HomeMy WebLinkAbout32 - Lexus Sales Tax Sharing AgreementCITY OF NEWPORT BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No. 32
December 13, 2005
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Office of the City Manager
Homer L. Bludau, City Manager
949- 644 -3000, hbludau _city.newport- beach.ca.us
SUBJECT: COUNCIL CONSIDERATION OF AMENDMENT TO LEXUS SALES TAX
SHARING AGREEMENT TO REIMBURSE LEXUS FOR FEES PAID TO
CITY FOR ITS PROJECT
ISSUE:
Due to significantly greater site development costs than anticipated when the previous
sales tax sharing agreement was approved (from $20M in June, 2004 to $29.6M
currently), does the City Council want to amend its existing sales tax sharing
agreement with David Wilson, of Newport Lexus, to allow Newport Lexus to capture
sales tax dollars in an amount ($843,544.44) equal to the fees (Fair Share, Building
Excise Tax, and Building(Plan Check fees and permits) Newport Lexus has paid, or is
paying the City, for processing this project?
RECOMMENDATION:
1. Amend the previous sales tax sharing agreement with David Wilson to allow the
recovery of fees to be paid to the City for the processing of this project.
2. Direct staff to prepare the amendment to the agreement which incorporates the
reimbursement of project fees to be paid to the City in the amount of $843,544.44
as a part of the previous sales tax sharing agreement and have that agreement
reviewed by Council Members Heffernan and Rosansky prior to being finalized.
Authorize the City Manager to execute the amendment upon approval of Council
Members Heffernan and Rosansky and the City Attorney.
BACKGROUND:
On June 8, 2004, the City Council approved a Sales Tax Sharing Agreement with David
Wilson regarding his proposed Newport Lexus dealership project, to be located at the
northwest corner of Jamboree and MacArthur in Newport Beach. The City Council
Amendment to Lexus Sales Tax Sharing Agreement
December 13, 2005
Page 2
agreed to the sales tax agreement because neighboring cities wanted the Lexus
dealership to locate in their jurisdictions, and because there would be higher than
normal land and development costs for site development for LexUS to locate in Newport
Beach. The original agreement was reached with David Wilson based on quick
timeframes needing to be achieved, due to a purchase deposit that was coming due.
Since the City's agreement was reached early in the site planning process, it was based
on a number of assumptions. One of those assumptions in June 2004 was that the site
improvements would cost approximately $20M. By September, 2004 when construction
plans were finalized, the estimated cost had grown to $27M. The recent dramatic
increase in construction costs has increased the site improvements to $29.6M, which is
a 48% increase above the initial cost estimate.
Since that agreement was entered into, the project site has been purchased, Mr. Wilson
has obtained a certified EIR, and obtained grading and building permits, and
construction is underway with an estimated opening date in September, 2006, as
contemplated in the prior sales tax agreement.
The terms of the previously entered into covenant are as follows:
David Wilson:
1. Will acquire title to the site and develop a Lexus dealership within specified
timeframes.
2. Will continue to operate a Lexus 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 leasing transactions.
3. Will provide the City with copies of all reports filed with the State Board of
Equalization.
The City:
1. Will pay David Wilson 50% of the local sales tax generated at the site on a
quarterly basis, not to exceed $9,500,000, plus interest at 5% per annum.
2. May make its payments from any source of funds.
3. May make payments sooner than required.
DISCUSSION:
David Wilson approached staff and began serious discussions with staff in early 2005,
when it had became apparent the project construction costs were going to significantly
exceed those previously estimated. A number of meetings and potential agreement
amendments were exchanged, but none proved satisfactory to both parties. Recently,
at the request of Casey Griffin, Vice President of Logan Asset Management, the City
Amendment to Lexus Sales Tax Sharing Agreement
December 13, 2005
Page 3
Manager again began exploring a potential cost sharing agreement amendment. These
discussions resulted in the proposal placed before Council.
This proposed amendment would reimburse David Wilson for the $843,544.44 in fees
he has, or will be paying the City for project EIR requirements, building permits and plan
check fees and the traffic Fair Share fee. Another $135,467 paid to the Transportation
Corridors Agency and $34,758 paid to Newport Mesa School District are not included
for reimbursement purposes; only those fees paid for City purposes are subject to the
proposed repayment. All these fees have been paid, with the exception of the traffic
Fair Share Fee, which will be paid prior to an occupancy permit being approved. The
fees proposed for reimbursement through this amendment are as follows:
Fair Share (to be paid prior to occupancy) $422,215.00
EIR and Consultant 157,800.00
Building, Grading, Permits /Plan Check Fees 263,529.44
TOTAL $843,544.44
The prior sales tax sharing agreement (50/50 split of sales taxes generated) would
remain in place except that the first $843,544.44 collected from site sales would be
reimbursed to David Wilson. After that amount has been recouped by Mr. Wilson, the
50/50 tax sharing agreement would begin.
Staff estimates this proposed agreement would increase the length of time which the
prior agreement runs by approximately 3 months, and would result in an approximate
increase of $475,000 being paid to David Wilson over the length of the agreement,
which is estimated to run for between 13 -15 years.
The City Manager is asking Council to approve amending the previous agreement with
David Wilson and authorize the City Manager to work with the City Attorney and outside
legal counsel to prepare an amendment to the agreement that reflects the terms
outlined above and to execute the agreement after it has been reviewed by Council
Members Heffernan and Rosansky and approved by the City Attorney. If the Council
members do not feel the amendment accurately reflects the terms approved by City
Council, the agreement will be brought back to Council for its review and final
determination.
Submitted by:
omer L. Bluda
City Manager
• CITY OF NEWPORT BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No. 28
June S, 2004
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: City Manager's Office
Sharon Wood, Assistant City Manager
644 -3222, swood @city.newport- beach.ca.us
SUBJECT: Sales Tax Sharing Agreement with Newport Beach Lexus
ISSUE:
Should the City agree to share future sales tax for a limited duration to make it feasible
for a new Lexus dealership to locate in Newport Beach?
• RECOMMENDATION:
Approve and authorize the Mayor to execute the agreement.
DISCUSSION:
Background:
The City provided an assistance package to Fletcher Jones Motorcars in 1995 to
facilitate that business' expansion within Newport Beach. When additional automobile
dealers approached the City for assistance, the City Council adopted a Resolution
establishing an automobile dealership sales tax incentive program (since amended as
Resolution No. 99 -64, attached).
Staff has received inquiries regarding a potential new Lexus dealership in Newport
Beach for the past few years. Most recently, David Wilson of Tustin Lexus has received
Lexus' approval for a new dealership at a Newport Beach site. Mr. Wilson has worked
with staff and on his own to identify a site that falls within all acceptable parameters.
Because of the high land and development costs, Mr. Wilson is requesting that the City
share a portion of the sales tax to be generated by the new dealership for a limited
duration, so that the project will be feasible.
•
e-
Sales Tax Sharing Agreement with Newport Beach Lexus
June 8, 2004
Page 2 '
Discussion:
The Site
It has been difficult to find an acceptable site in our built -out community. Lexus requires
a site large enough to accommodate what the company expects to be a flagship
dealership of approximately eight acres. State law requires that dealers for the same
brand of automobile be located no closer than ten miles from one another. To maintain
this distance from the Westminster, Mission Viejo and Tustin dealerships, and to avoid
residential neighborhoods, the site for the new dealership is constrained to the
Jamboree corridor between 1-405 and SR -73.
David Wilson has an agreement to purchase two parcels at the western corner of
Jamboree Road and MacArthur Boulevard, shown below. The parcels currently are
used for an Avis storage site and three office buildings, which will have to be
demolished. Including demolition, development cost for the dealership is projected to
add another $26 million to the total cost of the project.
Sales Tax Sharing Agreement with Newport Beach Lexus
June 8, 2004
Page 3
The southerly parcel (Avis) has a general plan designation of Retail and Service
Commercial (RSC), while the northerly parcel is designated Administrative, Professional
and Financial (APF). The entire site is located within the Newport Place Planned
Community, and the development plan designates the southerly parcel for auto center
and the northerly parcel for professional and business office. Amendments to the
General Plan and the Planned Community will be necessary for the dealership to be
developed. These amendments will be to change the land use designation, but will not
increase the amount or intensity of development allowed.
Proposed Agreement
The proposed agreement (attached) provides that the City and David Wilson will
execute and record a covenant after Mr. Wilson acquires title to the property, or after
the City approves all discretionary land use permits, whichever is later. Because it is
the covenant that provides for the sharing of sales tax, the City will not have finalized its
business deal with Mr. Wilson, nor have any obligation to make any payments to him,
while the City is considering the land use applications. Moreover, the agreement is
clear that the City reserves its full discretion with regard to all land use permits.
The major terms of the covenant are as follows:
• David Wilson:
• Will acquire title to the site and develop a Lexus dealership within
specified timframes.
• Will continue to operate a Lexus 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 leasing transactions.
• Will provide the City with copies of all reports filed with the State Board of
Equalization.
• The City:
• Will pay David Wilson 50% of the local sales tax generated at the site on a
quarterly basis, not to exceed $9,500,000, plus interest at 5% per annum.
• May make its payments from any source of funds.
• May make payments sooner than required.
Analysis
Staff has obtained an economic analysis of the proposed agreement from Keyser
Marston Associates (KMA). Based on their experience in reviewing and negotiating
automobile dealership transactions in other southern California cities, KMA concludes
that the assistance requested by David Wilson is reasonable and necessary for the
• dealership to sustain operations at the proposed site.
Sales Tax Sharing Agreement with Newport Beach Lexus
June 8, 2004
Page 4
4
The development cost, while high, is not out of the question for a high volume, luxury,
flagship dealership, especially considering the need for a parking structure for vehicle
storage. The land and development costs, assuming City assistance of $9.5 million,
translate into occupancy costs that are 2.4% of sales. This is significantly above the
national average of 1.05% suggested by the National Association of Automobile
Dealerships. Also assuming City assistance as requested, profit is projected at 1.04%
of sales, significantly below the national average of 1.7 %. Without City assistance,
occupancy costs would rise to 2.8% of sales and profits would be reduced to .06% of
sales, which KMA finds is not a sustainable level. Based on this analysis, staff believes
that the assistance requested would be necessary to make the project financially
feasible, as required by Resolution 99 -64.
For comparison purposes, the amount of assistance the City provided to Fletcher Jones
Motorcars was valued at approximately $750,000. This amount includes only $30,000
for the site provided by the City, because the development constraints and site
preparation requirements were estimated to reduce the market value of the property.
Without these adjustments to the estimated land value, the amount of assistance would
have been higher. With the City assistance package for Fletcher Jones, his projected
occupancy costs were 1.4% of sales. The Memorandum of Understanding with Fletcher
Jones set a target of $2 million of sales tax during the first five years of operation. This
target was met by the beginning of the third year, and total revenue to the City over the
life of this project totals approximately $11.8 million.
The City would be responsible for payments to David Wilson only to the extent that the
dealership is generating sales tax. Mr. Wilson's sales tax projections assume
continuing growth in Lexus sales. Based on these projections, the City would complete
its payments in the 11th year of operation, at which time the City would retain 100% of
the sales tax. The 50% share of sales tax would range from $750,000 to $3.5 million
dollars per year during this time, providing new sales tax revenue to the City totaling
$13.9 million over the 11 years. The City's full share of sales tax for the 12th year of
operation would be $5 million.
KMA did an alternate, more conservative sales tax projection, using only inflationary
growth after sales stabilize in the fifth year of operation. Based on these projections,
the City would complete its payments by year 14. If the City chose to make its
payments on schedule, rather than opting to prepay, more interest would be incurred
with sales increasing at a slower rate. The City still would be receiving new sales tax
revenue, with its 50% share ranging from $725,000 to $1.2 million per year, and the
total over 14 years reaching $13.7 million. The City's full share of sales tax for the 15`"
year of operation would be $2.5 million.
Some of the sales tax to be generated by the Newport Beach Lexus dealership will
come from residents, reducing Newport Beach's "leakage" of sales tax to other cities. I
According to David Wilson, last year his Tustin dealership had over $60 million in sales 1
•
Sales Tax Sharing Agreement with Newport Beach Lexus
June 8, 2004
Page 5
to Newport Beach residents. A local dealership will also provide a much more
convenient service location for Newport Beach Lexus owners.
Project Schedule
David Wilson must make a non - refundable deposit of $3 million for the site on July 1.
He then will have to begin the land use entitlement process, and incur costs for plan
development and traffic and other environmental studies. He has requested that the
City approve the sales tax sharing agreement before he commits this money to the
project, although he is willing to assume the risk that the City may not approve his land
use requests.
The length of time for the land use entitlement process will depend on the level of
environmental documentation required, but should be in the range of six to nine months.
The covenant requires that a building permit be issued no later than 18 months after
recordation of the covenant, and that a certificate of occupancy be issued no later than
18 months after permit issuance. David Wilson intends to close escrow on the property
early in 2005, break ground in mid -2005, and open for business in 2006, when Lexus
plans to introduce new models.
• 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.
Conclusion:
Staff believes the Fletcher Jones experience has demonstrated that assisting a high
sales tax generating business, especially a high - volume luxury automobile dealership, is
a good investment for the City. Although the City would forego some sales tax revenue
in the early years, the portion of sales tax that the City would retain is revenue that the
City would otherwise not receive. In later years, the City would retain 100% of the local
sales tax.
Submitted by:
XX�JA�Oe_
Sharon Wood
Assistant City Manager
Attachments: Resolution 99 -64
0 Agreement & Covenant
A
RESOLUTION NO. 99- 64
A RESOLUTION OF THE CITY COUNCIL OF
NEWPORT BEACH ESTABLISHING AN
DEALERSHIP SALES TAX INCENTIVE PROGRAM
FILE COPY
THE CITY OF
AUTOMOBILE
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 entities 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;
51
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.
6. 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:
1.
• 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: (i) 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.
D. "California Sales and Use Tax Law" shall mean the Bradley -Burns
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 of expenses as may be specifically provided for in
the Reimbursement Agreement and which are related to the
construction or operation of the project.
G. "Fiscal year" shall mean any twelve (12) 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.
!I 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:
(i) 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;
(ii) 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 Law 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:
(i) 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
-4- =.
The State Board of Equalization's administrative and processing fee /
attributable to the City's portion of such taxes (calculated at the same 1
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. APPLICATIONS:
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. PROCESSING AND ACCEPTANCE OF APPLICATIONS/
REIMBURSEMENT AGREEMENT:
A. The City Manager shall, upon receipt of a completed application,
evaluate the proposal and may direct analysis by an independent consultant.
Following 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.
0
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, if 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 1999
t
ennis O'Neil, Mayor
ATTEST:
LaVonne, City Clerk
F:Wsers' caAshare "alReWubonlAuroSafesTmWA999, doc
-7-
AGREEMENT
(NEWPORT LEXUS DEALERSHIP)
This AGREEMENT (NEWPORT LEXUS DEALERSHIP) (the "Agreement ") is entered
into this -SA 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 Zhe 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" f
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 -0007
50740).0) 06/06/04
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.
1121017801 -0003
507903.03 06108104 -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)
112/017801 -0003
507403.03 06/08/04 -3-
IN WITNESS WHEREOF, City and DWW have executed this Agreement to be effective
as of the date first set forth above.
ATTEST:
i
- AIWA
APPROVE AS TO FORM:
By:
ity Attorney
"City"
CITY OF NEWPORT BEACH,
a Califomia municipal corporation
t
By.
lts: D 1�
W W„
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.
PARCEL B:
PARCEL I ON PARCEL MAP RECORDED IN BOOK 64, PAGE 26 OF
ORANGE COUNTY PARCEL MAPS, RECORDS OF ORANGE COUNTY.
1 121017801-0007
507403.03 06/08/04
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
Recorded in Official Records, Orange County
Tom Daly, Clerk- Recorder
" 1i
NO FEE
200500082280710:34am 10/13105
Office of the City Attorney 222 a Doz is
o.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
City of Newport Beach P —W
3300 Newport Boulevard
Newport Beach, CA 92663 -3816
[Space above for Recorder.]
[Exempt from Recordation Fee per Govermnent Code Section 27383.]
COVENANTS, CONDITIONS, AND RESTRICTIONS
AFFECTING INTERESTS IN REAL PROPERTY
This COVENANTS, CONDITIONS, AND RESTRICTIONS AFFECTING INTERESTS
LN REAL PROPERTY (the "Covenant ") is entered into as of this 12th day of September, 2005,
by and between the CITY OF NEWPORT BEACH, a California municipal corporation ("City "),
and DAVID W. WILSON, an individual ( "Owner ") (individually a "Party" 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 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" and
incorporated herein by this reference (the "Site ").
B. On or about June 8, 2004, City and Owner entered into that certain unrecorded
Agreement (Newport Lexus Dealership) (the "Agreement ") authorizing the rccordation 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 June 14, 2005: Final Environmental
Impact Report (SCH2O04081004), General Plan Amendment No. 2004 -004, Planned
Community Text Amendment No. 2004 -003, Use Permit No. 2004 -026, Modification Permit No.
2005 -0303, and Traffic Study No. 2004 -003 (collectively, the "Entitlements ").
112,017801.0005
640319.02 aW08,05
i
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 "AMiated 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 I and
ends on the next succeeding June 30.
i�vo»eo� -twos
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 I, 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.
11:1017801.0005
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 earlier of (i) the date that is
eighteen (18) years following the Commencement Date; or (ii) the date on which this Covenant
is terminated pursuant to Section 5.2 or 5.3, as applicable.
CONDITION TO Ott NER -S RIGHT TO RECEIVE ENAN'f P.41'NIFNTS
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
first 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 first
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.
OWNER'S OBLIGATIONS
3.1 Continuous Operation. 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 situs 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.
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.
u vOrBOI -n 5
-4-
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 .ith La cs 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 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 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
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
t t zrot yam moos
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.
7 Non- Discrimination In the de�elonl itent and oper.-itign of the Lexris.Dealershio.
D X" -' 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 Cotenant I'm ments to Owner
4.1.1 amount of Covenant Patments ht 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 Covenant Payments to Owner after the end of each Quarter
during the Operating Period in an amount equal to fifty percent (50 %) of the Sales Tax for that
Quarter. 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.
(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 April 28, 2005 (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.
4.12 Source -of Pa?ments 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
owing by City to Owner and that City is not pledging any portion of the Sales Tax generated
from the Site to Owner.
�iwi']xot -0005
,.,.,.,. -(,-
a. I ; Pa% ment 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 'fax 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 practicablc 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 aftcr 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 Sates 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
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.
�i�oi�eo�.�noo
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 ,- \cce1eration: Prega%ment 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.
t.- Additional Condition Precedent to C'it '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
la1 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
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
11v017801-00D
(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 tmstayed 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 "Molder ") (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.
City s Remedies 1. oon [)eftult be ONcner 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.
5.3 OAcner's Remedies Upon Default bN Cite 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.
i ivo»aoi -mos
4 Cunmlati\e Remedies: No \Naker 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 Party 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 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 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 C 6's I _iabilm 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,
and no such acceptance or approval shall constitute a warranty or representation by City to
anyone.
t I_iti_ation Exile ses. 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
117/01"/801 -D
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 6ENFR_A-L PROVISIONS
6 1 Inte,1ration and .-intendment 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.
62 Cations 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 Bindim_ Effect. Successors and Assi_ns.. ,;svenntents 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 Counteljtarts 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 � Go%ernin, 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 NIaieme. 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
11110778U 1 -"5
e,m,.. m -I 1 -
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
with a copy to: Rut an & Tucker, LLP
611 Anton Boulevard, 14th Floor
Costa Mesa, CA 92626
Attention: Jeffrey M. Oderman, Esq.
It voi �aoi.aooe
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 EstopWls. 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) 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)
1IP017801-0OOS
IN WITNESS WHEREOF, the Parties have executed this Covenant to be effective as of
the Effective Date,
ATT�ES�T: l
629 y
City Clerk
APPROVE ) � /:TO FO /RM:
By: i� SUS
City Attorney
"CITY"
CITY OF NEWPORT BEACH,
a California municipal corporation
C
"OWNER"
D D W. WILSON, individual
I2A 117EOI -0005
-14-
STATE OF CALIFORNIA )
) ss
COUNTY OF ORANGE )
On J 'et'v-n�v 3o 30
personally appeared �}JiYKi �i
me,fkl/II �, �tou1Ne((iliL
personally known to me o be the
persons) whose namc4) is/aresubscribed to the within instrument and acknowledged to me that
he/sheh4tey executed the same in his/I+� authorized capacity(ies), and that by his/heo+heic
signature(r.) on the instrument the person(sF or the entity upon behalf of which the person(s}
acted, executed the instrument
Wittle3sDlyhaniaildofficial seal.
LEILANI I. BROWN
"ion R 1336673 i
NoGy Pu�7+ - Califomie £_
Orange Cou
My Comm. EipIes Jan 25.
[SEAL]
STATE OF CALIFORNIA
COUNTY OF ORANGE
On
personally;
ss
Notary Public
LEILANII.BROWN `
Commissions 1336673 I
€ Notnry Public- California
Orange Count _
My Canm. F)qir3e Jan 25, 2006
personally known to me to be the
person(s} whose names s /are-subscribed to the within instrument and acknowledged to me that
he1613a4hey executed the same in hisl�r authorized capacity(ia4 and that by his4iff4heir=
signatures} -on the instrument the person(c) -or the entity upon behalf of which the person(s)-
acted, executed the instrument.
Witness my hand and official seal.
Notary Publia/
[SEAL] VIKKI L, MURPHY
COhU i 145`1761
'MAW rusue 0 CA FWM
ORANGE COUNT
Comm. Exp. DEC. 13 2007
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 B:
PARCEL I ON PARCEL MAP RECORDED IN BOOK 64, PAGE 26 OF
ORANGE COUNTY PARCEL MAPS, RECORDS OF ORANGE COUNTY.
112MI yea -0005