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HomeMy WebLinkAboutContracts & Agreements_189-2006_CCv0001.pdf DEVELOPMENT INCENTIVE AND OPERATING COVENANT AGREEMENT BETWEEN THE CITY OF REDLANDS AND PAYLESS SHOESOURCE DISTRIBUTION, INC. This Development Incentive and Operating Covenant Agreement ("Agreement") is made and entered into this 1 st day of August, 2006, by and between the City of Redlands ("City")and Payless ShoeSource Distribution, Inc., a Kansas corporation ("Payless"). The City and Payless are sometimes individually referred to herein as a "Party"and collectively, as the "Parties." RECITALS A. Payless proposes to lease an approximately four hundred thousand to five hundred thousand square foot facility (the "Facility") located on certain real property (the "Property") in the unincorporated area of the County of San Bernardino, State of California, which is more particularly described in Exhibit"A,"attached hereto and incorporated herein by this reference. B. Payless proposes to use the Facility for the development and operation of its West Coast Distribution Center ("Distribution Center") which will service Payless' stores located in the Western United States and Canada. Payless' total investment for the Distribution Center is estimated at twenty-seven million dollars ($ 27,000,000) in real property, and twenty-five million dollars ($ 25,000,000) in personal property. C. Payless has represented to the City that the Distribution Center will produce approximately two hundred (200)directjobs and one hundred thirty-eight(138) indirect jobs in the County of San Bernardino and surrounding City area. D. Payless proposes to designate the Distribution Center as the "point of sale" for all of Payless' footwear, accessories and other products which are transacted through Payless' internet website and which are designated for any location within the State of dim ag—e PAYi-ESS AGkEP'AFNT08-01-0o 1 California and distributed through the Distribution Center ("E-Commerce"). Payless has estimated that the City will receive approximately two hundred twenty-five thousand dollars ($ 225,000) of use tax from personal property purchases associated with development of the Distribution Center, and that the anticipated annual E-Commerce direct sales tax to the City (over a 10 year period) from the Distribution Center will be between sixty-three thousand seven hundred dollars ($ 63,700) and ninety-four thousand five hundred dollars ($94,500) per year. The City will also receive direct sales tax from any retail sales made at the Distribution Center. E. The unincorporated area of the County of San Bernardino where the Distribution Center is proposed to be developed is commonly known as the "Donut Hole." Pursuant to the agreement between the City and the County of San Bernardino entitled "Contract for the Apportionment of Sales and Use Tax Revenue and the Provision of Municipal Services Within the Unincorporated Area Commonly Known as the Donut Hole" (the "County Contract"), the City currently receives from the County of San Bernardino ninety percent (90%) of the sales and use tax revenue generated in the Donut Hole. F. The City has found that it is of substantial benefit to the City and its citizens for (i) the Facility to be operated in a "state of the art" manner as Payless' Distribution Center; (ii) the City to obtain an operating covenant from Payless for the Distribution Center; (iii) that the Distribution Center be designated as the "point of sale" for Payless' E- Commerce and retail sales purposes; and (iv) that these benefits constitute valid public purposes for the City's entry into and execution of this Agreement. G. In consideration for Payless' agreement to be bound by the operating covenant described herein, the City has agreed to make certain payments to Payless. The City and Payless acknowledge that the amount of each City payment hereunder is a fair exchange for the consideration actually furnished to the City by Payless during each fiscal Oi-?i-oc year of the City in which such payment is made, that the City has determined that each City payment to be made hereunder has been calculated so that it will not exceed the resources available to make the payment, and that in no event shall the City be immediately indebted to Payless for the aggregate payments herein provided. H. The purpose and intention of the City in making payments to Payless is to induce Payless to lease the Facility, operate the Distribution Center and designate the Distribution Center as a "point of sale"for E-Commerce and retail sales purposes to further the well-being of the City's citizens by enhancing local employment and expanding the City's tax revenue base. NOW, THEREFORE, in consideration of the mutual promises contained herein, and for such other good and valuable consideration, the receipt of which is hereby acknowledged, the City of Redlands and Payless ShoeSource Distribution, Inc. agree as follows: ARTICLE I SUBJECT OF AGREEMENT Section 1.01 Recitals. The foregoing recitals are true and correct and are hereby incorporated into this Agreement. Section 1.02. Purpose of Agreement. The purpose of this Agreement is to effectuate the economic goals of the City by providing an incentive for Payless' leasing of the Facility, developing and operating its Distribution Center therein, and designating the Distribution Center as a "point of sale"for Payless' E-Commerce purposes. The lease and operation of the Distribution Center on the Property by Payless pursuant to this Agreement, and the fulfillment generally of the requirements of this Agreement, are in the vital and best interests of the City and the health, safety and welfare of the City's citizens and in accord with the provisions of applicable federal, state and local law. dirn ngr,_,,PAYLESS AGREBO: 1 08-01-0t ARTICLE 11 DEVELOPMENT AND OPERATING COVENANT Section 2.01. Covenant. A. Provided the regulations imposed on the development and operation of the Distribution Center by the County of San Bernardino or any other governmental entity are commercially reasonable (as determined by Payless in its sole and absolute discretion), and subject to events of force majeure as defined in Section 5.06 hereof, Payless shall (i) use its good faith and commercially reasonable efforts to complete, or cause the completion of, the development of the Distribution Center on the Property within eighteen (18) months following Payless' leasing of the Facility; and (ii) Payless shall operate the Distribution Center and designate the Distribution Center, as of the date the Distribution Center commences operations as the "point of sale" pursuant to the Bradley Burns Uniform Local Sales and Use Tax Law, commencing with Section 7200 of the California Revenue and Taxation Code, as amended, (the "Sales Tax Law") and any and all other applicable laws, for all sales of Payless' footwear, accessories and other products which are transacted through Payless' internet website and which are destined for any location within the State of California and distributed through the Distribution center, for a period of ten (10) years and nine (9) months from and after the date that the Distribution Center commences operations. For purposes of this Agreement, "commences operations" shall mean the date the Distribution Center first ships product to Payless' stores located in California or elsewhere on the west coast. Payless shall,within ten (10)days after the date the Distribution Center commences operations, provide written notice of the commencement of such operations to the City, B. Concurrent with the written notice provided to the City of the date the Distribution Center commences operations, Payless shall also provide the City with a written list of the names and addresses of all vendors from whom Payless purchased personal property, equipment, materials and supplies for purposes of development of the dYn-v,Tcc'J-1AYLESS AGREENIEN r 08-OI-ot, 4 Distribution Center and which are subject to the payment of personal property or use taxes within the County of San Bernardino. C. Payless, on its behalf and on behalf of its successors-in-interest, hereby waives its right to protect against disclosure of the information contained in its California state sales and use tax returns (to comply with the terms of this Agreement) and further authorizes the release of such information by the City to the extent necessary to comply with the terms of this Agreement. Upon written request of the City and within twenty-one (21) days of any such request, Payless shall also provide to the City copies of Payless' California state sales and use tax returns evidencing sales and the payments of use taxes that are the subject of this Agreement. D. The foregoing subparagraphs of this Section 2.01 are hereinafter referred to in this Agreement as the "Covenant." Section 2.02._.Consideration. A. In consideration for Payless' agreement to be bound by the Covenant, the City shall make payments to Payless (i) in amounts equal to forty percent (40%) of the Sales Tax Revenue received by the City generated by Payless' approximately twenty-five million dollar ($25,000,000) capital expansion (use tax)for the period of time beginning on the date of execution of this Agreement and continuing for a period of eighteen (18) months thereafter; and (ii) in amounts equal to forty percent (40%) of the Sales Tax Revenues received by the City as a direct result of Payless' E-Commerce sales to destination locations within the State of California and retail operations within the Distribution Center for the period beginning on the date which is nine (9) months subsequent to the date the Distribution Center commences operations and continuing for ten (10) years thereafter. d; :.a =PAY LESS AGREE\4FN,rub-0'-06 5 "Sales Tax Revenues" shall mean that portion of taxes derived and received by the City and legally available for unrestricted use by the City's general fund from the imposition of the Bradley Burns Uniform Local Sales and Use Tax Law, commencing with Section 7200 of the California Revenue and Taxation Code, as amended, arising from all businesses and activities conducted in the Facility and on the Property in accordance herewith from time to time, which are subject to such Sales and Use Tax Law. B. The amounts due hereunder for the Covenant shall be payable from any source of funds legally available to the City. The determination of the source of funds for the City's payments shall be in the sole and absolute discretion of the City. Payless acknowledges that the City is not making a pledge of Sales Tax Revenues, or any other particular source of funds; the definition of Sales Tax Revenues, as used herein, is used merely as a measure of the amount of payment due hereunder and as a means of computing the City's payment in consideration for the Covenant. It is acknowledged by Payless that the City's obligation to make the payments provided for herein is specifically contingent upon receipt by the City of Sales Tax Revenues derived from operation of the Distribution Center which are paid to the City by the County of San Bernardino pursuant to the County Contract. The City shall not be obligated to make any payments hereunder if Sales Tax Revenues are not received by the City from the County of San Bernardino. C. Each of the City's payments to Payless hereunder shall be made within six(6) months of the date of the City's receipt of its corresponding share of the Sales Tax Revenue paid to the City by the County of San Bernardino pursuant to the County Contract. D. It is acknowledged and agreed to by the City and Payless that any payments by the City shall be made only for those periods in which Payless is in compliance with the Covenant described herein. The failure of the City to make any payment required by this Agreement because of any Default (as defined in Section 3.01 hereof) by Payless in complying with the Covenant shall not cause the acceleration of any future payments by the djrn111,,,,-�TAYLPSS AGRFPMEM'08-0!-C�6 6 City to Payless beyond the date of such Default. E. The City represents that to the best of its knowledge and belief this Agreement is not contrary to, or in violation of, any applicable state or local law or regulation. Section 2.03, Conditions Precedent. A. The obligation of Payless to lease the Facility and develop and operate the Distribution Center is contingent upon satisfaction or written waiver by Payless of each of the following: 1. Payless is satisfied, in its sole and absolute discretion, with the condition of title to the Property and the Facility, the suitability of the Property and the Facility for the development and operation of the Distribution Center, and with all other aspects of the Property and the Facility and Payless' contemplated use thereof. 2. Payless has acquired a leasehold interest to the Facility. I Payless has secured approval from the County of San Bernardino of all plans and specifications for the proposed development of the Distribution Center and has been issued permits therefor. 4. There is no litigation challenging the validity of any provision of this Agreement or that may have a material adverse effect on the Property or the Facility, Payless' intended development or use thereof, or the City's payment obligations hereunder. B. The obligation of the City to make payments to Payless is contingent upon satisfaction or written waiver by the City of each of the following: 1. Payless has acquired a leasehold interest to the Facility. 2. Payless has secured approval from the County of San Bernardino of all plans and specifications for the proposed development and operation of the Distribution Center and has paid all necessary fees to entitle Payless to the issuance of permits 7 therefor. 3. Payless has performed and complied in all material respects, with all agreements and covenants required by this Agreement to be performed or complied with by Payless within the time periods required hereunder. 4. Payless has authorized, in writing, the County of San Bernardino to release and provide to the City all information relating to Payless' Sales Tax Revenue generated at the Distribution Center. 5. There is no litigation challenging this Agreement or the implementation hereof as to which Payless is not providing a defense and indemnity in accordance with Section 5.05 hereof. ARTICLE III DEFAULTS AND REMEDIES Section 3.01. Default. The occurrence of any or all of the following shall constitute a default ("Default") under this Agreement: 1. Payless' material Default of the Covenant. 2. The City's material Default of Section 2.02 hereof. 3. The filing of a petition in bankruptcy by or against Payless or appointment of the receiver or trustee for Payless, or an assignment by Payless for the benefit of creditors, or any adjudication that Payless is insolvent by a court, and failure of Payless to cause such petition, appointment or assignment to be removed or discharged within sixty (60) days from the date of such adjudication. Section 3.02. Cure. In the event of any Default under the terms of this Agreement, the nondefaulting Party shall give written notice to the defaulting Party. The defaulting Party shall commence and diligently thereafter pursue the curing of the Default within thirty (30) days after receipt of notice of such Default; provided, however, if such a cure cannot reasonably be completed within such thirty (30) day period, such failure shall not be a Default so long as such Party promptly commences a cure within the thirty (30) day period 3im22u,,PAYLFSS A'(3REHME4T 8 and thereafter diligently prosecutes such cure to completion. Section 3.03. Remedies. Failure to cure, as specified above, shall be a Default hereunder. Nothing herein is intended to limit or restrict whatever specific performance or other equitable remedies either Party may have in accordance with applicable law; provided, however, that notwithstanding any other provision of this Agreement, the City shall not have the remedy of specific performance to enforce Payless's Default of the Covenant, or any portion thereof. Section 3.04 Liquidated Damages. Payless and the City acknowledge that if Payless is in Default of, and fails to cure, its obligation under Section 2.01 A.(ii) hereof and such Default is not a result of a Force Majeure event as defined in Section 5.06 hereof, that Default will result in damages being sustained by the City. Payless and the City further acknowledge that such damages are, and will continue to be, impracticable and difficult to determine. Therefore, as liquidated damages and not as a penalty therefor, in the event of such Default, Payless shall pay to the City a sum equal to the amount of fifty percent(50%) of the payments made by the City to Payless, pursuant to Section 2.02 A hereof, as of the date of the Default. ARTICLE IV ASSIGNMENT Section 4.01 Prohibition against Assignment of Agreement. A. The qualifications and identity of Payless are of particular concern to the City. It is because of these unique qualifications and the identity of Payless that the City has entered into this Agreement. No voluntary or involuntary successor-in-interest of Payless shall acquire any rights or powers under this Agreement, except as expressly set forth herein. din-,no-e,'PAM--';S A GREEMEN",08,01,06 B. Except as otherwise provided in this Agreement, Payless shall not assign all or any part of this Agreement, without the prior written approval of the City which shall not be unreasonably withheld. C. Payless may, subject to the prior written approval of the City, assign this Agreement to a separate ownership entity which would assume all of the obligations of Payless hereunder. Notwithstanding the foregoing, if the aforementioned separate ownership entity is a limited liability entity (such as, without limitation, a limited partnership or limited liability company) in which Payless owns a majority of the voting and ownership interests, or a majority of the general partners' interests (an "Approved Assignee"), no approval by the City shall be required for such assignment; provided, however, in the event of a proposed transfer of any interest in such Approved Assignee whereby Payless would cease to own a majority of such shares of voting and ownership interests, or general partners' interests (except as a result of transfer by inheritance), such transfer shall be deemed an assignment to which the prior written approval of the City shall be required. D. Payless may, with prior written notice to the City, but without the City's prior consent, assign this Agreement or any obligation of Payless under this Agreement, to a subsidiary or affiliate of Payless. In addition, Payless may, with prior written notice to the City, but without the City's prior consent, assign this Agreement to an entity with which the parent of Payless or any subsidiary or affiliate of Payless might merge or consolidate. ARTICLE V MISCELLANEOUS PROVISIONS Section 5.01 ComplianceWith Governmental Requirements. Payless shall carry out the development and operation of the Distribution Center in substantial conformity with all applicable laws, ordinances, statutes, codes, rules, regulations, orders and decrees of dirn,,zm,PAY1-1--`SAGI-TIEMIN! ,&O!oC 10 the United States, the State of California, the County of San Bernardino, and any other political subdivision in which the Property is located, and of any other political subdivision, agency or instrumentality exercising jurisdiction over Payless or the Property, including all applicable federal, state and local occupation, safety and health laws, rules, regulations and standards, applicable state and labor standards and applicable prevailing wage requirements. Payless hereby expressly waives and releases any and all rights it may have now, or in the future, to recover any costs or damages from the City pursuant to California Labor Code section 1781 in the event that any governmental authority or any court classifies the development and operation of the Distribution Center, or any related improvements made to the Property or the Facility by Payless, a"public work"as defined in Chapter 1 of Part 7 of Division 2 of the California Labor Code. Payless makes this express waiver with full knowledge of California Civil Code section 1542 and hereby waives any and all rights it may have thereunder. Civil Code section 1542 provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Nothing in this Section 5.01 shall be construed to require Payless to comply with any laws, regulations or standards which would not be applicable in the absence of this Agreement. Section 5.02. Notices. All notices under this Agreement shall be given in writing by personal delivery, by certified mail or registered United States Mail, return receipt requested, postage prepaid, or by facsimile and shall be deemed communicated when received if given by personal delivery or upon receipt or rejection if mailed as provided above or upon receipt by facsimile on a business day during business hours in the location where received, and if not then on the next business day, as the case may be. Mailed notices shall be addressed as set forth below, but either Party may change its address by giving written notice thereof to the other in accordance with the provisions of this section. dim',q�T-PAYLESS AGREEMENT 08-01-06 11 CITY: PAYLESS: Attention: City Manager Attention: Vice President of Tax City of Redlands Payless ShoeSource Distribution, Inc. P.O. Box 3005 (West Coast Distribution Center) Redlands, CA 92373 3231 S.E. 6th Avenue Topeka, KS 66607 With a copy to: With a copy to: Attention: City Attorney Attention: General Counsel City of Redlands Payless ShoeSource Distribution, Inc. P.O. Box 3005 (West Coast Distribution Center) Redlands, CA 92373 3231 S.E. 6th Avenue Topeka, KS 66607 Section 5.03. Entire Agreement. This Agreement constitutes the entire agreement between the City and Payless concerning the subject matter hereof, and supersedes all prior agreements and understandings whether written or verbal. This Agreement may not be modified or amended except in a writing signed by the Parties. Section 5.04. Attorneys' Fees. In the event any action is commenced to enforce or interpret any term or condition of this Agreement the prevailing Party in such action, in addition to any costs and other relief, shall be entitled to recover its reasonable attorneys' fees (including reasonable in-house counsel fees of the City or Payless at the rate of$250 per hour). Section 5.05. -Indemnity. Payless shall defend (with counsel of Payless's choosing), indemnify and hold harmless the City, its elected officials, officers, employees and agents from and against(i)any and all third party claims, losses, proceedings, damages, causes of action, liability, costs and expenses (including reasonable attorneys'fees) arising from or in connection with or caused by any act, omission or negligence of Payless and its jim-i,,rec-RAYLE—SS AGREEMEN f'08,01-06 12 contractors, agents and employees in connection with the development of the Distribution Center(other than to the extent arising as a result of the City's negligence or willful misconduct); (ii)any action or proceeding brought by any third party challenging the validity of any provision of, or the entirety of, this Agreement; and (iii) any action commenced by a third party challenging the development or operation of the Distribution Center. The City shall fully cooperate in the defense of any such actions and upon the written request of Payless shall provide to Payless such documents and records in the possession of the City that are relevant to such actions. Notwithstanding the foregoing, should any third party bring any action or proceeding challenging the validity or enforceability of any provision of this Agreement or the entirety thereof, at Payless' sole discretion, Payless may terminate this Agreement, and as of such date of termination, all unaccrued liabilities of the parties under this Agreement shall cease except for Payless' obligation of indemnity owed to the City as provided in this Section 5.05. For purposes of clarification, should Payless exercise its termination right as provided in the preceding sentence, the same shall not be considered a Default and the City shall have no claim against Payless for liquidated damages under Section 3.04. Section 5.06. Force Majeure. Time for performance hereunder shall be extended by any period of delay caused by circumstances beyond the reasonable control of the Party claiming the delay despite the Party's diligent efforts, other than financial ability, provided the Party claiming the delay provides written notice to the other Party within a reasonable period following commencement of any such circumstances which circumstances shall include,without limitation,fire/casualty losses; strikes; litigation; unusually severe weather; inability to secure necessary labor, materials, or tools; environmental remediation, including governmental review and processing of environmental remediation; delays of any contractor, subcontractor or supplier; delay caused by the other Party, and acts of God (collectively, "Force Majeure"). Section 5.07. Interpretation. In this Agreement the neuter gender includes the feminine and masculine, and the singular number includes the plural, and the words PAYLESS A1,;RE,,'MFNT 08-01-Ot 13 "person" and "party" include corporation, partnership, firm, trust or association where the context so requires. The Parties agree that each Party and its counsel have reviewed this Agreement and that any rule of construction to the effect that ambiguities are to be resolved against the drafting Party shall not apply in the interpretation of this Agreement or any amendments or exhibits to this Agreement. Section 5.08. Time of the Essence. Time is of the essence of this Agreement and the Parties' obligations under this Agreement. Section 5.09. Authority to Execute. The person or persons executing this Agreement in behalf of Payless warrant and represent that they have the authority to execute this Agreement in behalf of Payless and warrant and represent that they have the authority to bind Payless to the performance of its obligations hereunder. Section 5.10. Release of City Officials. No elected official, officer, employee or agent of the City shall be personally liable to Payless, or any successors-in-interest of Payless, in the event of any Default or breach by the City or for any amount which may become due to Payless or its successors, or on any obligations under the terms of this Agreement. Payless hereby waives and releases any claim it may have against the elected officials, officers, employees and agents of the City with respect to any Default or breach by the City or for any amount which may be come due to Payless or its successors, or on any obligations under the terms of this Agreement. Payless makes such release with full knowledge of California Civil Code section 1542, and hereby waives any and all rights thereunder to the extent of this release. Civil Code section 1542 provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." djm",gr—PA YLESS A'GREENAH-N T 08-'01,36 14 Section 5.11. Headings. The headings to the sections of this Agreement have been inserted for convenience only and shall not, to any extent, have the effect of modifying, amending or changing the expressed terms and provisions of this Agreement. Section 5.12, Venue. In the event of any litigation under this Agreement, all such actions shall be instituted in the Superior Court of the County of San Bernardino, State of California, or in the United States District Court, Central District of California, Eastern Division. Section 5.13. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its conflict of law principles. Section 5.14. Successors and Assigns. The provisions of this Agreement shall be binding upon, and inure to the benefit of, the City and Payless and their successors and assigns. Section 5.15. No Joint Venture. Nothing contained in this Agreement shall be construed to render the City in any way, or for any purpose, a partner, joint venturer, or associated in any relationship with Payless, nor shall this Agreement be construed to authorize any Party to act as an agent for the other. Section 5.16. No Third Party Beneficiaries. No provision, term or condition of this Agreement is intended to, nor shall be construed as conferring any benefit to, any third party, person or entity. Section 5.17. Waiver. The waiver by the City or Payless of any breach by the other Party of any term, covenant or condition contained in this Agreement shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of the same di"ig,T,eTAYLESS AC-T or any other term, covenant or condition herein contained. Any Party's acceptance of any performance by the other Party after the due date of such performance shall not be deemed to be a waiver by any Party or any preceding breach by the other Party of any term, covenant or condition of this Agreement, regardless of such Party's knowledge of such preceding breach at the time of acceptance of such performance. Section 5.18. Severability. Each provision, term, condition, covenant and/or restriction, in whole and in part, of this Agreement shall be considered severable. In the event any provision, term, condition, covenant and/or restriction, in whole and/or in part, of this Agreement is declared invalid, unconstitutional or void for any reason, such provision or part thereof shall be severed from this Agreement and shall not affect any other provision, term, condition, covenant and/or restriction of this Agreement, and the remainder of this Agreement shall continue in full force and effect unless to do so would deprive one of the Parties of a material benefit of its bargain under this Agreement. Section 5.19. Counterparts. This Agreement may be executed and acknowledged in multiple counterparts each of which shall be deemed an original, but all of which shall constitute one Agreement, binding on the Parties. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first written above. CITY OF REDLANDS M or ATTEST: -44 City y Clerk djm,,,,q,,re&TAYU1 S AGREMMENT 08,01,06 16 PAYLESS SHOESOURCE Title: 17 Exhibit A Gem-Hovse ---Fey c& •-•-S,bcl Fist al N s Y aar6-r ne s. Condu �t .3 . . w c � 3 «, r 4 ..n4 Ytt i ARR �A } 3 :r s F i # a s2 .. y o I s t i •� + , .+