HomeMy WebLinkAbout04/25/2002SPECIAL CITY COUNCIL MEETING
APRIL 25, 2002
5:00 P.M.
DIAMOND BAR CITY HALL
21825 E. COPLEY DRIVE
CONFERENCE ROOM A
CALL TO ORDER: Mayor Pro Tem O'Connor called the me(
order at 5:09 p.m. in Conference Room A of Diamond Bar City Hall, 21825
Copley Dr., Diamond Bar, CA.
PLEDGE OF ALLEGIANCE: Council Member Huff
ROLL CALL: Council Members Herrera, Huff,
MPT/O'Connor. M/Chang was excused.
to
Also present were: Linda Lowry, City Manager; Mike Jenkinsj City
Attorney (via telecon); James DeStefano, Deputy City Manager, Dave Doyle, Dputt'
City Manager and Lynda Burgess, City Clerk.
RECESS TO CLOSED SESSION: 5: 10 P.M.
RECONVENE SPECIAL MEETING: 5:16 P.M.
2. PROPOSED BUSINESS EXPANSION AGREEMENT WITH
Inc., 732 North Diamond Bar Blvd.
Following discussion, C/Zirbes moved, seconded by CIHuff to approve the retei
agreement with Sigma -Internet and authorize staff to prepare an ecorn
development policy for Council approval which will authorize staff, when appropi
to negotiate retention or attraction agreements with businesses that generate r
than $300,000 per year in sales tax. Motion carried 3-1 (MPT/O'Connor votec
by the following Roll Call vote:
3. ADJOURNMENT: 5:50 p.m.
is
no)
CITY COUNCIL
genda # c -
Meeting Date: ril 25, 2002
AGENDA REPORT
To: Honorable Mayor and Members of the City Council
VIA: Linda C. Lowry, City Manager
TITLE: Proposed Business Expansion Agreem t with SIGMA -Internet, Inc.
RECOMMENDATION: Consider and, if appropriate, approve the agreement.
BACKGROUND:
SIGMA -Internet, inc. (SIGMAnet) is an information technology and fulfillment servicecompany
providing technical and professional services to business. SIGMAnet has grown itssiness in
Diamond Bar since 1986. As a significant sales tax producer, it is appropriate to consir entering
into an agreement with SIGMAnet in order to retain and expand the business within the Cil
SIGMAnet has been offered a significant sales tax rebate and other incentives to reloc
Cities. City staff has had ongoing discussions and negotiations with the owner of SIGN
September 2001 in order to construct an agreement to retain and expand the business.
2002, the City Council received a report from City staff, discussed options and provide
direction to revise the agreement. Staff prepared a revised agreement for review by
incorporating the following key provisions:
• Three-year agreement.
• Minimum generation of $200,000 annually for reimbursement.
• Payment to SIGMAnet equal to 50% of all sales taxes generated.
• Semi-annual payments to SIGMAnet.
• Penalties for failure to achieve baseline and default by SIGMAnet.
DISCUSSION:
On April 12, 2002 and April 17, 2002 representatives from the City met with Mr. Ahmed Al I
Founder and Chief Executive Officer of the company to further discuss the City propos,
Khatib remains interested in retaining and expanding his business in the City. He does,
wish to preserve his options as his business interests may dictate. Mr. Al Khatib has requ
the City its decision making by April 30, 2002. Therefore, a Special Meeting of the City
:e to area
knet since
)n April 2,
staff with
31GMAnet
hatib, the
. Mr. Al
however,
sted that
:ouncil is
necessary. Mr. Al Khatib has requested approval of an agreement containing m
City's last offer of April 2, 2002 incorporating the following:
• Three-year agreement.
• Minimum generation of $100,000 per half-year period for reimbursement.
• Payments to SIGMAnet equal to 45% of all sales taxes generated for the
periods in 2002 and 50% for the four half-year periods in 2003 and 2004.
• Semi-annual payments to SIGMAnet within thirty days of City's receipt of vE
sales tax returns paid to the State.
• No penalties for failure to achieve sales tax minimum or default by SIGMAnet.
It is proposed that the City Council consider entering into a three-year business
agreement. Throughout the length of the agreement, SIGMAnet agrees to expand and
company headquarters within the City of Diamond Bar. The City proposes to reimburse p
sales taxes generated by SIGMAnet and remitted to the City by the State Board of I
during the 3 -year term of the agreement. It is Mr. Al Khatib's intent to remain in the City
Bar and continue to expand his successful business at his present location or at a new D
site meeting his business requirements. Should SIGMAnet relocate to another jurisdictio
term of the agreement reimbursement would automatically discontinue. Under terms of &
agreement such default would not require SIGMAnet to reimburse the City for previo
remitted by the City to SIGMAnet.
The City Council was previously provided with confidential information regarding the
performance of SIGMAnet. The retention and expansion of SIGMAnet is anticipated to ge
$1.2 million to $1.6 million in sales taxes over the next three years. The activity level and
the business will determine the actual contribution of sales tax. In accordance with th,
agreement a percent of all sales taxes generated by SIGMAnet shall be returned to thi
Based upon current and anticipated sales tax performance, staff estimates the agreemer
in the City's retention of approximately $200,000 or more for each year of the agreement.
The purpose of this proposed agreement is to facilitate the business expansion of a maj
producer for the City of Diamond Bar. With limited opportunities for new commercial d
growth in sales taxes will primarily be generated from the retention and expansion of
within the City.
Prepared By
t
James DeSte�no
Deputy City Manager
Attachment: Proposed Agreement dated April 25, 2002
Previous Draft Agreement dated April 2, 2002
EA
to the
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AGREEMENT
This Agreement is entered into by and between the CITY of DIAMOND B , a
California municipal corporation (hereinafter "City") and SIGNLAffie SIGMA -Internet, In ., a
California corporation (hereinafter "SIGMAnet").
RECITALS
A. SIGMAnet is a computer hardware, software and support serviceco any
with approximately fifty employees located in 10,000 square feet of r ntal
space at 732 North Diamond Bar Boulevard in the City. In calendar ar
2002, SIGMAnet will have an estimated $60 million in gross sales, d
$40 million in taxable sales, producing approximately $400,000 in salas
tax revenue to City, placing it among the City's largest sources of sales tax
revenue.
B. SIGMAnet anticipates a 40% increase in revenues by 2004, and grow, in
its employee force as to require larger quarters. SIGMAnet has been
offered financial incentives from a number of nearby cities to relocate o
larger facilities outside the City of Diamond Bar; were that to happen, e
City would lose a significant share of its total annual sales tax revenue .
C. SIGMAnet will relocate from the City unless City provides it with cei
financial incentives; it is in the best interests of City and its residents
induce SIGMAnet to retain and expand its headquarters in the City an
retain the significant future tax revenues anticipated from SIGMAnet'
expanded business operations.
D. The parties agree that the amount of City's financial incentives each y
this Agreement is in effect is a fair exchange for the consideration act
furnished by SIGMAnet pursuant to this Agreement, that payments to
made by City in each year will not exceed the resources available to n
such payment, and that in no event will City be immediately indebted
SIGMAnet for the aggregate payment herein provided.
E. The purpose and intention of City in providing the herein financial
incentives is to induce SIGMAnet to retain and expand its headquarters
facility in the City so as to advance the economic development of the C
enhance Iocal employment opportunities and expansion the City's tax
2
base.
NOW, THEREFORE, in consideration of the foregoing and of the
covenants set forth herein, the parties agree as follows:
1, Obligations of SIGMAnet.
and
1.1_ SIGMAnet agrees to maintain continuously the operation of i
headquarters facility at its current location or any other Iocati n
within the City for not fewer than three years from the date he co
during which time it shall use commercially reasonable effort to
generate projected iii sales tax revenue to City and employ t
set forth In Recital B above. Notwithstanding the fol
SIGMAnet does not guarantee any amount of sales tax
during the term of this Agreement.
1.2_ SIGMAnet shall make commercially reasonable efforts to
Diamond Bar residents in its headquarters facility to the e
consistent with. law.
2, Obligations offity.
2.1 City shall prioritize the processing of SIGMAnet's permit
applications for expansion of its headquarters facility at its
location, and for any satellite location within the City, and
all permit application and processing fees in connection the
2.2 For a period of three years commencing with the I" quarter of
calendar year 2002 and ending with the 4"' quarter of year 2004
City shall pay to SIGMAnet, each yeafhalf--year period that Ci y
receives tax receipts from sales generated by SIGMAnet in exec ss
of $-2100,000, an amount each 5 'Ahalf year peri)d
equal to 45% for the two half-year periods during 2002 and
50% for the four half-year periods in 2003 and 2004, of all s le
tax receipts generated by SIGMAnet and remitted to City by the
State Board of Equalization.
The amounts due hereunder shall be payable from any source of
funds legally available to City. The determination of the source
funds shall be in the sole and absolute discretion of City. In this
regard, SIGMAnet acknowledges that City is not making a pldge
of sales tax receipts, and that the definition of "sales tax receI,r
is"
as used herein is used merely as a measure of the amount of
payment due and as a means of computing consideration and this
Agreement.
Payments due by City to SIGMAnet hereunder shall be made
a' -in
accordance with the following schedule each year during w
this Agreement is in effect and payments are due hereunder-:
(A) For taxes reported and paid for the half-year period I
January 1 through June 30, within thirty days of City's re
of a verified copy of SIGMAnet's filed sales tax returns to
State Board of Equalization for that period.
(B) For taxes reported and paid for the half-year period
July 1 through December 31, within thirty days of City's
receipt of a verified copy of SIGMAnet's filed sales tax n
to the State Board of Equalization for that period.
"Sales tax receipts" means that portion of taxes derived and
received by City and legally available for unrestricted use fro the
imposition of the Bradley Burns Uniform Sales and Use Tax L w,
California Revenue and Taxation Code §§ 7200 et seq., as
amended, or successor statute, arising from alI taxable busines
activities conducted on the Property. Computations of sales
receipts shall be less any State Board of Equalization adjustme is
that would have modified previous payments to SIGMAnet, an
shall be based on the applicable preceding semi-annual period '. .
+z e netobe i c
shall be dedved from sales oeeimin I-
pr-eeeding jwtuafy th- i ugh Juz' '�tt t*e-A-V4Ti- 15*
Deeeffas confirmed by reports furnished froze. the Stat7Baur(
of Equalization and sales tax returns filed by SIGMAnet.
SIGMAnet hereby authorizes the release to City of such
information contained in its sales tax returns as necessary fo
to comply with this Agreement.
Should SIGMAnet fail to generate $2100,000 in sales tax rec
in any given half --year period, SIGMAnet shall
rdnot be entitled to C=4y all ameiffAs paid by G"
many payment pursuant to this paragraph. for that
0
ealend�r- —period.
2.3 City shall establish not fewer than 20 on -street public parkin;
spaces in the immediate vicinity of 732 North Diamond Bar
Boulevard.
Conditions Precedent.
3.1 The obligation of City or SIGMAnet to perform under this
Agreement is contingent upon the absence of litigation, pendir g or
threatened, challenging this Agreement or the implementation
thereof.
3.2 Upon failure of the above condition precedent, this Agreemf
shall automatically terminate and be of no further force and
In such event, SIGMAnet shall return to City any payments
to date under paragraph 2.2 hereof.
4. Compliance with All Laws and Ordinances. In the performance of its
obligations under this Agreement, SIGMAnet shall comply with all applicable laws, regulatic
standards and ordinances. In the event that any State or federal law or regulation enacted aft
the effective date of this Agreement prevents or precludes compliance with any provision of 1
Agreement, or in the event of a final published decision of the California Court of Appeal or
California Supreme Court invalidating this Agreement, or in a lawsuit arising in another
jurisdiction, an agreement substantially similar to this Agreement, this Agreement shall be
automatically deemed modified, suspended or terminated to comply with such changes in the
law,
In connection with any lawsuit challenging the legality of this Agreement, City shall defend a
hold harmless SIGMAnet from and against any liability or judgments, including reasonable
attorney fees and costs, arising from such a lawsuit.
5. Non-Responsibilily of City. The sole purpose of this Agreement is
to provide SIGMAnet with a financial inducement to retain and expand its headquarters in the
City. SIGMAnet and the City are not joint venturers, partners, co -investors or co-owners.
SIGMAnet alone is responsible for the operations and activities on its premises. City has no
control over SIGMAnet's property or its operations or activities.
6. Transfer of Interest in Agreement.
5
6.1 The qualifications and identity of SIGMAnet are of particul
concern. to City. The parties acknowledge that City has negot ated
this Agreement in contemplation of SIGMAnet retaining and
expanding its headquarters in the City and the sales tax reven e to
be generated thereby. Accordingly, during the term of this
Agreement no voluntary or involuntary successor in interest o
SIGMAnet shall acquire any rights or powers under this
Agreement without the prior written approval of City, except s
provided herein.
6.2 SIGMAnet shall deliver written notice to City requesting apps
of a transfer or assignment of its rights under this Agreement,
accompanied by sufficient evidence demonstrating the propos
transferee's operational qualifications and experience and its
financial resources and commitments in sufficient detail to en
City to evaluate whether the transfer is consistent with the pu
of this Agreement. Approval of a transfer shall be in City's s
and absolute discretion.
6.3 Notwithstanding the foregoing, a transfer to an entity or entitie
that controls, is controlled by or is under common control with
SIGMAnet does not require approval by City.
7. Defaults and Remedies.
7.1 Occurrence of any or all of the following shall constitute a
under this Agreement:
(A) Failure or refusal on the part of either parry to perform a
material term or obligation of this Agreement.
(B) The filing of a petition in bankruptcy by or against
SIGMAnet, or the appointment of a receiver or trustee of any
property of SIGMAnet or an assignment by SIGMAnet for the
benefit of creditors, or adjudication that SIGMAnet is insolvent
a court, and a failure of SIGMAnet to cause such petition,
appointment or assignment to be removed or discharged within
sixty days.
(C) An unapproved transfer that requires approval of City
pursuant to paragraph 6.
51
(D) SIGMAnet's relocation outside the City during the term
hereof
(E) Failure of SIGMAnet to report to the State Board of
Equalization all taxable sales actually made from the Property
to remit the full amount of the sales tax when due from all tax
sales actually made from the Property.
(F) Establishment of another facility within any of the seven
southern counties of California resulting in a diminution of tai
sales below that reported to the State Board of Equalization in
calendar- year 2001.
7.2 In the event of any default, the nondefaulting party shall give
written notice to the defaulting party. The defaulting party sha:
commence and cure the default within 30 days; however, if the
default cannot reasonably be cured within 30 days, then it shall
diligently pursued thereafter to completion. Failure to cure in t
prescribed manner shall entitle the parties to the remedies
described in paragraph 7.3.
7.3 In the event of a default, each of the parties shall have the
set forth below:
(A) In the event of a default by City, SIGMAnet shall have all
remedies available in law and equity.
(B) In the event of a default by SIGMAnct, and without the
necessity of seeking judicial relief, SIGMAnet's right to receive
sales tax receipts shall be permanently terminated. Lq the even
fetum to City 509% of �he rouac-Ymtz-co�ry rrx-r-uivT pct �czu.s�ro
panqgmph2.'._However, in the event of a default SIGMAnet
shall not be .required under no eilre-unistanees'- S`'GM
to refund any payment previously received by
SIGMAnet.
7.4 Neither party shall be liable to the other in damages for an event
termination as described in paragraphs 3 and 4 hereof
7
8. Notices. All notices under this Agreement shall be given in writing
first
class mail, personal delivery or facsimile. Mailed notices shall be addressed as set forth be
but either party may change its address by giving written notice thereof to the other in acco
with the provisions of this paragraph:
CITY: City of Diamond Bar
ATTN: City Manager
21825 E. Copley Drive
Diamond Bar, CA 91765-4178
SIGMAnet: Mr. Ahmed Al Khatib
Chief Executive Officer
SIGMAnet
732 North Diamond Bar Boulevard
Diamond Bar, CA 91765-4178
9. Time of the Essence. Time is of the essence of this Agreement and of
parties' obligations hereunder.
10. Applicable Law. The laws of the State of California shall govern the
interpretation and enforcement of this Agreement. Any action, suit or proceeding related to o
arising from this Agreement shall be filed in the Los Angeles County Superior Court.
11, Term. This Agreement shall commence upon execution by the parties
unless sooner terminated as provided herein, shall remain in effect through December 31, 20C
The provisions of paragraph 5 shall survive termination of this Agreement.
12. No Joint Venture. Nothing contained in this Agreement shall be const]
to render the City in any way or for any purpose a partner, joint venturer or associated in any
relationship with SIGMAnet, nor shall this Agreement be construed to authorize any party to
as agent for the other.
13. Waiver. The waiver by either party of any breach by the other party as
any term, covenant or condition of this Agreement shall not be deemed to be a waiver of such
term, covenant or condition or any subsequent breach of the same or any other term, covenant
condition,
14. Attorneys' Fees. In the event suit is brought for the enforcement of this
Agreement or as a result of any alleged breach thereof, the prevailing party in such suit shall be
entitled to recover its
reasonable attorneys' fees
and costs of suit, and an.
judgment or decree rend
in such proceeding shall
include an award thereo:
15. No Third Party Beneficiaries. This Agreement is made and entered i
for
the sole benefit of the parties hereto. No other person shall have any right of action based
any provision of this Agreement.
16. Joint P arp at on. This Agreement shall be deemed to have been pre
and equally by the parties, and it shall not be construed against any party on the ground that
party prepared the Agreement or caused it to be prepared.
17. Entire Aureement. This Agreement constitutes the entire agreement
between the parties concerning the subject matter hereof and supersedes all prior agreements
understandings, both written and oral. This Agreement may not be modified or amended exc
in a writing signed by all parties hereto.
18. Authorhy to Execute. The persons executing this Agreement on beh
each of the parties warrant and represent that they have the authority to execute this Agreen
on behalf of the parry for whom they execute and have the authority to bind the party to the
obligations hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates set forth below.
CITY OF DIAMOND BAR
By:
Mayor
ATTEST:
City Clerk
Dated:
L]
of
SIFMAn SIGMA -Internet, Inc.
By:
Ahmed Al Khatib, CEO
Dated: 1( a s—lo D'
10