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HomeMy WebLinkAboutE-2. Public Hearing - Economic Subsidy, Partial Waiver of Electric Utility Rule 15, Operating Covenant AgreementUB-278UB-278 APPROVED UTILITY BOARD 01/28/2019 2) Waive the approximate $400,000 electric cable reimbursement fee required under Electric Rule 15.C.2.b. for the commercial development planned at 1025 N. Todd Avenue (Assessor Parcel Number) 8617-001-029 (Canyon City Business Park); to provide an economic subsidy to facilitate the construction of seven (7) industrial buildings ranging in size from approximately 28,000 square feet to 160,000 square feet and create approximately 300 temporary construction jobs and 185 permanent full-time jobs; 3) Approve an Operating Covenant Agreement between the City of Azusa and Azusa Todd LLC for Canyon City Business Park; and to require the operation of Canyon City Business Park at a minimum of 70% occupancy for a period of at least one (1) year prior to August 31, 2022; and 4) Authorize the Director of Utilities to negotiate and execute the Operating Covenant Agreement with Azusa Todd LLC for the rule waiver and operating covenant, including any revisions, modifications, or amendments (Updates) as approved by the City Attorney, so long as the Updates are in ALW’s best interests, and to take all such actions as required to administer and consummate the Operating Covenant Agreement. ANALYSIS: The development will consist of the construction of seven (7) industrial buildings ranging in size from approximately 28,000 square feet to 160,000 square feet, and it will be comprised of office space and warehousing/manufacturing facilities. These facilities are zoned for a 24 hour per day operation, 365 days a year, and Azusa Todd estimates that, depending on the tenants, the project is expected to produce approximately 185 full-time jobs and 300 temporary construction jobs. It is expected that the new buildings and improvements will increase the real property tax assessment at the location by $80M, which will yield approximately $100,000 per year in additional property tax revenue to the City’s general fund. Additionally, the project is expected to draw an electrical load of approximately three (3) megawatts, which is would yield approximately $2.3 million per year in net electrical revenue. Given the significant benefits to the City described above, Azusa Todd LLC’s has requested a waiver of the electric cable reimbursement fee required under Electric Rule 15.C.2.b. for the extension of Azusa Light and Water electric distribution facilities to the project development site. Absent such fee waiver, Azusa Todd LLC would be required to reimburse the City approximately $400,000 for the cost of high voltage cable and the labor to install it. Azusa Todd LLC would still be responsible for installing the underground conduit and vault facilities necessary for the line extension and all other provisions of Electric Rule 15, which is estimated to cost approximately $1.3 million. UB-279UB-279 In summary, the approximate $400,000 subsidy from waiving the Electric Rule 15 cable reimbursement requirement would be paid back well within the first year of tenant occupancy, which is estimated to commence approximately one-year after the completion of construction, i.e. January 2021. FISCAL IMPACT: The fiscal impact of this economic subsidy is $300,000 in FY 2018-19 budget and $100,000 in FY 2019-20 budget, for a total of $400,000; however, this initial economic subsidy is expected to be recovered prior to August 31, 2022 through increased electric revenues. Additionally, the City will receive approximately $100,000 per year in increased property taxes. The purchase of the primary conductors was included in the FY 2018-19 budget, and there are sufficient funds available under Account No. 33-40-733-670-7145. The funds for the labor to install the primary conductors would be requested in the FY 2019-2020 budget under Capital Improvement Projects Account No. 33-40-733-670-7145. Prepared by: Reviewed and Approved: James Palmer Manny Robledo Assistant Director of Utilities – Electric Operations Director of Utilities Reviewed and Approved: Sergio Gonzalez City Manager Attachments: 1) Proficiency Capital (Azusa Todd LLC) Letter Requesting Partial Waiver of Electric Rule 15 2) Economic Development Report pursuant to Government Code Section 53083 3) Operating Covenant Agreement between the City of Azusa, a California municipal corporation and Azusa Todd LLC, a Delaware limited liability company UB-280UB-280 UB-281UB-281 ECONOMIC DEVELOPMENT SUBSIDY REPORT PURSUANT TO GOVERNMENT CODE SECTION 53083 FOR AN OPERATING COVENANT AGREEMENT BY AND BETWEEN CITY OF AZUSA AND AZUSA TODD LLC Pursuant to Government Code Section 53083, the City Council of the City of Azusa must hold a noticed public hearing and, prior to the public hearing, provide all of the following information in written form and available to the public and through the City’s website, regarding a proposed economic development subsidy to be provided by the City pursuant to an Operating Covenant Agreement by and between the City of Azusa and Azusa Todd LLC (“Agreement”). Notice was published in the local newspaper for a public hearing to be held on January 28, 2019. The purpose of this report is to provide the information required pursuant to Government Code Section 53083 in regards to the Agreement. This report shall remain available to the public and posted on the City’s website until the end date of the economic development subsidy, as further described in number 2 below. 1. The name and address of all corporations or any other business entities, except for sole proprietorships, that are the beneficiary of the economic development subsidy. The Agreement is with Azusa Todd LLC, a Delaware corporation. Azusa Todd LLC is the sole beneficiary of the economic development subsidy. Azusa Todd LLC corporate offices are located at: Azusa Todd LLC 11777 San Vincente Blvd. #780 Los Angeles, CA 90049 The proposed Canyon City Business Park development site is located at: 1025 N. Todd Avenue Azusa, CA 91702 APN 8617-001-029 2. The start and end dates and schedule, if applicable, for the economic development subsidy. If the Agreement is approved by the City Council, the start date of the economic development subsidy would be on or around March 01, 2019 and the end date of the subsidy would be no later than three (3) years after the start date, or on or around February 28, 2022. UB-282UB-282 3. A description of the economic development subsidy, including the estimated total amount of the expenditure of public funds by, or of revenue lost to, the local agency as a result of the economic development subsidy. Azusa Todd LLC is the owner and developer of the proposed Canyon City Business Park (formerly known as Azusa Business Center and Todd Sierra) development, located at 1025 N. Todd Avenue in Azusa, as shown in Exhibit 1. The development will consist of the construction of seven (7) industrial buildings ranging in size from approximately 28,000 square feet to 160,000 square feet, and it will be comprised of office space and warehousing/manufacturing facilities. These facilities are zoned for a 24 hour per day operation, 365 days a year, and Azusa Todd estimates that, depending on the tenants, the project is expected to produce approximately 185 full-time jobs and 300 temporary construction jobs. It is expected that the new buildings and improvements will increase the real property tax assessment at the location by $80M, which will yield approximately $100,000 per year in additional property tax revenue to the City’s general fund. Additionally, the project is expected to draw an electrical load of approximately three (3) megawatts, which is would yield approximately $2.3 million per year in net electrical revenue. Given the significant benefits to the City described above, Azusa Todd LLC’s has requested a waiver of the electric cable reimbursement fee required under Electric Rule 15.C.2.b. for the extension of Azusa Light and Water electric distribution facilities to the project development site. Absent such fee waiver, Azusa Todd LLC would be required to reimburse the City approximately $400,000 for the cost of high voltage cable and the labor to install it. Azusa Todd LLC would still be responsible for installing the underground conduit and vault facilities necessary for the line extension and all other provisions of Electric Rule 15, which is estimated to cost approximately $1.3 million. In summary, the approximate $400,000 subsidy from waiving the Electric Rule 15 cable reimbursement requirement would be paid back well within the first year of tenant occupancy, which is estimated to commence approximately one-year after the completion of construction, i.e. January 2021. 4. A statement of the public purposes for the economic development subsidy. The City has determined that the development of the Canyon City Business Park, as described in the preceding paragraph, will generate substantial revenue for the City, allow for the creation of new jobs, revitalize an area of the City which has suffered a loss of jobs and businesses during the economic downturn of the mid-2000’s, and result in community and public improvements that might not otherwise be available to the community for many years. Further, the development of the Canyon City Business Park serves the additional public purpose of fostering a business and civic environment that may attract additional businesses and investment in the community due to the availability of the increased public and private services and economic activity resulting therefrom, thereby assisting the City in its goal of furthering the development of the community. This Agreement furthers the UB-283UB-283 policies of the City to be business friendly and support economic growth, including providing customers with reliable electric and water services at competitive rates. 5. The projected tax revenue to the local agency as a result of the economic development subsidy. The City anticipates that the development of the Canyon City Business Park facilities within the City will result in additional real property taxes in the amount of one hundred thousand dollars ($100,000) per year, which is estimated based on the expected final site value of approximately $100 million, including land and improvements. 6. The estimated number of jobs created by the economic development subsidy, broken down by full-time, part-time, and temporary positions. The Azusa Todd LLC development project will create approximately one hundred and eighty-five (185) new jobs over the term of the agreement as the facility grows, as follows:  185 full-time jobs  300 temporary construction positions UB-284UB-284 Azusa Business CenterAzusa Business Center UB-285UB-285 OPERATING COVENANT AGREEMENT between THE CITY OF AZUSA, a California municipal corporation, and AZUSA TODD LLC, a Delaware limited liability company Dated as of January 28, 2019, for reference purposes only UB-286UB-286 1 OPERATING COVENANT AGREEMENT (TODD AZUSA) RECITALS WHEREAS, AZUSA TODD LLC (“AZUSA TODD”), a Delaware limited liability company, the owner of property located at 1025 N. Todd Avenue in Azusa, CA, is developing the proposed Canyon City Business Park (formerly known as Azusa Business Center and Todd Sierra) development, which will consist of the construction of seven (7) industrial buildings ranging in size from approximately 28,000 to 160,000 square feet comprised of office space and warehousing/manufacturing facilities; and WHEREAS, the incentives provided in this Agreement are intended to ensure AZUSA TODD establishes a development that: (i) uses its best efforts to create approximately 185 full- time jobs once fully occupied and 300 temporary construction jobs; and (ii) operates at a minimum of 70 % occupancy for a period of at least one (1) year prior to August 31, 2022; and WHEREAS, the location of the AZUSA TODD Canyon City Business Park in the City of Azusa will place new and additional burdens on City resources including but not limited to police, fire, and infrastructure services; and WHEREAS, the City has determined that the establishment of a AZUSA TODD Canyon City Business Park that develops seven (7) industrial buildings comprised of office space and warehousing/manufacturing facilities zoned for a 24 hour per day operation, 365 days a year within the City will generate substantial revenue for the City, create new jobs, revitalize an area of the City which has suffered a loss of jobs and businesses during the economic downturn of the mid-2000’s, and result in community and public improvements that might not otherwise be available to the community for many years. 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 Azusa and AZUSA TODD agree as follows: ARTICLE 1. EFFECTIVE DATE; PARTIES; DEFINITIONS 1.1 Effective Date of Covenant Agreement. This AZUSA TODD Operating Covenant Agreement (“Covenant Agreement”) is dated January 28, 2019, for reference purposes only. This Covenant Agreement will not become effective (the “Effective Date”) until the date on which all of the following are true: 1.1.1 This Covenant Agreement has been approved and executed by the appropriate authorities of Owner, as defined herein, and delivered to the City; 1.1.2 Following all legally required notices and hearings, this Covenant Agreement has been approved by the City Council; and UB-287UB-287 2 1.1.3 This Covenant Agreement has been executed by the appropriate authorities of the City and delivered to Owner. If all of the foregoing conditions precedent have not been satisfied by February 28, 2019, then this Covenant Agreement shall not thereafter become effective and any prior signatures and approvals of the Parties will be deemed void and of no force or effect. 1.2 Parties to Covenant Agreement. 1.2.1 The City. The address of the City is 729 N. Azusa Avenue, Azusa, CA 91702, Attention: Manny Robledo, Director of Utilities, 729 N. Azusa Avenue, Azusa, CA 91702; Telephone (626) 812-5225; Facsimile (626) 812-0963; with copies to Marco A. Martinez, City Attorney, 18101 Von Karman Avenue, Irvine, CA 92612, Telephone: (949) 263-6582. The City represents and warrants to Owner that: (a) The City is a public body, corporate and politic, exercising governmental functions and powers and organized and existing under the laws of the State of California; (b) The City has taken all actions required by law to approve the execution of this Covenant Agreement; (c) The City’s entry into this Covenant Agreement and/or the performance of the City’s obligations under this Covenant Agreement does not violate any contract, agreement or other legal obligation of the City; (d) The City’s entry into this Covenant Agreement and/or the performance of the City’s obligations under this Covenant Agreement does not constitute a violation of any state or federal statute or judicial decision to which the City is subject; (e) There are no pending lawsuits or other actions or proceedings which would prevent or impair the timely performance of the City’s obligations under this Covenant Agreement; (f) The City has the legal right, power and authority to enter into this Covenant Agreement and to consummate the transactions contemplated hereby, and the execution, delivery and performance of this Covenant Agreement has been duly authorized and no other action by the City is requisite to the valid and binding execution, delivery and performance of this Covenant Agreement, except as otherwise expressly set forth herein; and (g) The individual executing this Covenant Agreement is authorized to execute this Covenant Agreement on behalf of the City. The representations and warranties set forth above are material consideration to Owner and the City acknowledges that Owner is relying upon the representations set forth above in undertaking Owner’s obligations set forth in this Covenant Agreement. UB-288UB-288 3 As used in this Covenant Agreement, the term “City’s actual current knowledge” shall mean, and shall be limited to, the actual current knowledge of the City Manager as of the Effective Date, without having undertaken any independent inquiry or investigation for the purpose of making such representation or warranty and without any duty of inquiry or investigation. All of the terms, covenants and conditions of this Covenant Agreement shall be binding on and shall inure to the benefit of the City and its nominees, successors and assigns. 1.2.2 Owner. The address of AZUSA TODD LLC (“Owner”) for purposes of this Covenant Agreement is 11777 San Vicente Blvd., #780, Los Angeles, CA 90049; telephone (310) 979-8000; facsimile (310) 979-7772. Owner represents and warrants to the City that: (a) Owner is a duly formed Delaware limited liability company, qualified and in good standing to do business under the laws of the State of California; (b) The individual(s) executing this Covenant Agreement is/are authorized to execute this Covenant Agreement on behalf of Owner; (c) Owner has taken all actions required by law to approve the execution of this Covenant Agreement; (d) Owner’s entry into this Covenant Agreement and/or the performance of its obligations under this Covenant Agreement does not violate any contract, agreement or other legal obligation of Owner; (e) Owner’s entry into this Covenant Agreement and/or the performance of its obligations under this Covenant Agreement does not constitute a violation of any state or federal statute or judicial decision to which Owner is subject; (f) There are no pending lawsuits or other actions or proceedings which would prevent or impair the timely performance of Owner’s obligations under this Covenant Agreement; and (g) Owner has the legal right, power and authority to enter into this Covenant Agreement and to consummate the transactions contemplated hereby, and the execution, delivery and performance of this Covenant Agreement have been duly authorized and no other action by Owner is requisite to the valid and binding execution, delivery and performance of this Covenant Agreement, except as otherwise expressly set forth herein. Owner covenants that nothing in this Agreement or the implementation thereof shall violate the provisions or intent of Government Code Section 53084.5. The representations and warranties set forth herein are material consideration to the City and Owner acknowledges that the City is relying upon the representations set forth above in undertaking the City’s obligations set forth above. UB-289UB-289 4 As used in this Covenant Agreement, the term “actual current knowledge of Owner” shall mean, and shall be limited to, the actual current knowledge of Matt Englhard, Vice President, as of the Effective Date, without having undertaken any independent inquiry or investigation for the purpose of making such representation or warranty and without any duty of inquiry or investigation. All of the terms, covenants and conditions of this Covenant Agreement shall be binding on and shall inure to the benefit of Owner and its permitted nominees, successors and assigns. Wherever the term “Owner” is used herein, such term shall include any permitted nominee, assignee or successor of Owner. The qualifications and identity of Owner are of particular concern to the City, and it is because of such qualifications and identity that the City has entered into this Covenant Agreement with Owner. No voluntary or involuntary successor-in-interest of Owner shall acquire any rights or powers under this Covenant Agreement except as expressly set forth herein. 1.2.3 The City and Owner are sometimes individually referred to as “Party” and collectively as “Parties.” 1.3 Definitions. 1.3.1 “City” means the City of Azusa, a California municipal corporation, and any nominee, assignee of, or successor to, its rights, powers and responsibilities. 1.3.2 “Covenant Subsidy” means the economic development subsidy in the form of the waiver of the Electric Cable Reimbursement Fee required under Electric Rule 15.C.2.b anticipated to be Four Hundred Thousand Dollars ($400,000). The Covenant Subsidy shall be made by the City to the Owner pursuant to Section 3.2 of this Covenant Agreement in consideration of the Covenants and Owner’s timely and faithful performance thereunder. 1.3.3 “Covenant Term” means, a period of three (3) years and six (6) months following the Effective Date (unless terminated sooner pursuant to specific provisions of this Covenant Agreement). 1.3.4 “Covenants” means those covenants described in Section 3.1 herein. 1.3.5 “Governmental Authority” means any nation or government, any federal, state, local, municipal or other political subdivision thereof or any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 1.3.6 “Law” means any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree, bond, judgment, authorization or approval, lien or award by or settlement agreement with any Governmental Authority. 1.3.7 “Liquidated Damages” means, for purposes of Section 3.6, as follows: UB-290UB-290 5 (a) If the breach occurs during the Covenant Term, an amount equal to the estimated cost of the Covenant Subsidy. 1.3.8 “Owner” means and refers to AZUSA TODD LLC, a Delaware limited liability company and its successors and assigns, cumulatively. 1.3.9 “Property” means that certain real property commonly known as 1025 N. Todd Avenue, Azusa, CA 91702. ARTICLE 2. ADDITIONAL RECITALS 2.1 The previously stated Recitals are incorporated herein and made a part hereof as though fully set forth. 2.2 The City has determined that the development of the Property will result in substantial benefits to the City and its citizens, including, without limitation, the creation of significant new employment opportunities, property tax revenues, sales tax revenues and other ancillary benefits. Accordingly, the City has also determined that its entry into this Covenant Agreement and the Covenant Subsidy herein serve a significant public purpose, while providing only incidental benefits to a private party. 2.3 The Parties agree and acknowledge that Owner will be developing within the City the Canyon City Business Park. ARTICLE 3. OWNER COVENANTS RUNNING WITH THE LAND; COVENANT PAYMENTS; REMEDIES FOR BREACH. 3.1 Covenants Running with the Land. 3.1.1 Operating and Use Covenant. Subject to Section 4.9, Owner covenants and agrees that for the Covenant Term Owner shall operate, or cause to be operated upon the Property, the Canyon City Business Park in a commercially reasonable business manner, consistent with all applicable Law. Owner will operate its business in a commercially reasonable and prudent manner. Owner’s obligations pursuant to the immediately preceding sentence include, without limitation, the obligation to obtain all federal, state and local licenses and permits required for development and to advertise, market and promote the development in a commercially reasonable fashion. 3.1.2 Covenant to Operate at 70% Occupancy for a Minimum of One Year. Owner covenants and agrees that, for the term of the Operating and Use Covenant as described in Section 3.1.1, Owner shall maintain such licenses and permits as may be required by any governmental agency to conduct Owner’s development and operation of the Canyon City Business Park. Owner further covenants and agrees that, for the minimum period of one (1) year during the Covenant Term as defined in Section 1.3.4, Owner shall guarantee a minimum of seventy percent (70 %) occupancy of the Canyon City Business Park. 3.1.3 Use of Property. Owner covenants and agrees that the Property shall be put to no use other than those uses specified in the City’s General Plan, the Specific Plan, zoning UB-291UB-291 6 ordinances, and this Covenant Agreement as the same may be amended from time to time. Nothing in this Section 3.1.3 shall limit, expand, modify or otherwise affect any right of the Owner to continue any legal nonconforming use upon the Property following changes in the City’s General Plan or zoning ordinances. For the term of this Operating Covenant, the Owner may use the Property only for the purposes of the development and operation of the Canyon City Business Park in accordance with this Covenant Agreement. 3.2 Covenant Subsidy. 3.2.1 Statement of Intent. The City’s obligations under this Section 3.2 are expressly contingent upon the Owner having, for the entirety of the term of this Operating Covenant, completely fulfilled its material obligations under this Covenant Agreement, including, without limitation, the Covenants. The Parties hereto each acknowledge and agree that the intent of each such Party is that any subsidy made pursuant to Section 3.2.2 shall not be a rebate, refund or abatement of any taxes payable by Owner. 3.2.2 Covenant Subsidy Amount. The waiver of the Electric Cable Reimbursement Fee required under Electric Rule 15.C.2.b for the extension of Azusa Light and Water electric distribution facilities to the project development site to be provided to the Owner in exchange for the Covenants and Owner’s performance of its obligations set forth in this Covenant Agreement, and subject to satisfaction of all conditions precedent thereto, shall consist of City’s fee waiver of the approximate $400,000 fee for the cost of high voltage cable and the labor required to install it. Notwithstanding this fee waiver, Owner will still be responsible for installing the underground conduit and vault facilities necessary for the line extension and all other provisions of Electric Rule 15. Any such waiver pursuant to this Section shall not be effective unless Owner has completely fulfilled its material obligations under this Covenant Agreement, including, without limitation, the Covenants. Should such condition precedent not be satisfied, then City shall have no obligation under this Section 3.2 to make any Covenant Subsidy to Owner. 3.3 Default. 3.3.1 Owner Default. City shall provide Owner with written notice of Owner’s failure (“Owner Default”) to strictly abide by any material provision of this Covenant Agreement, including, without limitation, the Covenants. Owner shall have thirty (30) days from the date of such notice to either cure such Owner Default, or, if such Owner Default cannot be reasonably cured during such thirty (30) day period, to commence to cure within said thirty (30) day period and diligently prosecute such cure to completion thereafter. 3.3.2 City Default. Owner shall provide City with written notice of City’s failure (“City Default”) to strictly abide by any material provision of this Covenant Agreement. City shall have thirty (30) days from the date of such notice to either cure such City Default, or, if such City Default cannot be reasonably cured during such thirty (30) day period, to commence to cure within said thirty (30) day period and diligently prosecute such cure to completion thereafter. UB-292UB-292 7 3.4 General Remedies for Default. Upon either a City Default, after expiration of all applicable notice and grace periods, or an Owner Default, after expiration of all applicable notice and grace periods (as defined in Section 3.3), Owner or City (as applicable) shall have the right to seek all available legal and equitable remedies, unless otherwise expressly provided to the contrary herein. Notwithstanding anything in this Covenant Agreement to the contrary, neither Party shall be liable to the other Party for consequential damages. Unless prohibited by law or otherwise provided by a specific term of this Covenant Agreement, the rights and remedies of the City and the Owner under this Covenant Agreement are nonexclusive and all remedies hereunder may be exercised individually or cumulatively, and either Party may simultaneously pursue inconsistent and/or alternative remedies. Either Party may, upon the Default of the other Party, after expiration of all applicable notice and grace periods, and in addition to pursuing all remedies otherwise available to it, terminate this Covenant Agreement and all of its obligations hereunder without cost, expense or liability to itself. 3.5 The City’s Rights to Terminate its Obligations under Section 3.2. The City’s obligations under Section 3.2 shall automatically terminate without cost, expense, or liability to City, upon the occurrence of any one or more of the following: (a) Owner Default, as to which any applicable cure period provided for herein has expired; or (b) the end of the Covenant Term; or (c) upon the final determination by a court of competent jurisdiction that any one or more of the Covenants are void, voidable, invalid, or even unenforceable for any reason whatsoever, including, without limitation, legal infirmity. 3.6 Liquidated Damages. 3.6.1 Owner Default with Respect to Obligations Under Sections 3.1.1 and 3.1.2. The Parties acknowledge that the consideration to the City for its entry into this Covenant Agreement and the performance of its obligations hereunder include operation of the Canyon City Business Park at a minimum of 70% occupancy for a minimum of a one (1) year period prior to the end of the Covenant Term. Owner agrees that the City will suffer damages if Owner commits any Owner Default with respect to any of its obligations arising under Sections 3.1.1 and 3.1.2. The Parties agree that the exact determination of such damages would be impracticable and extremely difficult to quantify. Accordingly, the Parties have determined that Liquidated Damages (as determined pursuant to Section 1.3.7) represents a reasonable estimate of the damages which would be suffered by the City if Owner commits any Owner Default with respect to any of its obligations set forth in Sections 3.1.1 and 3.1.2. Accordingly, as its sole and exclusive monetary remedy for an Owner Default with respect to any of its covenants and obligations set forth in Sections 3.1.1 and 3.1.2, the City shall be entitled to (1) terminate this Covenant Agreement and the entirety of its obligations hereunder, including any accrued and unpaid Covenant Subsidy, and (2) receive from Owner the applicable amount of Liquidated Damages as provided by Section 1.3.7. 3.6.2 ACKNOWLEDGEMENT OF REASONABLENESS OF LIQUIDATED DAMAGES. UPON AN OWNER DEFAULT WITH RESPECT TO ANY OF ITS OBLIGATIONS SET FORTH IN SECTIONS 3.1.1 AND 3.1.2, FOLLOWING NOTICE AND OPPORTUNITY TO CURE PURSUANT TO SECTION 3.3.1, THE CITY AND OWNER ACKNOWLEDGE AND AGREE THAT IT WOULD BE EXTREMELY DIFFICULT AND IMPRACTICAL TO ASCERTAIN THE AMOUNT OF DAMAGES THAT WOULD BE UB-293UB-293 8 SUFFERED BY THE CITY WITH RESPECT TO SUCH DEFAULT. HAVING MADE DILIGENT BUT UNSUCCESSFUL ATTEMPTS TO ASCERTAIN THE ACTUAL DAMAGES THE CITY WOULD SUFFER, THE PARTIES AGREE THAT THE LIQUIDATED DAMAGES AMOUNT AS DETERMINED IN ACCORDANCE WITH SECTION 1.3.7 REPRESENTS A REASONABLE ESTIMATION OF THOSE DAMAGES. THEREFORE, UPON AN OWNER DEFAULT WITH RESPECT TO ANY OF ITS OBLIGATIONS SET FORTH IN SECTIONS 3.1.1 AND 3.1.2, AS ITS SOLE AND EXCLUSIVE REMEDY FOR SUCH DEFAULT, THE CITY SHALL BE ENTITLED TO (1) RECEIPT OF THE LIQUIDATED DAMAGES AMOUNT CALCULATED IN ACCORDANCE WITH SUBSECTION 1.3.7, WHICH OWNER SHALL PAY WITHIN TEN (10) DAYS FOLLOWING WRITTEN DEMAND FROM THE CITY, AND (2) TERMINATE THIS AGREEMENT AND THE ENTIRETY OF ITS OBLIGATIONS HEREUNDER, INCLUDING ANY ACCRUED BUT YET UNPAID COVENANT PAYMENTS. __________________ __________________ Initials of Authorized Initials of Authorized City Representative Owner Representative ARTICLE 4. GENERAL TERMS 4.1 Tax Consequences. Owner acknowledges that it may experience tax consequences as a result of its receipt of the subsidy provided for in this Covenant Agreement and agrees that it shall bear any and all responsibility, liability, costs, and expenses connected in any way therewith. 4.2 Rights Not Granted Under Covenant Agreement. This Covenant Agreement is not, and shall not be construed to be, a Development Agreement under Government Code Section 65864 et seq. This Covenant Agreement is not, and shall not be construed to be, an approval or an agreement to issue permits or a granting of any right or entitlement by the City concerning the Canyon City Business Park or any other project, development, or construction by the Owner in the City. This Covenant Agreement does not, and shall not be construed to, exempt Owner from the application and/or exercise of the City’s or City’s power of eminent domain or its police power, including, but not limited to, the regulation of land uses and the taking of any actions necessary to protect the health, safety, and welfare of its citizenry. 4.3 Consent. Whenever consent or approval of any party is required under this Covenant Agreement, that party shall not unreasonably withhold, delay or condition such consent or approval unless otherwise allowed by a specific provision of this Covenant Agreement. 4.4 Notices and Demands. All notices or other communications required or permitted between the City and Owner under this Covenant Agreement shall be in writing, and may be (i) personally delivered, (ii) sent by United States registered or certified mail, postage prepaid, return receipt requested, (iii) sent by telecopier, or (iv) sent by nationally recognized overnight courier service (e.g., Federal Express), addressed to the Parties at the addresses provided in Article 1, subject to the right of either party to designate a different address for itself by notice similarly given. Any notice so given by registered or certified United States mail shall UB-294UB-294 9 be deemed to have been given on the second business day after the same is deposited in the United States mail. Any notice not so given by registered or certified mail, such as notices delivered by telecopier or courier service (e.g., Federal Express), shall be deemed given upon receipt of the same by the party to whom the notice is given. 4.5 Nonliability of Officials and Employees. No board member, official, contractor, consultant, attorney or employee of the City shall be personally liable to Owner, any voluntary or involuntary successors or assignees, or any lender or other party holding an interest in the Property, in the event of any default or breach by the City, or for any amount which may become due to the Owner or to its successors or assignees, or on any obligations arising under this Covenant Agreement. No board member, officer, contractor, consultant, attorney or employee of the Owner shall be personally liable to the City, any voluntary or involuntary successors or assignees, or any lender or other party holding an interest in the Property, in the event of any default or breach by the Owner, or for any amount which may become due to the City or to its successors or assignees, or on any obligations arising under this Covenant Agreement. 4.6 Conflict of Interests. No board member, official, contractor, consultant, attorney or employee of the City or City shall have any personal interest, direct or indirect, in this Covenant Agreement nor shall any such board member, official or employee participate in any decision relating to this Covenant Agreement which affects his/her personal interests or the interests of any corporation, partnership or association in which he/she is directly or indirectly interested. 4.7 Pledge or Hypothecation of Covenant Payments. Owner may assign any Covenant Subsidy(s) due in accordance with the terms of this Covenant Agreement (but not any other right or obligation of this Covenant Agreement) upon thirty (30) days’ prior written notice to City as collateral for any loan or financing obtained by the Owner in connection with the development of the Property; provided that nothing in this Section 4.7 shall be deemed to limit the operation of Section 4.16. Without limiting the general applicability of the foregoing, Owner acknowledges that Owner’s lender and any transferee of Owner’s lender shall be subject to the transfer restrictions of Section 4.16. 4.8 Entire Agreement; Good Faith Negotiations. This Covenant Agreement contains all of the terms and conditions agreed upon by the Parties and supersedes any previous agreements between the Parties concerning the subject matter of this Covenant Agreement. No other understanding, oral or otherwise, regarding the subject matter of this Covenant Agreement shall be deemed to exist or to bind any of the parties hereto. All prior written or oral offers, counteroffers, memoranda of understanding, proposals and the like are superseded by this Covenant Agreement. 4.9 Time Deadlines Critical; Extensions and Delays; No Excuse Due to Economic Changes. Time is of the essence in the performance of the City’s and Owner’s obligations under this Covenant Agreement. In addition to specific provisions of this Covenant Agreement providing for extensions of time, times for performance hereunder shall be extended where delays or defaults are due to war; insurrection; any form of labor dispute; lockouts; riots; floods; earthquakes; fires; acts of God or of third-parties; third-party litigation; acts of a public enemy; initiative or referenda; acts of governmental authorities (except that the failure of the City to act UB-295UB-295 10 as required hereunder shall not excuse its performance); moratoria (except those imposed or enacted by the City); epidemics; quarantine restrictions; and freight embargoes (collectively, “Enforced Delays”) provided, however, that the Party claiming the extension notify the other Party of the nature of the matter causing the default; and, provided further, that the extension of time shall be only for the period of the Enforced Delays. However, deadlines for performance may not be extended as provided above due to any inability of the Owner to obtain or maintain acceptable financing for the development of the Property. ANYTHING IN THIS COVENANT AGREEMENT TO THE CONTRARY NOTWITHSTANDING, OWNER EXPRESSLY ASSUMES THE RISK OF UNFORESEEABLE CHANGES IN ECONOMIC CIRCUMSTANCES AND/OR MARKET DEMAND/CONDITIONS AND WAIVES, TO THE GREATEST LEGAL EXTENT, ANY DEFENSE, CLAIM, OR CAUSE OF ACTION BASED IN WHOLE OR IN PART ON ECONOMIC NECESSITY, IMPRACTICABILITY, FRUSTRATION OF PURPOSE, CHANGED ECONOMIC CIRCUMSTANCES OR SIMILAR THEORIES. OWNER EXPRESSLY AGREES THAT ADVERSE CHANGES IN ECONOMIC CONDITIONS, EITHER OF OWNER SPECIFICALLY OR THE ECONOMY GENERALLY, OR CHANGES IN THE MARKET CONDITIONS OR DEMANDS, SHALL NOT OPERATE TO EXCUSE OR DELAY THE STRICT OBSERVANCE OF EACH AND EVERY OF THE OBLIGATIONS, COVENANTS, CONDITIONS AND REQUIREMENTS OF THIS COVENANT AGREEMENT. OWNER EXPRESSLY ASSUMES THE RISK OF SUCH ADVERSE ECONOMIC OR MARKET CHANGES, WHETHER OR NOT FORESEEABLE AS OF OWNER’S EXECUTION OF THIS COVENANT AGREEMENT. OWNER’S INITIALS _______ 4.10 Attorneys’ Fees. In the event of the bringing of an arbitration, action or suit by a Party hereto against another Party hereunder by reason of any breach of any of the covenants or agreements or any intentional inaccuracies in any of the representations and warranties on the part of the other Party arising out of this Covenant Agreement or any other dispute between the Parties concerning this Covenant Agreement or the Property, then, in that event, the prevailing party in such action or dispute, whether by final judgment or arbitration award, shall be entitled to have and recover of and from the other Party all costs and expenses of suit or claim, including reasonable attorneys’ fees. Any judgment, order or award entered in any final judgment or award shall contain a specific provision providing for the recovery of all costs and expenses of suit or claim, including reasonable attorneys’ fees (collectively, the “Costs”) incurred in enforcing, perfecting and executing such judgment or award. For the purposes of this Section 4.10, “Costs” shall include, without implied limitation, attorneys’ and experts’ fees, costs and expenses incurred in the following: (i) post judgment motions and appeals, (ii) contempt proceedings, (iii) garnishment, levy and debtor and third-party examination, (iv) discovery; and (v) bankruptcy litigation. This Section 4.10 shall survive any termination of this Covenant Agreement. 4.11 Amendments to This Covenant Agreement. Any amendments to this Covenant Agreement must be in writing and signed by the appropriate authorities of both the City and UB-296UB-296 11 Owner. The City Manager is authorized on behalf of the City to approve and execute minor amendments to this Covenant Agreement, including, but not limited to, the granting of extensions of time to Owner, not to exceed ninety (90) days in the aggregate. 4.12 Jurisdiction and Venue. Any legal action or proceeding concerning this Covenant Agreement shall be filed and prosecuted in the appropriate California state court in the County of Los Angeles, California. Both Parties hereto irrevocably consent to the personal jurisdiction of that court. The City and Owner each hereby expressly waive the benefit of any provision of federal or state law or judicial decision providing for the filing, removal, or change of venue to any other court or jurisdiction, including, without implied limitation, federal district court, due to any diversity of citizenship between the City and Owner, due to the fact that the City is a party to such action or proceeding or due to the fact that a federal question or federal right is involved or alleged to be involved. Without limiting the generality of the foregoing, the City and Owner specifically waive any rights provided to it pursuant to California Code of Civil Procedure Section 394. Owner acknowledges that the provisions of this Section 4.12 are material consideration to the City for its entry into this Covenant Agreement, in that the City will avoid the potential cost, expense and inconvenience of litigating in a distant forum. 4.13 Interpretation. The City and Owner acknowledge that this Covenant Agreement is the product of mutual arms-length negotiation and drafting and that both Parties have been represented by legal counsel in the negotiation and drafting of this Covenant Agreement. Accordingly, the rule of construction which provides that ambiguities in a document shall be construed against the drafter of that document shall have no application to the interpretation and enforcement of this Covenant Agreement. In any action or proceeding to interpret or enforce this Covenant Agreement, the finder of fact may refer to any extrinsic evidence not in direct conflict with any specific provision of this Covenant Agreement to determine and give effect to the intention of the Parties. 4.14 Counterpart Originals; Integration. This Covenant Agreement may be executed in duplicate originals, each of which is deemed to be an original, but when taken together shall constitute but one and the same instrument. This Covenant Agreement and any exhibits represent the entire understanding of the Parties and supersedes all negotiations, letters of intent, memoranda of understanding or previous agreements between the parties with respect to all or any part of the subject matter hereof. 4.15 No Waiver. Failure to insist on any one occasion upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any rights or powers hereunder at any one time or more times be deemed a waiver or relinquishment of such other right or power at any other time or times. 4.16 Successors and Assigns. The terms, covenants and conditions of this Covenant Agreement shall be binding upon and inure to the benefit of the Parties hereto and their successors and assigns. Except as provided in this Section 4.16, Owner shall neither transfer nor convey Owner’s interest in the Property without the express written consent of the City, which shall not be unreasonably withheld, conditioned or delayed. In determining whether to approve of such a sale, transfer, conveyance or assignment of the Owner’s interest in the Property, the UB-297UB-297 12 City shall evaluate: (i) the financial ability of the proposed transferee to own and operate the Property, or portion so transferred, and to meet the Owner’s obligations under this Covenant Agreement; (ii) the fitness and experience of the proposed transferee and its managerial personnel to own and operate the Property or portion so transferred thereof; and (iii) the ability of the proposed transferee to maintain a level of quality and service comparable to that maintained by the Owner for the Property. Notwithstanding anything to the contrary contained in this Covenant Agreement, however, Owner may assign, without the City’s consent, this Covenant Agreement, its interest in the Property to any assignee provided that: (a) such assignment is pursuant to a sale of all or substantially all of Owner’s assets; and (b) the applicable assignee has a net worth and financial stability equal to or better than Owner’s net worth and financial stability as of the time of the Effective Date of this Covenant Agreement. Upon the permitted sale, transfer or conveyance by Owner of its interest therein, such owner shall thereupon be relieved of its obligations under this Covenant Agreement from and after the date of sale, transfer or conveyance except with respect to any defaults in the performance of its obligations hereunder or thereunder which occurred prior to such sale, transfer or conveyance, and the transferee shall thereafter be solely responsible for the performance of all of the duties and obligations of Owner under this Covenant Agreement. 4.17 No Third-Party Beneficiaries. The performance of the respective obligations of the City and Owner under this Covenant Agreement are not intended to benefit any party other than the City or Owner, except as expressly provided otherwise herein. No person or entity not a signatory to this Covenant Agreement shall have any rights or causes of action against any party to this Covenant Agreement as a result of that party’s performance or non-performance under this Covenant Agreement, except as expressly provided otherwise herein. 4.18 No Effect on Eminent Domain Authority. Nothing in this Covenant Agreement shall be deemed to limit, modify, or abridge or affect in any manner whatsoever the City’s or City’s eminent domain powers with respect to the Property or any other property owned by Owner within the City’s jurisdictional limits. 4.19 Warranty Against Payment of Consideration for Covenant Agreement. Owner warrants that it has not paid or given, and will not pay or give, any third-party any money or other consideration for obtaining this Covenant Agreement. Third-parties, for the purposes of this Section 4.19, shall not include persons to whom fees are paid for professional services if rendered by attorneys, financial consultants, accountants, engineers, architects and the like when such fees are considered necessary by Owner. 4.20 Severability. The City and Owner declare that the provisions of this Covenant Agreement are severable. If it is determined by a court of competent jurisdiction that any term, condition or provision hereof is void, voidable, or unenforceable for any reason whatsoever, then such term, condition or provision shall be severed from this Covenant Agreement and the remainder of the Covenant Agreement enforced in accordance with its terms. 4.21 Further Acts and Releases. The City and Owner each agree to take such additional acts and execute such other documents as may be reasonable and necessary in the performance of their obligations hereunder. UB-298UB-298 13 4.22 Estoppels. At the request of Owner, the City shall promptly execute and deliver to Owner or such holder a written statement of the City as to any of the following matters as to which Owner or such holder may inquire: (i) that no default or breach exists, or would exist with the passage of time, or giving of notice, or both, by Owner pursuant to this Covenant Agreement, if such be the case; (ii) the total amount of Covenant Subsidy(s) made by the City to Owner pursuant to this Covenant Agreement prior to the date of such written statement; (iii) if the City has determined that Owner is in default or breach hereunder, the nature of such default and the action or actions required to be taken by Owner to cure such default or breach; and (iv) any other matter affecting the rights or obligations of Owner hereunder as to which Owner or such holder may reasonably inquire. The form of any estoppel letter shall be prepared by Owner or such holder at its sole cost and expense and shall be reasonably acceptable in form and content to the City and Owner. The City may make any of the representations described above based on the actual current knowledge of the then-current City Manager. 4.23 Indemnity. Owner shall defend (using Counsel of the City’s choosing), indemnify and hold harmless the City, its elected officials, officers, employees and agents from and against any and all third party claims, losses, proceedings, damages, causes of action, liability, cost and expense (including reasonable attorney’s fees) arising from, in connection with or related to this Agreement or the functions or operations of the Property (other than to the extent arising as a result of the City’s active negligence or willful misconduct). The City shall fully cooperate in the defense of any such actions and upon written request of the Owner shall provide such documents and records that are relevant to such actions and not otherwise protected by law. Notwithstanding the foregoing, should any third party bring any such action or proceeding Owner shall have the right to terminate this Agreement, and as of such date of termination, all unaccrued liabilities of the parties under this Agreement shall cease except for Owner’s obligation of indemnity owned to the City as provided in this Section 4.23. For purposes of clarification, should Owner exercise its termination right as provided in this Section 4.23, the same shall not be considered a Default and the City shall have not claims against Owner for liquidated damages. [Signature on the following pages] UB-299UB-299 SIGNATURE PAGE TO THE AZUSA TODD LLC OPERATING COVENANT AGREEMENT CITY OF AZUSA a California municipal corporation By: __________________________________ ATTEST: By: ______________________________ APPROVED AS TO FORM: By: ______________________________ Marco A. Martinez City Attorney AZUSA TODD LLC, a Delaware limited liability company By: __________________________________ Signature __________________________________ Name (Print) __________________________________ Title (Print) UB-300UB-300