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DOC ID: 1819 A CITY OF SAN BERNARDINO—REQUEST FOR COUNCIL ACTION Public Hearing From: Georgeann "Gigi" Hanna M/CC Meeting Date: 06/18/2012 Prepared by: Cindy Buechter, (909)384-5035 Dept: City Clerk Ward(s): 1 Subject: Appeal Hearing Regarding the Requirement for Kohl's Department Stores to File an Amended Business Registration Renewal Application Stating the Gross Sales Attributable to the Internet Fulfillment Center for the Purposes of Calculating the Correct Business Registration Fee Due to the City; and to Pay All Applicable Fees. (At Meeting of May 7, 2012, Item Continued to June 18,2012.) Financial Impact: Possible revenue enhancement. The hearing was opened on May 7,2012. Motion: Close the hearing; deny the appeal and uphold the decision of the City Clerk to require that Kohl's Department Stores file an amended Business Registration Renewal Application stating the gross sales attributable to the internet fulfillment center for the purposes of calculating the correct Business Registration fee due to the City; and to pay all applicable fees. Synopsis of Previous Council Action: N/A Background: San Bernardino Municipal Code Section 5.04.525 establishes those businesses for which the annual business registration fee is based on gross receipts. SBMC Section 5.04.525B defines "Retail Merchants" as "Every person, firm or corporation conducting, managing or carrying on the business of selling at retail any goods, services, wares or merchandise other than food...shall pay a fee established by resolution of the Mayor and Common Council." Resolution 96-188 establishes the fee for Retail Merchants as "$60.00 per year plus three fourths of one-tenth of one percent (.00075) of all dollar value of annual gross receipts in excess of fifteen thousand dollars of such gross receipts..." Gross receipts are reported, and the appropriate fee paid annually, to the Business Registration Division of the City Clerk's Office. August 2.2010 Kohl's Department Stores Inc. entered into a "Business Operations and Covenant Agreement" i' 1 Updated: 6/6/2012 by Linda Sutherland A f 1 a 1819 (Exhibit A) with the City of San Bernardino which was adopted by Resolution 2010-272 at the City of San Bernardino Mayor and Common Council and Community Development Meeting of August 2,2010. Contained within this agreement are several statements indicating that Kohl's would establish a sales office at this location and designate the City of San Bernardino as the point of sale for all taxable e-commerce sales transactions in California. August 12, 2010 Kohl's Department Stores Inc. obtained a Zoning Verification Review and completed a Business Registration Certificate Application for a "fulfillment center - warehouse distribution" and paid the minimum business registration fee for the period of May 24,2010 to April 30,2011. May 2, 2011 The Business Registration Division received a renewal application from Kohl's. In the "gross receipts" area of the application, the term "N/A" was placed in lieu of a gross receipts amount and a minimum payment was collected. September.2011 i Upon review of the renewal application, and noting the lack of a gross receipt statement, it was determined that further investigation was required. It was at this time that the Business Registration Division became aware of the existence of the "Business Operations and Covenant Agreement"between the City and Kohl's. i October 19,2011 A letter was sent to Kohl's Department Stores Inc. (Exhibit B) referencing the agreement and requesting Kohl's to file an amended Business Registration Renewal Application form stating the gross sales attributable to the internet fulfillment center. Upon receipt of the amended return, we would then calculate the fees due and invoice Kohl's accordingly. We requested Kohl's response by November 10,2011. December 6, 2011 The Business Registration Division received Kohl's response (Exhibit C) stating, "There are no sales transactions at the e-commerce fulfillment center (EFC) that would require Kohl's to source receipts to the City of San Bernardino for purposes of the annual Business Registration." January 23,2012 Business Registration Manager, Cindy Buechler sent an inter-office memorandum to Stephanie Easland, Sr. Assistant City Attorney requesting their review of the agreement and to advise the Business Registration Davison on the matter of whether gross receipts for the e-commerce sales transactions should be reported annually, and the appropriate business registration paid. Updated: 6/6/2012 by Linda Sutherland A Packet Pg. 141 1819 March 28,2010 Legal Memo No. 12-015 (Exhibit D) was received from Stephanie Easland, Sr. Assistant City Attorney in which she agreed with the position of the Business Registration Division and that the annual business registration fee should be based upon the same agreed upon taxable sale transactions that are reported to the Board of Equalization for sales tax purposes. In addition, if Kohl's still disputes this analysis,it needs to exercise its right to appeal. April 11, 2012 A letter (Exhibit E) was sent to Kohl's Senior Tax Manager, Joseph Malloy confirming our position that Kohl's must submit an amended Business Registration Renewal Application showing the appropriate gross receipts for the EFC. In addition, Kohl's was provided with the appropriate Appeal Form and deadline to file the appeal of April 26,2012. April 26,2012 Kohl's Department Stores, Inc. submitted (via facsimile) a "City of San Bernardino Appeal Form" (Exhibit F) stating, "Kohl's EFC is merely participating in the movement of merchandise (i.e. fulfilling orders). There are no sales transactions that would require Kohl's to source receipts to the City of San Bernardino for purpose of the annual business registration. Supportine Documents: Exhibit A-Resolution No. 2010-272 (PDF) Exhibits B-E-Letters, Memos, Appeal Form (PDF) Updated:6/6/2012 by Linda Sutherland A -" ,acket Pg. 142 6.A.a I 1 RESOLUTION NO. 2 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY 3 OF SAN BERNARDINO APPROVING AND AUTHORIZING THE EXECUTION OF A BUSINESS OPERATIONS AND COVENANT 4 AGREEMENT BY AND BETWEEN THE CITY OF SAN BERNARDINO AND KOHL'S DEPARTMENT STORES; INC., FOR THE OPERATION OF AN INTERNET SALES OFFICE WITHIN THE CITY OF SAN BERNARDINO rn 6 7 WHEREAS,the City of San Bernardino(the"City")is a California charter city formed pursuant r a 8 to the Constitution and laws of the State of California; and o N y WHEREAS,the Mayor and Common Council of the City of San Bernardino(the"Council"),as o Y 10 the governing board of the City,seeks to enter into a Business Operations and Covenant Agreement(the rn c 11 "Agreement")with Kohl's Department Stores,Inc.,a Delaware corporation("Kohl's"),to provide for x 12 the operation of an internet sales office in the City(the"Sales Office"),which is expected to produce a 13 significant revenues resulting in the generation of significant new local sales tax revenues to the City; a 14 and O 15 WHEREAS, the City desires to provide certain Covenant Payments, as defined in the n N 16 Agreement,to Kohl's for the purpose of obtaining Kohl's commitment to designate the City as the ° � N 17 "point of sale"of the relevant sales transactions(the"Relevant Sales")for State of California sales tax z6 18 purposes during the term of the Agreement and in consideration of the new and additional local sales `o_ 19 tax revenues and other tangible and intangible benefits to be received by the City arising from the N i 20 operation of the Sales Office within the City;and a I WHEREAS,the City has not paid any costs associated with Kohl's acquisition or development r I 21 x of the land for the Sales Office or for the construction or equipping of the Sales Office;and w 22 � v 1 23 WHEREAS,Kohl's operation of the Sales Office will provide significant public benefits to the Ec u 24 City because,among other matters,additional Sales Tax revenues generated by such activities represent a 25 a significant source of new and additional public revenue for the City,which may be used by the City p- 26 for the funding of necessary public services and facilities,including public safety services and facilities; 1 27 and 28 r:use�auwaemn�,wwimi«osa,mmaa,o�ura�,wn oa�.xo�,wco.,�e�mauMCCn�.am �x�/� Packet Pg. 143 6.A.a 1 WHEREAS,the City has further determined that the operation of the Sales Office serves the 2 additional public purpose of fostering a business and civic environment which may attract additional 3 businesses and investment in the community due to the availability of the increased public and private 4 services and economic activity resulting therefrom;and m d 5 WHEREAS,the City has the legal right,power and authority to enter into the Agreement and to `o in 6 consummate the transactions contemplated by the Agreement; and d E 7 WHEREAS, in making the Covenant Payments, the City would not be in violation of any m a m 8 spending or debt restrictions arising under Article XIIIB of the California Constitution. o 9 NOW,THEREFORE,THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN r 10 BERNARDINO DO HEREBY RESOLVE,DETERMINE AND ORDER,AS FOLLOWS: 11 Section 1. The information set forth in the above recitals of this Resolution is true and m 12 correct. a i a 13 Section 2. The Council hereby approves and authorizes execution of the Agreement by the 14 City with Kohl's Department Stores,Inc.,regarding the operation of an internet sales office within the I N 15 City. N 16 Section 3. The Mayor of the City is hereby authorized and directed to execute the o N 17 Agreement on behalf of the City in substantially the form attached hereto as Exhibit"A,"together with z° C 18 such changes thereto as may be approved by the City Attorney. The Mayor orthe City Manager or such 2 19 other designated representative of the City is further authorized to do any and all things and take any 20 and all actions as may be deemed necessary or advisable to effectuate the purposes of the Agreement, a I a 21 including making non-substantive modifications to the Agreement. x w 22 Section 4. This Resolution shall take effect in the manner as provided in the City Charter, E E 23 /// u 24 /// a 25 i 26 27 !!/ 28 /1/ 2 fI - PV.gmEie\PnoMiwe�R<wluYOruV01Ub8A3tOKOMDB wOpm owe dCOwiuw4e —MCCRUO.E« packet Pg. 144 I 6.A.a CITY OF SAN BERNARDINO ECONOMIC DEVELOPMENT AGENCY FROM: Emit A.Ma zullo SUBJECT: Business Operations and Covenant Agreement Interim Executive Director by and between the City of San Bernardino and Kohl's Department Stores, Inc., a Delaware corporation 0VDA Redevelopment Project DATE: July27,2010 Area) m m 0 Cv2omb of Previous Comadsslon/CouacillCommittee Action(s): N On July 22,2010,Redevelopment Committee Members Johnson,Marquez and Brisker ananimously voted to recommend that C the Mayor and Common Council and the Community Development Commission consider ibis action for approval. o. m w L O Y m Recommended Motionfal• x Manor and Common Cauaell Resolution of the Mayor and Common Council of the City of Scot Bernardino approving and authorizing the execution o. of a Bminess Operations and Covenant Agreement by and between the City of San Bermtdino end Kohl's a Department Stores,Inc.,fm the operation of an interest sides office within the City of San Bernardino Q m Contact Persan(s): Emil A.Marmllo Phone: (909)663-1044 0 project Area(s): —IVDA Redevelopment Project Area Ward(s): to r Supporting Data Attached: M Staff Report 0 Resolution(s)0 Agreement(s)<Contract(s)O Maps)❑Letter(s) z Bared upon C FUNDING REQUIREMENTS: Amount: S Agreement SnufCe: General Fund c S Budget Authority: Future Budget Authorization °a m n! Q � a Stgnauue: Fiscal Review: X -I Emil A. ire Executive Director Lori er Ira s ve Services Director w C CommbsloWCouncil Notes: u ��'_-- "�--- E t U N Q v;u a core,oe.e,,,m�womtoem�mnsw-waemauoem.owm�ouW C., Aswm mm, COMMLSSION MEETING AGENDA Meeting Dmet emae10 Agenda Item Number: .�3 � PZkdt Py:145°% ECONOMIC DEVELOPMENT AGENCY STAFF REPORT BUSINESS OPERATIONS AND COVENANT AGREEMENT BY AND BETWEEN THE CITY OF SAN BERNARDINO AND KOHL'S DEPARTMENT STORES,INC.,A DELAWARE CORPORATION(IVDA REDEVELOPMENT PROJECT AREA) N N 0 BACKGROUND/CURRENT ISSUE: c j v The proposed Business Operations and Covenant Agreement (the"Agreement')with Kohl's Department E Stores, Inc., a Delaware corporation ("Kohl's"), provides for the operation of an intemet sales fulfillment center/office (the"Sales Office')in the City of San Bernardino(the"City"). The Sales Office is expected j to generate substantial economic benefits resulting in the generation of significant new local sales tax w { revenues to the City that may be used for the funding of necessary public services and facilities. The Sales L 11 Office would also serve to foster a business and civic environment which may attract additional businesses Y and investments in the community. ' m In May, 2010, Kohl's closed escrow on the approximately 986,000 square foot warehouse distribution building constructed by Hillwood Development Services on the south side of Central Avenue between = Lena Road and Tippecanoe Avenue. Kohl's was seeking expansion space to conduct intemet sales in ate, addition to the approximately 645,000 square foot office and distribution center previously constructed by as Kohl's on Lena Road north of Mill Street in 2002 and 2D03. This facility on Lena Road was the initial Q redevelopment effort of the Inland Valley Development Agency within the former Norton Air Force Base m which then provided the means for Kohl's to open the first Kohl's Department Stores in California soon after the first distribution center was completed. N r More recently,Kohl's sought to obtain a major building facility to expand intemet sales and to serve for the c fulfillment of intemet orders for the western portion of the United States. Until this facility becomes fully c j operational, Internet orders are processed from a site in Ohio. This San Bernardino facility is intended to N provide inteet fulfillment for the western half of the country. It is anticipated employment levels at the z m facility could result in as many as 1,800 new jobs for certain times of the year, particularly the winter c 0 holiday season. 0 Kohl's obtained the necessary building permits soon after the close of escrow to construct the initial phases of a 50,000 square fool distribution center within the building and to install the necessary racking and other typical warehouse/distribution center improvements. No City funds were offered or given to Kohl's to oft= G set any of its development costs for this facility and no infrastructure improvements were paid for by City n funds. No moneys reimbursable under the Agreement to Kohl's are intended to be used to off-set or are s x otherwise applied for payment or reimbursement of the construction costs. Virtually all of the physical w construction work has been completed and the Sales Office is expected to be operational during the latter part of the month of July,2010. z The Sales Office would generate additional benefits to the City such as new jobs and property tax revenues. =°• Pursuant to the Agreement, Kohl's would designate the City as the "point of sale" for all sales activities C (the "Sales Activities") attributable to the Sales Office and establish the Sales Office located within the City as the site for the Sales Activities. Furthermore,Kohl's would, at its sole cost and expense,maintain all permits, contractual arrangements, licenses and registrations necessary for Kohl's to lawfully conduct Sales Activities and to designate the City as the"point of sale" in all reports and sales tax returns submitted (" P�md..rqw.u..cw...+w..cocwiuncm-ioeonir e.�.�,o�wo..ewc."bK nem,M Soak COMMISSION MEETING AGENDA 1 Meeting Date: 002/2010 Agenda Item Number: _, Packet Pg. 146 I i Economic Development Agency Staff Report Kohl's Department Stores, Inc. Page 2 to the Board of Equalization(the`BOE"). In consideration of Kohl's commitment to designate the City as the "point of sale" of the taxable sales transactions for State of California Sales Tax purposes and during the term of the Agreement to refrain from establishing similar operations elsewhere in California, the increase of local sales tax revenues and other tangible and intangible benefits to the CiTy resulting from the a operation of the Sales Otlice within the City, the City would provide certain Covenant Payments to Kohl's ° as described below and defined in the Agreement. ° N The Covenant Payments would be remitted quarterly following submission m the City of certified copies of m Kohl's quarterly reports as filed with the BOE. The Agreement would extend for 40 years, commencing E when both parties duly approve,execute and deliver the Agreement and ending on the last calendar day of n the 40°i Operating Year as defined in the Agreement, unless sooner terminated pursuant to the Agreement. o m In consideration for Kohl's obligations set forth in the Agreement,the City would pay to Kohl's an amount a equal to 80%of the Local Sales Tax Revenues actually received by the City in each Operating Quarter,as Y defined in the Agreement, payable after the City has received fixed payments (the "Fixed Payment Amount")equal to the first$100,000 of local sales tax revenues for Operating Year 1,the first$250,000 of c Local Sales Tax Revenues for the Operating Year 2,and the first$500,000 of Local Sales Tax Revenues in each subsequent Operating Year during the remaining term of the Agreement (the"Covenant Payments") _ calculated in the manner as illustrated on the attached spread sheet and incorporated into the operative text a 4 of the Agreement. °- a If at any time commencing with the Operating Year 3 and thereafter the Local Sales Tax Revenues for the rn Sales Activities (as defined in the Agreement) were less than $1,000,000, based upon $100,000,000 of taxable sales generated by the Sales Activities as determined by the DOE, the Fixed Payment Amount N would be adjusted for the applicable Operating Year to $400,000 until such time as in any succeeding N Operating Year the minimum of$1,000,000 of Local Sales Tax Revenues for the Sales Activities are again c i achieved. N In any Operating Year for which the Local Sales Tax Revenues for the Sales Activities are equal to or z° greater than $2,000,000 based upon $200,000,000 of taxable sales generated by the Sales Activities as o i determined by the BOE,the City would receive 30%of the amount in excess of the Fixed Payment Amount '2 and Kohl's would receive 70%of the amount in excess of the Fixed Payment Amount. w Kohl's acknowledges and assumes the risk that the State of California legislature has in the past adopted 4 certain legislation which diverted to the State of California a portion of the Local Sales Tax Revenues .. which would otherwise be payable to the City and knows that similar legislation is a possibility in the r future. Such legislative changes may materially and negatively impact the amount of Local Sales Tax x Revenues and,accordingly,the Covenant Payments. In such it situation,the State of California legislature w or other public entities may provide for the payment to the City of other revenues for the purpose of off- w setting any losses in Local Sales Tax Revenues resulting from the enactment of such aforementioned E legislation. Should any such off-setting revenues be provided following such legislation, then for the m computation of any Covenant Payments the City would consider any such off-setting revenues which are(i) R indexed to sales tax and off-set the loss of Local Sales Tax Revenues 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 which are otherwise generally applicable to Local Sales Tax Revenues received by California municipalities, to be Local Sales Tax Revenues within the meaning of the Agreement. vvaroa.,tu�w.ro,,,,,,mwu.�coczsianem ioeavre�ow o�wem va cawreaey saex COMMISSION MEETING AGENDA Meeting Date: Og102l2010 Agenda Item Number: Packet Pg. 147 i6.A.a Economic Development Agency Staff Report Kohl's Department Stores,Inc. Page 3 Any Covenant Payment may be payable from any source of any legally available funds of the City. The Agreement provides for a procedure in the event there is a dispute as to the dollar amount of the Covenant Payments. Any disputed amount of the Covenant Payments would not accrue interest during the pendency of any negotiation period or subsequent legal proceeding unless there is a determination that the City acted N in bad faith with regard to the dispute. In such situation,any amount ultimately determined to be owed by m the City would be deemed to have accrued interest at the rate of 4% simple interest per annum, (° commencing on the 90'"calendar day following the end of the negotiation period and continuing thereafter c until paid in whole by the City. E V ENVIRONMENTAL IMPACT: 0 This does not meet the definition of a "project" under Section 15378 of the California Environmental ) Quality Act ("CEQA"),which states that a "Project" means the whole of an action,which has a potential o for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect Y physical change in the environment. FISCAL IMPACT: ° x .I The City would pay an amount equal to BO%of the Local Sales Tax Revenues actually received by the City o. to Kohl's in each Operating Quarter payable only after the City has received the Fixed Payment Amounts a equal to the first $100,000 of local sales tax revenues for Operating Year 1, the first $250,000 of Local Sales Tax Revenues for the Operating Year 2, and the first$500,000 of Local Sales Tax Revenues in each subsequent Operating Year during the remaining term of the Agreement unless the Local Sales Tax Revenues for the Sales Activities are less than $1,000,000 based upon $100,000,000 of taxable sales N generated by the Sales Activities as determined by the BOE. Under such circumstances the Fixed Payment N Amount would be adjusted to$400,000 for the applicable Operating Year until the minimum of$1,000,000 of Local Sales Tax Revenues for the Sales Activities are again achieved. The calculation formula is illustrated in the attachment to this Resolution and as set forth in the Agreement. z° c Account Budgeted Amount: $0 Balance as of: July 27.2010 0 Balance after approval of this item: $0 m rr RECOMMENDATION: a a That the Mayor and Common Council adopt the attached Resolution. x W c 1 E i z U F Q Emil A. rim Executive Director f eVwwe.,rCpimvnncpmm�ubpex MJMe -ioK s aem.,0p�,.paCa. �"sxaa COMMISSION MEETING AGENDA Meeting Date: ONO2l2010 Agenda Item Number: Packet Pg. 148 6.A.a I I Exhibit"A" 1 2 Form of Agreement 3 4 d 5 B f/7 6 E Y 7 a d 8 z 9 0 10 A 11 = 12 a 13 a 14 15 N N O 16 R 17 z C 18 2 19 1 20 Q a 21 x w 22 d 23 A 24 a 25 26 27 28 4 e:Wens..mmosniannwoumomuo�omsas.�o xonr.ew.owoeo.aom.w co..wx M..mem"cc nme.aao Packet Pg. 149 B.Aa, j N d j O I N BUSINESS OPERATIONS AND COVENANT AGREEMENT E I � R Q v 0 by and between r 0 Y rn c I `m CITY OF SAN BERNARDINO _ m I � o. a i a Q and N A N KOHL'S DEPARTMENT STORES, INC. j a Delaware corporation 0 I z c 0 o 0 1/1 d a Dated August 2,2010, r as the Reference Date W d E t A a ' Packet Pg. 150 6.A.a BUSINESS OPERATIONS AND COVENANT AGREEMENT This BUSINESS OPERATIONS AND COVENANT AGREEMENT (this "Agreement") is as of dated August 2, 2010 (the "Reference Date"), by and between the CITY OF SAN BERNARDINO, a California charter city formed pursuant to the Constitution and laws of the State of California (the "City"), and KOHL'S DEPARTMENT STORES, INC., a Delaware corporation ("Kohl's"), and this Agreement shall become effective as of the Effective Date as further provided in this Agreement. The City and Kohl's, are sometimes each, individually, referred to in this .2 Agreement as a "Party" and, collectively, as the "Parties." The City and Kohl's enter into this Agreement with reference to the following facts: E t: RECITALS w 0 WHEREAS, Kohl's has developed and opened or will develop and locate an internet sales L fulfillment center/office (the "Sales Office") in the City and intends, during the Term hereof, to Y designate certain taxable sales transactions through the City(the"Relevant Sales"); and c WHEREAS, Kohl's expects to generate significant revenues as a result of the Relevant Sales generated through.the Sales Office, all of which will result in the generation of significant x new local Sales Tax revenues to the City; and v a a WHEREAS, the City, in consideration of the new and additional local sales tax revenues, a property taxes, employment benefits, and other tangible and intangible benefits to be received by rn the City arising from the operation of the Sales Office and other retail operations within the City as described in this Agreement, desires to provide certain Covenant Payments to Kohl's as an N 1 incentive solely related to the taxable Relevant Sales activities to be conducted at the Sales Office; N 0 j and WHEREAS, the Covenant Payments to be remitted by the City to Kohl's shall be solely for z° the purpose of obtaining Kohl's commitment as herein set to to designate the City as the "point e of sale"of the Relevant Sales for State of California Sales Tax purposes and to thus cause Kohl's to .2 refrain from establishing any similar e-commerce operations elsewhere within the State of e California during the Term of this Agreement in addition to the other covenants and commitments of Kohl's as to the manner in which the Sales Office shall be operated and maintained,all as further a provided in this Agreement; and WHEREAS, it is anticipated that the State of California Board of Equalization shall issue a w j seller's permit for the Sales Office, designating the City of San Berardino as the jurisdiction wherein all taxable e-commerce Relevant Sales transactions conducted in California by Kohl's shall E be identified as having occurred; and m WHEREAS, such Covenant Payments shall not be deemed to be a reimbursement or a payment to Kohl's in any manner for construction costs or for any labor and material costs that may be expended by Kohl's for the construction and equipping of the Sales Office or any other facility, and it is agreed that Kohl's has utilized its own funds and assets to pay all such construction and equipping costs relative to the Sales Office, and Kohl's shall not utilize any amount of the Covenant Payments,or the expectation of the receipt of such Covenant Payments, for such purposes;and 1 e:vgenauMq.M.nmcnmsm,V,gone,nn mmaUkn a-n CMMIM-ax-IDKOV$-euanu,"MiDue c—t Mr=*��� Packet Pg. 151 6.A.a WHEREAS, Kohl's operation of the Sales Office will provide significant public benefits to the City because, among other matters, additional Sales Tax revenues generated by such activities represent a significant source of new and additional public revenue for the City,which may be used by the City for the funding of necessary public services and facilities, including public safety services and facilities; and WHEREAS, the City has further determined that the guaranteed operation of the Sales m Office serves the additional public purpose of fostering a business and civic environment which ° 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. E E i NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES SET a FORTH IN THIS AGREEMENT,THE CITY AND KOHL'S AGREE AS FOLLOWS: o N 1. Incorporation of Recitals. The Recitals of fact set forth above are true and correct and are Y incorporated into this Agreement in their entirety by this reference. 2. Effective Date of this Agreement. ° x 2.1 This Agreement is dated as of the Reference Date for reference purposes only. This m Agreement shall become binding on the Parties as of the date that both the City and Kohl's have a j duly approved,executed and delivered this Agreement (the "Effective Date"). The Parties agree to a confirm in writing the precise date of the Effective Date not later than one hundred twenty (120) m calendar days after the Reference Date and if the Effective Date has not been so confirmed and if this Agreement has not previously been terminated by either Party,then the Effective Date shall be deemed to be that date which is one hundred twenty(120)calendar days after the Reference Date. N^ i o 3. Representations and Warranties of the City. N ° 3.1 The City represents and warrants to Kohl's that,as of the Reference Date: z j o 3.1.1 To the City's actual current knowledge, the City's entry into this Agreement and the performance of the City's obligations under this Agreement do not violate any contract or i agreement to which the City is a party; o! i a 3.1.2 To the City's actual current knowledge, there are no pending claims or a lawsuits against the City that will delay or prevent the performance of the City's obligations under x this Agreement; ' c 3.1.3 The City has the legal right,power and authority to enter into this Agreement t and to consummate the transactions contemplated by this Agreement, and in making the Covenant Y j Payments herein for provided, the City will not be in.violation of any spending or debt restrictions a arising under Article XIIIB of the California Constitution; and 1 3.1.4 Based upon the facts and circumstances as disclosed by Kohl's to the City, the opening and operating of the Sales Office in the manner as anticipated to be undertaken by Kohl's is not within the definition of a "public work" as defined by the California Labor Code Section 1770, et seci., and the City has not received written notice from the California Department 2 e:UgeoduUgmd<Amd mV.g<noaA chmmi,\Ag�. eM 3o1TABL-30 Kob] -Saiu 0p %knf aM COV lAgwmen,D Packet Pg. 152 of Industrial Relations stating to the effect that the subject matter of this Agreement, including the leasing, construction,use and equipping of the Sales Office,is a"public work". 3.2 The representations and warranties of the City set forth in this Section 3 are material consideration to Kohl's, and the City acknowledges that Kohl's is relying upon the representations of the City set forth in this Section 3 in undertaking its obligations under this Agreement. m 3.3 As used in this Agreement,the term "City's actual current knowledge" shall mean, `o and shall be limited to, the actual current knowledge of Emil Marzullo (Interim Executive Director y of the Economic Development Agency of the City of San Bernardino) as of the Effective Date, without having undertaken any independent inquiry or investigation for the purposes of making r such representation or warranty and without any duty of inquiry or investigation. o O 4. Representations and Warranties of Kohl's. L 4.1 Kohl's represents and warrants to the City that, as of the Reference Date: Y c 4.1.1 Kohl's is a Delaware corporation, in good standing to do business in the State of California as a foreign corporation(i.e.,a non-California corporation); 4.1.2 The individuals executing this Agreement on behalf of Kohl's are duly v authorized by appropriate corporate action of Kohl's to execute this Agreement on behalf of Kohl's; a 4.1.3 To Kohl's actual current knowledge,Kohl's entry into this Agreement and/or the performance of Kohl's obligations under this Agreement do not violate any contract, agreement or other legal obligation of Kohl's; 4.1.4 To Kohl's actual current knowledge, there are no pending lawsuits or other I actions or proceedings which would delay, prevent or impair the timely performance of Kohl's N obligations under this Agreement; and ° z 4.1.5 Kohl's has the legal right, power and authority to enter into this Agreement 2 and to consummate the transactions contemplated by this Agreement, and the execution, delivery o and performance of this Agreement have been duly authorized by Kohl's and no other action by Kohl's is requisite to the valid and binding execution,delivery and performance of this Agreement, a except as otherwise expressly set forth in this Agreement. = L 4.2 The representations and warranties of Kohl's set forth in this Section are material w consideration to the City and Kohl's acknowledges that the City is relying upon the representations j of Kohl's set forth in this Section 4 in undertaking its obligations under this Agreement. E L 4.3 As used in this Agreement,the term "Kohl's actual current knowledge" shall mean, m and shall be limited to,the actual current knowledge of Thomas Taugher,Vice President of Finance a 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. 5. Definitions. All initially capitalized terms used in this Agreement shall have the meanings set forth below or,if not set forth below,where such terms fast appear in this Agreement. P:VyaMeMgende Atu<hmen"Ugendv AtuNmenuNgmuAmeM 2lObB-0L10I(nWS ewinem Ogniou,ud COensn<Agreemmi❑oC Packet Pg. t53 i 5.1 "BOE" means the State of California Board of Equalization and any successor agency. 5.2 "City" means and refers to the City of San Bernardino, a California charter city formed pursuant to the Constitution and laws of the State of California. 5.3 "City Attorney" means and refers to the City Attorney of the City of San Bernardino, California. w i 5.4 "City Manager" means and refers to the City Manager of the City of San Bernardino,California. E e 5.5 "Covenant Payments" means and refers to those payments to be made to Kohl's in o accordance with Section 7 of this Agreement. N Ili 5.6 "Effective Date" shall have the meaning ascribed to the term in Section 2 of this Y Agreement. m 5.7 "Eligibility Period" means and refers (subject to Sections 11 and 31) to the forty d (40) consecutive twelve (12) month periods commencing on the first calendar day of Operating = Year 1 and ending on the last calendar day of Operating Year 40. a 5.8 "Enforced Delay" means and refers to delays or defaults in performance due to a (`j!'•"�) causes beyond the control of the Party whose performance is required pursuant to this Agreement, including, but not limited to, war; acts of terrorism; insurrection; any form of labor dispute; lockouts; riots; floods; earthquakes; fires; acts of God; acts of a public enemy; referenda; acts of governmental authorities (except that the failure of the City to act as required under this Agreement N shall not excuse its performance); moratoria; epidemics; quarantine restrictions; and freight o embargoes. o Z 5.9 "Kohl's" means and refers to, Kohl's, and includes any nominee, assignee or `o successor to Kohl's rights,powers and responsibilities. o 5.10 "Local Sales Tax Revenues" means the net Sales Tax received by the City from the BOE pursuant to the application of the Sales Tax Law(as such statutes may hereafter be amended, Q substituted, replaced,re-numbered, moved or modified by any successor law) attributable to Kohl's retail sales allocated by the BOE to the City in a particular Operating Year. Local Sales Tax P Revenues shall not include: (i) any Sales Tax levied by, collected for or allocated to the State of w California the County of San Bernardino, or a district or any entity (including an allocation to a statewide or countywide pool) other than the City, (ii)any administrative_fee charged by the BOE, E (iii) any Sales Tax subject to any sharing, rebate, offset or other charge imposed pursuant to any applicable provision of federal, state or local (except City's) law,rule or regulation, (iv) any Sales i Tax attributable to any transaction not consummated within the Eligibility Period, or (v) any Sales a Tax (or other funds measured by Sales Tax) required by the State of California to be paid over to another public entity(including the State) or set aside and/or pledged to a specific use other than for deposit into or payment from the City's general fund. Local Sales Tax Revenues shall specifically j exclude the Countywide Measure "I" sales tax override which is designated for funding of regional transportation projects within the County of San Bernardino and the City approved Measure "E' which is designated to fund public safety efforts within the City. Local Sales Tax Revenues shall 4 P VyeneuUgam AtluM1menuUgend,AX,eMeNN,�misAmmd10ldN -10 XObta-Businw Opmflmu, d worn AVUMeM DM Packet Pg. 154 also specifically exclude any other Sales Tax override that is imposed within the boundaries of the City and which is intended to fund a specific activity or project rather than to be used by City as general fund revenues without any specific voter approved limitations on such uses. 5.11 "Mayor and Common Council' means and refers to the Mayor and Common Council of the City of San Bernardino, California. y d 5.12 "Negotiation Period" means and refers to a period of no less than thirty (30) g` calendar days. y I v 5.13 "Notice of Appeal" shall have the meaning ascribed to the term in Section 7.3, r m n 5.14 "Notice of Determination" shall have the meaning ascribed to the term in Section o 7.2. t 0 5.15 "Opening Date" means and refers to the first calendar day of the calendar month Y next succeeding the date on which the Sales Office first opens for business to the public. 5.76 . "Operating Quarter" means and refers, individually, to each of one hundred sixty consecutive three-month periods of time commencing as of the first calendar day of the calendar quarter next succeeding the Opening Date,with the fast Operating Quarter commencing on the first a calendar day of the BOB designated reporting cycle immediately succeeding the Opening Date and with each such three-month period of time referred to in this Agreement in consecutive numerical order as"Operating Quarter 1,""Operating Quarter 2,"etc. m 5.17 "Operating Year" means and refers, individually, to each of the forty (40) consecutive three hundred sixty-five (365) calendar day periods of time succeeding the Opening o Date, with the fast Operating Year commencing on the first day of the BOE-designsted reporting N cycle immediately succeeding the Opening Date and with each such three hundred sixty-five(365) o calendar day period referred to in this Agreement in consecutive numerical order as "Operating z Year 1,""Operating Year 2,"etc. `0 5.18 "Reference Date"means August 2, 2010. 0 m 5.19 "Sales Activities" means and refers to conducting retail Relevant Sales activities a which result in the sale or lease of any tangible personal property and which is subject to the a payment of local sales and use taxes pursuant to the Sales Tax Law. x W 5.20 "Sales Tax"means all sales and use taxes levied under the authority of the Sales Tax Law attributable to Sales Activities, excluding Sales Tax which is to be refunded to Kohl's because E of an overpayment of Sales Tax. 5.21 "Sales Tax Law"means(i)California Revenue and Taxation Code Section 7200, at a M., and any successor law thereto, (ii) any legislation allowing the City or other public agency with jurisdiction in the City to levy any form of local Sales Tax on the operations of Kohl's, and (iii) regulations of the BOE and other binding rulings and interpretations relating to () and (ii) hereof. 5 P:Ugeudu4OWa AMa UIS\4ende Amnhmm4V. WAmend 201010&01-10 Kohh-NCNee,Opentiom and Co n"n Agm WMW Packet Pg. 155 i 5.22 "Term" means and refers to the period commencing on the Effective Date and ending on the last calendar day of the Eligibility Period, unless sooner terminated pursuant to this Agreement. 6. Kohl's Tax Information. Subject to the provisions of Section 32, below, Kohl's acknowledges and agrees that the Sales Tax reporting and payment information related to Sales Taxes may become a public record as a result of the covenants of Kohl's contained in Section 8 and the Covenant Payments to be made by the City to Kohl's(as further described in Section 7). Kohl's_ o hereby authorizes the City to use the Sales Tax reporting and payment information to allow the City to perform its obligations under this Agreement and, subject to Section 32,below,to disclose such m information when,in the City Attorney's reasonable opinion, such disclosure is required by law, r m a 7. Determination of Local Sales Tax Revenues and Covenant Payments, In consideration o for Kohl's obligations set forth in this Agreement, and subject to satisfaction of all conditions 0 precedent thereto, the City shall, for each Operating Quarter during the Eligibility Period, pay to Y Kohl's an amount equal to eighty percent(80%) of the Local Sales Tax Revenues actually received by the City in such Operating Quarter after the City has received an amount equal to the first m $100,000 of Local Sales Tax Revenues for the Operating Year 1, the fast$250,000 of Local Sales Tax Revenues for the Operating Year 2, and the first $500,000 of Local Sales Tax Revenues (the = "City Fixed Payment Amount") in each subsequent Operating Year thereof during the remaining m Term of this Agreement (such percentage amounts payable to Kobl's after deduction of the City a Fixed Payment Amount are herein defined as the"Covenant Payments")calculated in the manner as a illustrated on Exhibit"A" as attached hereto,and incorporated herein and by reference made a part of this Agreement. If at anytime commencing with the Operating Year 3 and thereafter,the Local Sales Tax Revenues for the Sales Activities are less than $1,000,000 based upon$100,000,000 of taxable sales generated by the Sales Activities as determined by the BOE,the City Fixed Payment N Amount shall be adjusted for the applicable Operating Year to an amount equal to $400,000 until such time as in any succeeding Operating Year the minimum of$1,000,000 of Local Sales Tax N Revenues for the Sales Activities are again achieved. In any Operating Year for which the Local z6 j Sales Tax Revenues for the Sales Activities are equal to or greater than $2,000,000 based upon o $200,000,000 of taxable sales generated by the Sales Activities as determined by the BOE,the City ! shall receive thirty percent(30%) of the amount in excess of the City Fixed Payment Amount and 6 Kohl's shall receive seventy percent (70%) of the amount in excess of the City Fixed Payment Amount. In the event any adjustments are required to be made to the amounts payable to Kohl's for a any Operating Quarter,such adjustments shall be made with respect to the payment due and payable for the specific Operating Quarter in which the particular milestone has been achieved pursuant to K the formula as set forth above. w c 7.1 State of California Legislation Impact on Covenant Payment. Without limiting the generality of the foregoing paragraph, Kohl's acknowledges that the State of California legislature has in the past adopted certain legislation which diverted to the State of California a portion of the Local Sales Tax Revenues which would otherwise be payable to the City. Kohl's a acknowledges that it is possible that the State of California legislature may enact similar legislation in the future which would cause a corresponding reduction of and/or delay in the payment of the Local Sales Tax Revenues and that such reduction will cause a corresponding reduction for Kohl's and/or delay in the payment of the Covenant Payments due to Kohl's during such time as such legislation is in effect, Furthermore, Kohl's acknowledges that it is possible that the legislation described above, or some variant thereof, may be enacted and effective during one or more 6 ,A~AV AwdmcwkVp jABW mmi,UBnnuJwend 301NO&-Y10 ROW',-BOMm Op MiOm endC vOw A"m ZX Packet Pg. 156 '. i 6.A.a i subsequent times during the Eligibility Period and may materially and negatively impact the amount of Local Sales Tax Revenues and, accordingly, the Covenant Payments. The City does not make any representation,warranty or commitment concerning the future actions of the State of California legislature with respect to the allocation of Local Sales Tax Revenues to the City. Kohl's 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 City acknowledges that the State of California legislature or the federal government through Congressional actions or d other public entities may provide for the payment to City of other revenues for the purpose of e offsetting any losses in Local Sales Tax Revenues resulting from the enactment of legislation of the type described in this paragraph. The City agrees that should any such offsetting revenues be provided, then for puiposes of this Agreement and the computation of any Covenant Payments which may become due to Kohl's hereunder, the City will consider any such offsetting revenues i which are (i) indexed to Sales Tax and offset the loss of Sales Tax revenues to the City on a dollar o for dollar basis, (ii) actually received by the City, and (iii) not subject to any restrictions on use r beyond those which are otherwise generally applicable to Sales Tax revenues received by California Y municipalities,to be Local Sales Tax Revenues within the meaning of this Agreement. m 7.2 City's Notice of Determination of Operating Quarter Local Sales Tax Revenues v and Covenant Payment. Within thirty (30) calendar days following the end of each Operating = Quarter within the Eligibility Period, Kohl's shalt submit to City: certified copies of Kohl's quarterly reports to the BOE which set forth the amount of Sales Tax paid to the BOE during the a prior Operating Quarter in connection with Sales Activities. Within one hundred twenty (120) a calendar days following its receipt of the foregoing information from Kohl's, the City will determine the Local Sales Tax Revenues applicable to the Operating Quarter and the Covenant Payment due and provide Kohl's with written notice of the City's determination ("Notice of A Determination"), together with reasonable supporting documents and calculations, and the City N shall verify that the City is in receipt of the requisite dollar amount of Sates Tax from the BOE as a ° condition precedent to any remittance by the City of the Covenant Payment to Kohl's. 0 z 7.3 Kohl's Notice of Appeal: Negotiation Period. Notwithstanding any other o provision of law, including,without implied limitation, any statutes of limitation provided therefore .2 in the California Government Code or the California Code of Civil Procedure, the City's o determination of the matters set forth in the Notice of Determination shall be deemed final, conclusive, and non-appealable unless, within ninety (90) calendar days from the receipt of the a Notice of Determination by Kohl's, Kohl's notifies the City in writing that Kohl's appeals one or a more of the matters set forth in the Notice of Determination,which notice must specifically identify x the matter appealed and all of the bases for such appeal("Notice of Appeal"). Any matter set forth w in the Notice of Determination that is not appealed in the manner and within the time limits set forth c above, shall be final and conclusive as against Kohl's and all others claiming by or through Kohl's. 2 i The provisions of this Section 7.3 shall be strictly construed and Kohl's waives, to the maximum legal extent, any statutory or judicially created right to institute any administrative or judicial a proceeding to contest any matter set forth in a Notice of Determination that is not timely appealed in strict accordance with this Section. If Kohl's does not file a Notice of Appeal, the City shall tender I the Covenant Payment due within forty-five (45) calendar days from the issuance of the Notice of I Determination by the City to Kohl's as provided in Section 7.2. If Kohl's files a timely Notice of Appeal with the City, the City and Kohl's shall negotiate in good faith to resolve their dispute for a Negotiation Period. If, by the end of the Negotiation Period, the City and Kohl's are unable to C resolve the dispute set forth in the Notice of Appeal,each of them may exercise any judicial remedy 7 P:UgMtluNgMtll/.vecM1meMMg<04<Mttfimml,VgnnLLAmtM MOOM-10 KoM'<-g m.C,.i rm W COVI.Apsmtm.M Packet Pg: 157 6.A.a I' I available to them pursuant to this Agreement for the resolution of such dispute;provided,however, that any provision of law to the contrary notwithstanding, such judicial remedy must be instituted (the term "instituted" is defined as the filing of an action in a court of competent jurisdiction in strict accordance with the terms of this Agreement) within the applicable statute of limitations period following the end of the Negotiation Period or be barred forever. In connection therewith, the City and Kohl's irrevocably consent to the appointment of a referee to resolve such dispute in accordance with California Code of Civil Procedure Section 638, et sue., and to pay equal amounts d of the cost of such referee. ° ' in 7.4 No Accrual of Interest on Disputed Covenant Payments. The City and Kohl's E agree that any disputed amount of the Covenant Payments shall not accrue interest during the r pendency of any Negotiation Period or subsequent legal proceeding(including any appeals filed in n connection therewith),unless the court makes a determination upon recommendation of the referee o that the City acted in bad faith with regard to the dispute, in which case, any amount ultimately -" determined to be. owing by the City shall be deemed to have accrued interest at the rate of four x percent(4%) simple interest per annum, commencing on the ninetieth(90th) calendar day following The end of the Negotiation Period and continuing thereafter until paid in whole by the City. Kohl's c hereby waives, to the maximum legal extent, the right to the imposition of any different rate of v interest in accordance with any provision of law. _ 5 W 7.5 Covenant Payment Paid From Any Source of City Funds. Any Covenant Payment due under Section 7 may be payable from any source of any legally available funds of the a City. The City covenants to reasonably consider such actions as may be necessary to include all (u payments owed hereunder in each of its annual budgets during the Eligibility Period and to reasonably consider the necessary annual budgetary appropriations for all such payments. 7.6 Remittance of Covenant Payments As Contingent Obligation of City. The City's ° obligations under Section 7 are contingent on a year to year basis on and, for each Operating Year N within the Eligibility Period, the City's obligations to make any payments to Kohl's under this z° Agreement are expressly contingent upon Kohl's, for the entirety of such Operating Year,not being c in Default in any of its material obligations under this Agreement. If for any reason Kohl's fails to °- authorize the release or use of Sales Tax information in a manner satisfactory to the BOE or provide 6 any information reasonably required by the City to perform the City's obligations under this Agreement,the City shall have no obligation to make any Covenant Payment with respect thereto to a Kohl's for the period during which such information is unavailable to the City or the City is not a legally authorized to use such information for the purposes of performing its obligations under this Agreement. Additionally, during any period in which the Sales Tax information of Kohl's is w unavailable to the City or the City is not legally authorized to use such information for the purposes of performing its obligations under this Agreement, Covenant Payments with respect thereto shall £ ii be deemed suspended. u ° 7.7 Covenant Payment Calculated on Quarterly Basis. The City and Kohl's agree a that the calculation and determination of all financial components of the Parties rights and obligations under this Agreement shall be computed on an Operating Quarter to Operating Quarter basis. Local Sales Tax Revenues generated in one Operating Year shall not be tamed forward or back to any future or prior Operating Year, it being the express understanding of the Parties that for each Operating Year the financial obligations of the Parties and satisfaction of the conditions 8 P:UpendvWe,da AmOotnmWtMa NmlweotV,,we-AmeM 30108 40 KoMe-BUdmee Opeoion ud Cowwm AgaweoeWC Packet Pg. 158 a j precedent to such obligations shall be determined and made independently of any other Operating Year. 7.8 BOE Determination of Improperly Allocated Local Sales Tax Revenues. If, at any time during or after the Eligibility Period of this Agreement,the BOE determines that all or any portion of the Local Sales Tax Revenues received by the City and shared with Kohl's as provided herein were improperly allocated and/or paid to the City("Misallocation"), and if the BOE requires repayment of, offsets against future Sales Tax payments, or otherwise recaptures from the City the o i Misallocation, then Kohl's, shall, within thirty (30) calendar days after written demand from the City, repay the amount of the Misallocation theretofore paid to Kohl's. This Section 7.8 shall survive the expiration or termination of this Agreement. Further, if at any time, the BOE fails or r refuses to remit to the City all or any portion of any Local Sales Tax Revenues applicable to any o time period during the Eligibility Period,then such Local Sales Tax Revenues retained by the BOE o shall not be considered in calculating any Covenant Payment otherwise due and payable under this Agreement,unless and until such retained Local Sales Tax Revenues are paid to the City. o Y 8. Designation Covenant. Kohl's shall, during the Eligibility Period, in all reports to the BOE,designate the City as the"point of sale"for all Sales Activities attributable to the Sales Office S and shall establish the Sales Office as located within the City as the site for all employees of Kohl's = engaged in Sales Activities. Kohl's shall, for the full Eligibility Period,at its sole cost and expense, maintain all permits, contractual arrangements, licenses, and registrations necessary for Kohl's to a lawfully conduct Sales Activities and to designate the City as the "point of sale" in all reports and a p returns submitted to the BOE. Failure of Kohl's to comply with the covenant of this Section 8 shall o be deemed to be a material breach of this Agreement by Kohl's and the City shall be entitled to pursue any remedy or damages available under this Agreement,at law,or in equity for such breach. N r 9. ' 'Covenant Not to Discriminate. Kohl's covenants to the City that it will not unlawfully c discriminate within the Sales Office against any employee or applicant for employment because of R sex;marital status,race,color,religion,creed,national origin,or ancestry,and that they will comply z° with all;applicable local, state and federal fair employment laws and regulations. Kohl's further z covenants and agrees that there shall be no discrimination against or segregation of any person or °- group of persons on account of race, color, creed, religion, sex, marital status, ancestry or national o origin in the sale, lease, sublease,transfer,use,occupancy,tenure or enjoyment of the Sales Office, �(illl m nor shall Kohl's itself, or any person claiming under or through it, establish or permit any such a practice or practices of discrimination or segregation with reference to the selection, location, number,use of occupancy of tenants,lessees,subtenants,sublessee or vendees of the Sales Office. s X W 10. Indemnification. Subject to the terms of this Agreement,to the fullest extent permitted by 4 law, Kohl's shall defend, indemnify and hold the City, its directors, officials, including the Mayor E I and Common Council, officers, employees, volunteers and agents free and harmless from any and all claims, demands, causes of action, costs, expenses, liability, loss, damage or injury of any kind, j in law or equity,in any manner arising out of,pertaining to,or incident to any alleged acts,errors or a f omissions of Kohl's, its officials, officers, employees, subcontractors, consultants or agents in connection with the performance of this Agreement, including without limitation the payment of expert witness fees and attorneys fees and other related costs and expenses. In no event shall Kohl's indemnification obligation extend to, and the City hereby waives, any present or future claims to consequential,punitive,exemplary,treble,or other similar measures of damages. 9 r:weevwupccm nm<nmemugcm.nmcnmmu�racw xo,mocm-�a xawt-ewinu.Po d.r oM.ce co.c.n,q®..meM ooc Packet Pg. 159 6.A.a 11. Defense of this Agreement. If a third-party files a legal action regarding the City's approval of this Agreement or the pursuit of the Sales Activities contemplated by this Agreement, the City or Kohl's may terminate this Agreement on thirty (30) calendar days' written notice to the non-terminating Party stating the terminating Party's intent to terminate this Agreement,referencing this Section 11,without any further obligation of the terminating Party to perform the terms of this Agreement and without any liability of the terminating Party to non-terminating Party resulting from such termination, unless the non-terminating Party unconditionally agrees to indemnify and d defend the terminating Party against such third-party legal action, as provided hereinafter in this 2 Section 11. Within thirty (30) calendar days after receipt of the terminating Party's notice of intent urn to terminate this Agreement, as provided in the preceding sentence,the non-terminating Party may offer to defend the terminating Party in the third-party legal action and pay all of the court costs, attorneys' fees, monetary awards, sanctions, attorney fee awards, expert witness and consulting o fees, and the expenses of any and all financial or performance obligations (subject to the terms of o this Agreement) resulting from the disposition of the legal action. Any such offer from non- . terminating Party must be in writing and in a form reasonably acceptable to the terminating Party, Y 12. No Effect on City's Legislative Authority. Nothing in this Agreement shall limit or c restrict the authority of the Mayor and Common Council to take any other actions with respect to '5 the Sales Office and the property comprising the Sales Office and/or Kohl's without notice to or = consent from Kohl's, except as may otherwise be expressly provided by applicable law. Nothing herein contained shall constitute a prejudgment or precommitment by the City with respect to any of a the discretionary City permits and approvals that may be required far the Sales Office, including, a without limitation, any General Plan Amendment, Development Code text amendment, and/or conditional or special use permits,and the environmental reviews and approvals required pursuant to . CEQA in conjunction therewith that are required to accommodate the Sales Office, and the City N reserves its full and unfettered discretion with respect thereto to the same extent it would have such discretion in the absence of this Agreement. ° 13. Non-liability of the City or City Officials and Employees. No member of the Mayor and z Common Council, officer, official, contractor, consultant, attorney or employee of the City shall be c personally liable to Kohl's, any voluntary or involuntary successors or assignees, or any.lender or 2 other party holding an interest in the Sales Office, in the event of any default or breach by the City, o or for any amount which may become due to Kobl's or to its successors or assignees, or on any obligations arising under this Agreement. a 14. Conflict of Interests. No member of the Mayor and Common Council, official, officer, t contractor, consultant, attorney or employee of the City shall have any personal interest, direct or W indirect,in this Agreement nor shall any such member of the Mayor and Common Council,official, officer, or employee participate in any decision relating to this Agreement which affects his/her d personal interests or the interests of any corporation or partnership in which he/she is directly or c indirectly interested. 15. Defaults - General. Subject to any extensions of time provided for in this Agreement for event of Enforced Delay,the occurrence of any of the following shall constitute a"Default." 15.1 The failure by either Party to perform any obligation of such Party under this Agreement for the payment of money,if such failure is not cured within ten(10)calendar days after i 10 P:UgenduVy<ud<An<rAmmtMe<nMMUC�mW,U6muMU,a]OIOWLOI-o%aNx-8uuumc Openry and Co.Ape DO Packet Pg. 160 ,I the non-performing Party's receipt of written notice from the injured Party that such obligation was not performed when due;or 15.2 The failure by either Party to perform any of its obligations set forth in this Agreement other than obligations subject to subsection 15.1,if such failure is not cured within thirty (30) calendar days after the non-performing Party's receipt of written notice from the injured Parry that such obligation was not performed when due or, if such failure is of a nature that cannot w reasonably be cured within thirty (30) calendar days, the failure by such Party to commence such `o cure within thirty (30) calendar days after receipt of such notice and to, thereafter, diligently 2 prosecute such cure to completion;or v I 15.3 Any representation or warranty by a Party set forth in this Agreement proves to have been false or misleading in any material respect when made and said Party does not take the n 0 necessary action, following notice pursuant to subsection 15.2,to remedy said misrepresentation or N breach of warranty within the time period set forth in subsecti on 15.2, such that the original o representation or warranty becomes truthful and accurate. Y 15.4 Any failure or delays by any Party in asserting any of their rights and/or remedies as to any default shall not operate as a waiver of any default or of any such rights or remedies. Delays by any Party in asserting any of their rights and/or remedies shall not deprive any Party of its right _ to institute and maintain any actions or proceedings that it may deem necessary to protect, assert or c enforce any such rights or remedies. 15.5 If Kohl's fails to make any repayment of a Misallocation (as defined above) within sixty (60) calendar days after the City's written demand therefor(the "Grace Period'),then Kohl's shall be in breach of this Agreement from and after the expiration of the Gra Period and the n amount of such repayment shall thereupon accrue interest at four percent (4%) simple interest per o annum,untit paid. c N 15.6 If Kohl's fails to comply with the covenant in Section 9 which failure continues for d l z thirty (30) days after the City's written notice thereof then Kohl's shall be in breach of this c Agreement and the City shall be entitled to pursue any remedy or damages available under this 2 Agreement,at law,or in equity for such breach. 15.7 Upon the occurrence of any Default by Kohl's, and after Kohl's receipt of written a notice of default and expiration of the time for Kohl's to cure such Default as provided in a subsection 15.2,the City may at its option: x w (a) suspend the payment of the Covenant Payments otherwise due and payable to Kohl's hereunder for the period that Kohl's remains in Default. If the City has so suspended E its payments in accordance with the terms of this clause(i),then upon Kohl's cure of such Default, the City shall resume its payment obligations,but shall have no obligation to make payments for a any Operating Quarter or portion thereof during which the City's obligation to make payments was so suspended;or (b) if the Default continues uninterrupted for a period of six (6) months, the City may terminate this Agreement, in which case the City's obligation to make Covenant Payments to Kohl's for any period of time after the occurrence of the Default shall be finally terminated and discharged. it P:Wpm4,�Apmtl�A,uEUnewAApude AlutlwmuUVwlsAmwtllOi(MtO]-IOK,LhBwiews Opneiiom�ml COV{,MI A]M1,m,N.WC . Packet Pg. 161 6.A:a In no event,however,shall the City have the right to specifically enforce Kohl's covenants set forth in Section 8 of this Agreement regarding the continuous operation of the Sales Office, to prevent Kohl's conversion of the Sales Office to another lawful use(even if such use would be inconsistent with this Agreement), or to sue Kohl's or to recover from Kohl's any amount that is actually or allegedly attributable to loss of anticipated Sales Tax or other revenues, whether because the amount of Sales Tax,generated from the Sales Office is less than projected by Kohl's or the N City, or because Kohl's does not operate the Sales Office for the entire Operating Period, or 2 otherwise,unless Kohl's is in violation of the provisions of Section 10 of this Agreement. y 15.8 Upon the occurrence of any Default by the City, and after the City's receipt of written notice of Default from Kohl's and expiration of the time for the City to cure such Default as m provided in Section 15,Kohl's may terminate this Agreement by written notice to the City and/or v seek whatever legal or equitable remedies may be available to Kohl's,subject to the provisions ° of Section 17. z 0 Y 16. City Offset Remedy. In addition to those rights and remedies provided by Section 15,the City's rights and remedies for a Default by Kohl's include the right to off-set any amount of money due to Kohl's from City following the notice and opportunity to cure provided in Section 15,against d any Covenant Payments due or becoming due to Kohl's. _ a m 17. Legal Actions. In addition to any other rights or remedies, but subject to the other terms a and conditions of this Agreement, either Party may institute legal action to cure, correct or remedy any Default by the other Party, to recover general or consequential damages for any default, or to obtain any other remedy available to that Party under this Agreement or at law. It is expressly agreed to by the Parties that in the event of a.Default hereunder, the only remedy available to the n non-defaulting Party shall be as set forth expressly in this Agreement and in no event shall any party N hereto have any equitable remedy,it being agreed by both parties that legal remedies alone shall be b j sufficient as a result of any Default hereunder. In no event shall either Party be entitled to seek or w j obtain punitive,exemplary,consequential or other similar remedies against the defaulting Party, z° i = Furthermore, anything herein to the contrary notwithstanding, in no event shall Kohl's 2 liability under this Agreement for damages or otherwise (including without limitation any o li indemnification obligations), in the aggregate, exceed the greater of (i) $1,000,000 and (ii) the Covenant Payments actually received by Kohl's for the three (3)year period ending on the date of a Default, a X 18. Governing Law. The procedural and substantive laws of the State of California shall govern the interpretation and enforcement of this Agreement, without regard to its conflicts of laws principles. E E U 19. Rights and Remedies are Cumulative, Except as otherwise expressly stated in this 2 Agreement, the rights and remedies of the Parties under this Agreement are cumulative and the a exercise by any Party 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 another Party. 12 rV.genAeNgmaeAma}unemeUgeWSAUUMnemV ymY-Mxua3otMLe.oLlo1(o61'e-8.111 fop 16m WCwvune Agumem.000 Packet Pg. 162 6.A.a I 20. Notices,Demands and Communications between the Parties. 1 20.1 Any and all notices, demands or communications submitted by a Party to the other Party pursuant to or as required by this Agreement shall be proper, if in writing and dispatched by messenger for immediate personal delivery,by a nationally recognized overnight courier service or by registered or certified United States mail, postage prepaid, return receipt requested, to the j principal office of the Party, as designated in subsection 20.2. Such written notices, demands and communications may be sent in the same manner to such other addresses as the Party may from g time to time designate. Any such notice,demand or communication shall be deemed to be effective y when received by the addressee. E 20.2 The following are the authorized addresses for the submission of notices,demands or o communications to the Parties: o i h To Kohl's: Kohl's Department Stores,Inc. o N56 W 17000 Ridgewood Drive Y Menomonee Falls,Wisconsin 53051 0 Attention: Finance Department `c m ! x { With a copy to: Kohl's Department Stores, Inc. N56 W17000 Ridgewood Drive Menomonee Falls,Wisconsin 53051 ° a Attention: Legal Department To the City: City of San Bernardino 300 North"D" Street San Bernardino, California 92418 0 Attention: City Manager N i With courtesy copy to: Lewis Brisbois Bisgaard& Smith LLP Z 650 East Hospitality Lane,Suite 600 0 San Bernardino,California 92408 Attention: Timothy J. Sabo m rr Notwithstanding the foregoing, for the purpose of this Agreement, any and all notices, a demands or communications submitted by Kohl's to the City pursuant to or as required by this a Agreement shall be deemed to be from Kohl's. Conversely, any and all notices, demands or x communications submitted by the City to Kohl's shall be deemed to be submitted by the City to w Kohl's. d E 21. Attorneys' Fees. In the event of the bringing of an arbitration, action or suit by a Party to this Agreement against the other Party to this Agreement by reason of any breach of any of the a covenants or agreements or any intentional inaccuracies in any of the representations and warranties on the part of the Party arising out of this Agreement or any other dispute between the Parties concerning this Agreement, 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 or Parties 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 13 o:vx..a.,ue..a.anuhmenu4yenesrmcx�xuq�u-nmmexomoenx-oxare..ewinu,opmwmN.na co.....i n�..mennooc Packet Pg. 163 6.A.a attorneys' fees (collectively, the "Costs") incurred in enforcing, perfecting and executing such judgment or award. For the purposes of this Section 21, Costs shall include, without implied limitation, reasonable attorneys' and experts' fees, costs and expenses incurred in the following: (i) post judgment motions and appeals, (n) contempt proceedings, (iii) garnishment, levy and debtor and third party examination; (iv)discovery;and(v)bankruptcy litigation, The term Costs shall also include the costs incurred by the City Attorney and members of the City Attorney's staff including attorneys, investigators and other staff personnel, plus salaries and benefits payable to such v employees, for any such Costs incurred by the City Attorney pursuant to this Agreement. This ° in Section 21 shall survive any termination of this Agreement. ° 22. Jurisdiction and Venue. Any legal action or proceeding concerning this Agreement shall r be filed and prosecuted in the appropriate state or federal court in the State of California. The o Parties to this Agreement irrevocably consent to the personal jurisdiction of that court. Venue shall o N be in San Bernardino County. t j 23. Interpretation. The Parties acknowledge that this Agreement is the product of arms-length Y negotiation and drafting and that each of the Parties have been represented by legal counsel in the negotiation and drafting of this Agreement. Accordingly, any rule of construction that the ambiguities in a document shall be conshued against the drafter of that document shall have no x application to the interpretation and enforcement of this Agreement. In any action or proceeding to m interpret or enforce this Agreement, the finder of fact may refer to any extrinsic evidence not in a direct conflict with any specific provision of this Agreement to determine and give effect to the a intention of the Parties. ° m 24. Counterpart Originals; Integration; Amendments. This Agreement may be executed in duplicate originals, each of which is deemed to be an original, but all of which taken together shall N constitute one and the same instrument. This Agreement and the Exhibits attached to this Agreement represent the entire understanding of the Parties and supersede all negotiations, letters of N intent, memoranda of understanding or previous agreements between the Parties with respect to all z° or any part of the subject matter of this Agreement. This Agreement may not be amended except by `o a written instrument executed by both Parties and approved in the manner as required by both Parties. 0 25. No Waiver. Failure to insist on any one occasion upon strict compliance with any of the a terms, covenants or conditions of this Agreement shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any rights or powers under this s Agreement at any one time or more times be deemed a waiver or relinquishment of such other right w or power at any other time or times. c d 26. Time is of the Essence/Force Majeure. Time is of the essence in the performance of the u Parties' obligations under this Agreement. In addition to specific provisions of this Agreement 1 providing for extensions of time, times for performance under this Agreement shall be extended by I an Enforced Delay, provided, however, that the Party claiming the extension notify the other Party of the nature of the matter causing the Enforced Delay within thirty(30)calendar days from the date of the occurrence thereof; and, provided further, that the extension of time shall be only for the period of the Enforced Delay. 1 14 ?USn"AABg hAMOQ. ,uVgende AuecAmew\Apml, cnddg MRW 10KUNk'g4—OpmnionsendCwenem Agnemmt DOC Packet Pg. 164 6.A.a I 26.1 ANYTHING IN THIS AGREEMENT TO THE CONTRARY NOTWITHSTANDING, KOHL'S 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, CHANGED ECONOMIC CIRCUMSTANCES, FRUSTRATION OF PURPOSE,OR SIMILAR THEORIES. 26.2 KOHL'S EXPRESSLY AGREES THAT ADVERSE.CHANGES IN ECONOMIC CONDITIONS,EITHER OF KOHL'S SPECIFICALLY OR THE ECONOMY GENERALLY, OR E CHANGES IN MARKET CONDITIONS OR DEMANDS,SHALL NOT OPERATE TO EXCUSE r, OR DELAY THE STRICT OBSERVANCE OF EACH AND EVERY OF THE OBLIGATIONS, v COVENANTS, CONDITIONS AND REQUIREMENTS OF THIS AGREEMENT. KOHL'S ° EXPRESSLY ASSUMES THE RISK OF SUCH ADVERSE ECONOMIC OR MARKET CHANGES,WHETHER OR NOT FORESEEABLE AS OF THE EFFECTIVE DATE. Y m Acceptance by Kohl's v x 27. No Third Party Beneficiaries. The performance of the Parties' respective obligations m under this Agreement is not intended to benefit any party other than the City and Kohl's, except as a may be expressly provided otherwise in this Agreement. No person or entity not a signatory to this Agreement shall have any rights or causes of action against either Party to this Agreement as a result of that Parry's performance or non-performance under this Agreement. 28. No Effect on Eminent Domain Authority. Nothing in this Agreement shall be deemed to N limit, modify, or abridge or affect in any manner whatsoever the City's eminent domain powers ° with respect to the Sales Office. 0 29. Tax Consequences. Kohl's acknowledges that it may experience tax consequences as a result of its receipt of the payments provided for in this Agreement and agrees that it shall bear any 2 and all responsibility,liability,costs,and expenses connected in any way therewith. N d 30. Warranty against Payment of Consideration for Agreement. Kohl's warrants that it has not paid or given, and will not pay or give, any third party any money or other consideration for a obtaining this Agreement. Third parties, for the purposes of this Section 30, shall not include r persons to whom fees are paid for professional services if rendered by attorneys, consultants, w accountants,engineers,architects and the like when such fees are considered necessary by Kohl's. E v 31. Special Termination Right. In consideration of Kohl's entering into this Agreement, the E City agrees that Kohl's shall have the on-going right to terminate this Agreement for any reason,or for no reason, in its sale and absolute discretion upon not less than three (3) days' prior written a notice to the City. i 1 i i 15 ?.Wmd&MnoaaA m.Au\A& m&An hmm=WAw wn ma eu,m.uoomara.,..a w.:.,m May.enDOC Packet Pg. 165 s �I 32. Confidentiality. Kohl's acknowledges that it may be requested to make certain confidential financial disclosures to City, its staff or legal counsel, pursuant to this Agreement. The parties recognize that such financial disclosures may contain sensitive information relating to business transactions of Kohl's, that the disclosure of such information to third parties could impose commercially unreasonable and/or anti-competitive burdens on Kohl's. Accordingly, City agrees to maintain the confidentiality of any of Kohl's financial and/or proprietary information described in Government Code Section 6254.15, as may be provided by Kohl's to City or its consultants, to the maximum extent permitted by law. City shall not provide a copy of any business record that is `o determined by counsel to City to be protected from disclosure under Government Code Section y 6254.15 to a third party, unless Kohl's first consents to such disclosure in writing or, unless a court cur of competent jurisdiction compels disclosure. a [Signatures on Following Pages] o N t O Y c m v I S I � a Q m © N A j N O O N O 6 O O N K a a 's x w c d E L I U N 1 i Q I I 1 I I 16 PUgmdasUgenL AtuchmenM1UgeMI MacAmmllUpmwAmaiW3010W8-0Y10%eWYHiuinos Opeeliom ub Co-/eravt/$am[nIDIX. Packet Pg. 166 IN WITNESS WHEREOF,the Parties hereto have executed this Business Operations and Covenant Agreement on the date first written above. CITY: CITY OF SAN BERNARDINO, a California charter city v 0 y By; E Patrick J.Morris,Mayor m a ATTEST: ° N L O Y By: m Rachel G.Clark,City Clerk d x m APPROV AS TO FORM: a a Q i m By: J s .Penman,City Attorney N A N . O O KOHL'S DEPARTMENT STORES,INC. c z c 0 By: 1:5 0 N i Title: rr � Q a L M W C y L I V N i Q ©i T 17 PMgaduUg,W,Aw�bmen�,Ug,nl,Ad,ehm,mV.yeeFNneel ao�Pneu]-�a PaN',�BUdn,egndon,W Cmewul.�eanem.DOC P,aeket Pg.xfl7 6.A.a EXHIBIT"A" Method of Calculation of Covenant Payments (Section 7 of Agreement) m 0 h I y I E C o. o L O Y rn S u x m m a m N I r N O I � N O p O 5 N � a a xx w E I E L u .10. � a I I j 18 P:;�4gmdvNgeMe AmvTmmBUgvMVANMmewUpno-Mind ROIOCO-0R•10 WMY•Buimw OpmNioiumW COwrentApvmeM.DOC .qyv p Est Total Gross Taxable Sales in CA City Share After Kohl's Share Aker Year - (2%annual growth) Local t% City Floor Floor-20°/ Floor-60°/ l2010 $ - 50,000,000 $ 500,000 $ 100,001) $ 80,000 $ '320,000 2011 $ 75,000,000 $ 760,000 $ 250,000 $ 100,000 $ 400,000 2012 $ 100,000,000 $ 1,000,000 $ 5DO,000 $ 100,000 $ 400,000 2013 $ 102,000,000 $ 1,020,000 $ 500,000 $ 104,000 $ 416,000 2D14 $ 104,040,000 $ 1,040,400 $ 500,OOD $ 108,08D $ 432,320 2015 $ 106,120,800 $ 1,061,208 $ 500,000 $ 112,242 $ 448,966 y 2016 $ 108,243,216 $ 1,082,432 $ 600,000 $ 116,486 $ 465,946 o 2017 $ 110,408,080 $ 1,104,081 $ 500,000 $ 120,816 $ 483,265 y 2018 $ 112,616,242 $ 1,126,162 $ 500,000 $ 125,232 $ 500,930 y 2019 $ 114,868,667 $ 1,146,686 $ 500,000 $ 129,737 $ 518,949 2020 $ 117,165,938 $ 1,171,659 $ 500,000 $ 134,332 $ 537,328 v. 2021 $ 119,509,257 $ 1,195,093 $ 500,000 $ 139,019 $ 556,074 0 2022 $ 121,899,442 $ 1,218,994 $ 500,000 $ 143,798 $ 575,196 2023 $ 124,337,431 $ 1,243,374 $ 500,000 $ 148,675 $ 594,899 t 2024 $ 126,824,179 $ 1,268,242 $ 500,000 $ 163,648 $ 614,593 O Y 2025 $ 129,360,663 $ 1,293,607 $ 600,000 $ 158,721 $ 634,885 2026 $ 131,947,876 $ 1,319,479 $ 500,000 $ 163,896 $ 656,583 2027 $ - 134,586,834 $ 1,345,868 $ 500,000 $ 169,174 $ 676,695 2028 $ 137,278,571 $ 11372,786 $ 500,00D $ 174,557 $ 698,229 2029 $ 140,024,142 $ 1,400,241 $ 500,000 $ 180,048 $ 720,193 m 2030 $ 142,824,625 $ 1,428.,246 $ 500,000 $ 185,649 $ 742,597 a 2031 $ 145,681,117 $ 1,456,811 $ 500,000 $ 191,362 S 765,449 Q 2032 $ 148,694,740 $ 1,485,947 $ 500,000 $ 197,189 $ 788,758 2033 $ 151,586,634 $ 1,515,666 $ 500,000 $ 203,133 $ 812,533 2034 $ 154,597,967 $ 1,545,980 $ 500,000 $ 209,196 $ 836,784 ., 2035 $ 157.689,926 $ 1,576,699 $ 500,000 $ 215,380 $ 861,519 n 2036 $ 160,843,725 $ 1,608,437 $ 500,000 $ 221,687 $ 886,750 N 2037 $ 164,060,599 $ 1,640,605 $ 500,000 $ 228,121 $ 912,485 ° 2038 $ 167,341,811 $ 1,673,418 $ 500,000 $ 234,684 $ 938,734 N 2039 $ 170,688,648 $ 1,706,886 $ - 600,000 $ 241,377 $ 965,509 i 2040 $ , 174,102,421 $ 1,741,024 $ 500,000 $ 248,206 $ 992,619 c 2041 $ 177,584,469 $ 1,775,845 $ 500.000 $ 255,169 $ 1,020,676 0 2042 $ 181,136,158 $ 1,811,362 $ SD0,000 $ 262,272 $ 1,049,089 S 2043 $ 164,758,882 $ 1,847,589 $ 500,000 $ 269,51B $ 1,078,071 0 2044 $ 188,454,059 $ 1,884,541 $ 500,ODO $ 276,908 $ 1,107,632 2045 $ 192,223,140 $ 1,922,231 $ 500,000 $ 284,446 $ 1,137,785 Q 2046 $ 196,067,603 $ 1,960,676 $ 500,000 $ 292,135 $ 1,188,541 a 2047 $ 199,988,955 $ 1,999,890 $ 500,000 $ 299,978 $ 1,199,912 ' 2048 $ 203,968,734 $ 2,039,887 $ 500,000 $ 307,977 $ 1,231,910 w 2049 $ 208,068,509 $ 2,080,685 $ 500,000 $ 316,137 $ 1,264,548 $ 19,350,000 $ 7,602,988 $ 30,411,9152 d E Total to San Bernardino $ 26,952,888 46.99% m Total to Kohl's $ 30,411,952 53.01% Q i i i Packet Pg. 169 OFFICE OF THE CITY CLERK RAcHRL G.CLARK-CtrY CLERK 300 North"D"Street•San Bernardino•CA 92418-0001 909.384.5002•Fax:909.384.5158 W wwwsbcity.org N d O Hl October 19,2011 m E C m n a O Kohl's Department Stores Inc. " Attn: Tax Manager Y N56W 1700 Ridgewood Dr. Menomonee Falls WI 53051-5660 c m RE: City Business Registration = Internet Sales Fulfillment Center—825 E. Central Ave. m Account#935001 a Dear Sir/Madam: m On May 2, 2011 our office processed your business registration renewal for the above E location. Upon review of the renewal application it was noted that your office indicated "N/A" with respect to the gross receipts attributable to this location and therefore d submitted the minimum annual business registration fee of$60. °n a After further investigation, we found that Kohl's has entered into a "Business Operations and Covenant Agreement" with the City of San Bernardino which was adopted by E Resolution 2010-272 at the City of San Bernardino Mayor and Common Council Meeting of August 2,2010. A copy of the Resolution is attached for your reference. d d Contained within this agreement are several statements indicating that Kohl's would J establish a sales office at this location and designate the City of San Bernardino as the m point of sale for all taxable e-commerce sales transactions in California: n • Specifically, as stated in the "Recitals" "...the State Board of Equalization shall w issue a seller's permit for the Sales Office,designating the City of San Bernardino as the jurisdiction wherein all taxable e-commerce Relevant Sales transactions E conducted in California by Kohl's shall be identified as having occurred..." A a CITY OF SAN$ERNARDEVO th/ ADOPTED SHARED VALUES:Integrity•Accountability•Respect for Htunan Dignity•Hone paciet Pa. 170 fa �s • Section 8 of the agreement states in part, "Designation Covenant. Kohl's shall....in all reports to the BOB, designate the City as the"point of sale" for all Sales Activities attributable to the Sales Office and shall establish the Sales Office as located within the City as the site for all employees of Kohl's engaged in Sales Activities. Kohl's shall—at its sole cost and expense, maintain all permits, m contractual arrangements, licenses, and registrations..." 2 15 San Bernardino Municipal Code Section 5.04.525 establishes those businesses for which E the annual business registration fee is based on gross receipts. SBMC Section 5.04.525B defines "Retail Merchants" as "Every person, firm or corporation conducting, managing d or carrying on the business of selling at retail any goods, services, wares or merchandise ° other than food...shall pay a fee established by resolution of the Mayor and Common o Council". Resolution 96-188 establishes the fee for Retail Merchants as 160.00 per Y year plus three fourths of one-tenth of one percent(.00075) of all dollar value of annual gross receipts in excess of fifteen thousand dollars of such gross receipts..." - d x Gross receipts are reported, and the appropriate fee paid, annually to the Business Registration Division of the City Clerk's Office. Based on the above information, we a request that you submit an amended Business Registration Renewal Application form a stating the gross sales attributable to the internet fulfillment center for the time period of o May 1. 2010 through April 30, 2011. This amount should agree with your filings with the State Board of Equalization. Once we have received your amended application we E will calculate your business registration fee for the current year (May 1, 2011-April 30, o 2012) and the first year of operation (May 1, 2010-April 30, 2011) and invoice you accordingly. o d a a Please use the enclosed Business Registration Renewal Application to state the gross y sales for the above requested time period and return to our office no later than November E 10, 2011. Should you have any questions, or need assistance in completing the 2 application please contact our office at(909) 384-5036. U; a Sincerely, n � IV a Cindy Buechter x Business Registration Manager w c Cc: Rachel Clark,City Clerk r Barbara Pachon,Director of Finance a Pac�ef,P9.171? f KOHL:S expect great things C7 1i1 1 �) [7� r> N � 0 November 30,2011 C.0 ca I. c Cindy Buechter w E Business Registration Manager a Office of the City Clerk o 300 North"D" Street H San Bernardino, CA 92418-0001 e Y Re:Account#: 935001 c Dear Ms. Buechter: m x In response to the City of San Bernardino's letter dated October 19,2011 (copy enclosed),Kohl's o Department Stores,Inc. ("Kohl's")respectfully disagrees with the determination that an amended application a needs to be filed for its E-Commerce Fullfillment Center("EFC")Business Registration. Kohl's EFC is merely participating in the movement of merchandise(i.e.,fulfilling orders). There are no sales transactions at the EFC that would require Kohl's to source receipts to the City of San Bernardino for E purposes of the annual Business Registration. 0 a The City's Municipal Code does not provide reference to the sourcing of sales for sales tax reporting a purposes. Any activities conducted at the EFC relate to participating in the sales transaction,which in turn a allows Kohl's to source receipts to the City of San Bernardino for sales tax purposes only. o E Kohl's is in compliance with the reporting of sales as it relates to the Business Registration for the City of San Bernardino. u d Please feel free to contact me if you have any questions regarding the above information. Thank you in advance for your consideration in this matter. w m Sincerely, w oseph Malloy w Senior Tax Manager—Kohl's E (262)703-6016 osel)h.malloy@k_ghlg.com Enclosures— As stated CORPORATE OFFICES• N56 W17000 RIDGEWOOD DRIVE•MENOMONEE FALLS,WISCONSIN 53051•(262)703-7000 /i ✓ � P.eakefPg 172 '. F V CI)' t.�l � l,l_t_ 7.m PEAR 29 AM 7; OG B INTER OFFICE MEMORANDUM OFFICE OF THE CITY ATTORNEY N CITY OF SAN BERNARDINO 0 LEGAL MEMO NO. 12-015 E E r m a m TO: Cindy Buechler, Business Registration Supervisor ° City Clerk's Office r 0 Y FROM: Stephanie D. Easland, Assistant City Attorn m c .q DATE: March 28, 2012 = A RE: KOHL'S BUSINESS REGISTRA TION FEE d 0. a Q CC: James F. Penman, City Attorney; Gigi Hanna, City Clerk; Andrea Travis-Miller,Assistant City Manager; Terrence Beaman, Deputy Director of Finance E `o LL N I've reviewed the documents you forwarded to me regarding the appropriate business a registration fee for Kohl's Internet Sales Fulfillment Center and Office. I absolutely agree with the Q position you took in your letter to Kohl's Tax Manager, and you accurately stated the applicable "o Municipal Code sections in relation to certain provisions contained in the 2010 Business Operations E and Covenant Agreement("Agreement") entered into by the City and Kohl's Department Stores. rri `w The strongest argument that the business registration fee is based on gross receipts pursuant to SBMC §5.04.525B is found in Section 8 of the Agreement that provides in pertinent part as follows: u m N "Kohl's shall, for the full Eligibility Period, at its sole cost and z expense, maintain all permits, contractual arrangements, licenses, w and registrations necessary for Kohl's to lawfully conduct Sales Activities and to designate the City as the`point of sale' in all reports and returns to the BOE." (Emphasis added.) m s± The subject Agreement defines the"Eligibility Period"as 40 years and "Sales Activities" Q as"retail Relevant Sales activities which result in the sale or lease of any tangible personal property and which is subject to the payment of local sales and use taxes pursuant to the Sales Tax Law."The PARASLANDICiry C1erkWob1,BneRegFa.BUecbtermm.wpd I �Packel`Pg.°173' recitals set forth at the beginning of the Agreement and incorporated into the Agreement in their entirety,define"Relevant Sales" as certain designated taxable sales transactions through the City. Therefore, Section 8 of the subject Agreement between the City and Kohl's creates the mandatory obligation for Kohl's to maintain a business registration with the City in order to conduct retail relevant sales activities,i.e.,those certain designated taxable sales transactions through the City v as the point of sale. y In summary,the business registration should be based upon the same agreed upon taxable E sales transactions that are reported to the Board ofEqualizati ion for sales tax purposes. If Kohl's still E disputes this analysis, it needs to exercise its right to appeal the determination to the Mayor and Common Council, and should be informed of such process. ° r If you have any further questions or comments on this matter, please do not hesitate to Y contact me. rn c v x i m Q Q a E 0 LL R d Q Q a N O E d Vi d d J W m N a Xx w c E E L U N a FAWLANDWity 2 6.A.b OFFICE OF THE CITY CLERK GEORGEANN"GIGI°HANNA—CITY CLERK BOsINEss REGISTRATION DMSWN P.O.Box 1318•San Bernardino•CA 92402 300 North"D"Street•San Bernardino•CA 92418-0001 909.384.5302•Fax:909384.5158 San Bernar ino www.sbcity.org ew o April 11, 2012 E R a v N Joseph Malloy o Senior Tax Manager—Kohl's - Y N56W 1700 Ridgewood Dr. Menomonee Falls WI 53051-5660 .M w x RE: City Business Registration Internet Sales Fulfillment Center—825 E.Central Ave. �- a Account#935001 ¢ m Dear Mr, Malloy: E In response to your correspondence dated November 30, 2011 regarding the business registration for 5 the above facility,we forwarded your letter and a copy of the Business Operations and Covenant Agreement with the City of San Bernardino to our City Attorney's Office for review. Their review agreed o. with the position taken in our original letter dated October 19,2011 and concluded the following: n vi Section 8 of the Agreement provides that the business registration fee is based on gross receipts E pursuant to SBMC Section 5.04.525B. In pertinent part,Section 8 of the Agreement states, "Kohl's shall,for the full Eligibility Period,at its sole cost and expense, maintain all permits, u; contractual arrangements, licenses, and registrations necessary of Kohl's to lawfully conduct ?; Sales Activities and to designate the City as the 'Point of sale'in all reports and returns to the BOV. w m The Agreement defines"Sales Activities"as"retail Relevant Sales activities which result in the sale or lease of any tangible personal property and which is subject to the payment of local sales 'O Z and use taxes pursuant to the Sales Tax Law." The Agreement defines"Relevant Sales" as w certain designated taxable sales transactions through the City. c m E Therefore,Section 8 of the Agreement creates the mandatory obligation for Kohl's to maintain a = v business registration with the City and that the business registration should be based upon the same agreed upon taxable sales transactions that are reported to the Board of Equalization for ¢ sales tax purposes. Based on this information,we again request that Kohl's submit an amended Business Registration Renewal Application form stating the gross sales attributable to the internet fulfillment center for the CITY OF SAN BERNARDINO ADOPTED SHARED VALUES:Integrity•Accountability•Respect for Human Dignity•Honesty Packet Pg. 175 6.A.b 1' time period of May 1.2010 through April 30,2011. This amount should agree with your filings with the State Board of Equalization. Once we have received your amended return,we will calculate your business registration fee for the current year(May 1,2011•April 30,2012)and the first year of operation (May 1, 2010-April 30, 2011) and invoice you accordingly. We request you submit this information on the enclosed Business Registration Renewal Application and 3 return to our office no later than April 30,2012. Failure to submit this Information by April 30,2012 g may result in the addition of all appropriate penalties. w c d Should Kohl's continue to dispute this analysis,you may appeal this determination to the Mayor and r Common Council as set forth in SBMC Chapter 2.64(copy enclosed). If you wish to appeal this n determination,the enclosed Appeal Form must be completed and returned to the City Clerk's Office no p later than 5:30 p.m.April 26,2012. !' 0 0 If you have any questions regarding this determination,you may contact our office at(909)384-5036 or 1 Stephanie Easland,Sr.Assistant City Attorney, at(909) 384-5355. m Sincerely, _ m Cindy Buechter Business Registration Manager E Cc Gigi Hanna,City Clerk `o Stephanie Easland,Sr.Assistant City Attorney W m m a a Q N O d N d d J W M N a_ x w c d s U A a PaciCet Pg,1761. 262/nibi4� m.w<ao sail. uu-<u-<u < 6.A.b CITY OF SAN BERNARDINO APPEAL FORM Orrice Use Only Coples Distributed To: �(2 A ❑Cif Aaomc 1>!afe7�imS�tt{nipi t' Y Y City Manager Date: IMPORTANT INFO PP Y FORMATION; Alta eats to the Mayor and Common Council, Board of 0 Building Commissioners (BBC) and Animal Control Co mission Clerk's Office. must be filed in the City E r _ m COMPLETE ALL IU 9 BELOW: . 0 s 0 Name: � >< Address: a Conta1on _ A d Name: a a Address: Day Phone: _ (2 Q. Fax, Evening Phone: ° Ct(14) `clod -> 7 4 t i E-mail: a Affected Properly Address: a a � Assessor's Parcel Number(APN#); o E d Whose Decision Are You A ppealing; geed, y Date of that Decision: v . w TYPE OF APPEAL_CBECIC ONE: m M[]Board of Building Commissioners_$75.00 w +{Mayor and Common Councit=$75.00*,, ElAnimal Control Commission- Pianning Commission_ $,T5 00 v Fee Adjusted Annually Police Commission-No Charge DOther: s *Note: Appeals to the Mayor No Charge and Common Council can only he from the Planning Commission and Police Commission. City of San Bernardino-Oty Clerk's Orrice- 300 N. "D"Street•San Bernardino,CA 92418-(909)784-5002 i PacketPg. 177 26270 Wdi u:ua:ui a..,. 6.A.6 A VALID APPEAL MUST INCLUDE THE FOLLOWING INFORMATION(SBMC 2.64 : I. The action appealed: i 21 CN`` CGt k/� O {. N C d E r 2. The grounds for appeal: 0 Jn Me O 0 1, e S re &t e c L = 1ra'h'u� a 3. The actions)sought: a re r 'k r E `O t _ S� LL CE w a a Q N O 4. Any additional information: E 1 yj 1 d d a1i S Ca J w i m Cc a w fGCC, is S w � �x p�rPoscs on Si atureofA oilantt - - E Date: ZG /L U a Packet Pg. 178