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SR - AGR-6110.A - PARTICIPATION AGREEMENT *��°�°�c* AGENDA ITEM �: .�� p�.,A�p6�..:��a November 13, 2018 cb�tv�^t c�' ReviewedNerified TO: Honorable Mayor and Members of The City Council City Manager Finance Directo THRU: Rick Otto To Be Presented By: Ci Mana er Aaron Schulze t3' g Cons Calendar City Mgr Rpts Council Reports Legal Affairs FROM: Aaron Schulze � Boards/Cmtes X Public Hrgs Senior Administrative Analyst Admin Reports Plan/Environ 1. SUBJECT Participation Agreement by and among the City of Orange, Southern Counties Oil Co., a California Limited Partnership and Orange Katella, LLC, a California Limited Liability Company. 2. SUMMARY A public hearing to consider approval of a Participation Agreement by and among the City of Orange, Southern Counties Oil Co., a California Limited Partnership, and Orange Katella, LLC, a California Limited Liability Company. 3. RECOMMENDED ACTION Approve the Participation Agreement by and among the City of Orange, Southern Counties Oil Co., a California Limited Partnership, and Orange Katella, LLC, a California Limited Liability Company and authorize the Mayor to execute and the City Clerk to attest to the Participation Agreement. 4. FISCAL IMPACT The proposed Economic Development assistance will be performance based and budgeted through the City's annual budget process. 5. STRATEGIC PLAN GOAL S 1. Provide for a safe community a. Provide staffing and resources to deliver services that ensure public safety. 2. Be a fiscally healthy community. a. Expend fiscal resources responsibly. ITEM � � • 5 1 11/13/18 6. GENERAL PLAN IMPLEMENTATION Not applicable. 7. DISCUSSION and BACKGROUND Background Southern Counties Oil Co. has operated its business at 1825 W. Collins Avenue in Orange since 1988. Orange Katella, LLC, an affiliate of Southern Counties Oil Co. established its corporate headquarters at 1800 W. Katella Avenue in 1999. Both Southern Counties Oil Co. and Orange Katella, LLC (collectively "SC Fuels") operate and distribute petroleum products, and combined are the largest sales tax generator in the city. Assembly Bill 562 (AB 562) provides cities with financial assistance tools for the purpose of stimulating economic development. Under AB 562, cities may consider an economic development subsidy for a prospective business subject to certain public notice requirements and an economic development subsidy report. The retention of SC Fuels would provide for on-going employment retention, retention of sales tax revenue, and the promotion of business expansion through future business acquisitions. Discussion In response to a competitive marketplace where other cities have a strong interest to incentivize SC Fuels to move its corporate headquarters, City staff initiated an economic development effort to retain SC Fuels in Orange. To that end, a proposed Participation Agreement has been negotiated for the retention of SC Fuels corporate offices and employment base in the city. The proposed agreement would replace an existing Participation Agreement with SC Fuels that has operated since 2014. The terms of the new Participation Agreement allow Orange to be competitive in retaining this important business in our community while providing SC Fuels with strong incentives to grow and expand its business. Terms of the Participation Agreement 1. The term of the agreement is twenty years. 2. SC Fuels is required to maintain its corporate offices in the city with a minimum of 150 full-time employees. 3. The City will remit 50% of the first $4 Million in sales tax generated by SC Fuels per . fiscal year. 4. The City will remit 75% of all sales tax generated by SC Fuels between $4 Million and $5.5 Million per fiscal year. 5. The City will remit 85% of all sales tax generated by SC Fuels over $5.5 Million per fiscal year. 6. The City will provide additional assistance to SC Fuels in the amount of the business license taxes and fees paid by SC Fuels each year during the term of the agreement. Note that in addition to the proposed Participation Agreement, the Council approved a market rate lease of a portion of a City water well site to SC Fuels in 2016 to provide additional parking for its employees. SC Fuels has completed the improvements to this property, and the new parking lot will support SC Fuels' continued employment growth in our city. ITEM 2 11/13/18 It is recommended that the City Council approve the proposed Participation Agreement by and among the City of Orange, Southern Counties Oil Co., a California Limited Partnership, and Orange Katella, LLC, a California Limited Liability Company. 8. ATTACHMENTS • Participation Agreement by and among the City of Orange, Southern Counties Oil Co., a California Limited Partnership, and Orange Katella, LLC, a California Limited Liability Company. • Economic Development Subsidy Report ITEM 3 11/13/18 PARTICIPATION AGREEMENT by and among CITY OF OR.ANGE, a municipal corporation of the State of California and SOUTHERN COUNTIES OIL CO., a California Limited Partnership, and ORANGE KATELLA, LLC, a California Limited Liability Company 99999.91458\31440399.2 TABLE OF CONTENTS Pa�e Section 1. Incorporation of Recitals; Definitions.............................................................2 Section2. Findings........................................................................................................... 5 Section 3. Performance Requirements for Receipt of Tax Sharing.................................. 5 Section 4. Terms Related to Calculation and Payrnent of Tax Sharing........................... 5 Section 5. Terms Related to Business License Fees......................................................... 8 Section 6. Operating Covenants....................................................................................... 8 Section 7. Indemnification; Release............................................................................... 10 Section 8. Defaults; Buyout; Termination...................................................................... 11 Section 9. Miscellaneous Provisions.............................................................................. 12 Exhibit"A"Legal Description of Site Exhibit"B" SCOC's Quarterly Certification Letter i PARTICIPATION AGREEMENT SOUTHERN COUNTIES OIL CO. and ORANGE KATELLA,LLC This Participation Agreement("Agreement") is made and entered into as of 12:00 am, December ,2018(the"Effective Date")by and among the CITY OF ORANGE,a municipal corporation of the State of California (the "City"), on the one hand, and SOUTHERN COUNTIES OIL CO.,a California Limited Partnership("SCOC"),and ORANGE KATELLA, LLC, a California limited liability company("Orange Katella"),on the other hand. Each of the foregoing parties may be refened to hereafter as a"Parly,"and jointly as the"Parties." SCOC and Orange Ka.tella may be collectively referred to herein as "Owner". RECITALS WHEREAS, the general welfare and material well-being of the residents of the City depend in large measure upon the facilities, goods,and services that businesses make available to the public and the City's residents, which, in turn, generate tax revenues to the City to help pay for necessary services to the City's residents and such retail services; and WHEREAS, the continued operation and possible expansion of existing commercial and industrial businesses within the City (i) will continue to attract both local and regional shoppers, (ii) will likely continue to generate increased sales tax revenues to the City, (iii) continue to promote job creation opportunities in the City, (iv) continue to encourage property upgrades and enhancements in the City's commercial and industrial areas,and(v)will continue to enhance the quality of facilities, goods and services available to the public and the City's residents; and WHEREAS, the City wishes to induce and encourage the continued operation and possible expansion of existing commercial and industrial businesses within the City, thereby assisting the City in achieving its goals related to the development of said businesses and maintaining existing and creating new sources of sales tax revenue for the City's general fund that supports the public services that the City provides to its residents and to said businesses; and WHEREAS, the City desires to incentivize commercial and industrial business in the City by sharing a portion of the sales tax revenues generated by existing, new and expanding businesses, including the on-going operations of SCOC on certain real property owned by Orange Katella located at 1800 W. Katella Ave., Orange, Califomia ("Site"), which is legally described on Elchibit "A" attached hereto and incorporated herein by reference. During the Term,SCOC may occupy altemate property within the City of Orange for the purpose of selling refined petroleum products and related sales and/or use tax-generating products, as provided in this Agreement. In such event, the "Site" hereunder shall mean and refer to such alternate property upon the satisfaction of all of the following conditions precedent: (1)commencement of the leasehold or fee title ownership of such alternate property within the City of Orange by 5COC; (2) commencement of the designation of the alternate property as the point of sale for purposes for SCOC's business of selling refined petroleum products and related sales and/or vl 060418 1 99999.91458\31440399.2 use tax-generating products as provided in this Agreement; (3) Orange Katella is forever released from its obligations under the terms and conditions in this Agreement thereafter accruing, with such release executed in writing in a form approved by Orange Katella and SCOC in their reasonable discretion; and (4) the prior written approval of the City Manager, which shall not be unreasonably withheld or delayed, as provided in this Agreement. WHEREAS,the City recognizes that retention of the on-going operations of SCOC in Orange will continue to contribute to the economic vitality of the City, continue to provide jobs in the City, continue to expand the City's tax base and otherwise improve economic and physical conditions in the City. TERMS AND CONDITIONS NOW, THEREFORE, in consideration of the mutual promises and covenants of the Parties set forth herein, and for other good and valuable consideration, the receipt of which is hereby aclrnowledged by the Parties,the Parties agree as set forth hereinafter. Section 1. Incorporation of Recitals; Definitions. The Parties agree that each of the foregoing Recitals is true and correct and incorporate each of the Recitals in this Agreement by reference thereto. "Affiliate"means any corporation,partnership,joint venture,limited liability company, limited liability partnership, trust and/or individual that is controlled by, or that is under common control with, SCOC and Orange Katella collectively, or SCOC or Orange Katella individually, and their respective legally permissible nominees, transferees, assignees, or successors to their respective rights, powers, and responsibilities as expressly permitted hereunder. The term"control"for these purposes shall mean the ability,by ownership of shares or other equity interests, by contract or otherwise, to elect a majority of the directors of a corporation, to make management decisions on behalf of, or independently to select the managing partner of, a partnership, or otherwise to have the power independently to remove and then select a majority of those individuals exercising managerial authority over an entity; control shall be conclusively presumed in the case where Orange Katella and/or SCOC own more than 50% of the shares of an entity. "Approved Business" means the on-going business of selling refined petroleum products and related sales and/or use tax-generating products by SCOC on the Site plus any business of SCOC or Orange Katella or any Affiliate generating sales and/or use taxes on or from the Site or within the City of Orange to the extent not in conflict with any applicable law, including,without limitation Government Code Section 53084.5. Approved Business includes the on-going business of Southern Counties Lubricants, LLC, a California limited liability company,in the City of Orange. It is the intent of the Parties that nothing in this Agreement or the implementation hereof violate Government Code Section 53084.5. vl 060418 , 2 99999.91458\31440399.2 "Buyout" shall mean the termination of Owner's obligations under this Agreement (except for indemnity, defense and hold harmless obligations which shall survive any termination or Buyout of this Agreement)as of the Buyout Effective Date by paying the Buyout Amount to the City and providing the Buyout Notice as required by this Agreement. "Buyout Amount" shall mean either: (a) prior to January 1,2029,an amount equal to the cumulative amount of Payments actually made by the City for the six (6) months immediately prior to the date of the Buyout Notice or Owner Default Notice, as applicable; or (b) on or after January l, 2029,Zero Dollars ($0). "Buyout Effective Date" shall mean the date on which the Buyout, if any, shall occur by payment in full of the Buyout Amount to the City and provision of the Buyout Notice. "Buyout Notice" shall mean the twelve(12) month prior written notice of termination which may be provided by Owner to the City as described in Section 8.b,below. "City" shall mean the City of Orange, a municipal corporation, organized under the laws of the State of California and having its offices at 300 East Chapman Avenue, Orange, California 92866. "City Additional Assistance" shall have the meaning set forth in Section S.a of this Agreement. "Compliance Period" shall mean a Sales Tax Quarter, commencing with the Quarter in which the Effective Date occurs, and each Quarter thereafter, for the Term. "Compliance Report" shall mean a report prepared by or on behalf of SCOC in accordance with paragraph f. of Section 4 of this Agreement setting forth the information as may be required to determine whether the Performance Requirements have been satisfied and calculating the amount of the hereinafter defined Payment due for the period in question. "EffecNve Date" shall mean 12:00 am on December 1, 2018 to be the effective date of this Agreement. , "Owner Default Notice"shall mean notice given to the Owner in accordance with the notice and cure requirements set forth in Section 8.a., for a default of either SCOC or Orange Katella of any material promise, obligation, covenant or duty under this Agreement, as more particularly described in Section 8.c. "Participation Agreement" or"Agreement" means this agreement between the City and the Owner that provides for the rebate from the City to SCOC of a portion of the Sales Tax Increment, at a rate and for a time period as determined in this Agreement. vl 060418 3 99999.91458\31440399.2 "Payment"and Payments" shall have the meaning set forth in the defmition of"Sales Tax Sharing"below. "Penalty Assessments"means penalties, assessments, collection costs and other costs, fees or charges resulting from late or delinquent payment of Sales Tax and that are levied, assessed,or otherwise collected from any Approved Business owning or obligated to pay Sales Tax. "Performance Requirements"shall mean those requirements set forth in Section 3 of this Agreement. "Person" means any person or entity, whether an individual, trustee, corporation, parinership,trust,unincorporated organization, governmental agency or otherwise. "Sales Tax"shall mean any and all California sales and uses tax revenue paid pursuant to applicable California law, including (but not limited to) the Bradley-Burns Uniform Local Sales and Use Tax Law(California Revenue and Taxation Code Section 7200 et seq.) and the Sales and Use Tax Law(California Revenue and Taxation Code Section 6000 et seq.), as such laws may be amended from time to time, and regulations of the California State Board of Equalization and other binding rulings and interpretations relating thereto, or other funds actually received.by the City pursuant to legislation such as, but not limited to, Revenue and Taxation Code, section 97.68, enacted expressly as a substitute for sales tax revenues in order to reimburse the City for sales tax revenues losses resulting from decreases in the 1% rate of sales tax or otherwise. "Sales Taz Increment"means, on a quarterly basis, the amount of Sales Tax actually generated by the Approved Business and received by the City from the State Board of Equalization after the Effective Date. It is determined by reference to actual receipts by the City of Sales Tax from the State Board of Equalization. Under no circumstance shall the City be liable for any reimbursement of Sales T�Increment not actually received and permanently retained by the City. Sales Tax Increment shall not include (i) Penalty Assessments; (ii) any administrative fee charged by the California State Board of Equalization; or(iii)any Sales Tax attributable to any transaction not consuinmated within the Term of this Agreement. "Sales Tag Quarter"means a three month quarterly period as designated by the State Board of Equalization in its reports to the City. "Sales Taz Sharing" means the disbursement amount from the City to SCOC of an amount equal to a portion of the Sales Tax Increment,as determined each quarter for which this Agreement is in full force and effect. Each such disbursement amount is referred to in this Agreement as a "Payment" and collectively as the "Payments". All Payments shall be paid by the City to SCOC after the conclusion of each Sales Tax Quarter as provided in this Agreement. "Sales Tax Threshold" shall mean for each Sales Taac Quarter, Sales Tax Increment in the amount of One Hundred Thousand Dollars ($100,000). v1060418 4 99999.91458\31440399.2 "Term"shall mean twenty(20)years commencing on the Effective Date,unless sooner terminated as expressly provided for herein. "Year" shall mean each 12-month period, consisting of four consecutive Compliance Periods, during the Term, commencing with the first day of the first Compliance Period of the Term. Section 2. Findinss. The City finds and determines that this Agreement serves a valid public purpose through continuing to expand economic opportunities for businesses in the City, continuing to expand the City's employment base, and continuing to generate Sales Tax that the City can utilize to fund general governmental services such as police, fire, street maintenance, and parks and recreation programs, and that entering into this Agreement for this sharing of the Sales Tax Increment is in the best interests of the City and its residents. Section 3. Performance Reauirements for Receint of Tax Sharing. Satisfaction of each of the following is a condition precedent to the City's obligation to share Sales Tax Increment with SCOC for any Compliance Period (collectively, the "Performance Requirements"): a. SCOC continuing to operate the business of selling refined petroleum products and related Sales Tax-generating products on the Site, and SCOC using the Site as the point of sale for refined petroleum products and related Sales Tax-generating products sold on the Site to the extent not in conflict with any applicable law,including,without limitation,Government Code Section 53084.5; and b. No event of default on the part of the Owner shall currently exist under this Agreement, nor shall there be any condition or circumstance that would, with notice or the passage of time, or both, constitute an event of default on the part of the Owner under this Agreement; and c. The Sales Tax Threshold has been met. Section 4. Terms Related to Calculation and Pavment of Tax Sharing. a. The Parties agree that, upon satisfaction in each Compliance Period of the Performance Requirements, the City shall have the obligation to make Payments to SCOC for the Sales Tax Sharing. SCOC's portion of the Sales Tax Sharing shall be as follows: (1) For Sales Tax Increment for such Compliance Period up to $4,000,000, , fifty percent(50%) of the Sales Tax Increment; vl 060418 5 , 99999.91458\31440399.2 (2) For Sales Tax Increment for such Compliance Period between $4,000,000 and$5,500,000,seventy-five percent(75%)of the Sales Tax Increment; and (3) For Sales Tax Increment for such Compliance Period over $5,500,000, eighty-five percent(85%)of the Sales Tax Increment. b. The Parties acknowledge that the receipt of information from the State Board of Equalization is often delayed, and that it is often difficult to separate sales receipts for particular items from sales tax related to other items sold by a business. Accordingly, SCOC agrees to provide,or cause to be provided to,the City's Finance Department with accurate quarterly sales reports relating to the Approved Business. The City's Finance Department may adopt such procedures, audits or required reports as are reasonable or necessary to enable the Finance Deparhnent to accurately calculate Sales Tax Increment. The quarterly Payment to SCOC of the Sales Tax Increment shall be based on information that is as accurate as can be obtained by the Parties. The Parties agree that past Payments to SCOC of the Sales Tax Increment are subject to adjustment if further information indicates that any Payment was inaccurate. c. Not later than forty-five(45)days after the end of each Sales Tax Quarter,SCOC shall prepare and submit, or cause to be prepared and submitted, to the City Manager a Compliance Report containing the following for the Compliance Period in question, and calculating the amount of the Payment, if any,that is due to SCOC for the Compliance Period: (1) A sales record(s) for the Sales Tax Quarter in question; (2) A copy of the quarterly sales tax filing(s) to the State Board of Equalization for the Sales Tax Quarter in question for the Approved Business; and (3) A certification, signed by an officer, managing general partner, or principal of SCOC substantially in the form attached to this Agreement as Exhibit "B" (which is attached hereto and incorporated herein by reference) representing that all the Performance Requirements for the Compliance Period have been satisfied. d. As consideration for Owner's performance of its obligations set forth in this Agreement and subj ect to the terms and conditions of this Agreement, the City shall make a Payrnent to SCOC within fifteen (15) days after the City's receipt of confirmation from the State Board of Equalization of the amount of Sales Tax paid with respect to the Approved Business as set forth in each Compliance Report. e. The Parties agree that Payrnents shall be subject to adjustments. If,at any time within one(1)year after the receipt by the City of a quarterly confirmation and payment of Sales Tax by State Board of Equalization was incorrect, an appropriate adjustment shall be made. vl 060418 6 99999.91458\31440399.2 During the Term of this Agreement and for one(1)year thereafter,the Owner shall have the right to request, and upon such request the City shall deliver to the Owner within ten (10) days of such request, any documents received by the State Board of Equalization evidencing the actual payment and receipt of Sales Tax with respect to the Approved Business. If,based upon the documents from the State Board of Equalization and quarterly confirmation and payment documentation, any Payment by the City to SCOC is less than the amount due to SCOC under this Agreement, the City shall disburse to SCOC the unpaid balance for the applicable Compliance Period no later than sixty (60) calendar days after SCOC or Orange Katella demands the City to pay such unpaid balance. If, based upon the documents from the State Board of Equalization and quarterly confirmation and payment documentation, any Payment is larger than the amount due to SCOC under this Agreement,the City may deduct the overpaid amount from any future Payments otherwise payable to SCOC under this Agreement. If this Agreement has been terminated or is expired, and the City owes SCOC any unpaid balance as described in this paragraph, the City shall pay SCOC the unpaid balance no later than sixty(60)calendar days after SCOC or Orange Katella demands the City to pay the unpaid balance, or, if this Agreement has been terminated or is expired, and SCOC owes the City for an overpayment by City as described in this paragraph, SCOC shall pay the overpaid amount no later than sixty(60) calendar days after the City demands SCOC to pay such amount. f. In addition and without limiting the adjustment provisions in subsection e. above, if, at any time during or after the Term, the California State Board of Equalization determines that all or any portion of the Sales Tax Increment received by the City was improperly allocated andlor paid to the City, and if the California State Board of Equalization requires repayment of, offsets against future sales tax payments, or otherwise recaptures from the City any of the improperly allocated and/or paid Sales Tax Increment, then SCOC shall, within sixty (60) calendar days after written demand from the City, repay all Payments (or applicable portions thereo�theretofore paid to SCOC that are attributable to such repaid,offset or recaptured Sales Tax Increment. If SCOC fails to make such repayment within sixty (60) calendar days after the City's written demand, then the City may deduct any amount required to be repaid by SCOC from any future Payments otherwise payable to SCOC under this Agreement. This Section shall survive the expiration or termination of this Agreement. g. If for any reason there is a failure to authorize the release or use of all or any part of sales tax information regarding any Approved Business in a manner satisfactory to the California State Board of Equalization or provide any information reasonably required by the City to perform the City's obligations under this Agreement,or if all or any part of the sales tax information of any Approved Business is unavailable to the City or the City is not legally authorized to use such information for the purposes of performing its obligations ttnder this Agreement,Payments shall be based solely upon the information so received, if any. h. Payments shall be payable from any source of funds legally available to City. In this regard, it is understood and agreed that the Sales Tax Increment is being used merely as a measure of the amount of Payments that are periodically owing by City to SCOC, and that City does not pledge any portion of the Sales Tax Increment or any general fund revenue of the City. - vl 060418 7 99999.91458\31440399.2 , . Section 5. Terms Related to Business License Fees. As additional consideration for Owner's performance of its obligations set forth in this Agreement and subj ect to the terms and conditions of this Agreement, the City shall provide Owner and/or any Affiliate, as applicable, with the additional assistance as defined in this Section. a. Within thirty (30) days after Owner, or any Affiliate, as the case may be, provides the City Manager with written evidence that it has paid to the City business license fees and taxes applicable to an Approved Business at the Site, during the Term of this Agreement, City shall pay to SCOC an amount equal to the total of such business license fees and taxes paid to City by such Owner or Affiliate(the"City Additional Assistance"). b. The City Additional Assistance is not part of the Payments, and shall not be ' included in calculations made to determine those amounts. c. The Parties acknowledge that as of the Effective Date of this Agreement, business license fees and taxes are paid to the City on an annual basis in or about March of each calendar year for the period March 1 through the following February 28 (or 29 in a leap year). d. City Additional Assistance payments shall be contingent upon City's receipt of the written evidence of payment to.the City as set forth in subsection a. Upon expiration or earlier termination of this Agreement, the obligation of City to make the City Additional Assistance payments shall terminate. e. The City Additional Assistance is not,and shall not be construed to be,a pledge (or pledges) of any general fund revenue of the City, and is merely a means of computing the amount of the City Additional Assistance. Section 6. Operatin�Covenants. a. During the Term of this Agreement, Owner and their Affiliates, collectively, shall employ, or cause to be employed, not fewer than one hundred fifty(150)full-time or full time equivalent employees at the Approved Business within the City; provided, however, that Owner and their Affiliates,collectively,may employ less than one hundred fifty(150)full-time employees with the written consent of the City Manager, which shall not be unreasonably withheld or delayed. For purposes of the preceding sentence,and by way of illustration and not limitation, it shall be deemed reasonable for less than one hundred fifly (150) full-time employees to be employed when economic conditions beyond the control of the Owner or any of its Affiliates prevent such a level of employment. b. SCOC covenants and agrees, for itself and its successors and assigns, that, during the Term of this Agreement,consistent with alI applicable provisions of any laws,SCOC shall retain and operate on the Site SCOC's business of selling refined petroleum products and related Sales Tax-generating products. SCOC covenants and agrees,for itself and its successor and assigns,that it shall not designate any other location other than the Site as the point of sale v1060418 _ g 99999.91458\31440399.2 for refined petroleum products and related Sales Tax-generating products sold on the Site to the extent not in conflict with any applicable law,including,without limitation,Government Code Section 53084.5. In addition, SCOC shall use its best efforts to operate its business in a commercially reasonable and prudent manner. SCOC's obligations pursuant to the immediately preceding sentence include,without limitation,the obligation to use its best efforts to obtain or cause to be obtained all federal, state and local licenses and permits required for the operation of any business. c. SCOC and Orange Katella each covenants and agrees, for itself and its successors and assigns,that during the Term of this Agreement,that SCOC and Orange Katella shall not, in any of their names or in the name of any Affiliate of any of them, directly or indirectly solicit or accept any direct or indirect "Financial Assistance" from any other government or any other public or private Person, if such Financial Assistance is given for the purpose of causing or would result in SCOC's and/or Orange Katella's breach of any of the covenants or terms and conditions of this Agreement andlor would cause or facilitate the relocation of any Approved Business operating on the Site or in the City of Orange andlor the designation as the City of Orange as the point of sale for any Approved Business that is contrary to the point of sale provisions in subsection b. above. For purposes of this Section, the term "Financial Assistance"means any direct or indirect payment, subsidy, rebate, or other similar or dissimilar monetary or non-monetary benefit,including,without limitation,payment of land . subsidies, relocation expenses, public financings, property or sales tax relief, rebates, and/or exemptions or credits. d. During the Term of this Agreement, the Owner covenants and agrees for itself, its successors,assigns or designees,to continually maintain and repair or cause to be maintained and repaired,the Site,including but not limited to buildings, structures,parking areas,lighting, signs, and landscaping,to be in good condition conforming to all applicable laws,including all applicable provisions of the City's Municipal Code, and shall keep the Site free from any accumulation of debris or waste materials. e. During the Term of this Agreement, the Owner covenants and agrees, for itself and its successors and assigns,that Owner shall not discriminate against any person on the basis of sex, marital status, race, color, religion, ancestry, national origin,physical handicap, sexual orientation, or domestic partnership status. f. The qualifications and identity of Owner are of particular concem to City. It is because of those qualifications and identity that the City has entered into this Agreement with Owner, and Owner acknowledges and agrees that its rights, benefits, duties and obligations under this Agreement are personal to Owner. Accordingly, (a) during the term of this Agreement,Owner, except as permitted in this Section, shall not transfer or assign(hereinafter, "transfer") all or any part of its right to receive the Sales Tax Sharing (or any portion thereo� without City's prior written approval,which approval City shall not unreasonably withhold; (b) during the term of this Agreement, Owner shall not transfer all or any part of this Agreement or any rights hereunder or any interest in the improvements without City's prior written approval,which approval City shall not unreasonably withhold or delay. , vl 060418 9 99999.91458\31440399.2 ' Section 7. Indemnification; Release. a. The indemnifications provided in this Section shall survive the termination of this Agreement. b. SCOC and Orange Katella each agree to indemnify, defend (with counsel reasonably chosen by the City) and hold the City and its elected officials, officers, employees, agents,and attorneys harmless from and against all damages,judgments, orders,rulings, costs, expenses and fees (collectively, the "SCOC Claims") arising from or related to any act or omission of SCOC andlor Orange Katella in performing its obligations hereunder,except to the extent such damages,judgments, orders,rulings, costs, expenses and fees arise out of or are in connection with a claim, litigation or cause of action caused by the willful misconduct or negligence of the City. SCOC Claims shall include, without limitation, damages,judgments, orders,rulings,costs,expenses and fees arising out of or in connection with any claim,litigation or cause of action that includes allegations or arguments that this Agreement and/or the payment of the Payments under this Agreement, violate or are illegal or impermissible as a result of, Government Code section 53084.5 or arising out of or in connection with the failure or alleged failure of any person or entity (including Owner, its contractors and subcontractors) to pay prevailing wages as required by law or to comply with the other applicable provisions of Labor Code sections 1720 et seq. and implementing regulations in connection with any other work undertaken by Owner, its contractors or subcontractors in connection with any Approved Business or the Site. c. SCOC and Orange Katella each releases the City from any SCOC Claims arising from any inability of the City to legally collect sales tax, share sales tax, or any other act or omission,including any state statute or regulation to which the City is subject,which is beyond the City's control. d. SCOC and Orange Katella each waives any right that it might have or accrue at any time during the effective period of any provision of this Agreement, including these indemnification provisions, or any of its various exhibits, to pursue any legal or equitable remedy or SCOC Claim against the City arising from this Agreement, other than for non- payment of the Owner's share of Sales Tax Increment calculated under and otherwise due under the provisions of this Agreement. e. The City agrees to indemnify, defend (with counsel chosen by City with approval by SCOC and Orange Katella which approval may not be unreasonably withheld)and hold SCOC and Orange Katella and their directors, officials, officers, employees, agents, and attorneys hannless from and against all damages,judgments, orders, rulings, costs, expenses and fees(collectively,the"City Claims")arising from City's failure to make any Payment when and as due under this Agreement,except to the extent such damages,judgments,orders,rulings, costs, expenses and fees arise out of or are in connection with a claim, litigation or cause of action caused by the willful misconduct or negligence of SCOC and/or Orange Katella. vl 060415 10 99999.91458\31440399.2 ` Section 8. Defaults; Buvout; Termination. a. Defaults — General. Failure or delay by any Party to perform any term or provision of this Agreement constitutes a "defaulY' under this Agreement. The injured Party shall give written notice of default to the Party in default, specifying the default complained of by the injured Party. The defaulting Party shall have thirty (30) days from the date of such notice either to cure such default, or, if such default cannot be reasonably cured during such thirty (30) day period, promptly (in any event, within 10 days after receipt of such notice) commences cure, and thereafter diligently(in any event within ninety(90) days after receipt of such notice)prosecutes such cure to completion. Except as required to protect against further damages,the injured Party may not institute proceedings against the Party in default until the time for cure has expired.Any failure or delay by a Party in giving a notice of default or in asserting any of its rights and remedies as to any default shall not constitute a waiver of any default,nor shall it change the time of default, nor shall it deprive such Party of its right to institute and maintain any actions or proceedings that it may deem necessary to protect, assert, or enforce any such rights or remedies. b. Buyout. Owner may at any time terminate this Agreement by providing both (1) written notice to City of Owner's intent to terminate this Agreement at least twelve (12) months prior to the intended date of termination("Buyout Notice"); and(2)payment in full to the City of the Buyout Amount. After a Buyout Notice,if any,until the date of termination of this Agreement, the City shall be obligated to make any and all Payments to SCOC due hereunder pursuant to the terms and conditions of this Agreement. The liability of the Owner and all Affiliates under this Agreement after the Buyout Effective Date shall be limited solely to payment of the Buyout Amount(except for indemnity,defense and hold harmless obligations hereunder which shall not be limited)and in no event shall any recourse against any of the other assets of the Owner or any Affiliate be available to the City or any other person or entity acting on behalf of the City after the Buyout Effective Date except for payment of the Buyout Amount (except that indemnity, defense and hold hannless obligations hereunder shall not be limited). c. Termination by Citv. Notwithstanding any other provision in this Agreement to the contrary, the City shall have the right to terminate its obligations under this Agreement if either SCOC or Orange Katella defaults on any material promise, obligation, covenant or duty under this Agreement. To terminate this Agreement, the City shall first provide the Owner Default Notice. The Owner Default Notice shall indicate the reason that City has declared a termination of this Agreement, and shall indicate what steps must be taken to cure the referenced default of this Agreement. If, at the end of the applicable cure period, Owner has not cured the alleged default(s), the City shall have the right, at its sole option, to deem this Agreement terminated without further notice or action by the City. In the�event of such a termination of this Agreement, SCOC agrees to pay the City the Buyout Amount within sixty (60) days following written demand therefor from the City. The liability of the Owner and all Affiliates under this Agreement for the default(s) alleged in the Owner Default Notice shall be limited solely to the City's receipt of the Buyout Amount and in no event shall any recourse against any of the other assets of the Owner or any Affiliate be available to the City or any other vl 060418 11 99999.91458\31440399.2 person or entity acting on behalf of the City except for the Buyout Amount for the default(s) alleged in the Owner Default Notice. d. Termination after January 1,2029. On or after January 1,2029, Owner and City shall each have the right to terminate this Agreement by providing a minimum of twelve (12) months prior written notice to the other Party of the effective date of such termination. e. Survival of Indemnity Obli atg ions. The Parties acknowledge and agree that the indemnity, defense and hold harmless obligations hereunder shall survive any termination or Buyout of this Agreement. Section 9. Miscellaneous Provisions. a. All findings and decisions of the City Council taken in connection with this Agreement shall be deemed to be reasonable and supported by an adequate and appropriate record. No such findings or decisions shall be subject to challenge or be the subject of any Claim by the Owner. Any action taken by the City,including,but not limited to,the termination of this Agreement under the provisions hereof, shall be at the sole option of the City and in its sole and absolute discretion. The Owner acknowledges that City would not have entered into this Agreement in the absence of this covenant by the Owner. b. City warrants and represents that City has the right,power and authority to enter into this Agreement has complied with all legally required noticing and hearing requirements prior to entering into this Agreement. c. All exhibits attached to this Agreement are deemed to be incorporated into this Agreement by reference. d. The Owner agrees to execute any additional documents, forms, notices, applications or other documents that City reasonably detertnines to be necessary to carry out the intent of this Agreement. e. The Parties agree that, should any provision, section, paragraph, sentence or word of this Agreement be rendered or declared invalid by any final court action in a court of competent jurisdiction or by reason of legislation, the remaining provisions, sections, paragraphs, sentences and words of this Agreement shall remain in full force and effect and the Parties agree in good faith to immediately amend this Agreement in such a way as to provide alternative provisions sections,paragraphs, sentences or words as to carry out the intent of this Agreement. f. The Owner shall pay prior to delinquency all real property taxes and assessments assessed and levied on or against the Site at all times during the Term of this Agreement. g. The Owner shall not,without prior written approval of the City,which approval City may not unreasonably withhold,(i)assign or attempt to assign this Agreement or any right herein or(ii)make any total or partial sale,transfer,conveyance,lease,leaseback,or assignment vl 060418 12 99999.91458\31440399.2 of the whole or any part of the Site or the improvements thereon. Notwithstanding the foregoing, the following shall not be considered a transfer and shall not require City approval for purposes of this Section: (1) transfers resulting from the death or mental or physical incapacity of an individual; (2) transfers in trust for the benefit of a spouse, children, grandchildren, other family members, or for charitable purposes; - (3) transfers to an Affiliate of Owner provided that such transfers do not detrimentally affect the City's rights, remedies or benefits under this Agreement; or (4) the leasing, from time to time, of portions of improvements located on the Site to �one or more tenants provided that such leases do not detrimentally affect the City's rights, remedies or benefits under this Agreement. h. With respect to any default by any Party occurring after the Effective Date, whether with regard to a breach during the term of this Agreement or with regard to the indemnifications provided in this Agreement, subject to the provisions of this Agreement,the non-breaching Party may insritute legal action to cure,correct or remedy any default,providing that such action is not otherwise prohibited or restricted by the provisions of this Agreement,to recover any damages arising from such breach or to obtain any other remedy consistent with the purposes of this Agreement, and further provided that notice is given in accordance with this Agreement. Notwithstanding anything to the contrary in this Agreement, in the event of a City default, Owner shall only be permitted to pursue collection of the Payments or City Additional Assistance on a quarter-to-quarter or annual basis, as the case may be, as such payments may become due hereunder. Owner hereby expressly waives any right Owner may have to seek, demand or collect, on an accelerated basis, any Payments or City Additional Assistance that may be due after the date of any City default. Any legal actions must be instituted in the Superior Court of the County of Orange, State of California, in any other appropriate court in that County, or in the Federal District Court in the Central District of California. i. The laws of the State of California shall govern the interpretation and enforcement of this Agreement. j. Owner acknowledges that the California legislature has in the past adopted certain legislation that diverted to the State of California a portion of the Sales Tax Increment that was otherwise payable to the City. Owner acknowledges that it is possible that the legislature may enact similar legislation in the future that would cause a corresponding reduction of and/or delay in the payment of the Sales Tax Increment and that such reduction will cause Owner a conesponding reduction andlor delay in the payment of the Payments due to Owner during such time as such legislation is in effect. Furthermore, Owner acknowledges vl 060418 13 99999.91458\31440399.2 that it is possible that the legislation described above, or some variant thereof, may be enacted and effective during one or more subsequent times during the Term of this Agreement and may materially and negatively impact the amount of Sales Tax Increment and, accordingly, Payrnents. The City does not make any representation, warranty or commitment concerning the future actions of the California legislature with respect to the allocation of Sales Tax Increment to the City. Owner agrees that it is undertaking its obligations under this Agreement after having considered, and is expressly assuming the risk of,the possibility of the enactment of such legislation. The foregoing paragraph notwithstanding, City acknowledges that the California legislature may provide for the payment to City of other revenues for the purpose of offsetting any losses in Sales Tax Increment resulting from the enactment of legislation of the type described in the immediately preceding paragraph. City agrees that, should the California legislature provide for such offsetting revenues, then for purposes of this Agreement and the computation of any payments that may become due to Owner hereunder, City will consider, on a quarter-quarter basis,any such offsetting revenues that are(i)indexed to Sales Tax and offset the loss of Sales Tax Increment to the City on a dollar for dollar basis, (ii) actually received by the City,and(iii)not subject to any restrictions on use beyond those that are otherwise generally applicable to sales tax revenues received by California municipalities, to be Sales Tax Increment within the meaning of this Agreement. Notwithstanding anything herein to the contrary,to the extent the City's receipt of Sales Tax Increment is impaired or restricted in any way or otherwise eliminated for any reason, the City shall not be obligated to make any Payments during the period within which the City's receipt of Sales Tax Increment is so restricted, impaired or eliminated. Whether or not the City's receipt of Sales Tax Increment is impaired, restricted, or otherwise eliminated, the City shall remain obligated to make the City Additional Assistance payments pursuant to this Agreement. k. For ease of administration, Payments and City Additional Assistance shall be payable solely to SCOC and shall be delivered to SCOC at the address set forth in this Agreement. SCOC shall indemnify and hold harmless City and its members, officers, employees, agents, contractors and consultant from and against any and all liabilities, claims, costs or expenses(including reasonable attorneys' fees)arising from payment of any Payments and/or City Additional Assistance solely to SCOC rather than to each and all of the Owners or any Affiliates individually or jointly. This indemnification shall survive ternunation of this Agreement. 1. Except with respect to any rights and remedies expressly declared to be exclusive in this Agreement, the rights and remedies of the Parties are cumulative and the exercise by any Parly of one or more of such rights or remedies shall not preclude the exercise by it, at the same or different times, of any other rights or remedies for the same default or any other default by any other Party. A waiver of a requirement shall not constitute an ongoing waiver of that requirement in the future. ; m. Any and all notices, demands or communications submitted by any Party to the other Parties pursuant to or as required by this Agreement shall be proper if in writing and dispatched by messenger for immediate personal delivery, or by registered or certified United vl 060418 14 99999.91458\31440399.2 I States mail, postage prepaid, return receipt requested, to the principal office of the City and Owner, as applicable, as designated below. Any such notice, demand or communication shall be deemed to be received by the addressee,regardless of whether or when any return receipt is received by the sender or the date set forth on such return receipt,on the day that it is dispatched by messenger for immediate personal delivery, or two(2)calendar days after it is placed in the United States mail as heretofore provided. To City: City of Orange 300 East Chapman Avenue Orange, California 92866 Attn: City Manager With copy to: City of Orange 300 East Chapman Avenue Orange, California 92866 Attn: City Attorney To SCOC and Orange Katella: Steven P. Greinke c/o Southern Counties Oil Co. � 1800 West Katella Avenue, Suite 300 P.O. Box 4159 Orange, Califorrua 92863-4159 With copy to: Legal Deparhnent c/o Southem Counties Oil Co. 1800 West Katella Avenue, Suite 400 P.O. Box 4159 Orange, California 92863-4159 n. No elected official,officer, employee or agent of the City having any conflict of interest, direct or indirect,related to this Agreement shall participate in any decision relating to this Agreement. o. The Owner warrants that it has not paid or given, and will not pay or give, any third pariy any money or other consideration for obtaining this Agreement. Third parties, for the purposes of this Section, shall not include persons to whom fees are paid for professional services if rendered by attomeys, financial or other consultants, accountants, engineers, architects and the like when such fees are considered necessary by the Owner. For the purposes of this paragraph, third parties shall include any elected official, officer, employee or agent of the City. p. No elected official, official or officer, employee, agent or attorney of the City shall be personally liable to the Owner, its shareholders or principals, or any successor in interest, or any other party or person whatsoever, in the event of any default or breach by the vl 060418 15 99999.91458\31440399.2� City or for any amount that may become due to the Owner or to its successors, or on any obligations under the terms of this Agreement. q. Performance by any Party hereunder shall not be deemed to be in default where delays or defaults are due to war;insurrection;strikes;lockouts;riots;floods;earthquakes;fires; casualties; acts of God; acts of public enemy; epidemics; quarantine restrictions; freight embargoes or lack of transportation;weather-caused delays;inability to secure necessary labor, materials or tools; acts of any other Party other than as permitted or required by the terms of this Agreement; acts or failure to act of any public or governmental agency or entity other than as permitted or required by the terms of this Agreement (except that action or failure to act by the City shall not extend the time for the City to act unless such extension is otherwise expressly authorized herewith)unless such action or failure to act is the result of a lawsuit or injunction, or any other causes beyond the control or without the fault of the Party claiming an extension of time to perform. Any extension of time for any such cause hereunder shall be for the period of the enforced delay and shall commence to run from the time of the commencement of the cause,if notice by the Party claiming such extension is sent to the other Party within thirty(30) calendar days of the commencement of the cause. Times of performance under this Agreement may also be extended by mutual agreement in writing by and between the City and the Owner. r. The City shall have the right at all reasonable times and, at no cost or expense, to inspect the books and records of the Owner pertaining to a breach or suspected breach of this Agreement. Matters learned by the City in the course of such inspections shall not be disclosed to third parties unless required by law or unless otherwise resulting from or related to the pursuit of any remedies or the assertion of any rights by the City hereunder. s. Whenever a reference is made in this Agreement to an action or approval to be undertaken by City, the City Manager of the City (or his or her authorized designee) is authorized to act on behalf of the City unless specifically provided otherwise or the law otherwise requires. The City Manager of the City is authorized to sign on his own authority amendments to this Agreement that are of routine or technical nature. t. Each Party represents and warrants the following: they have carefully read this Agreement, and in signing this Agreement and agreeing to be bound by the same, they have received independent legal advice from legal counsel as to the matters set forth in this Agreement, or have knowingly chosen not to consult legal counsel as to the matters set forth in this Agreement, and they have freely signed this Agreement and agreed to be bound by it without any reliance upon any agreement,promise statement or representation by or on behalf of any other Party, or its respective agents, employees, or attorneys, except as specifically set forth in this Agreement, and without duress or coercion,whether economic or otherwise. This Agreement shall be interpreted as though prepared jointly by both the Owner and the City. u. If any Party hereto files any action or brings any action or proceeding against any other Party arising out of this Agreement, seeks the resolution of disputes, or is made a party to any action or proceeding brought by a third party with respect to this Agreement,then as between the Owner and the City, the prevailing party shall be entitled to recover as an element of its costs of suit or resolution of disputes, and not as damages, its reasonable vl 060418 16 99999.91458\31440399.2 attorneys' fees as fixed by the court or other forum for resolution of disputes as may be agreed upon by the Parties in such action or proceeding or in a separate action or proceeding brought to recover such attorney's fees. v. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, executors,administrators, legal representatives, and permitted successor and assigns. � w. Unless otherwise indicated with respect to a requirement, all time frames for performance of an act required or permitted by this Agreement shall be calendar days. Time frames measured in months shall be calculated with reference to the actual number of days in the relevant months. Annual time frames shall mean a period of 365 days. x. This Agreement shall be executed in four (4) duplicate originals each of which is deemed to be an original.This Agreement constitutes the entire understanding and agreement of the Parties. The Parties may sign this Agreement in counterparts. y. This Agreement integrates all of the terms and conditions mentioned herein or incidental hereto, and supersedes all negotiations or previous agreements between the Parties with respect to all or any part of�the subject matter hereof. z. All waivers of the provisions of this Agreement and all amendments hereto must be in writing and signed by the appropriate representatives of the City and/or the Owner. Other than minor or technical amendments that the City Manager may approve on his own authority, any amendment to this Agreement must be approved by the City Council of the City. Section 10. Termination Notice Requirement. The Parties acknowledge and agree that it is the Parties intent and agreement that any termination of this Agreement prior to the end of the twenty(20) year Term of this Agreement, except for a termination pursuant to Section 8.c (entitled "Termination by the City"), shall require a minimum of twelve(12)months prior written notice to the other Party. [Signatures appear on following page] vl 060418 17 99999.91458\31440399.2 WHERFORE,the Parties,intending to be bound hereby,have affixed their authorized signatures to this Agreement. "CITY" CITY OF ORANGE, a municipal corporation By: Teresa E. Smith Mayor Attest: City Clerk Approved as to form: Wayne W.Winthers City Attorney [Signatures continue on following page] vl 060418 ig 99999.91458\31440399.2 "OWNER" "ORANGE KATELLA" ORANGE KATELLA, LLC, a California limited liability company By: Its: "SCOC" SOUTHERN COUNTIES OIL CO., a California limited partnership SOUTHERN COUNTIES OIL CO., a California corporation, its general partner By: Its: [End of signatures] vl 060418 19 99999.91458\31440399.2 Eghibit"A" Legal Description of Site [Behind this page] 99999.91458\31440399.2 Le�al Description Parcel A: All that certain land situated in the Rancho Santiago de Santa Ana, County of Orange, described as follows: That portion of Lot 9 of the Travis Tract, as shown on a map on file in Book 5,Page(s) 120 of Maps, Records of Los Angeles County, California, described as follows: Beginning at a point north 89 ' 32'10"west 543.76 feet from the northeast corner of said Lot 9; Thence South 0 ' 02'S0"west 240 feet; Thence North 89 ' 32'10"west 86 feet; Thence South 23 ' 03'S0"west 337.8 feet; Thence North 89 ' 32'10"west 225 feet; Thence North 0 ' 02'S0"east 550 feet to a point in the north line of said Lot 9; Thence South 89 ' 32'10"east 445.7 feet to the point of beginning. Parcel B: That portion of Lot 9 of the Travis Tract, in the City of Orange, County of Orange,as shown by map on file in Book 5 Page(s) 120, of Maps,Records of Los Angeles County, California,described in the deed to the Orange County Peace Officers Association,Inc.,recorded March 2, 1953 in Book 2463,Page(s) 81 of Official Records of Orange County, California; Except that portion thereof lying easterly of the easterly line of the land described in a deed to J.R.Porter recorded December 11, 1917 in Book 316,Page(s)239, of Deeds,Records of Orange County, California; Also except that portion thereof lying northwesterly of the following described line: Beginning at the northwesterly corner of said Lot 9; Thence South 88 ' S4'23"east, 6.65 feet along the northerly line of said Lot 9 to the most northeasterly corner of the land described in a deed to the Orange County Flood Control District,recorded April 12, 1961 in Book 5685,Page(s)907 of Official Records; Thence South 0 ' 40'S8"west,204.65 feet along an easterly line of said land to the true point of beginning; Thence North 85 ' S9'17"east, 60.56 feet; Thence North 4 ' 40'41"west, 62.80 feet; Thence North 89 ' S6'40"east,20.91 feet; Thence North 1 ' OS'37"east, 136.35 feet to said northerly line of Lot 9. Parcel C: That portion of that certain land,in the City of Orange,County of Orange,described in the deeds to the Orange County Flood Control District recorded March 28, 1961 in Book 5670,Page(s) 113 and April 12, 1961 in Book 5685,Page(s)907, both of Official Records of Orange County, California, described as follows: Beginning at the most southerly corner of the land described as Parcel No. 1302.3 in the deed to the County of Orange recorded June 27, 1996 as Instrument No. 96-326865 of Official Records; Thence along the westerly and northerly lines of said parcel: 1)north 20 ' 34'S9"east, 486.34 feet,and 2)north 86 ' 25'S2"east,43.25 feet to that certain course described as having a bearing of north 0 ' 39'S1" east, and a length of 551.87 feet in an easterly line of said land described in said deed recorded in Book 5685, Page(s)907 of Official Records; Thence North 0 ' S0'11"east, 144.65 feet along said easterly line to the southerly line of Katella Avenue as described in a deed to the County of Orange, recorded August 8, 1961 in Book 5809,Page(s)676 of O�cial Records; Thence North 88 ' S4'16"west, 51.32 feet along said southerly line to the southerly line of the Katella Avenue parcel described in the deed to the County of Orange recorded October 13, 1960 in Book 5461,Page(s) 535 of Official Records; Thence South 84 ' 38'S6"west, 20.59 feet along said southerly line of the Katella Avenue parcel; Thence South 1 ' OS'44"west,46.97 feet; Thence South 57 ' OS'31"west, 79.90 feet; Thence South 22 ' 17'37"west, 423.36 feet; Thence South 39 ' 45'13"west, 37.65 feet; Thence South 22 ' 10'48"west, 174.68 feet; Thence South 67 ' S5'S9"e, 30.17 feet to the southwesterly continuation of that certain curve in the generally southerly line of said parcel 1302.3,described as being concave southerly,having a radius of 1052.00 feet,a central angle of 9 ' 42'07"and a length of 178.14 feet in said deed recorded as Instrument No. 96-326865 of Official Records, a radial line of said curve to said point bears north 33 ' S9'28"west; Thence northeasterly 168.01 feet along said southwesterly continuation through a central angle of 9 ' 09'02" to the point of beginning. (End of Legal Description) Ezhibit"B" SCOC'S Quarterlv Certification Letter [TO BE PROVIDED ON SCOC'S LETTERHEADJ City Manager City Manager's Office City of Orange 300 East Chapman Avenue Orange, California 92866 Re: Certification Pursuant to Participation Agreement by and among the City of Orange and Southern Counties Oil Co. and Orange Katella, LLC Dear City Manager: This Certification is submitted to the City of Orange in accordance with the Participation Agreement ("Agreement"),and is made part of the Quarterly Compliance Report required by the Agreement for the Compliance Period from January 1, 2019 through March 31, 2019 (and each subsequent Sales Tax Quarter). The undersigned authorized representative(s) of Southern Counties Oil Co., a California Limited Partnership ("SCOC") under the Agreement hereby certifies(y) each of the following statements: 1. During the Compliance Period in question,the Sales Tax Threshold has been met. 2. During the Compliance Period in question,Owner and their Affiliates, collectively,have employed, or cause to be employed,not fewer than one hundred fifty(150)full-time employees at the Approved Business within the City,unless the City Manager approved less than one hundred fifty(150)full-time employees as provided in the Agreement. 3. During the Compliance Period in question, SCOC has retained and operated on the Site SCOC's business of selling refined petroleum products and related Sales Tax-generating products, and that it has not designated any other location other than the Site as the point of sale for all refined petroleum products and related Sales Tax-generating products sold on the Site in compliance with the Agreement. 4. During the Compliance Period in question, Owner has continually maintained and repaired, or caused to be maintained and repaired, the Site in compliance with the Agreement. 5. During the Compliance Period in question, Owner has not made a transfer or assigrunent in violation of the Agreement. 6. The Sales Tax amount paid quarterly to the State Board of Equalization (or other governmental agency to which such payments are to be made during the Term)has been made. DATED: By: Its: 99999.91458\31440399.2 City of Orange Economic Development (AB 562) Participation Agreement between City of Orange " and Southern Counties Oil Co., a California Limited Partnership, and Orange Katella, LLC, a California Limited Liability Company The City of Orange ("City"), to maintain sustainable economic development and community vitality, is implementing the economic development plan outlined in the City of Orange General Plan("General Plan"). The City and Southern Counties Oil Co., a California Limited Partnership ("SCOC"), and Orange Katella, LLC, a California limited liability company ("Orange Katella") (SCOC and Orange Katella may be collectively referred to herein as "Owner") propose to enter into a Participation Agreement ("Agreement"). The Agreement requires the Owner to remain in operation in the City and the City will continue to provide revenue sharing with Owner. The loss of redevelopment has left the City of Orange, as well as all cities statewide, with a loss of local resources to encourage economic development and maintain local services.The California Legislature and Governor Brown made the decision to terminate redevelopment and removed the single largest economic tool available to local agencies. Following the decision to terminate redevelopment Statewide, the Governor and Legislature recognized the necessity of cities, counties and the State to encourage employment,retain jobs and companies in California. Assembly Bill ("AB 562"), which added Section 53083 to the Government Code, requires public input prior to approving an"Economic Development Subsidy" by requiring, among other things: 1. A public hearing and a report prior to approving the Economic Development Subsidy; 2. A report regarding the Economic Development Subsidy within the term of the Economic Development Subsidy; and 3. Where an Economic Development Subsidy has a term of more than 10 years, an additional public hearing at the conclusion of the Economic Development Subsidy. This report includes the information required by AB 562 and the fiscal analysis necessary to determine the projected revenue generated to the City as part of the economic development plan referenced in the General Plan for business retention through a Participation Agreement. The 1 City established an estimated "Revenue Tax Base" of sales tax collected by the City from the Owner. After the Revenue Tax Base was determined, projections of additional revenue generation from sales ta�c collections directly attributable to the Owner were generated. The Revenue Ta�c Base and the projected increased revenues from the Owner represents new resources, as well as a retention, of general funds revenue to the City. An amount equivalent to a portion of the sales tax revenue collected will be shared with the Owner to avoid significant fiscal impacts to City revenues and community services. Economic development strategies require demonstration that the proposed business retention will result in community-wide benefits, which is evidenced by the retention of revenues that will be used to provide municipal services. The City Council may choose to approve the Agreement in order to retain and expand jobs, maintain a local business, assist the Owner to gain competitiveness within the fuel provision industry and incentivize the Owner to consider and complete upgrades and improvements. This report identifies the financial data necessary to allow the City Council to determine the value of entering into the proposed Agreement. AB 562 Reporting Requirements On and after January 1, 2014, each local agency shall, before approving any Economic Development Subsidy within its jurisdiction, provide all of the following information in written form available to the public, and through its Internet Website, if applicable: 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, if applicable. The Economic Development Subsidy paid under the Agreement by City will be paid to SCOC, which does business under the trade name of SC Fuels. SC Fue1s, 1800 W. Katella Ave, Orange, CA 92863 Originally founded in 1930, SC Fuels is one of the oldest petroleum distributors in the United States. Serving more than 11,000 customers annually, ranging from small family- owned businesses to Fortune 500 companies,they deliver gasoline, diesel fuel, alternative fuels and other petroleum products and related services in over fifteen western states at competitive prices. From a single bulk fueling station in Tustin, California, SC Fuels has become one of the largest petroleum distributors in the Western United States. Today, the company supplies products primarily throughout California, Oregon, Washington, Nevada, Utah, Arizona, New Mexico, Texas and Colorado. Currently, SC Fuels is among the top national distributors for Chevron, Shell, Phillips 66 and BP Castrol lubricants. As SC Fuels continues its legacy of growth, both in sales and industry prominence, the company's core mission remains the same, to be the single-choice provider of energy products and services to customers nationwide. 2 Refined Petroleum Industry The refined petroleum products market in the United States has experienced strong growth in the last few years due to the long economic expansion. The local refined petroleum products industry followed similar trends. Local companies have been able to transfer growing costs onto customers, thus retaining a profit margin of 18 percent. Strong growth is forecast in the neax term for the industry as high prices and increasing volume demand will propel revenues. 2. The start and end dates and schedule, if applicable, for the Economic Development subsidy. The Agreement, if approved, is anticipated to commence on December 1, 2018 and continue for a period of twenty years. There are two types of payments to be made as part of the Economic Development Subsidy in the Agreement: 1. Sales tax sharing that will be done on a quarterly basis throughout the 20-year term of the Agreement. 2. Reimbursement of business license fees and taxes to be done annually in an estimated amount of$125,000 per year,for a cumulative total of$2,500,000 over the 20-year term of the Agreement. . Sales Tax Generation The Bradley Burns Uniform Local Sales and Use Tax ("Bradley Burns") applies to the sales of tangible personal property in which a percentage of California's sales and use tax rate is distributed back to the jurisdiction where sales were generated to support local general funds.For many jurisdictions, including the City, this amount is one percent(1%). Sales tax is payable to the City from the State Board of Equalization. The calculations in this report indicate only the estimated amount of sales tax to be received by the City through the distribution formula used by the State Board of Equalization. The Owner proposes to maintain and enhance existing business operations in the City.The City and the Owner mutually agreed that a Sales Tax Threshold as a performance condition would be set at$100,000 per quarter(defined as a"Compliance Period"in the Agreement). 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. General Plan Based Economic Development Plan Implementation and Business Retention The Economic Development Element of the City's General Plan outlines goals and policies that promote sustainable, market-driven economic growth and activity without compromising the City's identity, heritage or the quality of life of those who live, work and play in the City. The Economic Development Element outlines strategies that allow 3 the City to attract new business, as well as promote retention and expansion of existing businesses. To strengthen the City's economic profile the City has provided an economic development plan under the Economic Development Element. Pursuant to AB 562,the two types of payments to be made under the proposed Agreement fall within the defined term "Economic Development Subsidy". This means an expenditure of public funds or loss of revenue to a local agency in the amount of one hundred thousand dollars ($100,000) or more, for the purpose of stimulating economic development within the jurisdiction of a local agency, including,but not limited to,bonds, grants, loans, loan guarantees, enterprise zone or empowerment zone incentives, fee waivers, land price subsidies, matching funds, tax abatements, tax exemptions, and tax credits. "Economic Development Subsidy" does not include expenditures of public funds by, or loss of revenue to, the local agency for the purpose of providing housing affordable to persons and families of low or moderate income, as defined in Section 50093 of the Health and Safety Code. The City is being proactive in retaining the Owner as one of the major contributors to the City's general fund. The potential relocation of the Owner and total loss of revenue would negatively affect City finances and cause significant impact to local services. The Agreement provides for a sales tax sharing structure that offers the Owner a three tiered percentage of the sales tax revenue generated by the Owner that ranges from 50 percent to 85 percent per "Compliance Period". Each"Compliance Period" is a 3-month quarter in each calendar year during the 20-year term of the Agreement. The City would retain 100% of the sales tax revenue and pay SCOC "Payments" based on amounts derived from the sales tax sharing structure. � Upon satisfaction in each Compliance Period of the "Performance Requirements" (the "Performance Requirements" are set forth in the proposed Agreement), the City shall have the obligation to make "Payments" to SCOC for the sales tax sharing. SCOC's portion of the sales tax sharing shall be as follows: • For"Sales Tax Increment" for such Compliance Period up to $4,000,000, fifty percent (50%) of the"Sales Tax Increment"; and • For "Sales Tax Increment" for such Compliance Period between $4,000,000 and $5,500,000, seventy-five percent(75%) of the"Sales Tax Increment"; and • For "Sales Tax Increment" for such Compliance Period over $5,500,000, eighty- five percent(85%) of the "Sales Tax Increment". It is estimated that the Agreement will provide the Owner with approximately $109.2 million in "Payments" and the City would receive a "net" amount of $57.6 million from sales tax revenues over the entire 20-year term of the Agreement (see Table 1: Projected Revenues and Disbursements on the following page).The proposed Agreement also provides for the City to reimburse City business license fees and taxes applicable to any "Approved Business" at the "Site", during the term of the Agreement. Since business license fees and taxes are paid to the City on an annual basis, reimbursement would be made to SCOC on an annual basis. It 4 is estimated that the annual reimbursement would be approximately $125,000. The cumulative amount of business license fees and taxes to be reimbursed by the City over the 20-year term of the Agreement is$2,500,000.The total cumulative amount of funds to be paid to SCOC for the 20-year term of the Agreement is estimated to be $111.7 million. Table 1: Projected Revenues and Disbursements Est.Annual Tier 2($4M Tier 3 Total Tier 1(up to Year Sales Tax $4M)50%to to$5.5M) (above Payment City's Share Revenue(3% SC Fuels �5%to SC $5.5M)85% Disbursement growth peryear) Fuels to SC Fuels to SC Fuels 2019 $5,815,000 $2,000,000 $1,125,000 $267,750 $3,392,750 $2,422,250 2020 $5,989,450 $2,000,000 $1,125,000 $416,033 $3,541,033 $2,448,418 2021 $6,169,134 $2,000,000 $1,125,000 $568,763 $3,693,763 $2,475,370 2022 $6,354,208 $2,000,000 $1,125,000 $726,076 $3,851,076 $2,503,131 2023 $6,544,834 $2,000,000 $1,125,000 $888,109 $4,013,109 $2,531,725 2024 $6,741,179 $2,000,000 $1,125,000 $1,055,002 $4,180,002 $2,561,177 2025 $6,943,414 $2,000,000 $1,125,000 $1,226,902 $4,351,902 $2,591,512 2026 $7,151,717 $2,000,000 $1,125,000 $1,403,959 $4,528,959 $2,622,757 2027 $7,366,268 $2,000,000 $1,125,000 $1,586,328 $4,711,328 $2,654,940 2028 $7,587,256 $2,000,000 $1,125,000 $1,774,168 $4,899,168 $2,688,088 2029 � $7,814,874 $2,000,000 $1,125,000 $1,967,643 $5,092,643 $2,722,231 2030 $8,049,320 $2,000,000 $1,125,000 $2,166,922 $5,291,922 $2,757,398 2031 $8,290,800 $2,000,000 $1,125,000 $2,372,180 $5,497,180 $2,793,620 2032 $8,539,524 $2,000,000 $1,125,000 $2,583,595 $5,708,595 $2,830,929 2033 $8,795,709 $2,000,000 $1,125,000 $2,801,353 $5,926,353 $2,869,356 2034 $9,059,581 $2,000,000 $1,125,000 $3,025,643 $6,150,643 $2,908,937 2035 $9,331,368 $2,000,000 $1,125,000 $3,256,663 $6,381,663 $2,949,705 2036 $9,611,309 $2,000,000 $1,125,000 $3,494,613 $6,619,613 $2,991,696 2037 $9,899,648 $2,000,000 $1,125,000 $3,739,701 $6,864,701 $3,034,947 2038 $10,196,638 $2,000,000 $1,125,000 $3,992,142 $7,117,142 $3,079,496 2039 $10,502,537 $2,000,000 $1,125,000 $4,252,156 $7,377,156 $3,125,381 TOtal $166,753,764 $42,000,�00'0 $�23,6�2�,�00 �4�3,5�65,7t�� $109,190,700 $57,563,065 4. A statement of the public purposes for the economic development subsidy. Public Purpose The proposed Agreement is consistent with the City's economic goals and objectives and is in the best interest of the general public. Economic goals and objectives include the following: • Encourage mixed-use developments in strategic locations along and near major arterial corridors; • Continue to promote a diverse range of land uses that will sustain a strong economic t�base for the community; • Create a communication strategy to highlight economic development achievements and opportunities; 5 � Conduct economic development workshops for the business community, including brokers, developers and community members; • Support continued growth of commercial, institutional, and industrial businesses that contribute both high-wage employment opportunities and point-of-sales revenues; and • Provide policies that guide City decision makers through the budget process. Retaining the Owner's business operations in the City would address the need and desire to maintain revenue streams such as property and sales tax in the City. Additionally, the Owner's continued presence in the City would assist in maintaining relative balance in the local economy through indirect retail sales and employment from other local businesses that are supported by the Owner's location in the City.Retention of the Owner will also result in maintaining occupied property square footage thus minimizing the risk of blight and dilapidation. The general welfare and material well-being of the residents of the City depend in large measure upon the facilities,goods, and services that businesses make available to the public and the City's residents, which, in turn, generate tax revenues to the City to help pay for necessary services to the City's residents and such retail services. The continued operation and possible expansion of existing commercial and industrial businesses within the City will continue to attract both local and regional shoppers; likely continue to generate increased sales tax revenues to the City; continue to promote job creation opportunities in the City; continue to encourage property upgrades and enhancements in the City's commercial and industrial areas; and could continue to enhance the quality of facilities, goods and services available to the public and the City's residents. As such,the City wishes to induce and encourage the continued operation and possible expansion of existing commercial and industrial businesses within the City, thereby assisting the City in achieving its goals related to the development of said businesses and maintaining existing and creating new sources of sales tax revenue for the City's general fund that supports the public services that the City provides to its residents and to said businesses. The City also desires to incentivize commercial and industrial business in the City by sharing a portion of the sales tax revenues generated by existing, new and expanding businesses, including the on-going operations of SCOC on certain real property owned by Orange Katella located at 1800 W Katella Ave, Orange, California ("Site"). During the term, SCOC may occupy alternate property within the City of Orange for the purpose of selling refined petroleum products and related sales and/or use tax-generating products, as provided in the Agreement. The City recognizes that retention of the on-going operations of SCOC in Orange will continue to contribute to the economic vitality of the City, continue to provide jobs in the City, continue to expand the City's tax base and otherwise improve economic and physical conditions in the City. 6 Owner Purpose The Agreement assists Owner in the following areas: • Increased competitiveness due to industry consolidation • Update current tax sharing agreement terms to allow Owner to remain competitive In recent years, there have been a number of smaller operations that have been purchased by larger companies. These acquisitions have rendered it challenging to " submit competitive price quotes for new business contracts. Larger companies are positioned to offer lower bid prices, thus creating a challenging environment for operations similar to the Owner to maintain its current market share. The Owner and the City concur that the current Owner Participation Agreement between the Agency and the Owner is not reflective of the current industry standards or requirements for competiveness. The City has reviewed comparable agreements between companies and communities and noted substantial support for revenue sharing agreements of 85 percent. The Owner as well as overall industry forecasts, project significant growth in sales revenue over the next twenty years. City staff and the Owner agree that early capture or the ability of the Owner to accelerate increases in revenue through the proposed Agreement will allow it to be more competitive with contract pricing and operations. 5. Projected tax revenue to the local agency as a result of the economic development subsidy. Based upon the proposed Agreement, it is estimated that the City will retain $57.6 million over the entire 20-year term of the new Agreement. 6. Estimated number of jobs created by the economic development subsidy, broken down by full-time,part-time, and temporaxy positions. Similar to the previous Participation Agreement, during the term of the new Agreement, the Owner and their "Affiliates", collectively, must employ, or cause to be employed, not fewer than one hundred fifty(150)full-time employees. The Owner and their"Affiliates", collectively, may employ less than one hundred fifty (150) full-time employees with the written consent of the City Manager. As such, it shall be deemed reasonable for less than one hundred fifty (150) full-time employees to be employed when economic conditions beyond the control of the Owner or any of its "Affiliates" prevent such a level of employment. Summary The Owner and the City have agreed that the Owner remaining in Orange is beneficial for both parties. The City has proposed that the Owner agree to an Agreement to remain in Orange for twenty years. The Owner and the City have mutually agreed to the terms of the proposed Agreement to provide the Owner a more competitive advantage in an industry that is consolidating. The Agreement is an "Economic Development Subsidy" that is consistent with the City's economic development plan. The Agreement provides for a sales tax sharing structure that offers the Owner a three-tiered percentage of the sales tax revenue generated by the Owner that ranges from 50 percent to 85 percent per Compliance Period. The proposed Agreement will be for twenty 7 years and the estimated amount of the total subsidy or expenditure of public funds for the taac sharing would be $111.7 million over a twenty-year period. Based upon review of the Agreement, the structure is consistent with the City's economic goals and implementation strategy and is in the best interest of the public.The Agreement and proj ections indicate the City will receive approximately $57.6 million in sales tax revenue during the twenty years of the Agreement. The risk of the Owner relocating its business operation outside of the City would result in an annual loss of over$5 million in sales tax revenue. The Agreement serves a valid public purpose through the expansion of economic development opportunities for businesses in the City, continuing to expand the City's employment base, and continuing to generate sales ta�c revenue that the City utilizes to fund general governmental services for its businesses and residents. Recommendation Retention of Owner in the City will continue to contribute to the economic vitality of the City, provide additional jobs within the City, expand the City's ta�c base, and improve economic and physical conditions in the City. Loss or relocation of Owner out of the City will negatively affect City revenues,which will reduce City services. As such, it is recommended that the Agreement be approved. 8