to said sum 112/017801 -0003 507403.03 06/08/04 8 shall be entitled to deliver a written notice to the other Party requesting an immediate adjustment and in such event the other Party 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 Party 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: Prepayment. 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. To the maximum extent permitted by law, City shall be permitted to prepay any of the Covenant Payments without penalty. 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 Quarter during the Operating Period shall be contingent and conditional upon Owner's performance of its obligations set forth in Section 3 of this Covenant during such Quarter. 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 Party 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 Party's receipt of written notice from the other Party 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 Party to 112/017801 -0003 507403.03 06/08/04 9 commence such cure within thirty (30) days and thereafter diligently prosecute such cure to completion; or (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 Lexus 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 Quarter 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 Lexus Dealership on the Site for the entire Operating Period, or otherwise. 112/017801-0003 507403.03 06/08/04 10 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 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 Party of any right or remedy shall not prejudice such Party in the exercise of any other right or remedy. None of the provisions of this Covenant shall be considered waived by either Party 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 Party'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 Party's consent to or approval of any subsequent act. A Parry'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 Parry's acceptance of any performance following the sending or filing of any notice of Default shall not constitute a waiver of that Party'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 Party 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 Lexus 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, 112/017801 -0003 507403.03 06/08/04 11 and no such acceptance or approval shall constitute a warranty or representation by City to anyone. 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 Captions. 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 Lexus 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. 112/017801 -0003 507403.03 06/08/04 12 6.5 Governing Law. 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 principles. 6.6 Force Majeure. 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 Party, 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 Lexus 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 Lexus automobiles to operate the Lexus 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 DWW 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. 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: David W. Wilson c/o DWW Co., Inc. 1400 North Tustin Avenue Orange, CA 92867 112/017801 -0003 507403.03 06/08/04 13 with a copy to: Rutan & Tucker, LLP 611 Anton Boulevard, 14th Floor Costa Mesa, CA 92626 Attention: Jeffrey M. Oderman, Esq. 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 matter; 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) the remaining portion of the Covenant Payments Cap Amount that is unpaid as of the date of such written statement; (iv) 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 (v) 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. (SIGNATURES ON NEXT PAGE) 112/017801 -0003 507403.03 06/08/04 14 IN WITNESS WHEREOF, the Parties have executed this Covenant to be effective as of the Effective Date. ATTEST: City Clerk APPROVED AS TO FORM: City Attorney 112/017801 -0003 507403.03 06108/04 15 "CITY" CITY OF NEWPORT BEACH, a California municipal corporation 0 Its: "OWNER" a By: Its: By: Its: 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. [SEAL] STATE OF CALIFORNIA ) ss COUNTY OF ) On personally appeared Notary Public 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] 112/017801-0003 507403.03 05/08/04 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] 112/017801-0003 507403.03 06/08/04 17 EXHIBIT "A" LEGAL DESCRIPTION OF SITE ALL THAT CERTAIN LAND SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF ORANGE, CITY OF NEWPORT BEACH, DESCRIBED AS FOLLOWS: PARCEL A: PARCEL 2, AS SHOWN ON MAP FILED IN BOOK 61, PAGE 9 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF ORANGE COUNTY, CALIFORNIA. PARCEL I ON PARCEL MAP RECORDED IN BOOK 64, PAGE 26 OF ORANGE COUNTY PARCEL MAPS, RECORDS OF ORANGE COUNTY. 112/017601 -0003 507403.03 06/06/04 STATE OF CALIFORNIA } COUNTY OF ORANGE CITY OF NEWPORT BEACH } I, LaVonne M. Harkless, City Clerk of the City of Newport Beach, California, do hereby certify that the whole number of members of the City Council is seven; that the foregoing resolution, being Resolution No. 2004 -51 was duly and regularly introduced before and adopted by the City Council of said City at a regular meeting of said Council, duly and regularly held on the 8th day of June, 2004, and that the same was so passed and adopted by the following vote, to wit: Ayes: Heffernan, Rosansky, Adams, Bromberg, Webb, Nichols, Mayor Ridgeway Noes: None Absent: None Abstain: None IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the official seal of said City this 9th day of June, 2004. (Seal) City Clerk Newport Beach, California