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HomeMy WebLinkAbout12 AGREEMENT BETWEEN CITY AND OREMORE OF TUSTIN (DBA TUSTIN TOYOTA)AGENDA REPORT MEETING DATE: July 5, 2011 Agenda Item Reviewed: City Manager Finance Director TO: WILLIAM A. HUSTON, INTERIM CITY MANAGER FROM: CITY MANAGER'S OFFICE i2 SUBJECT: AGREEMENT BETWEEN THE CITY OF TUSTIN AND OREMORE OF TUSTIN, INC. (dba TUSTIN TOYOTA) SUMMARY Approval is requested to enter into an Auto Dealership Agreement ("Agreement") with Oremor of Tustin, Inc. ("Oremor" or dba "Tustin Toyota") for rehabilitation improvements on property located at 36 Auto Center Drive, formerly occupied by Joe's Garage within the Tustin Auto Center, immediately to the west of an existing site operated by Tustin Toyota at 44 Auto Center Drive. The funding source for reimbursing these improvements will come from future excess sales tax revenues generated by Tustin Toyota. RECOMMENDATION Authorize the City Manager and/or Assistant City Manager to execute the Auto Dealership Agreement between the City of Tustin and Oremor of Tustin, Inc., dba Tustin Toyota. FISCAL IMPACT The proposed agreement is a sales tax reimbursement agreement. However, Tustin Toyota will be reimbursed for only that portion of any sales tax growth from Tustin Toyota operations at 36 and 44 Auto Center Drive (collectively, the "Site"), above a reasonable expected sales tax growth rate for the business at the Site and any of its affiliate parties. The City will retain 100% of any sales tax generated at the Site up to $1,070,923 and this sales tax level is adjusted in the Agreement upward by 2.5% per year ("Threshold Level"). The $1,070,923 is selected as the threshold amount because it is equal to the dealership's sales tax levels averaged over the last three years and reflects the recent recession. Staff felt that using earlier years, which were not affected by the most recent economic conditions, would be an inappropriate stable basis for determining a Threshold Level for providing assistance to Tustin Toyota. The Agreement proposes that Tustin Toyota be reimbursed 80% of any actual excess sales tax generated on the Site greater than the Threshold Level in years 1 through 3, with the City retaining twenty percent (20%) of the excess sales tax. In years 4 through 10, Agreement between Tustin Toyota and City July 5, 2011 Page 2 Tustin Toyota will be reimbursed fifty percent (50%) of any actual excess sales tax generated on the Site greater than the Threshold Level with the City retaining fifty percent (50%). Tax generated from the sale of vehicles is a major revenue source for the City's General Fund which has been impacted by the lower than normal auto sales during the recent recession. Staff has determined that the assistance level is reasonable. No other source of funds is proposed to be used to reimburse Tustin Toyota. While the City could forego some sales tax revenue growth in the early years, if Tustin Toyota grew at a much faster rate than anticipated or has been normal in non-recession years, the portion of the sales tax that the City will retain as revenue is revenue that it would otherwise not have received. As a result, the proposed assistance program to Tustin Toyota is not a windfall or bail-out of this automobile dealership, but rather encourages the dealer to outperform its sales projections thereby increasing the level of City sales tax received ultimately from the business and any of its affiliates. BACKGROUND Oremor is the owner of Tustin Toyota located within the Tustin Auto Center at 44 and 36 Auto Center Drive. Tustin Toyota has been a significant contributor to the City's tax base and employment base, employing over 152 people. Tustin Toyota is requesting assistance from the City as a result of a major construction project at 36 Auto Center Drive (formerly Joe's Garage and Museum). In an effort to compete in the marketplace, and in order to meet Toyota Motor Corporation factory requirements and keep a presence in Tustin, Oremor recently purchased Joe's Garage and Museum located 36 Auto Center Drive ("Purchased Property") immediately adjacent to its existing site at 44 Auto Center Drive. The Purchased Property was less than ideal as its chief function was a museum and catering hall. The Purchase Property will necessarily require major renovations to become useful for Tustin Toyota's expansion for auto dealership functions and to meet its new factory requirements. Additional challenges have also been presented in navigating the many easements associated with the Purchased Property. While the acquisition price of the Purchase Property was $9,800,000, Tustin Toyota did not seek assistance for the acquisition as others have requested in the past. Tustin Toyota anticipates that the total cost associated with converting the Purchased Property to support expanded Tustin Toyota operations, including a new automobile showroom and service drive, will be approximately $8,000,000. Tustin Toyota is requesting City assistance in reimbursing a portion of certain hard construction costs associated with Agreement between Tustin Toyota and City July 5, 2011 Page 3 the renovation. The total anticipated hard costs are $5,598,325. Tustin Toyota is seeking the potential to be reimbursed from future sale tax growth on its two sites as a result of certain improvements up to a maximum amount of $2,800,000. The Site (including the existing site and Purchased Property, collectively the "Site"), is owned by Diego Tustin, LLC ("Diego Tustin") and leased to Oremor pursuant to a separate Lease at 44 Auto Center Drive and a Lease Agreement for 36 Auto Center Drive (the "Leases"). Provisions of the Agreement will require the Leases to be extended and operational for the term of the Agreement and, as a condition to any commencement of assistance payments to Tustin Toyota, Diego Tustin will be required to consent to the improvements being made by Tustin Toyota and the proposed terms and conditions under which the auto dealership agreement between Tustin Toyota and the City is structured. The property at 36 Auto Center Drive has been unoccupied since being vacated by Joe McPherson as a result of his death. The Site occupies a high visibility location in the westerly portion of the Tustin Auto Center. Any further deterioration of the buildings, facilities, and improvements (collectively the "Existing Improvements") on the Site will have a negative impact on the Tustin Auto Center. Tustin Toyota has already made a significant investment in acquisition of the Purchased Property and rehabilitating the existing improvements will significantly update and reconfigure its facilities for the occupancy of Tustin Toyota. Ensuring occupancy of the Site and rehabilitation of the existing improvements, as contemplated by this Agreement, will have a positive economic and physical impact on the Tustin Auto Center. Tustin Toyota is not seeking additional reimbursement of any new property taxes generated as a result of its acquisition of the Purchased Property, its construction project on the Site, or any necessary purchases of personal property that will also positively affect the City's property tax base (i.e., service lifts, shop equipment, car wash, etc.). Upon completion of construction of the proposed improvements, 18-23 new jobs are expected to be generated on the Site. The proposed agreement is a sales taxes reimbursement agreement. Major terms of the Agreement are as follows: Tustin Tovota • Will be responsible for funding, designing, and constructing all improvements. • Will continue to operate the dealership on the Site for a minimum term of ten (10) years with extensions of Leases necessary to ensure this term and, as a condition of any Agreement between Tustin Toyota and City July 5, 2011 Page 4 sales tax reimbursements by the City, shall designate the Site as a point of sale for all transactions, and shall use its best efforts to designate Site as the situs for all leasing transactions. The Agreement also requires both Tustin Toyota and the property owner to enter into and record a covenant regarding the intended use of the Site for the Tustin Toyota dealership for the term of the Agreement. • Will provide the City with copies of all reports filed with the State Board of Equalization. City of Tustin • The City will retain 100% of sales tax up to $1,070,923, to be adjusted upward by 2.5% per year (the "Threshold Level"). Tustin Toyota will be reimbursed up to an amount not to exceed $2,800,000 for certain identified improvements to 36 Auto Center Drive from any excess sales tax generated on the Site. Excess sales tax is the difference between the total sales tax actually received by the City for the Site annually and the Threshold Level for that year. There is no City guarantee to provide the maximum reimbursement if required Threshold Levels are not reached or sales tax growth occurs inadequate to make the maximum assistance over the ten year term of the proposed Agreement. • Tustin Toyota will be reimbursed from 80% of the excess sales tax greater than the Threshold Level in Years 1 through 3 with the City retaining 20% of the excess sales tax, and 50% in Years 4 through 10, with the City retaining 50% of the excess sales tax. The proposed Agreement will terminate the earlier of: 1) when the aggregate annual reimbursement equaling $2,800,000 has been reached, or; 2) upon the Annual Assistance Payment Termination Date as defined in Section 4.9 of the Agreement, or 3) upon termination of the Leases; 4) or ten years after the issuance of a Certificate of Occupancy of finalization of building permits for the improvements being proposed. Tustin Toyota will not receive an annual reimbursement from the City for any year in which excess sales tax is not generated. Tax generated from the sale of vehicles is a major revenue source for the City's General Fund which has been impacted by lower sales during this recession. No other source of funds is proposed to be used to reimburse Tustin Toyota. Based on current Tustin Toyota sales projections, it is not likely that the maximum $2,800,000 assistance requested by Tustin Toyota could be reached. However, with an annual growth rate of 4%, the projected level of assistance could reach a total of $741,867. If sales tax generated by Tustin Toyota grows at a Agreement between Tustin Toyota and City July 5, 2011 Page 5 rate of approximately 8.5%, the maximum assistance would be achieved in Year 10. For comparison purposes, Tustin Toyota sales tax growth rates between 2003 and 2006 were substantially higher than 8.5%. Upon completion of the City's maximum reimbursement assistance or the end of the term of the Agreement, the City would again retain 100% of any sales tax generated on the Site. Environmental Review The proposed Agreement is not a project defined by CEQA. According to the Department of Community Development, improvement plans being processed through the Department of Community Development would be exempt from CEQA as a ministerial project under Section 15268. Christine Shingleton Assistant City Manager Attachment AUTO DEALERSHIP AGREEMENT BETWEEN THE CITY OF TUSTIN AND OREMOR OF TUSTIN, INC. (dba TUSTIN TOYOTA) The Auto Dealership Agreement ("Agreement") is hereby made and entered into as of , 2011 between the City of Tustin, a California municipal corporation ("City"), and Oremor of Tustin, Inc. a California Corporation ("Tustin Toyota"). The City and Oremor of Tustin are sometimes referred to in this Agreement individually as the "Party" and collectively as the "Parties". The Parties agree as follows: 1. SUBJECT OF THE AGREEMENT 1.1. Background 1.1.1. Tustin Toyota is the owner of an existing automobile dealership business in good standing and has conducted an automobile dealership business within the Tustin Auto Center at 44 Auto Center Drive ("Existing Site") in the City of Tustin ("Tustin"), California. Tustin Toyota has been a significant contributor to City of Tustin's tax base and employment base. 1.1.2. Tustin Toyota is expanding its operations by purchasing, rehabilitating, and converting the property formerly known as Joe's Garage and Museum, which was a museum and catering hall, located within the Tustin Auto Center property located at 36 Auto Center Drive (the "Purchased Property"). Tustin Toyota intends to make major renovations to the existing facilities in order to operate the facility having auto dealership functions. 1.1.3. The Existing Site and Purchased Property shall also be collectively referred to in this Agreement as the "Site" as described in the Legal Description attached hereto as Attachment 1 and incorporated herein. Tustin Toyota's automobile dealership operations and those of an "Affiliated Party" on either Existing Site or Purchased Property may also be referred to as the "Business". 1.1.4. Tustin Toyota entered into that certain Lease for the Existing Site with Diego Tustin LLC (the "Property Owner"), pursuant to which the Property Owner agreed to lease and Tustin Toyota agreed to lease the Existing Site for a minimum period of 5 years through January 31, 2012 with three, five year options to extend the 1 term of the Lease. Tustin Toyota also entered into that certain Lease Agreement for the Purchased Property with Diego Tustin LLC for a period of five (5) years commencing on December 15, 2010 with no provisions for an extension. The Lease and Lease Agreement shall be collectively referred to as the "Leases"). Nothing in this Agreement, nor any action of the City in furtherance of this Agreement shall be construed as making the City a party to the Leases in any manner whatsoever. The City shall have no obligation under the Leases and shall not be responsible for any actions taken by Property Owner and/or Tustin Toyota pursuant to the provisions of the Leases. 1.1.5. The Purchased Property has been recently unoccupied, and has not seen significant maintenance since the Joe's Garage vacated the property. The Purchased Property occupies a high visibility location adjacent to the Interstate 5 on the southerly border of the Tustin Auto Center. This is a prominent location in the Tustin Auto Center and has a strong influence on establishing and setting the image for other properties with the Tustin Auto Center. 1.1.6. Tustin Toyota proposes to rehabilitate the Existing Improvements on the Site. The City recognizes that ensuring occupancy of the Site and rehabilitation of the Existing Improvements as contemplated by this Agreement will have a positive economic and physical impact on the Tustin Auto Center. 1.2. Purpose of Agreement The purpose of this Agreement is to provide a financial mechanism under which Tustin Toyota will be provided an incentive to make improvements on the Site. Tustin Toyota will advance funds for rehabilitation of Existing Improvements on the Site (the "Rehabilitation Work") and the City, pursuant to conditions in the Agreement, will reimburse Tustin Toyota in the future for a portion of said advance of funds based on a percentage of the amount of future sales tax generated by the Business on the Site above threshold amounts as provided in this Agreement which generally reflect estimated sales tax revenues the City would have derived from the Business had the Business remained at the Existing Site. The purpose and intent of this Agreement is consistent with the goals stated in the City's General Plan since it will: (1) revitalize a commercial property and eliminate the condition of a vacated and underutilized property; (2) promote the continued maintenance, marketing and development of the Tustin Auto Center as a regional retail destination; (3) retain and create jobs; and, (4) promote the maintenance and expansion of the City's economic base to ensure long-term stability and maintenance of City revenues by retaining a business in the City which will contribute to the City's economic growth and employment opportunities. Provision of financial assistance as proposed in this Agreement will preserve and enhance the City's municipal revenues in that: 2 1. An existing business will be encouraged to maintain and expand its operations and increase sales tax. 2. The City will be able to retain an existing business that might otherwise relocate to another jurisdiction. 3. Assistance will be only provided to reimburse the Business for project costs that make its expansion and relocation within the Auto Center feasible. 4. Assistance will only be provided from incremental sales tax generated as a result of the business expansion within the Tustin Auto Center. 1.3. Definitions Capitalized terms used in this Agreement and not otherwise defined shall have the meanings set forth in Attachment 2. 1.4. Parties to the Agreement 1.4.1. City. The City is a pubic body, corporate and politic, exercising governmental functions and powers and organized and existing under the State of California. The principal office and mailing address of the City is 300 Centennial Way, Tustin, CA 92780. "City", as used in this Agreement, includes the City of Tustin and any assignee of or successor to its rights, powers and responsibilities. 1.4.2. Tustin Tom. Oremor of Tustin, Inc., a California Corporation (dba "Tustin Toyota), is authorized by a Major Motor Vehicle Manufacturer Franchiser (the "Major Motor Vehicle Manufacturer Franchiser" or the "Toyota Motor Corporation") to conduct Business at the Site. The principal office and mailing address of Tustin Toyota for purposes of this Agreement is 44 Auto Center Drive, Tustin, CA 92782. Attention: RJ Romero, President. 1.5. Representations of Tustin Toyota Tustin Toyota represents and warrants to the City that it has the experience, qualifications and legal status necessary to perform pursuant to this Agreement and represents and warrants as follows: 1.5.1. Tustin Toyota and the Business are duly incorporated and in good standing under the laws of the State of California and have duly authorized, executed and delivered this Agreement and any and all other agreements and documents required to be executed and delivered in order to carry out, give effect to, and consummate the transactions contemplated by this Agreement. 3 1.5.2. Tustin Toyota or the Business does not have any material contingent obligations or any material contractual agreements which could materially adversely affect its ability to carry out its obligations hereunder. 1.5.3. There are no material pending threatened legal proceedings, so far as is known to Tustin Toyota, to which Tustin Toyota or the Business is or may be made a party or to which any of its property is or may become subject, which has not been fully disclosed in the material submitted to the City which could materially adversely affect the ability of Tustin Toyota or Business to carry out its obligations hereunder. 1.5.4. There is no action or proceeding pending or, to Tustin Toyota's best knowledge, threatened, looking toward the dissolution or liquidation of Tustin Toyota or the Business, and there is no action or proceeding pending or, to Tustin Toyota's best knowledge, threatened, by or against Tustin Toyota or the Business which could affect the validity and enforceability of the terms of this Agreement, or materially and adversely affect the ability of Tustin Toyota and the Business to carry out its obligations hereunder. 1.5.5. Tustin Toyota is an authorized Toyota Motor Corporation dealership business, in good standing with the Toyota Motor Corporation. Each of the foregoing items, inclusive, shall be deemed to be an ongoing representation and warranty. Tustin Toyota shall promptly advise the City in writing if there is any change pertaining to any matters set forth or referenced in the foregoing items. 2. REHABILITATION OF THE SITE 2.1 Responsibility for Rehabilitation Work. Tustin Toyota as the Business, with any required authorization of the Property Owner as required by the Leases, shall promptly begin and thereafter diligently prosecute to completion the Rehabilitation Work on the Site, within the respective schedule times and as more fully described in the "Scope of Development" which is attached hereto as Attachment 3 and incorporated herein by reference. 2.2 Acknowledgement of Governmental Requirements. Tustin Toyota acknowledges and agrees that all Rehabilitation Work on the Site shall be in compliance with all necessary governmental requirements including but not limited to, zoning and building code requirements of the City (the "Governmental Requirements"). Nothing in this Agreement shall preclude or limit in any way the right of the City to approve, disapprove, or condition its approval of any matter submitted by or on behalf of Tustin Toyota in connection with or relating to the Rehabilitation Work which may require a 4 subsequent independent exercise of discretion by the City or any other government or regulatory entity, agency, or department ("Governmental Authority"). 2.3 City Has No Responsibility for Rehabilitation Work. All costs for planning, designing, developing, and constructing Rehabilitation Work on the Site pursuant to this Agreement shall be borne solely by Tustin Toyota and nothing herein shall imply, nor be construed, to place such responsibility on the City. 2.4 Certificate of Completion. After Tustin Toyota completes the Rehabilitation Work, the City following a written request from Tustin Toyota, shall promptly furnish Tustin Toyota with a Certificate of Completion in the form approved by the City. Such Certificate shall not be construed as a notice of completion as described in California Civil Code Section 3093. 3. USE OF THE SITE 3.1 Use. Tustin Toyota owns and operates the "Use" or "Business". The qualifications, identify and nature of the Business of Tustin Toyota and the Use are of particular concern to the City. It is because Tustin Toyota desires to remain in Tustin and expand the Use on the Existing Site to include the Purchased Property that the City is entering into this Agreement. Therefore, the City's obligations under this Agreement shall not inure to the benefit of any voluntary or involuntary successor in interest, without the prior written consent of the City, in its sole discretion provided that such successor in interest will continue the Use or Business of the Site as a Toyota dealership. 3.1.1 Covenant. Tustin Toyota covenants and agrees for itself, and any successor, assignee, or successor in interest to the Site or any part thereof, that during the Rehabilitation Work and for the Term of the Agreement, Tustin Toyota and its successors and assignees shall devote the Site to the Uses specified in this Agreement and in the Agreement to be recorded affecting real property (the "Covenant", Attachment 4). Specifically, the Site shall be used for a Tustin Toyota automobile dealership as described in Section 1.1.2 of the Agreement with service and repair facilities, inventory and sales personnel sufficient to satisfy and respond to customer demand. During the Term of this Agreement, operation of the Site for the Use by Tustin Toyota shall be required to continue without an interruption for a period greater than thirty (30) days. Executed copies of all lease extensions shall be provided to the City. To the maximum extent permitted by law, Tustin Toyota shall designate the Site on its Sales Tax Statements as the point of sale for all sale transactions arising out of the Business or any Affiliated Party operations on the Site. In addition, Tustin Toyota shall use commercially reasonable diligence in an effort to cause each Affiliated Party to 5 designate the City of Tustin on all reports required to be filed with the State Board of Equalization ("SBE") as the site of the construction contracts for Tustin Toyota or the leasing of any new or used motor vehicles where the transaction is generated from the Site, as applicable. Additionally, Tustin Toyota shall comply with all applicable federal, state, and local laws, ordinances, and regulations regarding the operation and Use of the Site ("Governmental Requirements"). The foregoing covenants shall run with the land and be an obligation accepted by the Property Owner and its successors in interest. In the event the City declares an Event of Default with respect to the Covenant, and either Tustin Toyota or Property Owner fails to cure said Event of Default as provided for in Section 5.1.1 of this Agreement, the City shall have the right to terminate this Agreement without obligation to make future financial assistance reimbursement payments pursuant to the Agreement. 3.2 Maintenance and Repair of the Site. 3.2.1 General. During the Term of this Agreement, Tustin Toyota shall keep and maintain the Site including landscaping and improvements on the Site, at its sole cost and expense, in a first class condition, free from accumulation of debris, weeds, graffiti and waste materials, and shall perform all repairs and replacements as necessary. Tustin Toyota shall also operate the Site in a manner that does not violate any term of any covenants, conditions, and restrictions applicable to the Site or the Tustin Auto Center. Minimum maintenance standards required to be complied with which apply to all buildings, signage, lighting, landscaping, irrigation of landscaping, architectural elements, and all other improvements on the Site shall be as follows: (a) Improvements shall be maintained in conformance with reasonable commercial development maintenance standards for first class automobile dealerships including but not limited to, painting and cleaning of all exterior surfaces and exterior facades. (b) Landscape maintenance shall include, but not be limited to, watering, irrigation, fertilization, mowing, edging, trimming of grass, tree and shrub pruning, trimming and shaping of trees and shrubs to maintain a healthy natural appearance and safe road conditions, irrigation coverage replacement as needed, control of weeds in all planters or other planted areas, and staking and support of trees. (c) Clean-up maintenance shall include, but not be limited to, maintenance of all sidewalks, paths and other paved areas in a clean and weed-free condition, maintenance of all areas free of dirt, mud, trash and debris or other matter which is unsafe or unsightly, removal of all trash and litter and other debris from improvements and landscaping. 6 3.3 Government Code Section 53084 Compliance: Indemnification. Tustin Toyota warrants and represents to City that no other vehicle dealership owned or operated in whole or part by Tustin Toyota or any person or entity affiliated with Tustin Toyota will be "relocating" from another jurisdiction in the "market area" to the City of Tustin, within the meaning of California Government Code Sections 53084 or 5304.5 as result of Tustin Toyota's activities pursuant to this Agreement or this covenant and accordingly, that the Agreement and this covenant will not result in a violation of statute. Tustin Toyota 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. 3.4 Non Discrimination. In the operation of Tustin Toyota, Tustin Toyota agrees not to violate applicable laws that prohibit the 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. FINANCIAL ASSISTANCE TO TUSTIN TOYOTA 4.1 Maximum Level of Assistance. In consideration of and subject to the terms and conditions of this Agreement, City shall provide Tustin Toyota with the ability to obtain a maximum level of assistance in an aggregate total sum of Two Million Eight Hundred Thousand Dollars ($2,800,000) for Rehabilitation Work identified in Attachment 2 with the method of payment as outlined in Section 4.3 of this Agreement. 4.2 Term of Assistance. The City's assistance to Tustin Toyota will be limited to first of these events occurring, 1) the maximum level of assistance allowed pursuant to Section 4.1 of this Agreement has been reached, or; 2) upon the Annual Assistance Payment Termination Date as defined in Section 4.9 of the Agreement, or 3) upon termination of the Leases (the "Term of Assistance"). 4.3 Basis for DetermininE Annual Assistance Payment. The annual amount of assistance to Tustin Toyota will be based on sales and use tax ("Sales and Use Tax") generated by Tustin Toyota or an "Affiliated Party" on the Site in excess of the Threshold Level as defined in Section 4.4 of this Agreement (the "Annual Assistance Payment"). Only sales tax allocated to the City of Tustin as the 7 point of sale by Tustin Toyota for Tustin Toyota or an Affiliated Party will be utilized to determine eligibility and the amount of any Annual Assistance Payment to Tustin Toyota. Tustin Toyota shall receive annual assistance in the amount of Eighty Percent (80%) of the sales and use tax the City receives from the Use on the Site in excess of the annual Threshold Levels specified in Section 4.4 of this Agreement during Years 1 through 3 and Fifty Percent (50%) of the sales and use tax the City receives from the Use on the Site subsequently. Tustin Toyota shall not receive any assistance in any year in which the sales tax attributable to the Tustin Toyota's business operation on the Site is less than the Threshold Level for such year. 4.4 Threshold Level. The annual Threshold Levels are as specified in this Section. The Threshold Level is based on an assumed baseline Threshold Level of sales tax from taxable sales equal to which shall adjust annually as follows: Calendar Years Baseline -Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Threshold Levels (Sales and Use Tax) $1,070,923 $1,097,696 $1,125,138 $1,153,267 $1,182,098 $1,211,651 $1,241,942 $1,272,991 $1,304,815 $1,337,436 4.5 Definition of Excess Sales and Use Tax and Annual Percentage Assistance Payment Percentage. Excess Sales and Use Tax, determined annually, is the difference between the total sales and taxes actually received by the City of Tustin for Tustin Toyota annually pursuant to Section 4.3 of this Agreement and the Threshold Levels by year identified in Section 4.4 of this Agreement (the "Excess Sales and Use Tax"). 8 The annual assistance payment percentage used to determine the City's Annual Assistance Payment to Tustin Toyota shall be equal to Eighty Percent (80%) in Years 1 through 3 and Fifty (50%) in Year 4 through 10 of the annual Excess Sales and Use Tax ("Annual Assistance Percentage"). 4.6 Application of Annual Assistance Payment. Provided that the total maximum of any Annual Assistance Payment shall not exceed the maximum level of assistance as defined in Section 4.1, the Annual Assistance Payment in any year shall be equal to the Annual Assistance Percentage multiplied by the Excess Sales and Use Tax received from the City in that year, as defined in Section 4.5. In no event shall Tustin Toyota receive Annual Assistance Payment with an accumulated value greater than the maximum level of assistance specified in Section 4.1 or for a term longer than specified in Section 4.2. 4.7 Computation of Annual Assistance Payment. For any yeax that the Tustin Toyota is entitled to receive an Annual Assistance Payment, the payment shall be the lesser of: 1. The Annual Assistance Percentage multiplied by the Excess Sales and Use Tax for that year, or 2. An amount which, when added to the Annual Assistance Payment from all prior years, does not exceed the Maximum Level of Assistance. In any year, this amount is equal to that portion of the Maximum Level of Assistance not yet received during all previous years. Attachment 5 presents two illustrative examples of the calculation methodology for determining the Annual Assistance Payments. Example No. 1 is based on the projection of Tustin Toyota sales and uses taxes provided by Tustin Toyota with an average annual growth factor of 4.00%. Example No. 2 optimizes the average annual growth rate factor for sales and use tax at 8.56% which is necessary for Tustin Toyota to achieve the Maximum Level of Assistance. The actual sales and use tax Annual Assistance Payments may differ from the projections used in these two examples. 4.8 Basis for Measuring Sales Tag Receipts by City. Annual Assistance Payments to the Tustin Toyota shall be based on quarterly sales tax returns filed with the California SBE for all Tustin Toyota business operations on the Site and required pursuant to California Revenue and Taxation Code, Section 6452 (Subject to audit by the SBE), and the actual amount of sales tax actually allocated and paid to the City. A copy of the quarterly sales tax return ("Sales Tax Statement") shall be supplied by Tustin Toyota to the City at the same time as Tustin Toyota 9 delivers the original Sales Tax Statement to the SBE. The Sales Tax Statement, subject to audit by the City, or the SBE, and any resulting corrections will be utilized each year by the City for purposes of determining the level of assistance. 4.9 Schedule of Annual Assistance Payments. Annual Assistance Payments shall be made to Tustin Toyota, where Tustin Toyota is eligible and all Conditions Precedent to Annual Assistance Payments as prescribed by Section 4.12 have been met. The first Annual Assistance Payment will be measured from the first four calendar quarters next following the issuance of the Certificate of Completion, and will be paid within sixty (60) days after the close of such four quarters (the "Year"), or within any extended period of time as determined by the City necessary for the City to confirm with the State Board of Equalization the amount of sales tax actually allocated and paid to the City. For example, if the Certificate of Completion is issued on February 10, 2012, the first four quarters next following the Certificate of Completion shall be: April 1, 2012 to June 30, 2012; July 1, 2012 to September 30, 2012; October 1, 2012 to December 31, 2012; and January 1, 2013 to March 31, 2012. In the above example, the first Annual Assistance Payment will be due and payable on May 30, 2013, or within any extended period of time as determined by the City necessary for the City to confirm with the State Board of Equalization the amount of sales tax actually allocated and paid to the City. The Annual Assistance Payments for each succeeding Year shall be paid to Tustin Toyota within sixty (60) days after the close of each such succeeding Year, or within any extended period of time as determined by the City necessary for the City to confirm with the State Board of Equalization the amount of sales tax actually allocated and paid to the City. City shall exercise its best efforts to verify the amount of Sales Tax attributable to the Tustin Toyota business operation and City's receipt of payment from the State. Annual payments, where eligible, shall continue until expiration of the Term of Assistance contained in Section 4.2 of the Agreement or until Tustin Toyota receives the maximum assistance pursuant to Section 4.1, or upon Termination of the this Agreement, whichever occurs earliest. Whether or not Tustin Toyota receives the maximum level of assistance pursuant to Section 4.1, payments shall terminate pursuant to Section 5.2 or upon actual payment of the Annual Assistance Payment for such tenth (10~') Year, as applicable. The City shall not have an obligation to provide any level of assistance in any year that the Sales Tax received by the City does not exceed the Threshold Level, and all conditions precedent to Annual Assistance Payments are met pursuant to Section 4.12. Neither the term of this Assistance as defined in Section 4.2, nor the Term of this Agreement as defined in Section 6.9, shall not be extended because of failure of Tustin Toyota to exceed the Threshold Level in one or more years. 10 4.10 Effect of Changes in State Law. In the event that California Law governing the payment and/or distribution of retail sales tax is amended in such a manner as to reduce the amount of sales tax apportioned and paid to the City based on point of sale ("Sales Tax Change"), Tustin Toyota shall be entitled to assistance payments only if sales tax revenues apportioned and paid to the City based on the point of sales for Tustin Toyota in a payment year meet the applicable Threshold Level in Section 4.4, above, for the appropriate year in which payment is due. To the extent that a Sales Tax Change reduces the revenue received by the City to below the Threshold Level or causes a reduction in payments to Tustin Toyota, all assistance payments which have not become due and payable to Tustin Toyota pursuant to the payment formula outlined herein shall no longer be an obligation of the City. 4.11 Source of Annual Assistance Pavments. The City reserves the right to make annual payments on behalf of the City from whatever sources it deems appropriate. The reference to sales tax for purposes of computing annual payments is solely for computational purposes. Sales Tax revenue allocated to the City is not pledged. 4.12 Conditions Precedent to Annual Assistance Pavments. City's obligation to make Financial Assistance Payments pursuant to Sections 4.1 and 4.7 of this Agreement shall be contingent and conditional upon Tustin Toyota's performance of its obligations set forth in Section 2 of the Agreement and the following conditions ("Conditions"): 1. A Certificate of Occupancy and/or Final Certificate of Completion for the Rehabilitation Work shall have been issued by the City. 2. No Event of Default on the part of Tustin Toyota shall currently exist, nor shall there by any condition or circumstance that with notice or the passage of time or both, constitute an Event of Default on the part of the Tustin Toyota. 3. Tustin Toyota shall have delivered to the City the quarterly Sales Tax Statements required by the City pursuant to Section 4.8 of the Agreement. 4. Tustin Toyota shall have delivered to the City a cost certification ("Cost Certification") which shall evidence that Tustin Toyota has expended not less than Five Million Five Hundred Ninety-Eight Thousand Dollars ($5,598,000) for payment of Rehabilitation Work identified and which shall substantially conform to the work and Development Budget contained in Attachment 3, it being understood and agreed that 11 Tustin Toyota shall have the right to re-adjust line items, apply savings in any line items to over-runs in other budget line items and adjust the Development Budget as may be required from time-to-time to reflect actual costs of the Rehabilitation Work. 5. Tustin Toyota shall have presented evidence of payment of all secured and unsecured real property taxes and assessments accessed and levied on or against all portions of the Site. No ad valorem property taxes or assessments legally and validly assessed with respect to the Site shall be delinquent at the time of delivery of any Assistance Payment. Nothing contained in this Agreement shall be deemed to limit Tustin Toyota from contesting the validity or amount of any tax, assessment, encumbrance or lien, or to limit the remedies available to Tustin Toyota in respect thereto. 6. Tustin Toyota shall have delivered to the City reasonable evidence that Tustin Toyota is then in good standing and qualified to do business in the State of California. 7. Tustin Toyota has demonstrated that it has active Leases on the Site reflecting the Term of this Agreement and is in good standing with the Property Owner on the Leases for the Site. 8. Tustin Toyota continues to use and occupy the Site as a point of sale for all Sales and Use Taxes, and tangible personal property originated by Tustin Toyota and/or the Tustin Toyota Business. In the event that any or all of the conditions above shall not be satisfied or shall no longer be satisfied, the City shall be relieved of its obligations under this Agreement for the payment of any Annual Assistance Payment that may otherwise have been due and payable. 5. DEFAULT AND REMEDIES 5.1 Defaults. It shall constitute a Default under this Agreement ("Event of Default") if: 5.1.1 Either Party fails to perform any obligation, term, covenant, or provision under this Agreement within thirty (30) days after written notice of any such failure has been given by the injured Party, or if more than thirty (30) days is required to cure such failure, if the Party fails to commence such cure as promptly as practical and thereafter diligently pursue such cure and thereafter complete such cure within thirty (30) days after such notice; or 12 5.1.2 Tustin Toyota is or becomes bankrupt or insolvent or if any involuntary proceeding is brought against Tustin Toyota, or Tustin Toyota makes an assignment for the benefit of creditors, or institutes a proceeding under or otherwise seeks the protection of federal or state bankruptcy or insolvency laws, including filing of a petition for voluntary bankruptcy or instituting a proceeding for reorganization or arrangement. 5.1.3 Tustin Toyota abandons or vacates the Site. 5.1.4 Tustin Toyota fails to provide evidence of payment of all secured and unsecured real property taxes and assessments related to the Site when due and prior to delinquency. 5.2 City Remedies. Upon occurrence of an Event of Default by Tustin Toyota the City will be entitled at its option to exercise any or all of the following remedies: 5.2.1 Terminate the Agreement by written notice to Tustin Toyota, in which case, the City's obligation to make Annual Assistance Payments to Tustin Toyota for any period of time after occurrence of the Event of Default shall be terminated and discharged. 5.2.2 Suspend an Annual Assistance Payment, otherwise due and payable for the period of time that Tustin Toyota remains in Default. If City suspends its payments in accordance with the terms of this clause, then upon Tustin Toyota's cure of such Default, City shall resume its payment obligations but shall have no obligation to make a payment for any year during which the City's obligations to make payments was so suspended. 5.2.3 Specific Performance. Seek specific performance of the obligations under the Agreement. 5.2.4 All other rights and remedies. Exercise any of its rights and remedies at law or in equity, or otherwise provided in this Agreement. 5.3 Tustin Toyota Remedies. Upon occurrence of an Event of Default by City, Tustin Toyota shall be entitled to any or all of the following remedies: (1) terminate this Agreement by written notice to City; (2) seek mandamus or specific performance of this Agreement; provided that Tustin Toyota shall not be entitled to recover any consequential damages and provided that City's failure to make timely Annual Assistance Payments or City's failure to perform any of its other obligations hereunder shall not cause the acceleration of any anticipated future Annual Assistance Payments 13 by City to Tustin Toyota. To the maximum extent permitted by law, City shall be permitted to repay any of the Annual Assistance Payments without penalty. 5.4 Limitations on City's Liabilities. Tustin Toyota acknowledges and agrees that this Agreement shall not be deemed or construed as creating a partnership, joint venture or similar association between Tustin Toyota and City, and the relationship between the Parties shall remain solely that of contracting Parties, and City neither undertakes nor assumes any responsibility pursuant to this Agreement to review, inspect, supervise, approve, or inform Tustin Toyota of any manner in connection with the Rehabilitation Work or operation of the Tustin Toyota automobile dealership on the Site other than as expressly provided for herein. 6. GENERAL PROVISIONS 6.1 Integration and Amendment. This Agreement constitutes the entire agreement between the Parties pertaining to the subject matter hereof. This Agreement may not be modified, amended, supplemented, or otherwise changed except in writing executed by both Parties. 6.2 Notices. Any notice requirement set forth herein shall be deemed to be satisfied three (3) days after mailing of the notice first-class United States certified mail, postage prepaid, or the next business day after the notice or communication has been delivered by hand or sent by telecopy or overnight delivery service, addressed to the appropriate party as follows: Notice to City: City of Tustin 300 Centennial Way Tustin, California 92780 Attention: Assistant City Manager With a copy to: Doug Holland, City Attorney 300 Centennial Way Tustin, CA 92780 Notice to Tustin Toyota: RJ Romero, President Tustin Toyota. 36 Auto Center Drive Tustin, CA 92782 Such addresses may be changed by notice to the other Party given in the same manner as provided above. 14 6.3 Attorneys' Fees. If either party brings an action or proceeding to enforce, protect or establish any right or remedy hereunder or under the Agreement, the prevailing party shall be entitled to recover from the other party its costs of suit and reasonable attorneys' fees. 6.4 No Third Parties Beneficiaries. This Agreement is made and entered into for the sole protection and benefit of the City, and Tustin Toyota and there are no intended third party beneficiaries under the Agreement. No other entities, person or persons shall have any rights or obligations hereunder. 6.5 Construction of Words. Except where the context otherwise requires, words imparting the singular number shall include the plural number and vice versa, words imparting persons shall include firms, associations, partnerships and corporations, and words or either gender shall include the other gender. 6.6 Severability/Partial Invalidity. Every provision of this Agreement is intended to be severable. If any provision of this Agreement shall be declared invalid, illegal, or unenforceable by a court of competent jurisdiction, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired. 6.7 Governing Law. This Agreement shall be construed in accordance with and be governed by the laws of the State of California. 6.8 Counterparts. This Agreement may be executed in two or more counterparts, each 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. 6.9. Term. Tustin Toyota's obligations under this Agreement shall terminate and be of no further force and effect upon the first of these events occurring, 1) the maximum level of assistance allowed pursuant to Section 4.1 of this Agreement has been reached, or; 2) upon the Annual Assistance Payment Termination Date as defined in Section 4.9 of the Agreement (the "Term of Assistance"), 3) upon termination of any Leases, or 4) ten (10) years after issuance by the City of a Certificate of Completion for the Rehabilitation Work ("Term"), whichever occurs first, except for the non- discrimination covenants set forth in Section 3.4 which shall remain in full force and effect in perpetuity. 15 IN WITNESS WHEREOF, the Parties have executed this agreement to be effective as of the Effective Date. "CITY" CITY OF TUSTIN By: Its: ATTEST: City Clerk APPROVED AS TO FORM: By: City Attorney "TUSTIN TOYOTA" OREMORE OF TUSTIN dba TUSTIN TOYOTA By: Its: 16 ATTACHMENT 1 LEGAL DESCRIPTION OF 36 AND 44 AUTO CENTER DRIVE 36 AUTO CENTER DRIVE Parcel l together with all tenements, hereditaments, appurtenances thereto, in the City of Tustin, County of Orange, State of California, as shown on a Lot Line Adjustment No. 93-6, recorded October 6, 1993, as Instrument No. 93-0680195, Official Records of Said County. 44 AUTO CENTER DRIVE Parcel 2 together with all tenements, hereditaments, appurtenances thereto, in the City of Tustin, County of Orange, State of California, as shown on a Lot Line Adjustment No. 93-6„ Recorded October 6,1993 as Instrument No. 93-680195, Official Records of Said County. -1- ATTACHMENT 2 GLOSSARY OF DEFINED TERMS For purposes of this Agreement, the following capitalized terms shall have the following meanings: "Affiliated Party" shall mean any contractor or subcontractor involved in the construction of Rehabilitation Work on the Site and any entity that finances the leasing of vehicles for which the lease transaction originates from the Tustin Toyota automobile dealership on the Site, including but not limited to Toyota Motor Credit Corporation; provided, that there is no requirement that an Affiliated Party have any common ownership interest with or control by Tustin Toyota. "Agreement" shall mean the Agreement between the City of Tustin and Oremor of Tustin, Inc. (Tustin Toyota) including all attachments thereto. "Annual Assistance Payment" shall have the meaning as set forth in Section 4.3 of the Agreement. "Annual Assistance Percentage" shall have the meaning set forth in Section 4.5 of the Agreement. "Business" shall mean the sales, leasing and service facility operated by Oremor of Tustin, Inc. at the Site as a Toyota Motor Corporation franchise commonly known as Tustin Toyota and as set forth in Sections 1.1.1 and 3.1 of the Agreement. "Certificate of Completion" shall mean a certificate substantially in the form provided by the City in Attachment 6 to be issued upon completion of Rehabilitation Work described in Attachment 3. "City" and "City of Tustin" shall have the meaning set forth in Section 1.4. "Complete or Completion" shall mean, with respect to the Rehabilitation Work, the point in time when all of the following shall have occurred as applicable and to the extent required by the City with respect to the Rehabilitation Work and Improvements: (1) submittal to the City of a Cost Certification of the Rehabilitation Work as required by Section 4.12 of the Agreement; (2) recordation of a Notice of Completion by Tustin Toyota, or any Affiliated Party for Rehabilitation Work and sixty (60) days have passed since such recordation; (3) Tustin Toyota has paid all costs in connection with the Rehabilitation Work to Affiliated Parties in full and any mechanics liens that have been recorded or stop notices that have been delivered to Tustin Toyota have been paid, settled or otherwise extinguished, discharged, released, waived, bonded around or -1- insured against; (4) all Rehabilitation Work shall have been completed in accordance with the Agreement; and (5) Issuance by the City of a Certificate of Occupancy to the extent that a certificate of occupancy is required with respect to the Rehabilitation Work required under this Agreement or finalization of any building permits issued for such Rehabilitation Work issuance of a Certificate of Occupancy and the City's final of any required building permits ("Final Completion determination"). "Conditions" shall mean the conditions precedent to the City's obligation to make an Installment as set forth in Section 4.12 of this Agreement. "Cost Certification" shall mean the financial statement prepared and certified by Tustin Toyota's Chief Financial Officer accompanied by any necessary supporting information and data demonstrating to the satisfaction of the City that Tustin Toyota has Rehabilitation Costs consistent with Attachment 3. "Covenant" shall mean the Agreement to Be Recorded Affecting Real Property as said meaning is set forth in Section 3.1.1. "Development Budget" shall mean the costs for completion of the Rehabilitation Work and Improvements as described in the Scope of Development, Attachment 3 of the Agreement. "Excess Sales and Use Tax" shall have the meaning set forth in Section 4.5 of the Agreement. "Event of Default" shall have the meaning as set forth in Section 5.1 of this Agreement "Existing Improvements" shall mean the buildings, facilities and improvements on the Site. "Governmental Authority" shall mean any and all federal, state, county, municipal or local governmental or quasi-governmental bodies and authorities (including the United States of America, the State of California, and any political subdivision, public corporation, district, joint powers authority or other political or public entity) of departments thereof having or exercising jurisdiction over the Parties, the Rehabilitation Work, the Site or such portions thereof as the context indicates. "Governmental Requirements" shall mean all applicable laws, statutes, codes, ordinances, rules, regulations, standards, guidelines and other requirements of any Governmental Authority exercising jurisdiction over the Parties, the Site or any component thereof, including but not limited to the General Plan, the Tustin Municipal Code, any applicable Planned Development regulations for the Site, any entitlements or development Permits, the Tustin Auto Center Master Association Documents and covenants, conditions and restrictions, this Agreement, any other covenants, the -2- Covenant required to be executed pursuant to Section 3.1.1 of the Agreement, all subdivision and tract maps, and all other permits and approvals required to be obtained by Tustin Toyota from all agencies having jurisdiction to commence and complete Rehabilitation Work and, as applicable, to operate and maintain the Site after Completion. "Improvements" shall mean the Existing Improvements and any additional improvements to be rehabilitated or constructed by Tustin Toyota on the Site which will constitute the Rehabilitation Work in accordance with the Scope of Development, Attachment 3 of the Agreement. "Leases" shall be leases that Tustin Toyota has entered into between Oremor of Tustin, Inc. with Diego Tustin, LLC or a successor owner for the properties at 36 and 44 Auto Center Drive. "Major Motor Vehicle Manufacturer Franchiser" means Toyota Motor Corporation. Whenever the terms passenger vehicle or passenger vehicles are used in this Agreement they shall be meant to include passenger automobiles, trucks and sport utility vehicles. "Property Owner" shall have the meaning set forth in Section 1.1.3. "Tustin Toyota" shall have the same meaning set forth in Section 1.4.2. "Quarter" shall mean (i) any of the three month periods during a Year commencing July 1, October 1, January 1, or April 1, or (ii) the quarterly or other periods used by the SBE in calculating or making Sales and Use Tax payments to the City, if such periods differ from the quarters described in clause (i) hereinabove. "Rehabilitation Costs" shall mean the costs for constructing, and completing the Rehabilitation Work in accordance with the Development Budget contained in the Scope of Development, Attachment 3 of this Agreement. "Rehabilitation Work" shall mean the rehabilitation of the buildings and structures on the Site or other works of Improvement upon the Site in accordance with the Scope of Development, Attachment 3 of this Agreement. "Sales Tax Change" shall have the meaning as set forth in Section 4.10 of the Agreement. "Sales Tax Statement" shall mean each quarterly statement to be prepared by Tustin Toyota or any Affiliated Party, in a form reasonably acceptable to the City, and submitted to SBE and City identifying the portion of Sales and Use Tax generated from the Site during the previous quarter as a result of taxable and lease transactions, as set forth in Section 4.8 of the Agreement. -3- "Sales and Use Tax" shall mean for a given Calendar Year, the sum of that portion of sales and use taxes allocated, paid to, and received by the City pursuant to applicable California law including (but not limited to) the Bradley-Bums Uniform Local Sales and Use Tax Law (California Revenue and Taxation Code commencing at Section 6100 et seq.), and any successor law thereto, that arises from taxable sales and lease transactions generated by the operation of the Tustin Toyota on the Site. Notwithstanding the foregoing, the term "Sales and Use Tax" shall not include: (i) the portion of sales and use taxes attributable to the Site that are retained by the SBE 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, any revenues which may in future years be allocated and paid to City but which is restricted by law (but not contract) by an entity other than the City (and binding upon the City) to be used for specific uses (other than the uses provided for in this Agreement) 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. "SBE" shall mean the State Board of Equalization or successor agency with the responsibility for collecting and administering the distribution and payment to the City of Sales and Use Taxes. "Schedule of Performance" shall mean the time frame for completion of the Rehabilitation Work as described in the Scope of Development, Attachment 3 of this Agreement. "Scope of Development" shall mean the description of the Rehabilitation Work as described in Attachment 3 of the Agreement. "Site" shall have the meaning set forth in Section 1.1.3 of the Agreement. "Tustin Toyota" shall have the meaning set forth in Section 1.4.2. "Term "shall have the meaning as set forth in Section 6.9 of this Agreement. "Term of Assistance" shall have the meaning as set forth in Section 4.2 of this Agreement. "Threshold Level" shall have the meaning as set forth in Section 4.3 and 4.4 of the Agreement. "Use" shall mean Oremor of Tustin, Inc, Tustin Toyota or the Business as set forth in Sections 1.4.2 and 3.1 of the Agreement. "Year" shall mean the close of four full consecutive Quarters as it relates to schedule of annual assistance payments as set forth in Section 4.9 of the Agreement. -4- ATTACHMENT 3 SCOPE OF DEVELOPMENT, SCHEDULE OF PERFORMANCE, AND DEVELOPMENT BUDGET TUSTIN TOYOTA 1.0 GENERAL DESCRIPTION The Site is located at 36 and 44 Auto Center Drive as legally described in Attachment 1. 2.0 IMPROVEMENTS 2.1 Definition of Improvements Tustin Toyota shall design and construct or cause to be constructed the Rehabilitation Work on the Purchased Property at 44 Auto Center Drive, which shall substantially conform to the Rehabilitation Work Items and Development Budget set forth in this Scope of Development. Additional requirements may be contained in the conditions of approval of any entitlements or building permits required for the Rehabilitation Work. All Governmental Requirements shall be met and any governmental approvals shall be obtained, where required. The Rehabilitation Work is generally required to modify what was Joe's Garage and Museum, a museum and catering hall, by converting the facilities into an automobile dealership and respond to Toyota Motor Corporation requirements to operate as a franchisee. A list of general Rehabilitation Work items follow: Tustin Toyota 36 Auto Center Drive Scope of Development -Rehabilitation Work Items Phase 1 - Sitework & Earthwork • Demolition • Earthwork and Grading • Street Cleaning/Dust Erosion Control • Site Wet Utilities/Storm Drain • Chain Link Fence • Landscape & Irrigation • Pavement Markings • Asphalt Paving -1- • Site Concrete Phase 2 -Showroom, Service Drive • Concrete Work • Masonry • Structural Steel & Metal Decking • Framing, misc labor & materials • Cabinets & countertops • Caulking • Insulation • Fireproofing • Aluminum Composite Metal Panel • Roofing • Sheet Metal • Doors/Frames/Hardware • Overhead Doors • Special Doors • Glass & Glazing • Lath & Plaster • Drywall/Steel/Studs • Ceramic Tile • Acoustical Ceiling • Flooring • Painting & Wallcovering • Toilet Partitions/Accessories • Fire Extinguishers & Cabinets • Fire Sprinklers • Plumbing • HVAC • Electrical & Lighting • Progressive Cleanup and Dumpsters • Signage and Factory Requirements • Final Cleanup 2.1.1 Compliance with Codes and Conditions. The Rehabilitation Work and all installed Improvements shall be in compliance with all City of Tustin planning, building, electrical, plumbing, mechanical, fire codes and standards, as well as in compliance with any and all applicable Governmental Requirements and governmental agencies having jurisdiction, including, but not limited to, the City of Tustin. -2- (a) The Rehabilitation Work and Improvements shall be designed in which the commercial building will have afirst-class architectural quality and character, both individually and in the context of the surrounding Tustin Auto Center. All public spaces and parking areas shall be designed, landscaped and developed with the same degree of quality. The City and Tustin Toyota will cooperate and direct their consultants, architects and/or engineers to cooperate so as to ensure the continuity and coordination necessary for the proper and timely completion of the Rehabilitation Work on the Site; (b) Tustin Toyota acknowledges the responsibility to obtain any approvals required by any governmental agency, utility or other agency, including the City, which has jurisdiction over all or any portion of the Rehabilitation Work and Improvements ("Governmental Approvals"). 2.2 Schedule of Performance Tustin Toyota shall commence and complete the Improvements in a timely manner and recognize that no Annual Assistance Payments will commence until completion of Rehabilitation Work. 3.0 CHANGES TO SCOPE OF DEVELOPMENT If Tustin Toyota desires to make any changes to the Scope of Development approved by the City, Tustin Toyota shall submit the proposed change(s) to the City for approval. Such changes shall be reviewed in the context of the purpose of the Agreement and applicable provisions of the City of Tustin Municipal Code and shall be approved or disapproved by the City in writing. The Assistant City Manager and/or City Manager shall have the authority to approve minor modifications to the Scope of Development in writing which are determined to be consistent with the Scope of Development described herein and the intent of this Agreement. 4.0 DEVELOPMENT BUDGET The Development Budget which is included herein and which follows in Table 1 estimates the costs for completion of the Rehabilitation Work and Improvements to be $5,598,324. Tustin Toyota acknowledges that the Development Budget may exceed the amounts set forth in Table 1 but acknowledges that it shall bear all costs in excess of the costs as shown in the Project Budget. -3- Table 1 Rehabilitation Work Costs Phase 1- Sitework & Earthwork 140,000 • Demolition 60,000 • Earthwork and Grading 25,101 • Street Cleaning/Dust Erosion Control 138,000 • Site Wet Utilities/Storm Drain 4,507 • Chain Link Fence 42,000 • Landscape & Irrigation 4,040 • Pavement Markings 1,750 • Asphalt Paving 321,498 • Site Concrete Phase 2 -Showroom, Service Drive 149,750 • Concrete Work 4,000 • Masonry 480,000 • Structural Steel & Metal Decking 24,588 • Framing, misc labor & materials 185,000 • Cabinets & countertops 24,588 • Caulking 100,000 • Insulation 24,000 • Fireproofing 299,000 • Aluminum Composite Metal Panel 34,760 • Roofing 21,515 • Sheet Metal 90,600 • Doors/Frames/Hardware 26,500 • Overhead Doors 3,250 • Special Doors -4- • Glass & Glazing • Lath & Plaster • Drywall/Steel/Studs • Ceramic Tile • Acoustical Ceiling • Flooring • Painting & Wallcovering • Toilet Partitions/Accessories • Fire Extinguishers & Cabinets • Fire Sprinklers • Plumbing • HVAC • Electrical & Lighting • Progressive Cleanup and Dumpsters • Final Cleanup SUBTOTAL SUBCONTRATOR COSTS General Conditions Insurance Fee and Overhead Performance and Payment Bond TOTAL DEVELOPMENT BUDGET 320,000 65,000 606,483 270,193 198,000 110,000 74,000 25,000 3,000 65,000 180,000 350,000 550,000 44,265 7,376 5,072,764 231,442 53,042 241,076 $5,598,324 -5- ATTACHMENT 4 COVENANT (Attached) CITY OF TUSTIN OFFICAL BUSINESS REQUEST DOCUMENT TO BE RECORDED AND TO BE EXEMPT FROM RECORDING FEES PER GOVERNMENT CODE SECTION 6103. Recording Requested by and When recorded mail to: Assistant City Manager City of Tustin 300 Centennial Way Tustin, CA 92780 [Space Above This Line is Reserved for Recorder's Use] CITY OF TUSTIN COVENANT AND DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS TO BE RECORDED AFFECTING INTERESTS IN REAL PROPERTY This Covenant and Declaration of Covenants, Conditions, and Restrictions affecting interests in real property (the "Covenant") is entered into as of this day of , 2011, by and between the City of Tustin, a California municipal corporation (the "City"), Oremor of Tustin, Inc., a California Corporation (the "Tenant") and Diego Tustin, LLC. (the "Property Owner") (individually a "Party" and collectively the "Parties"). RECITALS A. The Property Owner is the owner of that certain real property (the "Property") located in the City of Tustin, County of Orange and State of California legally described in the attached Exhibit A. The Property Owner has entered into that certain unrecorded Lease (the "Lease") dated January 16, 2007 for the use of a portion of the Property located at 44 Auto Center Drive and that certain unrecorded Lease Agreement dated December 15, 2009 for a portion of the Property located at 36 Auto Center Drive. The Lease and Lease Agreement shall be collectively referred to as the "Leases". This Covenant affects the Property. -1- B. The City and the Tenant have entered into that certain Agreement, dated as of 2011, concerning Tenant's use of the Property (the "Agreement"), which Agreement is on file with the City of Tustin as a public record and is incorporated by reference, and which Agreement provides for the execution and recording of this document. Except as otherwise expressly provided in this Covenant, all terms shall have the same meaning as set forth in the Agreement. NOW THEREFORE, THE CITY, THE TENANT, AND THE PROPERTY OWNER AGREE AS FOLLOWS: 1. During the Term of the Agreement, the Tenant and the Property Owner, on behalf of itself and its successors, assigns, and each successor in interest in the Property or any part thereof, hereby covenants and agrees to exercise commercially reasonable efforts to continuously operate and use the Property for a Tustin Toyota automobile dealership with related parts, service, and repair operations, and parking, landscaping and related amenities, and at Tenant's option, additional new and incidentally related used vehicle lines in addition to Toyota vehicles. Operation of the Site for the Use by the Tenant shall be required to continue without interruption for the term of the Agreement. Additionally, the Tenant, its successors and assignees, shall comply with all applicable Governmental Requirements regarding their operations and use of the Site. During the Term of the Agreement, neither the Property Owner nor Tenant shall change, or cause to be changed, the Use on the Site, without the prior written approval of the City. Approval of the change of the Use on the Site shall be at the sole discretion of the City, which shall have no obligation to approve such change. 2. To the maximum extent permitted by law, the Tenant shall designate the Site on its Sales Tax Statements as the point of sale for all sales transactions arising out of the Use conducted on the Site. In addition, the Tenant shall exercise commercially reasonable diligence in an effort to cause any Affiliated Party as defined in the Agreement to designate the Site (the "City of Tustin") on reports that are required to be filed with the State Board of Equalization as the situs for the construction contracts for the Tustin Toyota automobile dealership or the leasing of any new or used motor vehicles where the transaction is generated from the Site, as applicable. 3. The Tenant shall, at its sole cost and expense, keep and maintain the Site and Improvements thereon and all facilities appurtenant in first class condition and repair consistent with provisions of the Agreement. 4. The Tenant and the Property Owner, on behalf of themselves and their successors, assigns, and each successor in interest to the Property, or any part thereof, -2- hereby agree and covenant, that there shall be no discrimination against or segregation of any person or group of persons on account of sex, marital status, race, color, creed, religion, national origin or ancestry, in the sale, rental, rental transfer, use, occupancy, tenure and enjoyment of the Property, or any part thereof, nor shall the Tenant, Property Owner, its successors or assigns to any interest of Tenant or Property Owner or any part thereof of any person claiming under or through them, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees or vendees of the Property or any party thereof. 5. The covenants and agreements established in this Covenant shall, with regard to technical classification and designation, be binding on the Property Owner and any successor in interest to any interest of the Property Owner in the Property, or any part thereof, for the benefit of and in the favor of the City, its successors and assigns, and the City of Tustin and no other persons or entities. The covenants contained in this Covenant (except for the covenant prohibiting discrimination) shall remain in effect until expiration of the Term of the Agreement at which time the covenants contained in this Agreement shall be of no further force or effect. The Term of the Agreement shall expire upon the first of these events occurring, 1) the maximum level of assistance allowed pursuant to Section 4.1 of this Agreement has been reached, or; 2) upon the Annual Assistance Payment Termination Date as defined in Section 4.9 of the Agreement (the "Term of Assistance"), or; 3) upon termination of the Leases, or 4) ten (10) years after issuance by the City of a Certificate of Completion for the Rehabilitation Work ("Term"), whichever occurs first, except for the non-discrimination covenants set forth in Section 3.4 which shall remain in full force and effect in perpetuity. For purposes of this Covenant only, and without regard to the rights of the City pursuant to the Agreement with respect to Tustin Toyota, the expiration or earlier termination of the Lease may be evidenced without limitation, by the Property Owner providing a written notice to the City of Tustin acknowledging the termination of the leasehold interest by the Tenant in the Property. Upon the expiration of the Term of the Agreement, and upon written request by Tenant or Property Owner, City shall record a Release of Covenant in a form approved by the City with any costs for such preparation and recordation to be borne solely by the party making the written request. 6. The agreements and covenants set forth in this Covenant shall run with the land. The Agreement shall remain in effect for the periods provided herein. Covenants regarding discrimination shall remain in effect in perpetuity. -3- IN WITNESS WHEREOF, the City, the Tenant, and the Property Owner have executed this Covenant. "CITY" CITY OF TUSTIN By: Its: ATTEST: City Clerk APPROVED AS TO FORM: By: City Attorney "TENANT" Oremor of Tustin, Inc., dba Tustin Toyota sy: Its: "PROPERTY OWNER" "Diego Tustin , LLC. By: -4- ACKNOWLEDGEMENT STATE OF CALIFORNIA ) COUNTY OF ORANGE ) On before me, , notary public, personally appeared , who 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. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. (Seal) Notary Public Signature EXHIBIT A LEGAL DESCRIPTION OF THE PROPERTY TO THE DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS TO BE RECORDED AFFECTING INTERESTS IN REAL PROPERTY 36 AUTO CENTER DRIVE Parcel 1 together with all tenements, hereditaments, appurtenances thereto, in the City of Tustin, County of Orange, State of California, as shown on a Lot Line Adjustment No. 93-6, recorded October 6, 1993, as Instrument No. 93-0680195, Official Records of Said County. 44 AUTO CENTER DRIVE Parcel 2 together with all tenements, hereditaments, appurtenances thereto, in the City of Tustin, County of Orange, State of California, as shown on a Lot Line Adjustment No. 93-6„ Recorded October 6, 1993 as Instrument No. 93-680195, Official Records of Said County. ATTACHMENT 5 ILLUSTRATIVE EXAMPLE ONLY OF THE POTENTIAL OUTCOME BASED ON THE CALCUATION METHODOLOGY FOR DETERMINING ANNUAL ASSISTANCE PAYMENTS EXAMPLE NO. 1-AVERAGE ANNUAL SALES AND USE TAX GROWTH RATE OF 4.0% Assumptions $2,800,000 Maximum Level of Assistance (Section 4.1) 80.00% Percentage of Excess Sales and Use Tax (years 1 through 3) 50.00% Percentage of Excess Sales and Use Tax (years 4 through end of term) 2.50% annual growth factor -Threshold 4.00% estimated annual growth -sales tax 10.00 years -maximum term for Assistance (Section 4.2) $1,070,923 Base Year Threshold -Sales and Lease Calen dar Years 1 2011 2 2012 3 2013 4 2014 5 2015 6 2016 7 2017 8 2018 9 2019 10 2020 Total A B C D E F Cumulative Threshold. Annual Aaut~al Levels Actual Sales Total Annual Excess Sales Annual Assistance. (Sales and and Use Tax Excess Sales and Use Tax Assistance Payment. Use Tax: Received and Use Tax to Ci Pa went Amount 1,070,923 1,113,760 42,837 8,567 34,270 34,270 1,097,696 1,158,310 60,614 12,123 48,491 82,761 1,125,138 1,204,642 79,504 15,901 63,603 146,364 1,153,267 1,252,828 99,561 49,781 49,781 196,145 1,182,098 1,302,941 120,843 60,421 60,421 256,566 1,211,651 1,355,059 143,408 71,704 71,704 328,271 1,241,942 1,409,261 167,319 83,660 83,660 411,930 1,272,991 1,465,632 192, 641 96, 321 96,321 508,251 1,304,815 1,524,257 219,442 109,721 109,721 617,971 1,337,436 1,585,227 247,791 123,896 123,896 $741,867 $13,371,917 $1,373,961 $632,094 This Example is provided for illustrative only. Annual Assistance Payments will only be made in those years in which the actual Sales and Uses taxes from the Site exceed the Threshold Levels (column A ). No Annual Assistance Payment will be made when the amount is less than the Threshold Levels. -1- ILLUSTRATIVE EXAMPLE ONLY OF THE POTENTIAL OUTCOME BASED ON THE CALCUATION METHODOLOGY FOR DETERMINING ANNUAL ASSISTANCE PAYMENTS EXAMPLE N0.2 -AVERAGE ANNUAL SALES AND USE TAX GROWTH RATE OF 8.56%; OPTIMIZED TO ILLUSTRATE ANNUAL GROWTH IN SALES AND USE TAX NEEDED TO ACHIEVE MAXIMUM LEVEL OF ASSISTANCE Assumptions $2,800,000 Maximum Level of Assistance (Section 4.1) 80.00% Percentage of Excess Sales and Use Tax (years 1 through 3) 50.00% Percentage of Excess Sales and Use Tax (years 4 through end of term) 2.50% annual growth factor -Threshold 8.56% estimated annual growth -sales tax 10.00 years -maximum term for Assistance (Section 4.2) $1,070,923 Base Year Threshold -Sales and Lease Calend ar Years 1 2011 2 2012 3 2013 4 2014 5 2015 6 2016 7 2017 8 2018 9 2019 10 2020 Total A° B C D E F Cumulative Threshold Annual Annual Levels Actual Sales Total Annual Excess Sales Annual Assffitaace (Sales and and Use Tax Excess Sales and Use. Tax Assistance. Payment Use Tax ' Received and Use Tax to £i Pa went Amotmt 1,070,923 1,162,602 91,679 18,336 73,343 73,343 1,097,696 1,262,129 164,433 32,887 131,547 204,890 1,125,138 1,370,176 245,038 49,008 196,031 400,920 1,153,267 1,487,474 334,207 167,104 167,104 568,024 1,182,098 1,614,812 432,714 216,357 216,357 784,381 1,211,651 1,753,052 541,402 270,701 270,701 1,055,082 1,241,942 1,903,127 661,185 330,592 330,592 1,385,674 1,272,991 2,066,048 793,058 396,529 396,529 1,782,203 1,304,815 2,242,917 938,102 469,051 469,051 2,251,254 1,337,436 2,434,928 1,097,492 548,746 548,746 $2,800,000 $17,297,265 $5,299,310 $ 2,499,310 This Example is provided for illustrative only. Annual Assistance Payments will only be made in those years in which the actual Sales and Uses taxes from the Site exceed the Threshold Levels (column A ). No Annual Assistance Payment will be made when the amount is less than the Threshold Levels. -2- ATTACHMENT 6 FORM OF CERTIFICATE OF COMPLETION CITY OF TUSTIN OFFICAL BUSINESS REQUEST DOCUMENT TO BE RECORDED AND TO BE EXEMPT FROM RECORDING FEES PER GOVERNMENT CODE SECTION 6103. Recording Requested by and When recorded mail to: Assistant City Manager City of Tustin 300 Centennial Way Tustin, CA 92780 [Space Above This Line is Reserved for Recorder's Use] CITY OF TUSTIN CERTIFICATE OF COMPLETION A. The City of Tustin, a public body, corporate and politic ("City") and Oremor of Tustin, Inc. (Tustin Toyota) entered into that certain Agreement, dated as of 2011 (the "Agreement"), which Agreement is on file with the City of Tustin as a public record and is incorporated by reference, and which Agreement requires certain Rehabilitation Work for a Tustin Toyota automobile dealership on the certain real property (the "Site") legally described on the attached Exhibit A according to the terms and conditions of the Agreement. B. Tustin Toyota has now completed the Rehabilitation Work. C. Pursuant to Section 4.12 of the Agreement, after completion of the Rehabilitation Work, as therein defined, the City shall furnish Tustin Toyota with a Certificate of Completion. -1- D. The issuance by the City of the Certificate of Completion shall be conclusive evidence that the completion of the Rehabilitation Work conforms to the Agreement. E. The City has determined that, as of , 2011, the completion of the Rehabilitation Work conforms to the Agreement. NOW THEREFORE: 1. As provided in the Agreement, the City does hereby certify that the completion of the Rehabilitation Work has been satisfactorily performed and completed, and that such Rehabilitation Work complies with the Agreement. 2. This Certificate of Completion is not a notice of completion as referred to in Section 3093 of the California Civil Code. 3. Executory provisions of the Agreement and that certain Covenant and Declaration of Covenants, Conditions and Restrictions (the "Covenant") executed by Tustin Toyota and the Property Owner in favor of the City, the original of which was recorded in the Official Records of Orange County on ,2011 as Instrument No. ,shall remain in full force and effect in accordance with the terms of and for the time periods set forth in such Covenant. IN WITNESS WHEREOF, the City and the Tenant have executed this Certificate of Completion. "CITY" CITY OF TUSTIN By: Its: ATTEST: City Clerk -2- APPROVED AS TO FORM: By: City Attorney "Tustin Toyota" Oremor of Tustin, Inc., dba Tustin Toyota By: Its: -3- EXHIBIT A DESCRIPTION OF THE SITE 36 AUTO CENTER DRIVE Parcel 1 together with all tenements, hereditaments, appurtenances thereto, in the City of Tustin, County of Orange, State of California, as shown on a Lot Line Adjustment No. 93-6, recorded October 6, 1993, as Instrument No. 93-0680195, Official Records of Said County. 44 AUTO CENTER DRIVE Parcel 2 together with all tenements, hereditaments, appurtenances thereto, in the City of Tustin, County of Orange, State of California, as shown on a Lot Line Adjustment No. 93-6„ Recorded October 6, 1993 as Instrument No. 93-680195, Official Records of Said County.