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HomeMy WebLinkAbout02/18/2003, BUS 2 - APPROVAL OF LEGAL DOCUMENTS ASSOCIATED WITH THE COPELANDS PROJECT council M , 2))o acEnda Repoat h®N Q CITY OF SAN LUIS O B I. S P O FROM: Wendy George,ACAO Prepared By: Shelly Stanwyck,Economic Development Manager SUBJECT: APPROVAL OF LEGAL DOCUMENTS ASSOCIATED WITH THE COPELANDS PROJECT CAO RECOMMENDATION 1. Approve the Real Property Agreement with San Luis Obispo Court Street LLC (the "Copelands") 2. Approve the Payment Agreement with Palm Street Parking Structure LLC (the "Copelands). 3. Approve the Option Agreement with San Luis Obispo Court Street LLC (the"Copelands"). 4. Authorize the Mayor to Execute all three agreements upon receipt of payment by Copeland of outstanding obligations to reimburse the City for third party consultant fees. 5. Adopt a resolution finding that competitively bidding the Parking Structure is impractical, unavailing and would not produce any advantage. REPORT-IN-BRIEF This report is the result of several years of negotiations between the City and the Copelands resulting in three legal documents for Council's consideration. At the core of the three legal documents is a simple real estate transaction. Each party, the City and the Copelands,own property the other is interested in acquiring and putting to more intensive uses. Specifically,the City will sell the Copelands the current Court Street parking lot,where they will build a retail project. In turn,the Copelands will sell the City their property at Palm and Morro Streets. The complexity in the legal documents comes from the additional agreement that the City buy a completed parking and office structure from the Copelands, which will be built on the Palm/Morro property. The Copelands Project presents many potential rewards to the City. It is an opportunity to facilitate the redevelopment of a portion of Downtown. Any project with significant rewards is not without risks and this Project is no different. The City and the Copelands each have to accept some risk to reap the rewards presented by this Project. However, we have attempted to minimize these risks in the legal documents through specific language, various assurances, and conditions that must be satisfied prior to exchanging properties. K:\Council Agenda Reports\Final Legal Docs 02-18-03 Draft Ldoc �:� Council Agenda Report—Approval of Copeland Project Legal Documents Page 2 DISCUSSION Background Beginning in 1999, the City and Court Street.Partners, LLC (the "Copelands") began discussions about the possible re-use of Downtown properties, primarily surface parking lots, that could be put to more active uses. The impetus for these discussions was the completion of an economic impact analysis of a proposed retail development in the Madonna Road area on Downtown(the 1999 Kotin Study). This study, anecdotal information from business owners, and requests from shoppers, visitors, and residents, all indicated that Downtown would significantly benefit from increased retail, restaurant, and entertainment opportunities. Additionally, many City goals and policies recognize the importance of Downtown San Luis Obispo to our community. Downtown's continued success as our commercial and social center depends on its ability to evolve and change in positive ways. The assemblage of properties into one ownership and the reuse of land with space for retailers in the range of 5,000 to 10,000 square feet is one of the most efficient ways to accomplish this goal. In September 1999, the Copelands presented a conceptual proposal to the City and the community entitled, "Chinatown-Court Street: A Vision for the Future of Downtown San Luis Obispo, California, Inspired by its Past". The Copelands proposal essentially involved real properties either they or the City owned. In October 1999, Council authorized entering into exclusive negotiations with the Copelands. Those negotiations resulted in two Memorandum of Understandings,that were adopted by Council on September 19, 2000 (collectively the "MOU"), and outlined the necessary property transactions to facilitate these goals. Subsequent to the adoption of the MOU, several fundamental challenges with the originally envisioned project were identified. Significantly higher than expected costs,engineering difficulties with the site, and other issues were identified by the Copelands when doing their preliminary work on the project sites, making it unrealistic to provide the underground parking solution originally proposed for the Palm-Morro Street area. As a result of these challenges Council directed staff to request that the Copelands come back with a different strategy for resolving the parking issues created by their proposed development of the City's Court Street Parking lot, before the City agreed to negotiate changes to the MOU. The Copelands worked for several months to come up with a feasible parking solution and eventually their concept for the use of property at Palm and Monro Streets as a parking and office structure was presented to Council for consideration. On December 11, 2001, Council approved the Amended Memorandum of Understanding (Amended MOU) between the City and the Copelands to outline the revised terms necessary for the Copelands Project. Since the adoption of the Amended MOU, the Copelands Project has been identified by Council as the highest priority private development project in the City. It is one of the largest and most ambitious projects to be proposed for downtown San Luis Obispo in recent decades. It will result in the development of the Court Street Parking Lot (presently owned by the City) by the Copelands into a mixed-use retail, restaurant, and office structure. It also includes the development of the K:\Council Agenda ReportsTinal Legal Docs 02-18-03 Draft Ldoc Council Agenda Report—Approval of Copeland Project Legal Documents Page 3 property owned by the Copelands at the comer of Palm and Morro Streets into a mixed-use parking and office structure (adjacent to the Library) by the Copelands for sale to the City upon completion of construction. The Copelands Project received its final development approvals last fall when Council certified the Project's Environmental Impact Report (EIR) and granted a Use Permit for the Palm-Morro Parking/Office Structure at its September 17, 2002 meeting. Additionally, the City's Architectural Review Commission(ARC)granted final approval of the project on September 24, 2002. Since receiving its regulatory approvals from the City, members of the City staff along with economic and legal advisors, Allan Kotin and Herbert Wesier, Esq., have worked with the Copelands Team to draft legal documents which will facilitate the various phases of this complex transaction. The three legal documents and their attendant exhibits for Council's consideration are Attachments 1,2, and 3 respectively. The Transaction At the heart of the lengthy legal documents, public hearings and regulatory review, is a simple real estate transaction. The City owned property that the Copelands saw having the potential for more active uses. The Copelands owned property that the City saw having the potential for more publicly oriented uses. The complexity that arises in this otherwise simple real property exchange comes from the additional agreement for the City to buy a completed parking and office structure from the Copelands. The Copelands will construct a parking and office structure, which the City will then purchase upon completion, because they can construct it faster than the City. The Payment Agreement attached hereto addresses the purchase of the completed parking and office structure in detail. What is the City Buying and how is it Being Funded? The City will make two purchases. The first, a purchase of real property at Palm and Morro Streets, is shown on the Project Vicinity Map (Attachment 4). The second City purchase, as previously discussed, will be the completed parking and office structure, located on that property. The Copelands will buy the Court Street Parking lot area from the City,as shown in Attachment 4. The purchase price for the Court Street Parking lot area is $1,962,000 (fair market value). The purchase price for Palm-Morro Street is $1,263,263 (which is the fair market value of the real property plus a share in additional costs required to obtain necessary easements). Copeland will pay to the City, in cash, the difference between the sales prices of Court Street and Palm-Morro Street, or$698,737. Upon completion of the parking-office structure, the City will pay Copeland an agreed upon fixed amount plus any changes, positive or negative, as a result of City change orders that have been approved and agreed upon. The City will pay this amount through the debt service of a bond issuance with annual debt service payments from both the General and Parking Funds. This is different from a typical construction contract; in this case,the City only pays upon completion,there are no progress payments. This payment plan is intended to give the City assurance that the project KACouncil Agenda ReportsTinal Legal Docs 02-18-03 Draft Ldoc Council Agenda Report—Approval of Copeland Project Legal Documents Page 4 will be completed. The fixed price, how it will be arrived at, and what the City's involvement will be in accepting it are described in more detail in the discussion of the Real Property and Payment Agreements. What is the Transaction Schedule? None of this happens immediately. Upon approval by Council, the attached legal documents will serve to, in essence, start a clock. All of the transactions contemplated in the Copelands legal documents have conditions precedent before they may be completed. If various conditions are not satisfied, the transactions will not take place. More simply stated, the Copelands; upon satisfaction of various conditions, will give the City notice when they are ready to begin construction on Court Street, by means of a notice of readiness (or in legal terms a Lease Condition Certificate). The City will then have three months to complete hazardous and archeological material mitigation work on the Court Street Property and to prepare for the closing of escrow and exchange of real properties. The City must receive this notice no later than August 1, 2003. If the City does not receive notice by that date,the transaction will be terminated. If the Copelands fail to complete the construction of the mixed-use project at Court Street, if they never start or if they get halfway and do not complete, the City gets the property back through a reversionary restriction in the deed. The completion of the Parking Structure will be guaranteed through performance and time and materials bonds. Project Timeline As Defined In Legal Documents OccupancyProperty, Notice of Final Bid Construction Construction Expected Readiness' Start Complete Court Street Closing—90 (n/a)Copeland No later than Closing+13 Closing+17 Retail Center days expects to Closing+30 months2 months have at days Closing Parking: Palm Street Closing—90 No later than No later than Closing+17 Closing+17 Parking and days Closing—15 Closing+90 months° months City Offices days' days Office: Closing +21 to+24 months5 Summary of Legal Documents Before addressing some of the key issues that these transactions present, and to provide Council with the necessary background information to review these key issues, a summary of each of the Copelands Legal Documents is presented below. t Referred to in the legal documents as the Lease Condition Certificate. August 1,2003 is the latest date on which Copeland can give the City notice of his intent to Close. 2 For Court Street,a 12-month construction period is estimated. Also,Copeland's completion of construction means the structure is ready for turnover to tenants for TI's(tenant improvements). It does not mean full occupancy and operation of the retail center. 3 The City will be part of the rebidding process °For Palm Street,a 14-month construction period is expected until the office shell and parking garage is complete. 5 The office tenant improvements will require an additional four months to complete. K:\Council Agenda Reports\Final Legal Docs 02-18-03 Draft I.doc e i Council Agenda Report—Approval of Copeland Project Legal Documents Page 5 The Real Property Agreement As previously stated, the heart of this matter is a real property transaction. The Real Property Agreement describes the real properties to be bought and sold and how and when this will be accomplished. The Real Property Agreement is interconnected with the Payment Agreement so that various assurances and conditions apply to both. One important feature of the Real Property Agreement is its requirement that Copeland satisfy various conditions before properties can be exchanged. A concern of the City is to ensure the actual development of Court Street, as approved in our regulatory review. There are several assurances which limit the Copelands development of Court Street to the already approved Project and which impose reversionary interests to the benefit of the City should the project not be completed by December 31,2005. Another important feature of the Real Property Agreement is its terms relating to the Parking Structure as specified in Exhibits H and H-1. The Real Property Agreement gives the City the ability to be integrally involved in the rebidding process for the Parking Construction Contract, which is necessary due to the passage of time since the initial bids were received. As a result of this,the properties will not exchange until a price has been determined for the Parking Construction Contract and inserted into the Payment Agreement. Rather than relying upon potential uncertainties and difficult allocations as to responsibility for costs should bidding occur after the close of escrow, the parties have agreed to this process to determine the Payment Agreement amount. Real Property Discussion Parties City and San Luis Obispo Court Street,LLC Property The properties to be exchanged are described particularly in this Agreement and its Exhibits and include:Court Street Project Property,Library Fee Property,Palm Street Project Property, Library Property Grant Deed, Vintage/Tartaglia Easements, and Copeland Easements, Morro and Court Street Abandonment Deeds. Purpose of Agreement To describe the properties to be transferred between the parties and establish the price for these transfers. Library Interests A Grant Deed from the County,with conditions that it only occur upon the project closing escrow, transfers the County's interest in the property necessary to complete the Project's Library Paseo. Payment Copeland to pay cash to City upon closing, which represents the difference between the sale price for Court Street of$1,962,000 less the City's purchase rice for Palm Street of$1,263,263 Easements Library Easement for access; Vintage/Tartaglia Easements for access, Copelands Easement for access. Copelands will prepare and cause to be recorded at Closing, a Parcel Map,for the assemblage of all lands for the Pahn Street Project into one parcel _ Use of Court Street Project Court Street Project Property shall only be used for the development of the mixed- Property use structure consistent with its approved plans. Construction may only begin if the Copelands are in compliance with the Payment Agreement. K:\Council Agenda ReportsTinal Legal Docs 02-18-03 Draft Ldoc �l Council Agenda Report—Approval of Copeland Project Legal Documents Page 6 Mitigation of Hazardous and Each parry agrees,prior to Closing,to complete the mitigation work for hazardous Archeological Materials and archeological materials on its presently owned property. Should this clean up exceed $200,000 for either property, the parties have several options, including possible termination of the Agreement. Lease Condition Certificate Copeland will provide the City with a certificate stating they are satisfied with leasing and market conditions concerns and include with it an estimated Closing date. The Real Property Agreement terminates if this Certificate is not received by August 1,2003. Deed Restriction Limitations on use of the Court Street Project Property to only the approved project. A right of reverter and power of termination to the City's benefit if substantial completion of the project does not occur. Parking Management Plan The Copelands will perform obligations under a Parking Management Plan approved by the City and effective upon Closing for use during construction. Conditions Precedent to Exchange Both parties have many conditions which they must satisfy prior to the exchange, including the City's receipt of Copelands Lease Condition Certificate (Notice of Readiness)and satisfaction of the rebidding process for the Construction Contract to finalize the Payment Agreement fixed price. The Payment Agreement The Payment Agreement was referred to in the Amended MOU as a fixed price or guaranteed maximum price contract. The Payment Agreement accomplishes the parties' original intent to establish a base price for the construction of the parking-office structure. As Council is aware, because of the passage of time since the original bids for the parking/office structure were received by Copeland many construction items must be rebid. The rebidding process defined by the Real Property Agreement, will occur between the time that we receive Notice of Readiness from Copeland until 15 days before the Close of Escrow, which occurs 90 days after the Notice of Readiness. To address the City's concerns and to verify the Payment Agreement's Fixed Price, the Public Works director and other appropriate staff will be involved in the rebidding process. Terms Parties City and Palm Street Parking Structure,LLC Purpose of Agreement To establish a base price for the construction of the Palm-Morro Parking/Office Structure and purchase by the City -Payment Fixed Price with adjustments,due upon completion of parking structure. Assurances Bonds purchased by JW Williams to provide the City the necessary protection to insure com letion of the Parkin Office Structure Quality Control Bi-weekly progress reports and monitoring by the City's representative, Harris and Associates. The Option Agreement Through an Option Agreement, the Amended MOU recognized the potential of the Copelands original concept, which included additional development of City owned surface parking lots and the Public Works building between Palm and Monterey Streets (the Chinatown Historic District Project). By granting this option, the City will provide the Copelands with the time necessary to refine the project concept and design and resolve possible issues associated with the development of this area, including the provision of replacement parking and demolition of the City-owned building KACouncil Agenda ReportsVinal Legal Docs 02-18-03 Draft Ldoc p1. Council Agenda Report—Approval of Copeland Project Legal Documents Page 7 at 955 Morro Street. The Option will also provide the time needed for the Public Works Department to move into the completed Palm-Morro Offices. Option Agreement Discussion Terms Parties City and Court Street Partners,LLC Property 5 parcels between Palm and Monterey and Morro and Chorro Streets, that essentially comprise the City's surface parking area and the Public Works Buildin Term of Agreement 18 months from Close of Escrow with three possible extensions of one year each (extensions may only be exercised upon satisfaction of conditions, for instance Copeland must have a development application on file Option Payment $88,500 for the exercise of the Initial Option and$29,500 for each extension. Purchase Price for exercise of $2,950,000 if exercised during the initial 18 months of the option and increased at Option the rate of.0833%of the$2,950,000 for each month thereafter. Conditions Under Which Option Copeland must have building permits for the project (the Chinatown Historic Can Be Exercised District Project),evidence of financing,construction contracts for the Project,and have begun the Court Street Project and is pursuing its completion. Restrictions on Title If this Option is exercised, any deeds conveying City-owned property would restrict the Property's development to only the approved Chinatown Historic District Project and have a reversion clause in the event the project is not commenced. Residential Component The Option states the Project shall include a residential component Issues for Council Consideration Payment Agreement and the Fired Price The Payment Agreement is a complex document that establishes various obligations. First, the Payment Agreement creates the obligation that the Copelands will construct a Parking and Office Structure, as approved by the City' s development review process. Second, it creates the obligation that the City pay for the completed structure. Third,the.Payment Agreement contains the necessary details to facilitate the Structure's construction as well as the City's involvement in the construction process to ensure its satisfaction with the quality of construction. Last, the Payment Agreement provides the necessary assurances to both contracting parties about the handling of the risks that could arise out of a construction project of this nature. A central component of the Payment Agreement is the parties' acknowledgement of an initial Fixed Amount, $10,641,715 (as presently defined in the Real Property Agreement)for the purchase by the City of the completed parking/office structure. This amount has increased some from the fixed price amount that was denoted in the Amended MOU. In the fourteen months since the Amended MOU was entered into, several things have happened resulting in additions to the fixed price. First, the City as future owner of the Structure requested changes to the Structure which increased its cost, such as the addition of an elevator at the comer of Palm and Morro Streets to address the public's concerns about accessibility and parking equipment for the operation of the Structure as a public parking garage. The City, and its advisory bodies, acting in its regulatory role, caused changes, primarily to the design and finish detail of the Structure. Those changes require the addition of decorative steel, finished window openings, additional concrete pours and finish work all resulting K:1Council Agenda ReportsTinal Legal Docs 02-18-03 Draft IAA �r Council Agenda Report—Approval of Copeland Project Legal Documents Page 8 in increased construction costs. Last, some costs have been further defined and "re-bid" as the project has drawn near to its expected start. Not included in these cost adjustments are those costs that Copeland has assumed such as the design correction for ramping and for archeological mitigation work. However, due to the passage of time since the initial fixed cost was established, many of the construction items must be rebid. Exhibits H and H-1 of the Real Property Agreement set forth the current fixed price and how it would be adjusted through a rebidding process. Specifically, Rebidding Adjustments, up or down, to the current $7,815,597 Parking Construction Contract will result in the final Fixed Amount that is inserted into the Payment Agreement at the Close of Escrow. The rebiddable items in the Parking Construction Contract are identified on Exhibit H-1 to the Real Property Agreement, and make up most of that contract. The Payment Agreement acknowledges that there could be further changes to this Fixed Amount as a result of City Change Orders (as narrowly defined in the Payment Agreement). However, in an attempt to give the City certainty of the ultimate costs,the final Fixed Amount will be known prior to the Close of Escrow. The City and Copelands will endeavor to minimize cost increases, and the re-bidding process will require three bids, with the lowest responsible bidder being awarded the subcontract. A subcontract can be rebid again,if the City is not satisfied with the initial responses. Assemblage of Properdes and Easements Upon many occasions, the Copelands Project has been likened to a redevelopment project. The City of San Luis Obispo does not have a redevelopment agency and therefore lacks an institutionalized funding mechanism for major redevelopment projects and lacks an institutionalized legal practice of condemning properties so that larger parcels can be assembled to facilitate redevelopment. Thus, the negotiation of a transaction in the form of a partnership like this was necessary to create the kind of development desired for our downtown. Upon Closing, as defined in the Real Property Agreement, both the City and the Copelands will acquire property and easements that will result in the creation of the parcel where the parking/office structure and paseo will be constructed. A Parcel Map will be recorded at the Close of Escrow that defines this"new"property. The Library Parcel The City will acquire, through quitclaim deed, a portion of fee property held as tenants in common between the City and the County, adjacent to the Library. The impact of the transaction on the Library has been mitigated by providing dedicated onsite parking for the Bookmobile and two other Library vehicles and three parking passes to the Parking Structure (in the lowest level which is limited to the tenants of the Office Space). The new Public Parking Structure will also be fully accessible and immediately adjacent to the Library with a Library paseo area that has been designed to encourage pedestrian and public use. The Vntage/Tartaglia Easements After months of negotiations, the Copelands were able to acquire the necessary fee tide and K:\Council Agenda ReportsTinal legal Docs 02-18-03 Draft Ldoc g 1 �1 Council Agenda Report—Approval of Copeland Project.Legal Documents Page 9 easements to properties owned by entities referred to collectively as Vintage/Tartaglia. As condemnation was not available, the ultimate price per square foot for the property acquisitions was higher than originally anticipated. The acquisition of these properties was necessary for two purposes, one to accommodate the already designed Structure's building footprint, and two, to enable the Bookmobile to park adjacent to the Library and exit on Morro Street. Court Street Abandonment Part of the transfer of title to the Court Street Parking Lot properties involves the abandonment of "Court Street". Council conditionally approved this abandonment on September 3, 2002 (the main condition was that the abandonment not occur until the Court Street Property was conveyed to Copelands). When Court Street is abandoned, a fifteen-foot wide swath of it will revert to the Anderson Hotel side property owners and a ten-foot wide swath will revert to the Copelands side. In the past, it has generally not been the City's practice to seek payments from adjacent property owners for abandonments. The apportionment of the street was arrived at to satisfy building and fire codes for the future and existing structures. Specifically, there are setback, opening and construction standards that will be satisfied by establishing the property lines in this fashion. The additional 10-foot swath was not included in the cost calculations for the sale of Court Street. Staff recommends that, as a concession, we not sell this part of Court Street to Copeland, but rather follow the customary practice of simply abandoning it. Compromise is an essential part of any complex negotiation. The City and Copeland each have had to compromise on several issues. This concession is a part of the entire negotiation. Copeland has also made several concessions in this process, including the absorption of significant costs for the design and engineering of the Palm Street Parking Structure, which total hundreds of thousands of dollars. The Potential Risks and Rewards Our downtown is considered the community's "heart and soul," and the City has been engaged in this complex effort only to achieve a unique redevelopment opportunity for the downtown - an opportunity that can bolster its' economic strength for many years to come. The agreements also sets the stage for potentially substantial downtown housing development and the historic restoration in the Chinese Historic District. However, any undertaking that holds the possibility of great rewards will also contain elements of risk. Because what is central to this particular staff report are legal relationships and issues, staff will begin with the description of the risks and how they are managed in the proposed agreements. A more detailed discussion of the potential project rewards will follow. Risks and How They are Addressed in the Agreements 1. There is no cap on the rebiddable items in the construction contract. The City will be taking a calculated risk in that the rebid cost of items in the construction contract could be significantly increased and the City must pay those increases without any cap set on them. However, staff has endeavored to minimize that risk as much as possible by building into the K:\Council Agenda ReportsTinal Legal Docs 02-18-03 Draft Ldoc ^ Council Agenda Report—Approval of Copeland Project Legal Documents Page 10 Real Property Agreement a clearly defined process that allows the Public Works Director to participate in the rebidding and to require additional bids if he is not satisfied with those originally received. Additionally, the City's Economic Advisor Allan Kotin believes that because the timeframe for rebidding is short and in the very near future, economic conditions indicate that the rebid items could actually be less expensive than the original bids from last year. At the most, he puts our risk of potential increase at 10-12%. 2. The Project Never Begins. There is the potential, if the economic recovery is slower than expected or if international events take a turn for the worse that the Project might not start. Because external factors such as these, over which neither the City nor the Copelands have control, which could preclude the Project from beginning, we will not exchange properties until the Copelands have provided notice that they are ready willing and able to begin and complete the Project. Our Economic Advisor will complete any confidential financial reviews that are a part of these assurances. Additionally the legal documents contain various requirements that must be satisfied prior to closing escrow. 3. The City Needs to Seek Recourse Against One Of The Limited Liability Companies (LLC's). The City is entering into agreements with two different entities,Palm Street Parking Structure,LLC and San Luis Obispo Court Street LLC, collectively referred to as Copelands throughout this staff report. The formation and use of limited liability companies for complex real estate development transactions is a common industry practice. Though a common practice, it does not change the fact that there can be little "standing" behind an LLC. The City has protected itself from the risks associated with contracting with an LLC by requiring various assurances in these legal documents. For instance, the performance and labor and materials bonds associated with the completion of the Palm Street Structure, give the City the assurance that its construction will occur. The City can enforce that completion through the bonds even if there is no financial standing behind the LLC. Additionally, prior to the transfer of properties, our Economic Advisor will verify that the LLC's have sufficient assets to complete their obligations. 4. Copeland Does Not Complete Court Street There is the possibility, under limited and unfortunate scenarios,that the Court Street Portion of the project might not be completed. There are limitations and restrictions on the use of the Property in the Agreement to protect the City against this possibility. The strongest of these is a reversionary interest in the property back to the City should construction not be completed. S. Copeland Does Not Complete the Parking-Office Structure. There is the possibility, under limited and unfortunate scenarios, that the Parking-Office Structure might not be completed: The City has protected itself against this by requiring both a performance and labor and materials bond in the Payment Agreement. 6. The Construction of the Parking-Office Structure is of Poor Quality. On April 16, 2002, Council authorized a Construction Management Contract with Harris and Associates to provide us with quality control review on the Parking-Office Structure construction. The Payment Agreement establishes mechanisms for progress reports and reviews by the City and our representatives so that we can assure the construction is to our standards and make corrections if necessary during K:\Council Agenda ReporrsTinal Legal Docs 02-18-03 Draft Ldoc ^ ( V Council Agenda Report—Approval of Copeland Project Legal Documents Page 11 construction so that the structure is acceptable upon completion. 7. Change Orders Result in Run Away Costs. We have limited the City's financial responsibility for change orders in several ways. If the City directs a change order to occur,the costs associated it will be ours. If a change order is required to correct design errors or omissions, Copeland will assume its costs. Additionally,per the Payment Agreement, each change order will be submitted to the Public Works Director for review. Prior approval will be required for all City-initiated change orders and any developer-initiated change orders that either materially alter the quality or character of the structure or that involve increased costs greater than $50,000. However, even though Copeland has completed soils investigations of the Palm Street property, and therefore it is unlikely, unexpected soils conditions separate and apart from hazardous or archeological materials (for instance more bedrock than expected) could arise, thereby requiring re-design of the structure. The costs associated with change orders as a result of soils conditions would be borne by the City. 8, Completion of Construction of Two Projects and Potential Parking Problems. Because of the construction schedule,there is the possibility that the Court Street Project will be completed prior to the Parking/Office Structure's completion. The Agreement does not allow us to withhold occupancy of Court Street should this happen and this could create a parking problem from the new demand generated by the retail center. As the Project Timeline discussed above shows,construction of the Court Street Project will likely begin slightly ahead of the Parking/Office Structure and the time to complete the Parking/Office Structure will take a few months longer. However, the "completion" of the Retail Center really means it is ready to tum over to tenants for their improvements. Those improvements typically take the average tenant at least four months to complete. The Parking portion of the Parking/Office structure will therefore likely be available at or around the same time the Court Street Project's first tenants are open (not all of the tenants will open at the same time). Additionally, the Parking Management Plan required by the Real Property Agreement will remain in effect until completion of both structures. Some Potential Rewards The Potential Rewards of this Project have changed little since originally presented to Council. 1. Idling and Able Developer. We continue to have a "Willing and Able Developer" who is committed to this Project. This is unlike many other municipalities who have seen various development projects disappear in our current economic climate. By engaging in this "public/private"partnership, the City is able to accomplish redevelopment without a redevelopment agency and the funding mechanism that it would bring. Z.Achieving Policy Objectives. The Project helps the City achieve various policy objectives, as it is consistent with many of our growth policies: a compact, mixed-use, infill development that makes efficient use of existing land resources. 3. New Retail and Entertainment Opportunities. The Project provides us with new retail, restaurant and social opportunities in Downtown, leading to the continued health and vitality of Downtown. As noted in 1999 Kotin Report, and in his recent economic analysis of Downtown, K:\Council Agenda ReportsTinal Legal Docs 02-18-03 Draft I.doc �� i i Council Agenda Report—Approval of Copeland Project Legal Documents Page 12 additional, larger, retail spaces that chains, franchises and local independents can locate in are needed. The City's Economic Development Program receives calls weekly from individuals seeking retail space in Downtown. This Project would help to satisfy this demand as well providing an opportunity for larger sized stores to locate in Downtown. Finally, this added space is expected to lead to increased social and cultural experiences in Downtown that our residents and policies have identified as being important to Downtown's existing and future character. 4.Additional Office Space for Public and Private Uses. The Project also provides additional office space for both public and private uses resulting in many benefits to the Downtown and the users of the office space. The interrelationship of office and retail uses in the Downtown helps to maintain it as the commercial core of the County. S. Improved Accessibility of Public Parking in the Palm Street Area. The Proposed Palm/Morro Office Structure is on a steeply sloped site that prevents physical barrier to many residents. To provide convenient access to all users of the Structure, whether they have business up or down the Morro Street "hill', the Structure contains two elevators thereby providing access to both Palm Street and the Library as well as to the downtown shopping area. 6. Improvement of Downtown Properties. The Project has already begun to serve as a catalyst for further improvements and enhancements to the Downtown. The owners of the Loobliner Building at Monterey and Court Streets have an application for its seismic retrofit and remodel to enhance its character and bring back its historic appearance. Other property owners in the Downtown have indicated interest in improving their properties as well. This is a subtle effect but is the benefit of revitalization efforts; the whole "neighborhood" improves itself from simple fresh coats of paint to more dramatic remodeling efforts. 7. Increased Opportunity for Residential Construction in the Chinatown Historic.District If,the Chinatown Historic District Option is exercised, there is the opportunity for the addition of significant residential units. It is the Copelands intent to create a retail and residential development in the Chinatown Historic District if they exercise their option, thereby providing infill, residential housing. Findings Resolution City Charter section 901 and Public Contracts Code section 20161(a) provide that every project involving an expenditure of City monies in excess of$5,000 for the construction of public buildings shall be let to (by contract)the lowest responsible bidder. Competitive bidding statutes are intended to prevent fraud, corruption and carelessness on the part of public officials, and to enhance competition. However, there is an exception when competitive bidding would be impractical, unavailing and would not produce any financial advantage. The concurrent and intertwined relationship between the construction schedule and the actual construction of both structures for the Project(as reflected in the negotiated Exchange Agreement and the Payment Agreement)as well as the uniqueness of the Project as a whole, makes competitive bidding for the construction of the Parking/Office Structure impractical, unavailing and of no financial savings or advantage to the City. A Resolution with specific factual findings supporting this finding is attached for the KXouncil Agenda ReportsTinal Legal Docs 02-18-03 Draft Ldoc 1� 1 l Council Agenda Report—Approval of Copeland Project Legal Documents Page 13 Council's adoption. Next Steps Once the legal documents are approved, the mayor will execute the agreements upon receipt of payment for the City's third party consultant costs(required per the MOU). The City will then wait to receive notice from Copeland of readiness in the form of the Lease Condition Certificate defined in the Real Property Agreement. Receipt of the Lease Condition Certificate really starts the Project rolling, and within three months of receipt of the Certificate, the public will be notified of the impending closure of the Court Street Parking Lot and the start of construction there and on Palm and Morro Streets. Additionally the rebidding process will occur and final documents will be signed. A Parking Management Plan will be in place, preparatory work on the sites will occur, and escrow will close and the real properties will exchange. The Council will note that many technical and legal exhibits (like the Revised Preliminary Title Report, Parcel Map, and Grant Deeds with reversionary language) are not included with these legal documents. These documents are not yet available in final form; as they are prepared, they will be reviewed by appropriate City staff and approved by the City Attorney. All will be complete at the time of Closing. Also, a separate, Tenant Improvement Contract, will be presented to Council for consideration for the tenant improvements of the office space in the Palm-Morro Structure, when it has been bid and when it is time for those improvements to be undertaken and completed. FISCAL IMPACT Based on the amended MOU, Council adopted the budget for this project as part of the 2002-03 Financial Plan Supplement. However, as discussed above, there have been material changes to the funding concept in the agreements. The current adopted budget for the Parking/Office building is $13.1 million: $8,481,400 from the Parking Fund and $4,615,800 from the General Fund. Consistent with the City's Debt Management Policy, the project will be largely debt-financed for the General and Parking Fund portions. Further adjustments to the CIP will be brought back to Council upon completion of the rebidding process at the Close of Escrow and finalization of the Payment Agreement. ALTERNATIVES Staff is not presenting an alternative to the project with this report. This is because the project has been considered on several occasions over a long period of time and now has all of its formal City Council approvals and discretionary permits. With regard to the legal agreements,while Council can ask for alternative language or provisions, the contract language as presented in the three agreements has been very heavily negotiated and is consistent with prior Council direction. Therefore, any significant changes would require more time and negotiation. This is not recommended because we believe that the proposed agreements compose a compromise that fairly meets each parties' major needs, and manage each parties risks, in the fairest and most reasonable way possible, given our respective K:\Council Agenda ReportsTinal Legal Docs 02-I8-03 Draft I.doc a r l i Council Agenda Report—Approval of Copeland Project Legal Documents Page 14 interests. Further negotiation is not likely to improve upon this result. Thus, the most practical alternative to the recommended contracts would be to conclude negotiations and not complete the transaction. Attachments 1. Real Property Agreement 2. Payment Agreement 3. Option Agreement 4. Project Vicinity Map 5. Findings Resolution K:\Council Agenda ReportsTinal Legal Docs 02-18-03 Draft Ldoc r ATTACHMENT 1 REAL PROPERTY EXCHANGE AGREEMENT (COURT STREET CENTER_PALM STREET PARKING/OFFICE STRUCTURE) THIS REAL PROPERTY EXCHANGE AGREEMENT (this "Agreement') by and between San Luis Obispo Court Street, LLC, a California limited liability company ("Copelands") and the City of San Luis Obispo, a municipal corporation and charter city (the "City"), is made as of February 2003 (the "Agreement Date"), with reference to the following facts: A. The parties acknowledge and agree that the City is a charter city as defined in the California Constitution article XI, section 5. The parties further agree and acknowledge that the City has availed itself of the power to make and enforce all laws and regulations with respect to municipal affairs as required by the California Constitution and as indicated the City's Charter section 203. B. The City owns, or has rights in, certain property located on Court Street; all as more particularly described on Exhibit A attached hereto (the"Court Street Project Property'. C. The City and the County of San Luis Obispo (the "County")jointly own certain property on Palm Street, immediately adjacent to the City-County Public Library (the "Library ROW Property'% as further described on the Parcel Map (as defined below), which will be used for a public right-of-way following the construction of the Parking/Office Structure (as defined below). The City and the County jointly own certain property on Palm Street, adjacent to the Library ROW Property (the "Library Fee Property"), as further described on Exhibit B, which will be transferred to the City pursuant to the terms of this Agreement. D. The Copelands own, or have a right to acquire (including certain rights under this Agreement to acquire the Library Fee Property), certain property located near the intersection of Palm and Morro Streets, as more particularly described on Exhibit C attached hereto (the "Palm Street Project Property"). After the Closing referred to below, the Copelands shall commence excavation, and continue thereafter with construction, of a parking and office structure (the "Parking/Office Structure') on the Palm Street Project Property pursuant to the terms of that certain Payment Agreement, which has been signed concurrent with this Agreement and shall be dated as of the Closing Date, between the City and Palm Street Parking Structure, LLC, a California limited liability company (the "Developer"), which is commonly owned with Copelands(the"Payment Agreement"). E. The Copelands have a right to acquire certain easements for a public right-of-way and for ingress and egress by the City-County bookmobile over property which is adjacent to the Palm Street Project Property from Vintage Properties 11 ("Vintage") and Ann L. Tartaglia and Robert C. Tartaglia, as to an undivided 1/2 interest; and Ann.L. Tartaglia-McKenzie and Gail A. Gams, co-trustees of the Stanley H. Nelson Marital Trust dated April 1.1, 1994, as to an undivided 1/2 interest (collectively, "Tartaglia'% as more particularly described on the Parcel Map (the"Vintage/Tartaglia Easements"). The Copelands own certain property which is adjacent to the Palm Street Project Property over which it will grant certain easements for a public right- 1 1 F:\TRANS\AGR\COPELAND\PaImSt\RPExAgmt(final)-0207.doc 2/102003 ATTACHMENT 1 of-way and for ingress and egress by the City-County bookmobile, as more particularly on the Parcel Map (the"Copelands Easements"),pursuant to the terms of this Agreement. F. On the Closing Date (as defined herein), the City desires to transfer the Court Street Project Property to the Copelands and the Copelands desire to transfer the Palm Street Project Property to the City pursuant to the terms and conditions of this Agreement. NOW,THEREFORE, the parties hereto agree as follows: 1. Agreement to Exchange Properties. (a.) Exchange. Subject to the terms, covenants and conditions of this Agreement, on the Closing Date (as defined below), the City shall transfer to Copelands, the Court Street Project Property, and Copelands, or its affiliates, shall transfer, or cause the transfer of, the Palm Street Project Property, to the City. Immediately prior to the transfer of the Palm Street Project Property to the City, the City shall first transfer the Library Fee Property, which is a portion of the Palm Street Project Property, to the Copelands, by the recording of.a Grant deed in the form attached hereto as Exhibit D (the"Library Property Grant Deed'). (b.) Exchange Values of Properties. The parties agree that the Court Street Project Property has an exchange value of One Million Nine Hundred Sixty-two Thousand Dollars ($1,962,000) and the Palm Street Project Property has an exchange value of One Million Two Hundred Sixty-three Thousand, Two Hundred Sixty-three Dollars ($1,263,263). On the Closing Date, Copelands shall pay the difference.between the value of the Court Street Project Property and the value of the Palm Street Project Property(the"Value Difference')to the City in cash. 2. Grant of Easements Related to Palm Street Project Properiy. For good and valuable consideration,the receipt of which is hereby acknowledged, on the Closing Date: (a.) The Copelands shall prepare and execute a Parcel Map for the lands assembled for the Palm Street Project Property as one lot (the"Parcel Map"), in substantially the form attached hereto as Exhibit E. and shall cause the Parcel Map to be recorded at the Closing. The City shall execute the Parcel Map. (b.) The Parcel Map shall describe a grant of easement for a public right-of- way over the Library ROW Property (the "Library Easement") and that portion of Morro Street which is to be abandoned in favor of the Copelands as shown on the Parcel Map (the "Mono Street Right of Way'), which is part of the Palm Street Project Property. (c.) The Parcel Map shall describe the Vintage/Tartaglia Easement and the Copelands shall cause Vintage and Tartaglia to execute the Parcel Map. (d.) The Parcel Map shall describe the Copelands Easement. (e.) The Copelands shall execute and record an easement in favor of Vintage and in easement in favor of Tartaglia, in the form of Exhibit F attached hereto (the "Vintage/Tartaglia Access Easements"), to allow ingress and egress over the Palm Street Project Property from Morro Street to property currently owned by Vintage or Tartaglia and to allow 2 F:\TRANS\AGR\COPELAND\PalmSt\RPExAgmt(final)A207.doc 2/10/2003 ATTACHMENT 1 ingress, egress and vehicle turnaround between 9 p.m. and 9 a.m. over the Palm Street Project Property from Palm Street to property currently owned by Vintage or Tartaglia. 3. Satisfaction of Certain Matters. (a.) The City acknowledges that, as of the Agreement Date, the preliminary title reports, evidencing the current condition of title to each property of the Court Street Project Property(the "Court Street PTR") and the Palm Street Project Property(the "Palm Street PTR'), including any matters, which might be shown by a survey, are attached hereto as Exhibit G-1 and Exhibit G-2,respectively. The City hereby approves the Court Street PTR and Palm Street PTR. (b.) The Copelands hereby approve the Court Street PTR and Palm Street PTR as of the Agreement.Date. (c.) The parties acknowledge and agree that the Court Street Project Property is to be used by the Copelands solely for the purpose of constructing and operating thereon a retail and commercial development (the "Retail Complex') in accordance with the Retail Plans. "Retail Plans" are those plans submitted by the Copelands to the City's Building and Safely Department in application number 020653, filed June 20, 2002. The Retail Complex construction project and the Parking/Office Structure construction project are separate and distinct projects, which are not locatedadjacent to each other and which will be separately organized and contracted, and privately financed; provided, however, that notwithstanding the foregoing; construction of the Retail Complex shall not commence unless the Copelands are not in default under the Payment Agreement. The parties further acknowledge and agree that the City will have little or no oversight, direction or supervision of the Retail Complex construction, except to enforce the regulatory authority of the City in its general capacity to oversee all construction and development projects within the City and to the extent required to enforce its rights under this Agreement; provided that, until the Retail Complex is substantially complete, nothing-contained herein shall permit the Copelands to construct anything on the Court Street Project Property other than the Retail Complex. Except to the limited extent relating to the ownership and use of the Court Street Project Property and the limitations set forth in the Court Street Deed (as defined below), this Agreement is not intended to establish an interrelationship between the construction of the Parking/Office Structure and the Retail Complex. Exchange of the Court Street Project Property and the Palm Street Project Property and the Copelands' construction of the Retail Complex is a municipal affair and not a matter of statewide concern and therefore, the parties believe that California Labor Code § 1720 does not apply, provided that such recitation in this sentence shall not obligate the City for any costs or expenses of the Copelands if the provisions for prevailing wages are applicable. The parties acknowledge and agree the Retail Complex is limited in its geographical scope to one (1) city block and the parties thereby do not reasonably anticipate the Project will have any direct or indirect extraterritorial effects. 4. Covenants of the City. Following the Certification Date (as defined below), the City covenants and agrees: (a.) Remediation of Court Street Project Property. Not later than three (3) months after notice from the Copelands in the Lease Condition Certificate (as defined below) of the date on which the Copelands in good faith reasonably expect to the Closing to occur under F:\TRANS\AGR\COPEL.AND\Pa1mSt\RPExAgmt(final)-0207.doc 3 2/102003 - ATT'AL'HMEiVT I this Agreement (the "Estimated Closing Date'), the City shall have completed the mitigation for archeological work and hazardous materials on the Court Street Project Property in a manner consistent with its anticipated use as a retail complex, at a cost to the City not to exceed $200,000 (the "Court Street Maximum Mitigation Cost'), and to remove the above-surface parking improvements on the Court Street Project Property, including parking meters and curb stops, but not any asphalt which remains after mitigation for archeological work and hazardous materials has been completed (collectively, the "Court Street Project Property Mitigation Work'). If the City estimates that the costs for performing the Court Street Project Property Mitigation Work are likely to exceed the Court Street Maximum Mitigation Cost, the City shall deliver written notice of such estimate, including its basis for making such estimate in sufficient detail to allow review thereof by the Copelands and shall elect in the notice to either(i) terminate this Agreement or (ii) agree to bear the entire costs including the excess cost over the Court Street Maximum Mitigation Cost. If the City elects to terminate this Agreement, the Copelands may,but are not obligated to, elect in writing delivered to the City to pay the excess of the actual costs for performing the Court Street Project Property Mitigation Work over the Court Street Maximum Mitigation Cost and this Agreement shall continue in effect. (b.) Parking/Office Structure. The City agrees to perform all of its obligations with respect to the Parking/Office Structure which must be performed prior to Closing, as set forth in Exhibit H—Additional Terms Relating to the Parking Structure. 5. Covenants of the Copelands. Following the Agreement Date, the Copelands covenant and agree: (a.) Miti¢ation.of Palm Street Project Property. Except as set forth below, on or before the Closing Date, the Copelands shall have completed the mitigation for archeological work and hazardous materials on the Palm Street Project Property in a manner consistent with its anticipated use as a Parking/Office Structure (the "Palm Street Project Property Mitigation Work"), at a cost to the Copelands not to exceed $200,000 (the "Palm Street Maximum Mitigation Cost'). After the Certification Date, the City hereby grants, and shall cause the County to grant, to the Copelands a license to enter upon and perform the Palm Street Project Property Mitigation work on the Library Fee Property. If the Copelands estimate that the costs for performing the Palm Street Project Property Mitigation Work are likely to exceed the Palm Street Maximum Mitigation Cost, the Copelands shall deliver written notice of such estimate, including its basis for making such estimate in sufficient detail to allow review thereof by the City and shall elect in the notice to either (i) terminate this Agreement or (ii) agree to bear the entire costs including the excess cost over the Palm Street Maximum Mitigation Cost. If the Copelands elect to terminate this Agreement, the City may, but is not obligated to, elect in writing delivered to the Copelands to pay the excess of the actual costs for performing the Palm Street Project Property Mitigation Work over the Palm Street Maximum Mitigation Cost and this Agreement shall continue in effect. In the event that the Copelands have agreed to bear the entire cost of the Palm Street Project Property Mitigation Work or the City has agreed to pay the excess of the actual costs for performing the Palm Street Project Property Mitigation Work over the Palm Street Maximum Mitigation Cost, then the Copelands shall have the right, upon written notice to the City, to complete the Palm Street Project Property Mitigation Work following the Closing,but in 4 F:\TRANSWGR\COPELAND\PalmSt\RPExAg=(fmil)-0207.doc 2/10/2003 a- �g ATTACHMENT I no event shall the Palm Street Project Property Mitigation Work be completed later than ninety (90) days after the Closing. The City hereby grants to the Copelands and its agents the right to enter onto and occupy the Palm Street Project Property after the Closing for the purpose of completing the Palm Street Project Property Mitigation Work in accordance with the Section. (b.) Certification Date. Upon its satisfaction in its absolute discretion that it has acceptable leases in place from tenants for the space in the Retail Complex and that it is satisfied with the general market condition for the construction and operation of the Retail Complex, the Copelands shall deliver a written Certificate to the City to such effect (the "Lease Condition Certificate"). The Lease Condition Certificate shall also include the Estimated Closing Date, which shall be three months after the date of delivery of the Lease Condition Certificate (the "Certificate Date"). If the Copelands have not delivered the Lease Condition Certificate to the City on or before August 1,2003, then this Agreement shall terminate. (c.) Retail Plans. The Copelands agree to take all such actions as may be necessary or convenient to process applications with the Building and Safety Department to obtain approval of the Retail Plans,the issuance of building permits for the Retail Complex and issuance of all other approvals (including but not limited to final EIR certification and Architectural Review Committee and Design Review) required for construction of the Retail Complex, including without limitation the payment by the Copelands, at the time and in the manner provided by City Ordinance and regulations, of an in-lieu parking fee to the City in an amount equal to Four Thousand Dollars ($4,000) multiplied by the number of parking spaces actually required by the Retail Plans for the Retail Complex. (d.) Commencement of Construction on the Retail Complex. The Copelands agree to commence construction on the Retail Complex not later than thirty (30) days after the Closing, but in no event later tan hDecember 1, 2003, and to diligently pursue such construction to completion thereafter. The Copelands expect that the Retail Complex will be substantially completed twelve months after construction thereof has commenced. (e.) Limitations and Restrictions on the Use of the Court Street Ergect Pro a The parties agree, and the Court Street Deed shall reflect, that until substantial completion of the Retail Complex substantially in accordance with the Retail Plans: (i)the use of the Court Street Project Property shall be limited and restricted to the construction of the Retail Complex, (ii) the Copelands shall not encumber the Court Street Project Property except as security for construction loans to finance the construction of the Retail Complex, and (iii) the City has the right of reverter and a power of termination (Civil Code section 885.010) to cause the title of the Copelands to the Court Street Project Property to terminate and to revert to the City if the construction of the Retail Complex pursuant to the Retail Plans does not commence as required by this Agreement, or if construction is commenced, such construction is not completed as required by this Agreement. Upon the substantial completion of the Retail Complex in accordance with the Retail Plans, the City shall execute and deliver to the Copelands, a Certificate of Completion in substantially the form attached hereto as Exhibit I, which shall acknowledge that the deed restriction and any right of reverter in favor of the City have terminated. In the event the City, being entitled to do so, causes the title to the Court Street Project Property to revert to the City, the City shall pay to the Copelands an amount equal to the exchange value of the Court Street Project Property as set forth in Section 1(b) above. 5 F:\TRANS\AGR\COPELAND\Pa1mSt\RPExAgmt(final)-0207.doc 2/102003 ``Q �rl l ATTACHMENT I (f.) Parking Agreement, Not later than the Certification Date, the-Copelands agree to provide the City with a Parking Management Plan (the "Parking Management Plan"). which is acceptable to the Copelands and the City. Following the Certification Date, the Copelands agree to diligently perform its obligations under the Parking Management Plan until both the Retail Complex and the Parking/Office Structure are substantially completed. The parties acknowledge that the Retail Complex may be occupied in the event the Parking/Office Structure is not.complete, so long as the Copelands and Developer are in compliance with their obligations under the Parking Management Plan. (g.) Parking/Office Structure. The Copelands agree to cause the Developer to perform all of its obligations with respect to the Parking/Office Structure which must be performed prior to Closing, as set forth in Exhibit H—Additional Terms Relating to the Parking Structure. 6. Conditions Precedent to Exchange. (a.) City's Conditions Precedent. The City's obligation to transfer the Court Street Project Property shall be subject.to the fulfillment of the conditions precedent enumerated below: i. Condition of Property, Title. Chicago Title Insurance Company shall have committed to insure good title to the Palm Street Project Property as described in the Parcel Map by issuing a title policy in the form described in Section 6(c) below in the amount equal to the exchange value of the Palm Street Project Property plus endorsements to increase such amount in the amount of the Payment Amount to be paid by the City under the Payment Agreement, subject only to the exceptions in the Palm Street PTR and the easements to encumber the Palm Street Property Project in accordance with this Agreement. ii. Lease Condition Certificate. The City has received the Lease Condition Certificate from the Copelands. iii. Evidence of Readiness. The City has received Evidence of Readiness from the Copelands consisting of evidence reasonably satisfactory to the City of the following: (a) all building permits for the Retail Plans have been issued; (b) the Copelands have procured and have available sufficient financing to provide the Copelands with the funds necessary to commence and complete the construction of the Retail Complex; (c) the Copelands have entered into written construction contracts with licensed contractors for the completion of the Retail Complex in accordance with the Retail Plans; (d) Developer has entered into a written construction contracts with J.W. Design and Construction, Inc., California Contractor's License No. 554910 (the "Parking Construction Contractor') for the completion of the Parking/Office Structure in accordance with the terms of Exhibit H attached hereto (the "Parking Construction Contract'); (e) Developer has procured and has available sufficient financing from an Approved Lender (as defined in Exhibit to provide Developer with the funds necessary to commence and complete the construction of the Parking/Office. Structure; (e) Developer has received building permits for the Parking/Office Structure and issuance of all other approvals (including but not limited to final EIR certification and Architectural Review Committee and Design Review) required for construction of the Parking/Office Structure; and (g) the Copelands have caused the Parking Construction Contractor to provide a completion and labor and materials F:\TRANS\AGR\COPELAND\PalmSt\RPExAgmt(final)-0207.doc 6 2/10/2003 �rOD ATTACHMENT I bond for the construction of the Parking/Office Structure issued by a surety company licensed by the State of California that is listed on the California Department of Treasury's list of surety companies approved to do business in the State of California, for the benefit of the City as an additional insured, and in a face amount of 100% of the Contract Sum, as that term is defined in the Parking Construction Contract, as such amount has been adjusted pursuant to Exhibit H. iv. Covenants. The Copelands have provided the City with a Certificate, dated as of the Closing Date, certifying that they have performed each of the Covenants set forth in Section (b.) of this Agreement which could be performed prior to the Closing Date. V. Payment Agreement. The City and the Copelands shall have executed the Payment Agreement, and deposited it with the Escrow Company(as defined below) with instructions to (1) complete the Fixed Amount as determined in accordance with Exhibit H as directed by the parties, (2) date the Payment Agreement as of the Closing Date and(3) deliver executed counterpart originals to each party thereto at Closing. The Payment Agreement shall be in substantially the form of Exhibit J attached hereto. vi. OLtion Agreement. The City and the Copelands shall have executed the Option Agreement (the "Chinatown Option Agreement', and deposited it with the Escrow Company with instructions to date the Chinatown Option Agreement as of the Closing Date and to deliver executed counterpart originals to each party thereto at Closing,relating to the project generally known as the Chinatown Project, in substantially the form of Exhibit K attached hereto. The Copelands shall have also deposited the Initial Option Price (as that term is defined in the Chinatown Option Agreement) with the Escrow Company with directions to disburse such amount to the City upon Closing. vii. Easements. All parties thereto shall be in a position to record the Parcel Map and the Vintage/Tartaglia Access Easement. viii. Satisfaction of the Covelands' Conditions. The Copelands shall have certified to the City that all of the Copeland's Conditions Precedent have been satisfied and the Copelands are obligated to exchange the Palm Street Project Property for the Court Street Project Property. ix. Value Difference. The Copelands shall have deposited the Value Difference with the Escrow Company, with instructions to disburse such amount to the City upon Closing. X. Insurance Under Payment Agreement. The Developer under the Payment Agreement shall have delivered the requisite insurance policies as required by the Payment Agreement,to become effective upon the Closing. xi. Parking Management Agreement. City and Developer shall have entered into the Parking Management Agreement prior to the Closing as provided in this Agreement, and Developer shall not be in default thereof. F:\TRANS\AGR\COPELAND\PalmSt\RPExAgmt(final)-0207.doc 2/102003 (b.) Coneland's Condition Precedent. The Copelands' obligation to transfer or cause the transfer of the Palm Street Project Property to the City shall be subject to the fulfillment of the conditions precedent set forth below. i. Condition of Property; Title. Chicago Title Insurance Company shall have committed to insure good title to the Court Street Project Property by issuing a title policy in the form described in Section 6(c) below in the amount equal to the exchange value of the Court Street Project Property, subject only to the exceptions in the Palm Street PTR and the easements to encumber the Court Street Project Property in accordance with this Agreement. ii. Covenants. The City has provided the Copelands with a Certificate, dated as of the Closing Date, certifying that they have performed each of the Covenants set forth in Section 4 of this Agreement which could be performed prior to the Closing Date. iii. CC&Rs. The property owners owning property adjacent to the Court Street Project Property (the "Court Street Property") have executed and delivered Covenants, Conditions and Restrictions, which govern the operations and maintenance of the Court Street Project Property and the Court Street Property on terms and conditions satisfactory to the City and the Copelands in all reasonable respects. iv. Lease Condition Certificate_. The Copelands shall have provided the City with the Lease Condition Certificate. V. Evidence of Readiness. The Copelands shall be in a position to provide the City with the Evidence of Readiness. vi. Payment. Agreement. The City and the Copelands shall have executed the Payment Agreement, and deposited it with the Escrow Company with instructions to (1) complete the Fixed Amount as determined in accordance with Exhibit 14 as directed by the parties, (2) date the Payment Agreement as of the Closing Date and (3) to deliver executed counterpart originals to each party thereto at Closing. vii. Option Agreement. The City and the Copelands shall 'have executed the Chinatown Option and deposited it with the Escrow Company with instructions to date the Chinatown Option Agreement as of the Closing Date and to deliver executed counterpart originals to each party thereto at Closing. ix. Court Street Right of Way and Morro Street Right of WU. The City shall be in a position to abandon the public right of way over Court Street (the"Court Street Right-of-Way") by recording a document in the form of Exhibit L (the "Court Street Abandonment Resolution') and in a position to abandon the Morro Street Right-of-Way by recording a document in the form of Exhibit M (the"Morro Street Abandonment Resolution'). X. Easements. All parties thereto shall be in a position to record the Parcel Map and the Vintage/Tartaglia Access Easement. 8 F:\TRANS W GR\COP EIAND\Pa]mS t\RP ExAgmt(final)-0207.doc 2/102003 w�TACHMENT I xi. Satisfaction of the City's Conditions. The City shall have certified that all of the City's Conditions Precedent have been satisfied and the City is obligated to exchange the Court Street Project Property for the Palm Street Project Property. (c.) Title Conditions for Both Parties. The Closing shall also be conditioned on the commitment of Chicago Title Insurance Company to issue, upon payment of its regularly scheduled premium, its owner's extended ALTA Form 1970(B) coverage policy of title insurance, with the endorsements described below, excluding all bankruptcy exceptions, showing title to such Real Property vested of record in the transferee (each, a "Title Policy"). Each Title Policy shall contain the following endorsements: (i) a contiguity endorsement.insuring that each of the parcels comprising the Real Property is fully contiguous to the immediately adjacent parcel; (ii) a Subdivision Map Act endorsement insuring that each of the parcels comprising the Real Property may be transferred individually; (iii) an owner's CLTA 100 and 101.4 endorsement; (iv) a 103.3 endorsement with respect to any easements that are subject to encroachments; and (v) an endorsement against mechanics' liens resulting from any work that may have been undertaken in accordance with this Agreement. 7. Closing. The sale and purchase transaction contemplated by this Agreement ("Closing") shall be consummated through escrow established at Chicago Title Company, 3000 Broad St., #209A, San Luis Obispo, California 93401 (the "Escrow Company"), pursuant to escrow instructions by and among the City, the Copelands and the Escrow Company in substantially the form of Exhibit N attached hereto. The Closing shall take place on the Estimated Closing Date, or sooner if the conditions set forth in Section 7 above have been satisfied ("Closing Date"). The date of the Closing may be extended beyond the Estimated Closing Date by agreement of the parties. On the Closing Date, sole and exclusive possession of the Palm Street Project Property (subject to the Developer's rights of access to perform the Payment Agreement) shall be delivered to the City by the Copelands and sole and exclusive possession of the Court Street Project Property shall be delivered to the Copelands by the City. (a.) Items to be Delivered by City at Closing. At Closing, the City shall deliver or cause to be delivered to the Copelands, at the City's sole cost and expense, each of the following items to become effective upon Closing; i. Deed. A Grant Deed for the Court Street Project Property (the "Court Street Deed', in substantially the form of Exhibit 0 attached hereto, incorporating the covenants, restrictions, limitations, power of termination, use as a parking lot and other rights reserved to the City or imposed on such grant by this Agreement, duly executed and acknowledged by the City. The parties acknowledge that the amount of any transfer tax shall not be shown on the Court Street Deed but shall be set forth on a separate affidavit or instrument which, after recordation of the Court Street Deed, shall be attached to the Court Street Deed so that the amount of such transfer tax is not of record. ii. Documents. Originals of all documents in the possession or control of the City pertaining to the property to be transferred. 6(b)vii. iii. Certificates. The Certificates described in Sections 6(b)vii and F:ITRANS\AGR\COPELAND�Pa1mStVtPEw4gmt(final)-0207.doc 9 2/102003 iv. Other Instruments. Such other documents and instruments duly executed and/or acknowledged as may be reasonably required to consummate this transaction in accordance with the terms and conditions contained in this Agreement, including without limitation the Payment Agreement, the Option Agreement and the Parcel Map. V. Court Street Right of Way and Morro Street.Right of Way. The Court Street Abandonment Resolution and the Morro Street Abandonment Resolution. (b.) Items to be Delivered by'Copelands at Closing. At Closing, Copelands shall execute and/or deliver to the City,to become effective upon Closing: i. Deeds. A Grant Deed for the Palm Street Project Property except for the Library Property(the "Palm Street Deed'), in form and substance satisfactory to the City, duly executed and acknowledged by the Copelands, and the Library Property Grant Deed, duly executed and acknowledge by the signatories thereto. ii. Documents. Originals of all documents in the possession or control of the Copelands pertaining to the property to be transferred, excluding only those documents which Developer is obligated to deliver to the City upon the completion of the Parking/Office Structure under the Payment Agreement. iii. Certificates. The Certificate described in Sections 6(a)ii, 6(a)iii and 6(a)vi. iv. Evidence of Readiness. The Evidence of Readiness. V. Other Instruments. Such other documents and instruments duly executed and/or acknowledged as may be reasonably required to consummate this transaction in accordance with the terms and conditions contained in this Agreement, including without limitation the Payment Agreement and the Option Agreement. vi. Cash. The Value Difference, plus the amount of the Copelands' share of the Closing Costs (as defined below), in cash or immediately available funds. 8. Adjustment and Prorations. At Closing, the following items shall be adjusted and prorated between the City and Copelands: (a.) Taxes. There shall be no proration charged to the City for the taxes and assessments assessed and levied on the Palm Street Project Property, which are cancelled due to the City tatting title. The owner paying such taxes and assessments shall undertake to obtain refunds under the Revenue and Taxation Code of the taxes and assessments already paid which have been cancelled due to the title vesting in the City. Taxes and assessments on the.City- owned Court Street Project Property shall have been cancelled by the City. (b.) Utilities and Contracts. All costs, if any, of utilities furnished to the Real Property shall be prorated as of the Closing Date. 10 F:\TRANS\AGR\COPELAND\Pa1mSt\RPExAgmgrinal}0207.doc 2/10/2003 \ {� ° •,�] 1 OTACHMEMT I 9. Closing Costs. _ (a.) At Closing,the City shall pay the following costs of Closing: All fees and costs for releasing all encumbrances, liens and security interests of record which are not allowable exceptions to title to the Court Street Project Property, the premium for the Title Policy for the Palm Street Project Property; all applicable sales, use, documentary or other transfer taxes arising out of the exchange of the Court Street Project Property. (b.) At Closing, the Copelands shall pay the following costs of the Closing: All fees and costs for releasing all encumbrances, liens and security interests of record which are not allowable exceptions to title to the Palm Street Project Property; the premium for the Title Policy for the Court Street Project Property; all applicable sales, use, documentary or other transfer taxes arising out of the exchange of the Palm Street Project Property. 10. Indemnification. (a.) Indemnification by City. As of the Closing Date; the City shall indemnify, defend and hold the Copelands harmless of, against and from any and all liabilities, claims, demands and expenses, of any kind or nature (except those items which by this Agreement specifically become the obligation of the Copelands) accruing on or before the Closing Date, including any claim for labor, materials or supplies in connection with work performed on the Court Street Project Property, and which are in any way related to the ownership or operation of the Court Street Project Property, any claim for labor, materials or supplies in connection with the Court Street Project Property Mitigation Work,whenever performed, and all expenses related thereto including, without limitation,court costs and attorneys' fees. (b.) Indemnification by Copelands.. As of the Closing Date, the Copelands shall indemnify, defend and hold the City harmless of and from any and all liabilities, claims, demands and expenses of any kind or nature (except those items which by this Agreement specifically remain the obligation of the City) accruing on or before the Closing Date, including any claim for labor, materials or supplies in connection with work performed on the Palm Street Project Property, and which are in any way related to the ownership or operation of that portion of the Palm Street Project Property (except the Library Fee Property), any claim for labor, materials or supplies in connection with the Palm Street Project Property Mitigation Work, whenever performed, and all expenses related thereto including, without limitation, court costs and attorneys' fees. 11. Miscellaneous. (a.) Notices. All notices, demands or other communications of any type (collectively "Notices"1 given by the City to Copelands or by Copelands to the City, whether required by this Agreement or in any way related to this transaction, shall be sufficient if in writing. and delivered by hand or Federal Express or similar courier service to the person to whom the Notice is directed or mailed by United States Mail, as a Registered or Certified item, Return Receipt Requested, at or to the addresses specified in this section. Notices delivered by mail shall be deposited in a Post Office or other depository under the care or custody of the United States Postal Service, enclosed in a wrapper with proper postage affixed, addressed,if to the Copelands, as follows: 11 F:\TRANS\AGR\COPEIAND\Pa1mSt\RPExAgmt(f=l)-0207.doc 2/102003 � r a 6GSl:o`3�aiil M 9 San Luis Obispo Court Street; LLC Post Office Box 1348 San Luis Obispo, California 93406 Attention: Tom Copeland With a copy to: K. Robin Baggett, Esq. Sinsheimer, Schiebelhut&Baggett 1010 Peach Street San Luis Obispo, California 93401 and,if to City, as follows: City of San Luis Obispo 990 Palm Street San Luis Obispo, California 93401-3249 Attention: City Administrative Officer Facsimile: (805) 781-7109 With a copy to: City Attorney City of San Luis Obispo 990 Palm Street San Luis Obispo, California 93401-3249 Facsimile: (805) 781-7409 (b.) Governing Law: Plurality: and Gender. This Agreement shall be construed and interpreted in accordance with the laws of the State of California. Where required for proper interpretation, words in the singular shall include the plural; the masculine gender shall include the neuter and the feminine, and vice versa (c.) Amendment. This Agreement may not be modified or amended, except by an agreement in writing signed by the parties to this Agreement. The parties may waive any of the conditions contained in this Agreement or any of the obligations or the other party under this Agreement, but any such waiver shall be effective only if in writing and signed by the party waiving such conditions or obligations. (d.) Authorization. The person executing this Agreement on behalf of the Copelands hereby warrants and represents to the City that all necessary legal prerequisites to that party's execution of this Agreement have been satisfied and that he or she is fully authorized to do so and to bind the party of whose behalf he or she signs.The person executing this Agreement on behalf of the City claims to do so to the extent the authority to do so has been duly delegated to that person by the City Council.of the City in accordance with applicable law. (e.) Time of Essence. Time is of the essence in this Agreement.. 12 F:17RANS\AGR\COPELAND\PalmSt\RPExAgmt(final)-0207.doc 2/102003 (f.) Attorneys' Fees. If it becomes necessary for either party to file a suit to enforce this Agreement or any provisions contained in this Agreement, or to seek damages for a breach, the prevailing party shall be entitled to recover, in addition to all other remedies or damages,reasonable attorneys' fees incurred in such suit. (g) Captions. The description headings of the several Articles, Sections and Paragraphs contained in this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement. (h.) Entire Agreement. Except for that certain obligations of Copeland or its affiliates to reimburse the City for certain third-party expenses as provided in that certain Reimbursement Agreements, dated as of February 11, 2002, between the City and the Copelands and that certain Consultant Services Authorization, dated as of July 9, 2002, between the City and the Copelands, this Agreement, including the Exhibits attached to this Agreement, constitutes the entire agreement among the parties pertaining to the subject matter of this Agreement and supersedes all prior and contemporaneous agreements and understandings of the parties in connection therewith, including but not limited to that certain Memorandum of Understanding by and between the City and San Luis Obispo Court.Street, LLC dba Court Street Partners, LLC, dated September 19, 2000, as amended by the Amendment to MOU dated December 11, 2001. No representation, warranty, covenant, agreement or condition not expressed in this Agreement shall be binding upon the parties to this Agreement or shall affect or be effective to interpret, change or restrict the provisions of this Agreement. (i.) Counterparts. A counterpart of this Agreement with separate but fully executed signature pages attached thereto shall have the full force and effect of an original executed instrument. Successors.and Assigns. This Agreement shall not be assignable by either party, and nothing contained herein shall inure to the benefit of other parties. Until completion of construction of the Retail Complex, the Copelands shall not make or create any sale, assignment, hypothecation or other transfer of ownership with respect to this Agreement or the Court Street Project Property or the control of its uses, either voluntarily or by operation of law, without the prior approval of the City, which may be granted or denied in the City's sole discretion. Any such transfer made in contravention of this Agreement shall be void. Notwithstanding the foregoing,the following transfers shall be permitted: (i) After the Closing, a hypothecation creating a security interest encumbering the fee interest in the Court Street Project Property for a construction loan to complete the Retail Complex that is part of the Evidence of Readiness. (ii) Any transfer directly resulting from the foreclosure of a security interest or the granting of a deed in lieu of foreclosure of a security interest permitted under the preceding paragraph. (iii) Any transfer to an entity which is 100% owned by the Copelands, or if not 100% owned, the majority of the beneficial interests in such entity is owned by the 13 F:\'TRANS\AGR\COPEL.AND\PalmSt\RPExAgmt(final)-0207.doc 2/102003 a �� ab'6�d ��9a�is�� Copelands and the entity is controlled by the Copelands, and the Copelands deliver-to the City satisfactory evidence of such ownership and control. No transfer shall constitute a release of the Copelands from their obligations under this Agreement. 12. Exhibits. All Exhibits shall be approved by each party, which approval shall be evidenced by such party's initials on each Exhibit hereto. Exhibit A Court Street Project Property — including the Court Street Right-of Way Exhibit B Library Fee Property Exhibit C Palm Street Project Property Exhibit D Library Property Grant Deed Exhibit E Parcel Map Exhibit F Vintage/Tartaglia Access Easements Exhibit G-1 Preliminary Title Report(s) for Court Street Project Property Exhibit G-2 Preliminary Title Report(s) for Palm Street Project Property Exhibit H Additional Terms Relating to the Parking Structure Exhibit H-1 List of Rebiddable Subcontracts Exhibit I Certificate of Completion Exhibit J Payment Agreement Exhibit K Chinatown Option Agreement Exhibit L Court Street Abandonment Resolution Exhibit M Morro Street Abandonment Resolution Exhibit N Escrow Instructions Exhibit O Court Street Grant Deed 14 F:\TRANS\AGR\COPELAND\PalmSt\RP ExAgmt(6na1)-0207.doc 2/10/2003 ui:rt p . This Agreement is executed by the parties as of the Agreement Date. SAN LUIS OBISPO COURT STREET,LLC, a California limited liability company By: Tom Copeland Its: Managing Member CITY OF SAN LUIS OBISPO, a municipal corporation and Charter City By, David F. Romero Mayor Attest: By: Lee Price City Clerk Approved as to Form: Y G bert rub o Acting City Attorney By: Herb Weiser City Special Counsel 15 F:\TRANS\AGR\COPELAND\PalmSt\RPExAgmt(final)-0207.doc 2/10/2003 Exhibit H ADDITIONAL TERMS RELATING TO THE PARKING STRUCTURE The City and the Copelands agree as follows: 1. On or before the Closing Date, the Copelands shall cause the Developer to enter into the Parking Construction Contract between Developer and J.W. Design and Construction, Inc., California Contractor's License No. 554910, in form and substance approved by City. The Contract Sum under the Parking Construction Contract before adjustment as provided in paragraph 3 of this Exhibit H below is $7,815,597. The Copelands shall cause Developer to deliver a counterpart original of the Parking Construction Contract to City. City shall be named as the third party beneficiary of the Parking Construction Contract; and the Parking Construction Contract shall specify in terms satisfactory to City that the Parking Construction Contractor shall have no rights against the City under the Parking Construction Contract and that, upon the occurrence of an Event of Default under the Payment Agreement following notice thereof to the Developer and allowing the Developer thirty (30) days to eliminate or mitigate to the satisfaction of the City the grounds for such Event of Default, or, if the grounds for such Event of Default cannot be eliminated or mitigated within thirty (30)days, then to commence to eliminate or mitigate to the satisfaction of the City the grounds for such Event of Default within thirty(30) days and to continue to diligently take such steps necessary to eliminate or mitigate the grounds for such Event of Default thereafter, the Parking Construction Contractor shall be directly liable to City for the obligations of the Parking Construction Contractor under the Parking Construction Contract and the City may thereafter take such actions as it deems necessary to enforce its rights there under. Any action by the City directly against the Parking Construction Contractor under the foregoing sentence shall not act as a waiver or release of the Developer on account of any liability the Developer may have to the City under the Payment Agreement. The Parking Construction Contract shall conform to the terms of the Payment Agreement. 2. Any one or combination (including, without limitation, a consortium) of the following lending institutions are deemed to be an Approved Lender as that term is used in this Agreement: (a.) a commercial or savings bank whose deposits are insured by the Federal Deposit Insurance Corporation; (b.) an insurance company or other company engaged in the ordinary course of business as a lender with net unencumbered assets in the amount of not less than $500,000,000 which is either: i. duly licensed or registered with any regulatory agency having jurisdiction over its operation, or ii. is any other company not duly licensed or registered with any regulatory agency, provided such company is not under any order or judgment of any court or administrative agency restricting or impairing its operation as a lender where the restriction or 16 F:\TRANS\AGR\COPELAND\PalmS t\RPExAgmt(6nal}0207.doc 2/10/1003 2 `�:TT�CF.P.rNruEkIY I impairment would be directly related to a proposed loan to Developer and which is regularly engaged in business in an office or location in the State of California. City agrees to reasonably cooperate with the Copelands, Developer and an Approved Lender to facilitate financing for the construction of the Parking/Office Structure, such as the execution of a consent to an assignment of the Payment Agreement for the purpose of such financing, provided that such financing complies with the Payment Agreement. City further agrees to enter into agreements with such Approved Lender regarding reasonable provisions for notices,priority of remedies,clarifications of procedures and other procedural matters that do not alter or modify any substantive rights of the City or obligations of the Copelands or Developer. Such agreements shall only be for the benefit of the Approved Lender in the due enforcement of its security, and shall not be for the benefit of or enforceable by the Copelands or Developer, nor shall it be deemed to amend the Payment Agreement between Developer and City. 3. (a.) Concurrent with the delivery of the Lease Condition Certificate, the Copelands shall cause Developer and Construction Contractor to initiate a bidding process consistent with the Parking Plans (as defined below) for those labor and material contracts and subcontracts for the Parking/Office Structure listed as separate line items on Exhibit H-1 attached hereto ("Rebiddable Subcontracts') based on a start date which is six (6) months after the Certification Date. The Public Works Director for the City, or his designee(the "Director") shall be entitled to review and.approve each bid for a Rebiddable Subcontract. All such bids shall be provided to the Director not later than fifteen (15) days prior to the Estimated Closing Date. Within five (5) business days of receipt by the Director of any such bid,.along with the supporting data and information for such bids (including the bid package), the Director shall either (i) approve or reject such bid, or(ii)notify the Developer that it needs additional time (not to exceed an additional five (5) business days) to approve or reject any such bid. If any bid is rejected by the Director in a timely manner, then the Director and the Developer shall work together to obtain at least three independent written bids for such portion of the Work, as such term is defined below (which may include the rejected bid and any other bid already obtained). The Director shall be entitled to be represented at the time and place for the opening of the bids. Following the receipt of such bids, the Developer shall cause the Parking Construction Contractor to award the contract for such portion of the Work to the lowest responsible bidder. (b.) The Rebidding Adjustment shall be equal to the total of (i) the amount (if any) by which the cost of all Rebiddable Subcontracts actually awarded to a subcontractor or material supplier after rebidding for the portion of the Work assigned to a line item on Exhibit K-1 is higher than the amount specified on Exhibit.H-1 for such portion of the Work, minus (ii) the amount (if any) by which the cost of all Rebiddable Subcontracts actually awarded to a subcontractor or material supplier after rebidding for the portion of the Work assigned to a line item on Exhibit H-1 is lower than the amount.specified on Exhibit H-1 for such portion of the Work, multiplied by (iii) 1.08. The Rebidding Adjustment shall be added (or subtracted, if a negative number) to (from) the Contract Sum, as that term is defined in the Parking Construction Contract. The Fixed Amount, as that term is to be defined in the Payment Amount, shall be equal to $10,641,715.00 U.S. Dollars plus (minus) the Rebidding Adjustment. The City shall, and the Copelands shall cause the Developer to, instruct the Escrow Company to complete the Payment Agreement by inserting the Fixed Amount determined in accordance with this paragraph in the blank provided therefor in the Payment Agreement. 17 F:\TRANS\AGR\COPELAND\PalmSt\RPExAgmt(final}0207.doc 2/102003 ALCH EMT I (c.) As used in this Agreement, "Parldng Plans" means--the plans, specifications, and schedules for the Parking/Office Structure, as set forth in application No. 020652 filed with the City on June 20, 2002 and the Parking Construction Contract, and as may be subsequently modified by any change orders. As used in this Agreement, "Work" means the work necessary for the completion of the Parking/Office Structure in accordance with the Parking Plans,not including tenant improvements. 18 F:\TRANS\AGR\COPELAND\PahnSt\RPExA nit(final}0207.doc ^ 2/10/2003 ATTACHMENT I Exhibit H- 1 LIST OF REBIDDABLE SUBCONTRACTS Palm&Morro Panting 81ruchue 12/06/02 J.W.Design&Conswctloer Inc: This spread street vWW"for oomdruction start prior to 12M=2 P.0.Banc 1154 Ban Luis Obispo,CA.91406 Based on 2nd plan dmdt set dated:10,21-02 Phu (ell 5443130 Fax p"644-0115 Lk.0 654910 TOTAL' 1000 GENERAL RMI OtEMENTS 3 3 1 01110 Tam Powerlsaw 5.100 JWD 01111 Field Ott *' 9 850 JWD 01112 Fust AkMeErd 120 JWD 01113 Sanitation s 1848 JWD 01114 PhaneffaxlCeModern 3,165 JWD 01115 yveate Dispoeda 4,200JWD 01118 Terno Fenctro 4500 JWD 01117 Equip RwW 15000 01118 SMd Toots 5000JWD 01119 SuperAsion 134000 JWD 01120 Prcject Lebo 51.000 JWD 01121_ 151 JWD 01122 Printing 5 000 JWD 01123 casts __.18000 JWD 01124 F'hW Cleauft 7497 AND - - " SREWORK 713,951 02010 Motrd®don 15.0001 02011 Survev&Stftv = x�_ 11000 - - 02012 Dem Wjon •• 46,500 AdftonadHaz Mat 2MM ' 325__ 02013 1PW protactAwnp 5125. 02014 Abandon city uNties 0 5,000 02015Dewatering during odmt _ 1 000 02018Sharing .rcr ' 206,250 02017 Faflha" / ;".... .' -241058 02018 PiCFffe Ln zs _ 1 500 02019 . Landscape ;; .._..•• 10,0211 02021 Trash cans 4.548 02022 AC PavuV sheet knguyvainents 5.000 0202') Ternp ACdgmfor water mcbol 1100 02024 StrUft 10 997 02025 1PLaftfloganis. &000 .02028 Shum Drain 15.560 02D27 .Lhderslderra chubm 500 00028 Sewer System 335 02029 Fire Lines wd Domesft water 14,010 02030 tldGties c Seedect-ft 02031 Traft ca -m &' 25 000 02032 Trendy to Ma"am Brm 4 892 020331HYdraLdicaoffarda NIC .02034 68re Racy&L,odrers 19 442: ... 02037 Steel Tree We0 Covets nic .02030 Pedestrian Aeeesa shuebas s+' 25 000 - - 02039 Erosion Conbd ` 5 000 9w art 8 patch for oomm tines Nc CONCRETE 3,340,8101 03010 041300 03011 Sado&Patch for is d ``' 21360 03012 Site cart 2A8 400 03013 Cdor 7 000 03014 Reinf.Sfael Post T C+" 43,000 we aroiranon o _ h to soar 03015 Precast cohmui bases 19J50 a�33 ATTACHMENT # Palm&Morro Parking Structure .,/06/02 - J.W.Design&Construction,Inc. TMs spreW sheet vaW only for construc8on start prior to 12106/02 P.O.Banc 1154 San Lrds Obispo,CA.83408 Basad on btu plan check act datad:10.21.02 Phone MM544-3130 Fa=ie65i 544-0715 d� LIC.0 554910 Ji- a nr MASONRY 271 04010 Mmmy 239,9851 04011 Brick Venser .Inc 04012 Sceffakiing rental 32,000 METALS" 05010 Structural SteelW25,0M 05011 Lftm Sled 05012 T stall rens05013 InstuO FOB Sleet bms05014 Chain Mk05015 Cade Rab05016 Sheet Mil 8 Fresh (08000) WOODS I 0 08010 RoLah Camentryn Na 0801.1. Lumber w, Na _ 06012 Casework _ b rda 06013' N=Caordirrafion .�pt;twWe 05014 Fmisfk rrla (07000) THERNAL&IIOISTURE 160770 .07010 07011 FlashingISM M& WO eteds 07012 RoofttatdAadder 070130 000 07014 Maujaliark5.000 - - - 07015 WP rtrernDrsrre at aedka4 57007016 WP7 42307017 Bentonile below3.800 07016 Dedk DIldn 07019 2 Tie Rooling11,995 07020 IBaslonericMenftene 7982 - 07021 DOORS&WWDOWSA44,795 08010 DoorsfFrmrraglMardwara 08011 Glazed Firedoors 06012 Mehl Sbra frorrtu - 06013 Storeltard 8M:"eM 06014 Grad FIM doors 08015 Rd door I - - .- FOYS#S 779JU 09010 DrywaNisdal Soros 225.000 RR MWNwes by Waby rwt Wkided 09011 .T-Berft 09012 Stuom ' - 307 . 09013 Pant 124 100 09014 Text Paint 58 755 09015 Ceramic Tf 29194 1212003 2:54 PM Page 2 PWS Conum SS of 11-1542 sew 1-21.03.xta .Q r ATTACHMENT I Palm&Morro Parking Structure 12/06/02 J.W.Design&Construction,Inc. This apread sheen valid o*for earetrudbn start prior to 12/06/02 P.0.Box 1154 San Luis Obispo,CA.63406 Based on 2nd plan dteck ad dated:104142 Phom(805)544.3130 Fax(805)644.0115 Ua.0 Swill 1 SPECIALTIES 1 10010 on.1 doors _ 1,100 10011 some for etc m` 10012 RBst oat!Awessories 1.51M _ 10013 Krwx Bax 500 10014 Fite 860MUn - 10015 Canopies 15736 10016 10017 d, 11EQUH%1ENT 0 11A 11B 11c 11D t SPECIAL CONSTRUCTION 1 I84 13010 Contrd Booth 8000 - - 1301 t Parift wrttrds 180 884 13012. Spire on tower 1 500 13013 ,` 13014 14000 CONVEYING SYSTBAS 1 197 74010 IEWiators 197,300 (ISM WCHANICAL. 243 15010 n 12S,100 15011_.HVAC 15012:SpriniderS -- -- - -" - c. -. f - 117,495 - . . 15016 " 'a 1 ELECTRICAL 16010 EWCbical. y�, s. - o 224,994 1601 t UG Ste Bled 50,000 16012 SMBeC W Charyby stations Cantu Ones across Palm 8t rac 16013 Fire Alarm "° 25,000 18014T rt b.000 V G. SUBTOTALS 7 .684 7.238.6641 OHBP 57&833 TOTAL 1 7.815.597 CONTINGENCY Inic BONWNG nio C.O.C.INSURANCE nfe 1!112003 2:53 PM Page 3 PMPS Conhect SS of 11-15-02 not 1-21-03.xls ATTACHMENT 2 PAYMENT AGREEMENT by and between CITY OF SAN LUIS OBISPO and Palm Street Parking Structure,LLC Dated as of Relating to: City of San Luis Obispo Parking/Office Structure Palm Street and Morro Street 1 rMn ATTACHMENT 2 TABLE OF CONTENTS Paye 1. DEFINITIONS....................................................................................................................................1 1.1 DEFINITIONS................................................................................................................................. 1 2. RECITALS».».»....»......................................................................................»........». .......................4 2.1 THE PARKING STRUCTURE...........................................................................................................4 2.2 OWNER OF PROPERTY..................................................................................................................5 2.3 PURPOSE OF AGREEMENT.............................................................................................................5 2.4 THE FINANCING............................................................................................................................5 2.5 ADVANTAGE TO CITY...................................................................................................................5 2.6 AGREEMENTS...............................................................................................................................5 3. FUNDING_» »».»......»...........»......................................................................................5 3.1 CITY PROCEEDINGS......................................................................................................................5 4. CONSTRUCTION OF THE PARKING STRUCTURE.........»...................................................».6 4.1 PLANS..........................................................................................................................................6 4.2 DUTY OF DEVELOPER TO CONSTRUCT..........................................................................................6 4.3 SUPERVISION AND CONSTRUCTION PROCEDURES........................................................................7 4.4 LABOR AND MATERIALS..............................................................................................................9 4.5 WARRANTY..................................................................................................................................9 4.6 PREVAILING WAGES;RELATIONSHIP TO PUBLIC WORKS........................................................... 10 4.7 CITY'S RIGHT TO STOP THE WORK............................................................................................ 10 4.8 CITY'S RIGHT To CARRY OUT THE WORK................................................................................. 10 4.9 EARLY OCCUPANCY................................................................................................................... 11 4.10 DEVELOPER IS INDEPENDENT CONTRACTOR.............................................................................. 11 4.11 PERFORMANCE AND PAYMENT BONDS....................................................................................... 11 4.12 CONTRACTS AND CHANGE ORDERS........................................................................................... 12 4.13 TIME FOR SUBSTANTIAL COMPLETION....................................................................................... 12 4.14 THIRD PARTY BENEFICIARY....................................................................................................... 12 5. PAYMENT..........»...............................»............................................................. .». »» »» 12 5.1 INSPECTION................................................................................................................................ 12 5.2 AGREEMENT TO PAY THE PAYMENT AMOUNT FOR THE PARKING STRUCTURE.......................... 13 5.3 PAYMENT REQUEST.................................................................................................................... 13 5.4 PROCESSING PAYMENT REQUEST............................................................................................... 13 5.5 PAYMENT................................................................................................................................... 14 5.6 RESTRICTIONS ON PAYMENTS.................................................................................................... 14 5.7 DEFECTIVE OR NONCONFORMING WORK................................................................................... 15 5.8 NO PAYMENT OF PLANS,MANAGEMENT FEE AND PREDEVELOPMENT COSTS........................... 15 6. CITY OWNERSHIP OF THE PARIGNG STRUCTURE..........................................................-15 6.1 THE PARKING STRUCTURE TO BE OWNED BY THE CITY............................................................. 15 7. INSURANCE......................................................................».............................................................16 7.1 INSURANCE REQUIREMENTS....................................................................................................... 16 7.2 INSURANCE REQUIREMENTS FOR DEVELOPER'S CONTRACTOR AND SUBCONTRACTORS............ 16 7.3 WAIVER OF SUBROGATION......................................................................................................... 17 7.4 SELF-INSURANCE AND DEDUCTIBLES......................................................................................... 17 7.5 CANCELLATION;SEVERABILITY OF INTERESTS;PRIMARY AND NONCONTRIBUTING.................. 17 7.6 DELIVERY OF INSURANCE DOCUMENTATION............................................................................. 17 7.7 GENERAL.................................................................................................................................... 17 i F:\TRANS\AGR\COPE LAND\PalmSt\PaymentAgmt(final)-0207.doc 2/10/2003 o-39 ATTACHMENT 2 8. REPRESENTATIONS,WARRANTIES AND COVENANTS.»...............».................................17 8.1 REPRESENTATIONS,COVENANTS AND WARRANTIES OF THE DEVELOPER.................................. 17 8.2 INDEMNIFICATION AND HOLD HARMLESS.................................................................................. 18 9. TERMINATION ...... ........»»....»....»»................».......................................»........19 9.1 MUTUAL CONSENT..................................................................................................................... 19 9.2 CITY ELECTION FOR CAUSE....................................................................................................... 19 9.3 FORCEMAIEURE........................................................................................................................20 10. MISCELLANEOUS..................»..»................_.»...»..»............»................................................20 10.1 LIMITED LIABILITY OF CITY PERSONNEL...................................................................................20 10.2 AUDIT........................................................................................................................................21 10.3 ATTORNEY'S FEES.....................................................................................................................21 10.4 NOTICEs.......:.............................................................................................................................21 10.5 SEVERABILITY............................................................................................................................22 10.6 SUCCESSORS AND ASSIGNS........................................................................................................22 10.7 OTHER AGREEMENTS.................................................................................................................22 10.8 WAIVER.....................................................................................................................................23 10.9 MERGER.....................................................................................................................................23 10.10 PARTIES IN INTEREST.................................................................................................................23 10.11 AMENDMENT..............................................................................................................................23 10.12 COUNTERPARTS..........................................................................................................................23 10.13 GOVERNING LAW.......................................................................................................................24 ii F:\TRANS\AGR\COPELAND\Pa1mSt\PaymrntAgmt(fmal)-0207.doc 2/10/2003 �J 4 p( r�U ATTACHMENT 2 PAYMENT AGREEMENT THIS PAYMENT AGREEMENT (the"Payment Agreement"), dated as of , is by and between the City of San Luis Obispo, a chartered city organized and existing under the Constitution of the State of California (the "City"), and Palm Street Parking Structure, LLC, a California limited liability company(the "Developer', for the construction of a parking and office structure. 1. DEFINITIONS 1.1 Definitions: The following terms shall have the meanings ascribed to them in this Section 1.01 for purposes of this Payment Agreement. Unless otherwise indicated, any other terms, capitalized or not, when used herein shall have the meanings ascribed to them in the Exchange Agreement(as hereinafter defined). "Acceptance Date" means the date the City accepts Substantial Completion of the Parking Structure. "Actual Cost of City Change Orders" means the cost of each City Change Order minus the savings for any work or materials previously required that is no longer required due to such City Change Order. Costs may include: (i) the costs incurred by the Developer for the construction of such Parking Structure, (ii) the costs incurred by the Developer in designing and preparing the Plans for such Parking Structure and the related costs of environmental evaluations of the Parking Structure, (iii) the fees paid to governmental agencies for obtaining permits, licenses or other governmental.approvals for such Parking Structure, (iv) professional costs incurred by the Developer associated with such Parking_ Structure, such as engineering, legal, accounting, inspection, construction staking, materials testing and similar professional services; and (v) costs directly related to the construction of the Parking Structure, such as costs of payment, performance and/or maintenance bonds, financing costs and insurance costs (including costs of any title insurance required hereunder). Actual Cost of City Change Orders shall not include Developer's overhead or profit. "Approved Lender" shall have the meaning set forth in Section 10.7 below. "Architect" shall mean Watry Design, Inc. "Bond" shall mean the performance, labor and materials bond posted by the Construction Contractor under the Real Property Exchange Agreement. "Change Orders" shall mean any supplemental agreements, including City Change Order and Developer Change Orders, with the Construction Contractor or any subcontractor, other contractor or supplier to perform Work which was not included in the Fixed Amount and is not Excluded Work. All Change Orders shall include the General Contractor's Fee. 1 F:\TRANS\AGR\COPELAND\PalmS t\PaymrntAgmt(final)-0207.doc 2/10/2003 � 1 ATTACHMENT 2 "City" means the City of San Luis Obispo, a chartered city, organized and existing under the Constitution of the State. "City Change Order" shall mean a Change Order which: (i) has been requested by the Director or the City's Representative or(ii) is the result of an Unanticipated Condition. "City's Representative" means an independent firm engaged by City as a construction monitor and otherwise for purposes of assisting the City and serving as the City's Representative in administering this Payment Agreement. In the event that at any time there is no independent firm acting as the City's Representative, the Director shall act as the City's Representative. "Closing" shall mean the transfer of real property as described in the Real Property Exchange Agreement. "Construction Contract" shall mean the contract between the Developer and the Construction Contractor for the construction of the Parking Structure. "Construction Contractor" shall mean J.W. Design and Construction, Inc., California Contractor's License No. 554910. "Construction Contractor Pay Request" shall mean a written request for payment submitted to the Developer by the Construction Contractor, which details the portion of the Work completed by the Construction Contractor for which it is requesting payment. "Construction Contractor's Fee means the fee which is added to any Actual Cost of City Change Orders to account for the Construction Contractor's overhead and profit, which fee is eight percent (8%) of any such amounts. "Contract Documents" means the Construction Contract and all other agreements allied with or incidental to the Construction Contract, including, without limitation, contracts with architects, engineers, consultants and other Persons who supply work,materials or services for the construction of the Parking Structure. "County"means the County of San Luis Obispo, California. "Developer"means Palm Street Parking Structure, LLC. "Developer Change Order" shall mean a Change Order which is not a City Change Order. "Developer's Property" means that portion of the Palm Street Project Property which was owned by the Developer or any affiliate thereof,prior to the Closing. As used in this definition, the term"affiliate" shall mean any person or entity which controls, is controlled by or is under common control with, Developer. "Director" means the Director of Public Works of the City, or his written designee acting as such under this Payment Agreement. 2 F:\TRANS\AGR\COP ELAND\PalmSt\PaymentAgmt(final)-0207.doc 2/10/2003 a� I LOP A 1 ATTACHMENT 2 "Estimated Construction Start Date" means the date which is ninety (90) days after the Closing Date. "Excluded Work" means any demolition to be performed on the Developer's Property prior to excavation or any site mitigation work which is required to be performed prior to the transfer of the Palm Street Project Property to the City under the Real Property Exchange Agreement. "Event of Default" shall mean the occurrence of any of the following: (i) the Developer or the Construction Contractor shall voluntarily file for reorganization or other relief under any Federal or State bankruptcy or insolvency law; (ii) the Developer or the Construction Contractor shall have any involuntary bankruptcy or insolvency action filed against it, or shall suffer a trustee in bankruptcy or insolvency or receiver to take possession of the assets of Developer or the Construction Contractor, as the case may be, or shall suffer an attachment or levy of execution to be made against any property it owns, in any of such cases, such circumstance shall have been terminated or released within ninety (90) days thereafter; (iii) the Developer or the Construction Contractor shall abandon construction of the Parking Structure,by failing for a period of three consecutive months to undertake substantial work related to the construction of the Parking Structure; (iv) the Developer or the Construction Contractor shall breach any material covenant or default in the performance of any material obligation hereunder and shall not have cured such breach within thirty (30) days after the City has delivered written notice of such breach to Developer; provided, however, that an Event of Default shall not exist under this clause (iv) if Developer shall cure the breach within such thirty (30) day period or shall have commenced to cure to completion even though cure may take more than thirty (30) days and if curable, Developer shall diligently pursue such cure to completion; (v) the Developer shall transfer any of its rights or obligations under this Payment Agreement without the prior written consent of the City, or (vi) the Developer shall cause, suffer or allow alien, mortgage, trust deed or other form of encumbrance, voluntary or involuntary, to be imposed on the Palm Street Project Property, either before or after conveyance of title thereto to City, which shall not have been terminated or released within ninety(90) days thereafter. "Fixed Amount" means [amount to be completed by Escrow Company under the Real Property Exchange Agreement] . The parties acknowledge that the Fixed Amount does not include the agreed value of the Developer's Property, which was conveyed to the City pursuant to the Real Property Exchange Agreement. "Parking Structure" means the structure described in Exhibit A hereto, consisting of a structure containing parking spaces and office space, completed in accordance with the Plans. "Payment Agreement" means this Payment Agreement, together with any Supplement hereto. "Payment Amount" means the Fixed Amount plus the Actual Cost of City Change Orders,but subject to the limitations and reductions provided for in Article V. 3 F:\TRANS\AGR\COPELAND\PalmSt\PaytnrntAgmt(final)-0207.doc 2/10!1003 ATTACHMENT 2 "Payment Request" means a document, substantially in the form of Exhibit B hereto, to be used by the Developer in requesting payment of the Payment Amount. "Person" means an individual, a corporation, a limited liability company; a partnership, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. "Plans" means the plans, specifications, schedules and related construction contracts for the Parking Structure thereof approved by the City, as described in Exhibit C attached hereto, and as may be modified by any Change Orders. "Real Property Exchange Agreement" means that certain Real Property Exchange Agreement, dated as of February , 2003, between the City and San Luis Obispo Court Street, LLC. "Rights and Warranties" shall have the meaning given in Section 5.3. "State"means the State of California. "Substantial Completion"shall have the meaning given in Section 5.2. "Supplement" means a written document amending, supplementing or otherwise modifying this Payment Agreement and any exhibit hereto. "Unanticipated Condition" means a soil, geologic or environmental condition, or other condition caused by a third party outside the control of the Developer or the General Contractor, relating to the construction of the Parking Structure which was not anticipated by the Developer or its agents after exercise of good and workmanlike care in the preparation of the Plans or in performing due diligence with respect to the Palm Street Project Property prior to the commencement of construction of the Parking Structure and was not reasonably apparent in any of the studies, reports and analysis of inspectors, engineers, architects identified on Exhibit D attached hereto. "Viewable Work" means that portion of the Work which is described in a Construction Contractor Payment Request that is, at the time such Construction Contractor Payment Request is received by the City, patent, uncovered and available for inspection by the City's Representative without the need for extensive testing. "Work" means the work necessary for the completion of the Parking Structure in accordance with the Plans,not including tenant improvements. 2. RECITALS 2.1 The Parking Structure. Developer acknowledges that Developer is solely responsible for the design, development and construction of the Parking Structure at no cost or expense to City, except for the obligation of City to pay the Payment Amount upon City's acceptance of Substantial Completion of the Parking Structure as provided in Article 5 below. F:\TRANS\AGR\COPELAND\PalmSt\PaymcntAgmt(final)-0207.doc 4 2/10/2003 r ATTACHMENT 2 2.2 Owner of Property. Upon the Closing under the Real Property Exchange Agreement, the City shall be: (i) the owner in fee simple of those portions of the Palm Street Project Property which represent fee simple interests and (ii) the owner of an easement interest of those portions of the Palm Street Project Property which are granted as easements in favor of the City. 2.3 Purpose of Agreement. This Payment Agreement is for the construction of the Parking Structure on the Palm Street Project Property, to provide business, service and shopping opportunities, to increase and stabilize the tax base of City and to otherwise utilize the Parking Structure for the benefit of the citizens and residents of City. The parking facilities in the Parking Structure are required to provide the parking requirements necessary to support development in the City's downtown area. Notwithstanding the foregoing, this Payment Agreement is an independent obligation of City and a default of Developer regarding any other development or agreement shall not be a default under this Payment Agreement. 2.4 The Financing. The Developer and the City intend by this Payment Agreement to agree to a plan to finance the payment by the City for construction of the Parking Structure upon Substantial Completion of the Parking Structure. There are not to be any progress payments to the Developer during construction of the Parking Structure. 2.5 Advantage to Citv. The City has determined that the undertaking of the construction of the Parking Structure by the Construction Contractor by or under the supervision of the Developer is advantageous to the City. The Developer hereby represents that it is competent to supervise the construction of the Parking Structure. 2.6 Agreements. In consideration of the mutual promises and covenants set forth herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the City and the Developer agree that the foregoing recitals, as applicable to each, are true and correct and further make the agreements set forth herein. 3. FUNDING 3.1 City Proceedings. The City agrees to pay the Payment Amount to the Developer as provided in this Payment Agreement. The City further agrees to conduct all necessary proceedings to appropriate funds of the City in an amount necessary to pay the Payment Amount when the Payment Amount is due and payable. The only liability of City arising from or out of the construction of the Parking Structure shall be the obligation of the City to Developer to pay the Payment Amount to Developer as provided in this Payment Agreement, even if the cost to the Developer to construct the Parking Structure is greater than the Payment Amount. The parties.acknowledge that the City will not have any obligation to make payment to the Construction Contractor notwithstanding the City's receipt or review of any Construction Contractor Pay Request. F:\TRANS\AGR\COPELAND\PalmSt\PaymrntAgmt(final)-0207.doc 5 2/102003 443 ATTACHMENIT 2 4. CONSTRUCTION OF THE PARIKING STRUCTURE 4.1 Plans. The City in its proprietary capacity and not as a regulatory agency has approved the Plans. Developer represents that the Plans were prepared by architects, engineers and other appropriately licensed professionals engaged and supervised by Developer for such purpose. A list of such professionals and identification of their contracts are attached hereto as Exhibit E. The City does not have, and by this Payment Agreement expressly disclaims, the right to or duty of the City in its proprietary capacity for any review of the approved plans drawings, and related documents for the purpose of determining compliance with building codes, safety features or standards or for the purpose of determining or approving engineering or structural design, sufficiency or integrity. The City does not have and expressly disclaims any right of supervision or control over the architects, designers, engineers or other draft persons and professionals responsible for the drafting and formulation of the approved plans, drawings, and related documents or any right of supervision or control of contractors, builders, trades and other persons engaged in constructing and fabricating the improvements pursuant to the Plans. City shall .have no .responsibility in its proprietary capacity for determining whether or not the plans, specifications or drawings are adequate for the Substantial Completion of. the Parking Structure or whether the manner of soil and site preparation and construction pursuant to such plans constitute a hazard or threat to the life, safety or property of any party or Person. The Developer shall obtain the written approval of the Plans in accordance with applicable ordinances and regulations of the City. Copies of all Plans shall be provided by the Developer to the Director (in both printed format and in an electronic format approved by the City) upon request therefore, and, in any event, as built drawings (in both printed format and in an electronic format approved by the Director) and a written assignment of the Plans by the Developer to the City shall be provided as set forth in Section 5.3 below. 4.2 Duty of Developer to Construct. Developer shall construct, or shall cause to be constructed, the Parking Structure upon the Palm Street Project Property by the Construction Contractor in accordance with the Plans pursuant to the Construction Contract. The Developer shall supervise and monitor the performance of the Construction Contractor to confirm that all operations with respect to the construction of the Parking Structure are performed in a good and worlananlike manner, with the standard of diligence and care normally employed by duly qualified persons utilizing their best efforts in the performance of comparable . work and in accordance with generally accepted practices appropriate to the activities undertaken. The Developer covenants to the City that the Construction Contractor will perform its obligations in accordance with the Construction Contract; and further covenants to the City that the Parking Structure shall be constructed and substantially completed as required by the Plans and as set forth in the Construction Contract, at no cost or expense to the City in excess of the Payment Amount as provided in this Payment Agreement. The Developer shall cause the Construction Contractor to maintain the Bond until he has discharged all of his duties under the Construction Contract. The Bond shall include a surety against all of the obligations of the Construction Contractor under the Construction Contract. The premium for the Bond shall not be included in the Fixed Amount. F:\TRANS\AGR\COPELAND\PalmSt\PaymentAgmt(final)-0207.doc 6 2/10/2003 r - ATTACHMENT 2 There shall be employed by the Developer and/or the Construction Contractor at all times adequate staff or consultants with the requisite experience and applicable licenses and registrations necessary to administer and coordinate all work related to the design, engineering, acquisition, construction and installation of the Parking Structure, and to pay prevailing wages to workmen performing work on or for the Parking Structure, as further set forth on Section 4.6 below. The Developer shall at all times employ adequate staff or consultants with the requisite experience and licenses to discharge its obligations under this Payment.Agreement. The Developer shall, or shall cause the Construction Contractor to prepare and provide to the Director, a progress schedule for the Work and the Developer shall use its best efforts to complete the Work and each portion of the Work, in accordance with such schedule. The Developer shall report to the Director regularly, but no less often than monthly after commencement of construction, on the status of completion of the Work, including a written explanation of any material delays or deviations from such schedule. The Developer agrees to cooperate with all reasonable written requests by City for written assurances that there are no circumstances, or to explain circumstances that have come to the attention of City, which if continued will or might lead to a default, delay or cessation of the Work; or to otherwise assure City that the Developer and the Construction Contractor will continue to have the ability and financial resources to diligently pursue, complete and pay for the Work. The Developer shall maintain the Parking Structure in good and safe condition until the Acceptance Date. Prior to the Acceptance Date, the Developer shall be responsible for performing any required maintenance on the Parking Structure. From and after the Acceptance Date, the City, at the City's cost, shall be responsible for managing, operating and performing any required operating maintenance and repair for the Parking Structure;provided, however, that the foregoing shall not be construed as releasing any party that has any obligations to the City under this Agreement that survive the Acceptance Date. 4.3 Supervision and Construction Procedures. The Developer shall, or shall cause the Construction Contractor to, supervise and direct the Work using its best skill and attention. It shall be solely responsible for all supervision of all construction means, methods, techniques, sequences,procedures and safety and for coordinating all portions of the Work under the Construction Contract. Work of various trades shall be coordinated to avoid interferences. The Developer shall enforce all material obligations and duties of the Construction Contractor as provided for in the Construction Contract, and shall be responsible to the City for the acts and omissions of the Construction Contractor, subcontractors and their agents and employees in their performance of the Work, and of all other persons performing any of the Work under a contract with the Developer. The Developer shall not be relieved from its obligations, liabilities or responsibilities in performing the Work in accordance with the Contract Documents either by the activities or duties of the Construction Contractor, or of the City or the City's Representative in the administration of the Contract, or by inspections, tests or approvals required or performed by persons other than the Developer, except to the extent otherwise provided herein. 7 F:\TRANS\AGR\COPELAND\Pa1mSt\PaymentAgmt(Snal)-0207.doc 2/10/2003 1 r Developer shall cause excavation of the Parking Structure to commence within thirty(30) days after the Estimated Construction Start Date and shall diligently thereafter pursue the construction of the Parking Structure to Substantial Completion. From time to time (expected to be at least every two weeks) at the request of the Director or the Developer, the Developer shall, and shall cause the Construction Contractor and Architect to, meet and confer with the Director and City's Representative regarding matters arising hereunder with respect to the Parking Structure and the progress in the construction of the same, and as to any other matter related to the Parking Structure or this Payment Agreement. Within seven (7) days following each such meeting at which a Construction Contractor Pay Request has been presented to the City, the City's Representative shall set forth in writing any objections to any representation made in the Construction Contractor Payment Request concerning completion of any Viewable Work and obligation to pay for such Viewable Work following Substantial Completion. Such objections shall be written, specific and in detail satisfactory to allow the Developer to satisfy any such objections. If the City's Representative fails to deliver objections within such time period, then the City shall be deemed to have approved the Viewable Work completed as represented in such Construction Contractor Payment Request. Approval by the City's Representative of the Viewable Work completed as represented in any Construction Contractor Payment Request shall constitute the City's agreement and representation and warranty that, subject to the requirement that the Work must function as an integrated whole, (i) such Viewable Work has been completed to its satisfaction and that the quality of materials and construction used in such Viewable Work is satisfactory to the City, and (ii) unless the City has exercised its rights under Section 4.8, upon Substantial Completion, it shall unconditionally accept such Viewable Work regardless of other disputes between the parties hereto and shall not holdback any portion of the Payment Amount on account of any subsequent claim of alleged failure or nonconformance of such Viewable Work. The City acknowledges that the Approved Lender is intended to be a beneficiary of the foregoing covenant and other terms of this Agreement regarding payment of the Payment Amount by the City. The Director or the City's Representative shall have the right-to be present at meetings between the Developer and the Construction Contractor, and to meet and confer with individual contractors if deemed advisable by the Director to assist in resolving disputes and/or ensure the proper Substantial Completion of the Parking Structure. The Director or the City's representative shall be given reasonable notice prior to any meetings involving dispute resolutions or significant problems regarding the proper Substantial Completion of the Parking Structure. The City has engaged Harris-&Associates to serve as the City's Representative in administering this Payment Agreement. The fees and expenses of such firm and any successor or replacement firm engaged by the City for such purpose shall be paid by City. City shall have the right to replace the City's.Representative at any time. 8 F:\TRANS\AGR\COPELAND\PaimSt\PaymrntAgmt(final)-0207.doc 2/10/2003 Cg.-oto ATTACHMENT 2 4.4 Labor and Materials. Unless otherwise provided in the Contract Documents, the Developer shall provide and pay for all labor, materials, equipment, tools, construction equipment and machinery, water, heat, utilities, transportation, storage, weather protection, construction of office space and other facilities and office services necessary for the proper execution and Substantial Completion of the Work, whether temporary or permanent and whether or not incorporated or to be incorporated in the Work and shall be responsible for the care and guarding thereof. Notwithstanding the foregoing, the parties acknowledge that the Developer may use the entire Palm Street Project Property as a staging area during the constructions and shall also be entitled to close and use the half of Morro Street which is adjacent to the Palm Street as a staging area during construction, all without additional charge to the Developer. Use of Morro Street shall be subject to the Developer obtaining all such permits and licenses from the City for such use in accordance with the City's standard policies and procedures. 4.5 Warrantv. The Developer warrants to the City that all materials and equipment furnished under this Contract shall be new and of good quality unless otherwise required or permitted by the Contract Documents or agreed to in writing by the City's Representative or the Director, and that all Work will be performed in a workmanlike manner by qualified workers, and will be of good quality, free from faults and defects and in conformance with the Contract Documents. All materials, equipment and work notconforming to these requirements, including substitutions not properly approved and authorized, shall be considered defective. If required by the Director or the City's Representative, the Developer shall furnish satisfactory evidence as to the kind and quality of materials and equipment used in connection with the Work. The Work must function as an integrated whole and therefore a one-year warranty period for all work regardless of phase will commence upon Substantial Completion of the entire Work. The warranty period for any corrected work shall be extended to run for one year after Substantial Completion of all convective work. This one year warranty shall not limit the terms of any special warranties given with regard to any portion of the Work. This one-year period relates only to the specific warranty of Developer, the Construction Contractor, subcontractors and material suppliers to correct the Work, and has no relationship to the time within which the obligation to comply with the Contract Documents may be sought to be enforced,nor to the time within which proceedings may be commenced to establish Developer's or the Construction Contractor or any subcontractor's or material supplier's liability with respect to its obligations. Notwithstanding anything above to the contrary, Developer shall use its best efforts to secure specific warranties from manufacturers for at least, and shall endeavor to obtain warranties which extend beyond, one year from the date of Substantial Completion, the additional cost of which shall be included in the Fixed Amount if not included in the bids described in Exhibit K-1 to the Real Property Exchange Agreement. Such extended warranties shall not be provided or enforced by the Developer beyond the first one year period and the City shall look solely to the manufacturer providing such extended warranty for correction of any Work which is the subject of such extended warranty found to be defective after the first year and not in accordance with the Contract Documents. The Developer shall use its best efforts to assist the City in enforcing the warranties of the Construction Contractor or Subcontractors, including any warranty for a period of more than one year. After Substantial Completion of the Work is accepted by City and 9 F:\TRANS\AGR\COPELAND\PatmS t\PaymentAgmt(fuml)-0207.doc 2/102003 ATTAC11m: IT 2 provided Developer has assigned to the City the Rights and Warranties, Developer shall be released from any liability under this Agreement or otherwise for any Rights and Warranties so assigned in accordance with Section 8.2 of this Agreement and for any other obligations under this Payment Agreement relating to the Work and to the construction of the Parking Structure. 4.6 Prevailing Wages, Relationship to Public Works. The Developer shall pay, or cause the Construction Contractor to pay, prevailing wages to workers for the Work regardless of whether the construction of the Parking Structure is a public work as defined by applicable law. The Developer covenants that, with respect to any contracts or subcontracts for the construction of the Parking Structure, it will assure complete compliance with the laws and regulations for the payment of prevailing wages for such construction, including but not limited to all applicable requirements of the City's charter.and municipal code. The Developer acknowledges that compliance includes, but is not limited to, the duty of each contractor and subcontractor to keep an accurate payroll record in accordance with Division 2, Part 7, Article 2 of the California Labor Code, and to famish such records in a timely manner upon request by the Developer, the City or the California Department of Industrial Relations. Such compliance also includes the duty of the Developer to investigate, and, if substantiated, cause to be corrected, any alleged violation of applicable prevailing wage rules,regulations of statutes, or if not corrected to cooperate with the City to identify and impose such penalties as allowed by applicable State or City law or regulation In furtherance of the foregoing, the Developer agrees to provide the Director,promptly following receipt of a written request therefore, with a certified payroll for all work for which payment has been or is then being requested under this Payment Agreement.The City and the Developer agree that the Parking Structure are of local, and not state-wide concern, and that, because the City is a charter city, most provisions of the California Public Contract Code shall not apply to the construction of the Parking Structure. Developer agrees that the Developer shall award all contracts for the construction of the Parking Structure and that all contracts, including subcontracts, shall require payment of prevailing wages and compliance with the provisions of Section 1720 et seq. of the California Labor Code. 4.7 City's Right To Stop The Work. If the Developer or the Construction Contractor fails to correct defective Work or, in the City's reasonable judgment,persistently fails to carry out the Work or any portion thereof in accordance with the Contract Documents, including the failure to supply materials, labor, equipment or services in accordance with the Agreement, the City, after expiration of any applicable grace period and upon giving the Developer and the Construction Contractor thirty (30) days advance written notice of the City's intent so to do, by a written order, may order the Developer and the Construction Contractor to stop the Work, or any portion thereof at Developer's or the Construction Contractor's sole expense, until the cause for such order has been eliminated; however, this right of the City to stop the Work shall not give rise to any duty on the part of the City to exercise this right for the benefit of the Developer or the Construction Contractor or any other person or entity. Such stoppage shall not be a basis for Developer's or Construction Contractor's requesting any extension of time unless it constitutes a force majeure event under Section 9.3 below. 4.8 City's Right To Carry Out The Work. Upon the occurrence of an Event of Default then the City may, without prejudice to any other remedy it may have, after giving the Developer and the Construction Contractor thirty (30) days advance written notice of the City's 10 F:\TRANS\AGR\COPELAND\Pa1mSt\PaymrntAgmt(£nal)-0207.doc 2/10/2003 a �49 ATTACHMENT 2 intent so to do, make good such deficiencies or defects, which remedy may include the engagement of other contractors and other professionals to undertake and complete the Work. In such case, an appropriate City Change Order shall be issued by the City deducting from the Payment Amount the Actual Cost of correcting such deficiencies. If the Payment Amount is not sufficient to cover such amount, the Developer shall promptly pay the difference to the City. 4.9 Early Occupancy. With the prior approval of the Developer, which approval may be withheld in the Developer's absolute discretion, except that the Developer shall not unreasonably withhold its approval if the City intends to occupy the Parking Structure for the sole purpose of constructing tenant improvements and it has provided the Developer with adequate written assurance that it will do so in compliance with the conditions set forth below, the City reserves the right to occupy or otherwise make use of all or any part of the Parking Structure at any time prior to Substantial Completion upon 10 days' written notice to the Developer. Such occupancy shall be subject to the following conditions: 4.9.1 City shall prevent its occupancy from interfering with the conduct of the Construction Contractor's remaining Work, 4.9.2 Developer shall not be required to repair damage to premises caused by City's occupancy or use; 4.9.3. the warranty period for those portions of the premises occupied by City shall start as of the date of actual occupancy or use by City, except that any warranty or guarantee period for equipment, systems or similar component parts of the Work which, as an integrated whole, serve portions of the Work in addition to those utilized by.City shall not start until Substantial Completion of the entire Project; 4.9.4 occupancy or use solely for the purpose of constructing tenant improvements shall not constitute acceptance by City either of the completed Work or any portion thereof, nor will it relieve Contractor from full responsibility for correcting defective work or materials found before Substantial Completion and acceptance of all the Work, or the equipment, systems or similar component parts or during the applicable warranty period. 4.9.5 occupancy or use shall not be deemed to be the equivalent of filing a Notice of Completion; 4.9.6 the City shall bear all costs due to such occupancy or use, and shall promptly reimburse the Developer for any utilities or other similar charges resulting from City's use and paid by Developer. 4.10 Developer is Independent Contractor. In performing this Payment Agreement, the Developer is an independent contractor and not the agent or employee of the City. The City shall not be responsible for making any payments to any officer or employee of the Developer or the Construction Contractor or any contractor, subcontractor, agent, consultant, employee or supplier selected by the Developer. 4.11 Performance and Pavment Bonds. In addition to the performance bond to be provided as set forth in Section 4.2, the Developer agrees to comply with all applicable 11 F:\TRANS\AGR\COPELAND\Pa1mS t\PaymentAgmt(final)-0207.doc 2/102003 X11 jfn Dlrl 1 ATTACHRPHPIT 2 performance and payment bonding requirements of the City (and other applicable public entities and/or public utilities) with respect to the construction of the Parking Structure and to procure such bonds, including a labor and materials and performance bond, for the benefit of the City as an additional insured, and consistent with the amount due to the Construction Contractor under the Construction Contract. 4.12 Contracts and Change Orders. The Developer shall be responsible for entering into all Change Orders with the Construction Contractor, subject to the City's right to initiate City Change Orders under Section 4.8. Each Change Order shall be submitted to the Director for review; provided, however, that prior approval.of a Change Order by the Director shall only be required for City Change.Orders and for Developer Change Orders which either. (i) materially alter the quality or character of the Parking Structure; or (ii) involve increased cost to the Developer greater than $50,000. Within five(5) business days of receipt by the Director of a Change Order that needs the prior approval of the Director, the Director shall either (i) approve or deny such Change Order (any such denial to be in writing, stating the reasons for denial and the actions, if any, that can be taken to obtain later approval), or (ii) notify the Developer that it needs additional time (not to exceed an additional five (5) business.days) to approve or deny the Change Order. The Director shall not unreasonably withhold approval of a Change Order which requires the approval of the Director. The Director will use a good faith effort to grant approvals or provide denials on a more expeditious basis in the event that the Developer identifies in writing that the subject Change Order is needed to address an emergency or critical path situation. Any City Change Order approved by the Director shall increase or decrease, as the case may be, the Payment Amount by the Actual Cost of City Change Order, but any Developer Change Order shall in no way affect the amount of the Payment.Amount. 4.13 Time for Substantial Completion. The Developer agrees that this Payment Agreement is for the benefit of the City and the Developer and, therefore, the Developer represents that it expects to complete the Parking Structure and to have requested payment for the Parking Structure under this Payment Agreement within 14 calendar months from the Estimated Construction Start Date. 4.14 Third Party Beneficiary. Developer agrees that the Construction Contract shall expressly state that the City is a third party beneficiary of the Construction Contract and shall require the Construction Contractor to comply with Article 4, Section 5.7 and Article 7 of this Agreement. 5. PAYMENT 5.1 hmection. The Payment Amount shall not be paid by the City to the Developer until Substantial Completion. In order for Substantial Completion to have occurred, the Parking Stricture shall have been inspected by the Director and found.to be substantially in completed in accordance with the Plans, and shall have been found by the applicable regulatory department of the City to be in compliance with the applicable building and safety codes of the City. The applicable building and safety department of the City shall make or cause to be made regulatory periodic site inspections of the Parking Structure to be acquired hereunder in accordance with customary inspection practices of the City for similar public improvements. The 12 F:\TRANS\AGR\COPELAND\PalmS t\PaymentAgmt(final)-0207.doc 2/10/2003 Developer agrees to pay all inspection, permit and other similar fees of the City applicable to construction of the Parking Structure, which fees are included in, and are not in addition to, the Payment Amount. 5.2 Agreement to Pay the Payment Amount for the Parking Structure. Developer acknowledges that the construction constitutes improvements to land which will be owned by City following the Closing, and that City is the owner of such improvements. Developer hereby agrees to sell, transfer and convey to City any and all right, title or interest Developer has, or may claim to have, to the Parking Structure, and City hereby agrees to pay the Payment Amount to the Developer and to accept the Parking Structure, subject to the terms and conditions hereof. Upon Developer's request, the City shall confirm its acceptance of the Parking Structure in writing, which writing shall be executed in recordable form and which the Developer may record concurrently with the recordation of the Notice of Completion. The City shall not be obligated to fund the costs of construction of the Parking Structure or to pay the Payment Amount until Substantial Completion has occurred. As used in this Payment Agreement, Substantial Completion shall mean: (i) completion of the shell and core of the Parking Structure, including the office space but without tenant improvements in the office space, in accordance with the Plans, but subject to additional work that may be needed to complete the Work which is not individually, or in the aggregate, material and for which a completion bond remains in place; (ii) the issuance of a certificate of occupancy for the portion of the Parking Structure designed for automobile parking; (iii) the availability of the office space balance of the Parking Structure to the City for the construction of tenant improvements, (iv) the delivery by Developer to City of a Payment Request required by Section 5.3 and (v) the City's determination after inspection under Section 5.1 above that the Parking Structure was substantially completed in accordance with the Plans. When Substantial Completion has occurred,the Developer and the Director shall record a Notice of Completion. 5.3 Payment Request. In order to receive the Payment Amount for a completed Parking Structure, the Developer shall deliver.to the Director. (i) a Payment Request for such Parking Structure, together with all attachments and exhibits required to be included therewith, including an itemization of all City Change Orders and the amount by which each changed the Payment Amount; (ii) a certificate from the Architect in form and substance reasonably satisfactory to the Director that the Parking Structure was completed in accordance with the Plans; (iii) satisfactory evidence that Substantial Completion has occurred and (iv) an assignment of the Construction Contract, the contract with the Architect, the as-built Plans, the warranties, guaranties, maintenance obligations and other evidence of contingent obligations of third persons for the Parking Structure (the "Rights and Warranties") in a form reasonably acceptable to the City. 5.4 Processing Payment Request. Within five (5) business days of receipt of any Payment Request, the Director shall review the request for completeness and notify the Developer whether such Payment Request is complete, and, if not, what additional documentation must be provided. Within ten (10) business days following receipt of a Payment Request (and all accompanying documentation), the Director shall (a) conduct a review in order to confirm that the Parking Structure was constructed in accordance with the Plans there for; (b) confirm the matters certified in the Payment Request; and (c) provide a written approval or 13 F:\7RANS\AGR\COPELAND\PalmSt\PaymrntAgmt{final}0207.doc 2/10/2003 SdUP Cuuni, n7 2 denial (specifying the reason for any denial) of the request. Upon any such approval, the City is to be issued an updated endorsement of its title insurance policy for coverage in the full amount of the total of the Payment Amount and the agreed exchange value of the Palm Street Project Property pursuant to the Real Property Exchange Agreement, showing title vested in the City, free and clear of all exceptions except those agreed to by the City. The Developer agrees to cooperate with the Director in conducting each such review and to provide the Director with such additional information and documentation as is reasonably necessary for the Director to conclude each such review. 5.5 Payment. Upon approval of the Payment Request by the Director, the Director shall sign the Payment Request and forward the same to the Treasurer of the City. Upon receipt of the reviewed and fully signed Payment Request, the Treasurer of the City shall, within the then current City financial accounting payment cycle but in any event within seven(7) business days of receipt of the Payment Request as approved by the Director, cause the same to be paid, less any amounts required to be held or reserved due to stop orders, mechanics' or materialmen's lien claims or other claims against the City or its title to the Parking Structure, by the City Treasurer directly to the Developer. The Payment Amount paid hereunder for the Parking Structure shall constitute payment in full for the Parking Structure, including, without limitation, payment for all labor, materials, equipment, tools and services used or incorporated in the work, supervision, administration, overhead, expenses and any and all other things required, famished or incurred for completion of the Parking Structure, as specified in the Plans. 5.6 Restrictions on Payments. Notwithstanding any other provisions of this Payment Agreement, the following restrictions shall apply to any payments made to the Developer hereunder: 5.6.1 Amounts of Payments. Subject to the following paragraphs of this Section, payments for the Parking Structure will be made only in the amount of the Payment Amount; however, if the cost actually paid by the Developer for the construction of the Parking Structure exceeds the Payment Amount, the excess shall be borne by the Developer. Nothing herein shall require the City in any event to pay more than the Payment Amount for the Parking Structure. To the extent that the City is required to pay for the Parking Structure in excess of the Payment Amount, Developer shall pay such excess to City upon demand of City. 5.6.2 The City may make any payment jointly to the Developer and any lender of funds to Developer for the purpose of paying the costs or development and construction of the Parking Structure who is the assignee of this Payment Agreement for the purpose of securing such loan of funds, or as the City otherwise reasonably determines such joint or third party payment is necessary to obtain lien releases. 5.6.3 Withholding Payments. The City shall be entitled,but shall not be required, to withhold a portion of the Payment Amount if the Developer is in default of its obligations hereunder and such portion is reasonably necessary to cure, eliminate or reserve for such default. In the event of any such default, the City may make payments directly to contractors or other third parties employed in connection with the construction of the.Parking 14 F:\TRANS\AGR\COPELAND\PalmSt\PaymentAgmt(final)-0207.doc 2/102003 �-sa s,. Structure or to any assignee of the Developer's interests in this Payment Agreement (and not to the Developer), and such payments shall be a credit against the Payment Amount. 5.6.4 The City shall be entitled to withhold payment hereunder that is the subject of a Payment Request until it is satisfied that amount to be paid to the Developer will not be needed to satisfy any claims for labor and materials that have not been paid by the Developer. The Director, in his discretion, may waive this limitation upon the provision by the Developer of sureties, undertakings, securities and/or bonds of the Developer or appropriate contractors or subcontractors and deemed satisfactory by the Director to assure payment of such claims. Nothing in this Payment Agreement shall be deemed to prohibit the Developer from contesting in good faith the validity or amount of any mechanics' or materialmans' lien nor limit the remedies available to the Developer with respect thereto so long as such delay in performance shall not subject the Parking Structure thereof to foreclosure, forfeiture or sale. In the event that any such lien is contested, the Developer shall only be required to post or cause the delivery of a bond in an amount equal to the amount in dispute with respect to any such contested lien, so long as such bond is drawn on an obligor and is otherwise in a form reasonably acceptable to the Director. 5.7 Defective or Nonconforming Work. If any of the work done or materials furnished for a Parking Structure are found by the Director to be defective or not in accordance with the applicable Plans: (i) and such finding is made prior to payment for the Payment Amount of such Parking Structure hereunder, the City may withhold payment therefore in amounts reasonably estimated by the Director as needed to correct such defect or nonconformance until such defect or nonconformance is corrected to the satisfaction of the Director, or(ii)such finding is made after payment of the Payment Amount of such Parking Structure, the City reserves its rights against Developer and the Construction Contractor for work performed or materials provided that are found to be defective or not in accordance with the Plans. The City shall pay the Payment Amount to the Developer less retentions in amounts estimated by the Director, after due consultation with the Developer, to assure completion of what the Director deems to be defects, incompletion or nonconforming work. Any such retention will be released to the Developer upon final completion and acceptance of the correction or completion, as the case may be,of the minor failures. 5.8 No Payment of Plans. Management Fee and Predevelopment Costs. The Developer not be shall be entitled to any additional payments for the Plans, a fee for managing the construction of the. Parking Structure, or any costs or expenses to Developer for predevelopment and pre-construction. All such costs and expenses are subsumed in the Payment Amount. 6. CITY OWNERSHIP OF THE PARKING STRUCTURE 6.1 The Parking Structure to be Owned by the City. Title to the Parking Structure shall be vested in City in fee simple absolute. The Developer agrees to assist the City in obtaining grant deeds, quitclaims deeds, and, as necessary or convenient, a bill of sale, or other appropriate instrument, from parties contracting with Developer in such manner to make City the 15 F:\TRANS VAGR\COPELAND\Pa1mSt\PaymentAgmt(final)-0207.dx 2/102003 T 1?41921A r1: � City thereof free and clear of the claims of any other party except those permitted exceptions to which City shall have expressly agreed herein or in the Real Property Exchange Agreement. 7. INSURANCE 7.1 Insurance Requirements. The Developer shall, at all times prior to the final Acceptance Date of the Parking Structure, procure and maintain, at the Developer's expense, the following insurance coverages from insurance carriers admitted to write insurance in the State of California or authorized non-admitted insurers with a rating of or equivalent to A:VII by A.M. Best Company: 7.1.1 Commercial general liability insurance (equivalent in scope to ISO form CG 00 01 1185 or 11 88) in an amount not less than One Million Dollars ($1,000,000) per occurrence and in aggregate. Such coverage shall include but shall not be limited to independent contractor's liability, broad form contractual liability, cross liability protection, and products and completed operations liability. The City, its officials, employees, and agents shall be named as additional insured's by endorsement (equivalent in scope to ISO form CG 20 26 11 85) with respect to liability arising out of activities by or on behalf of Developer or the Construction Contractor, or in connection with the development, use or occupancy of the Palm Street Project Property and the Parking Structure. This insurance shall contain no special limitations on the scope of protection afforded to the City, its officials, employees, and agents. 7.1.2 Commercial automobile liability insurance (equivalent in scope to ISO form CA 00 0106 92) covering Auto Symbol 1 (Any Auto) in an amount not less than One Million Dollars ($1,000,000) combined single limit per accident for bodily injury and property damage. 7.1.3 Professional liability insurance in an amount not less than. One Million Dollars ($1,000,000) per occurrence covering the work of any person providing architectural, consulting, engineering, environmental, landscape architectural, surveying, real estate, soils engineering, or other professional services with respect to the development and construction of the Parking Structure; provided that this requirement may be (i) waived by the City's Risk Manager in writing if subcontractors provide insurance of such character acceptable in form and substance to the City's Risk Manager. 7.1.4 "All Risk" Property insurance, including builder's risk protection during the course of construction and debris removal, in an amount sufficient to cover the full replacement value of all buildings and structural improvements erected on the site. City shall be named as additional insured and loss payee under a standard loss payable endorsement 7.1.5 Workers' compensation insurance as required by the Labor Code of the State of California and employer's liability insurance with minimum limits of One Million Dollars($1,000,000)per accident. 7.2 Insurance Requirements for Developer's Contractor and Subcontractors. Developer shall require the Construction Contractor to meet the insurance requirements herein as applicable. F:\TRANS\AGR\COPEL.AND\Pa1mSt\PaymrntAgmt(final)-0207.doc 16 2/10/2003 / r�/ l ( 1Tyl I1 �r /. 2 7.3 Waiver of Subrogation. With respect to damage to property, City and Developer hereby waive all rights of subrogation, one against the other, but only to the extent that collectible commercial insurance is available for said damage. 7.4 Self-Insurance and Deductibles. Any self-insurance program, self-insured retention, or deductible must be approved separately in writing by City's Risk Manager or designee and shall protect the City and its officials, employees, and agents in the same manner and to the same extent as they would have been protected had the policy or policies not contained retention or deductible provisions. 7.5 Cancellation: Severability of Interests: Primary and Noncontributing. In addition to the endorsements specified herein, each insurance policy required herein shall also be endorsed to provide as follows: (a) that coverage shall not be voided, canceled or changed by either party except after thirty (30) days prior written notice to City, (b) that the insurance shall apply separately to each insured against whom claim is made or suit is brought, except with respect to the limits of the insurer's liability; and (c) and that coverage shall be primary and not contributing to any other insurance or self-insurance maintained by City, its official, employees, or agents. 7.6 Delivery of Insurance Documentation. 7.6.1 Prior to the start of performance under this Payment Agreement, Developer shall deliver to City certificates of insurance and required endorsements evidencing the insurance coverage required by this Payment Agreement for approval as to sufficiency and form, including any insurance required of Developer's contractors or subcontractors. The certificates and endorsements shall contain the original signature of a person authorized by that insurer to bind coverage on its behalf. 7.6.2 Developer shall, at least thirty (30) days prior to expiration of the policies of insurance required herein, funiish City with certificates of insurance and endorsements evidencing renewal of the insurance required herein. City reserves the right to require complete certified copies of all policies of the Developer or any of the Developer's contractors or subcontractors at any time. 7,7 General. The requirements of this Article as to the types, limits and City approval of insurance coverage to be maintained by the Developer are not intended to and shall not in any manner limit or qualify the liabilities and obligations assumed by the Developer under this Payment Agreement. 8. REPRESENTATIONS,WARRANTIES AND COVENANTS 8.1 _Representations, Covenants and Warranties of the Developer. The Developer represents and warrants for the benefit of the City as follows: 8.1.1 Organization. The Developer is a limited liability company, is in compliance with all applicable laws of the State, and has the power and authority to own its 17 F:\TRANS\AGR\COPELAND\PalmSt\PaymentAgmt(final)-0207.doc 2/10/2003 a-sem properties and assets and to carry on its business as now being conducted and as now contemplated. 8.1.2 Authority. The Developer has the power and authority to enter into this Payment Agreement, and has taken all action necessary to cause this Payment Agreement to be executed and delivered, and this Payment Agreement has been duly and validly executed and delivered by the Developer. 8.1.3 Binding Obligation. This Payment Agreement is a legal, valid and binding obligation of the Developer, enforceable against the Developer in accordance with its terms, subject to bankruptcy and other equitable principles. 8.1.4 Compliance with Laws. The Developer shall not with knowledge commit, suffer or permit any act to be done in, upon or to the Palm Street Project Property or the Parking Structure in material violation of any law, ordinance, rule, regulation or order of any governmental authority or any covenant, condition or restriction now or hereafter affecting the Parking Structure. 8.1.5 Financial Records. Until the Acceptance Date of the Parking Structure by the City, the Developer covenants to maintain proper books of record and account for the construction of the Parking Structure and all costs related thereto. Such accounting books shall be maintained in accordance with generally accepted accounting principles or other accounting basis consistently applied, and for a period of 3 years after the Acceptance Date shall be available for inspection by the City or its agent at any reasonable time during regular business hours on.reasonable notice. 8.2 Indemnification and Hold Harmless. The Developer shall assume the defense of,indemnify and save harmless the City, members of the City Council of the City, their officers, officials, employees and agents .and each of them, from and against all actions, damages,claims, losses or expense of every type and description to which they may be subjected or put,by reason of, or resulting from the breach of any provision of this Payment Agreement by the Developer, the Developer's or any other entity's negligent design, engineering and/or construction of any of the Parking Structure acquired from the Developer hereunder, the Developer's non-payment under contracts between the Developer and its consultants, engineer's, advisors, contractors, subcontractors and suppliers in the provision of the Parking Structure, or any claims of persons employed by the Developer or its agents to construct the Parking Structure. Notwithstanding the foregoing, no indemnification is given hereunder for any action, damage, claim, loss or expense directly attributable to the intentional acts or sole negligence of the City, or its officers, directors, employees or agents hereunder. If the City has received an unconditional assignment of the Rights and Warranties duly executed by the Developer, the City, subject to the following conditions, shall waive and release Developer from any claims that are the fault of a third party under its agreement with Developer and not the fault of Developer. By such assignment and any claim of waiver or release of Developer,Developer warrants and covenants to City that such agreement with the third party is a valid and binding agreement enforceable in accordance with-its terms, that Developer has the right to make the assignment of such Rights and Warranties, that the third party has been fully 18 F:\TRANS\AGR\COPELAND\Pa1mSt\PaymrntAgmt(final)-0207.doc 2/10/2003 a�sb l _ paid and compensated in accordance with such agreement, that Developer is not in default under such agreement; that such assignment shall be free of any offsets, claims, counterclaims or causes of action that the third party may have or may claim to have against Developer and that Developer will cooperate and assist City in the prosecution of any claim, suit or proceeding by City against the third party. Developer agrees that the City, at its election, may institute claims, suits and proceedings related to the Work against such defaulting third parties in the name of the Developer, but for the benefit of the City, provided that the Developer is held harmless and indemnified by the City for any costs, expenses, court costs, attorneys' fees of other litigation costs to which the third party may be entitled to due to or arising out of such claims, suits or proceedings initiated by the City against such third party, provided, however, that the City shall not be liable to Developer for any other claims against Developer by such third parties not related to the Work. If a third party is awarded or is otherwise entitled to any offset or counterclaim, or the damages to which the City may otherwise be entitled to is reduced, due to or arising out any claim of the third party against Developer related to the Work, Developer shall indemnify City and hold it free and harmless from any such offset or counterclaim. Developer shall bear all costs of defending any such claim not related to the Work against Developer by a third party. No provision of this Payment Agreement shall in any way limit the Developer's responsibility for payment of damages resulting from the operations of the Developer, its agents, employees or its contractors. 9. TERMINATION 9.1 Mutual Consent. This Payment Agreement may be terminated by the mutual, written consent of the City and the Developer, in which event the City may let contracts to qualified contractors for any remaining work related to the Parking Structure not theretofore acquired from the Developer hereunder, and use all or any portion of monies available to City to pay for same, and the Developer shall have no claim or right to any further payments for the Payment Amount of the Parking Structure hereunder, except to the extent that the Payment Amount exceeds the cost to the City to complete the Parking Structure. 9.2 City Election for Cause. Upon the occurrence of an Event of Default, the City, at its option, may seek damages, equitable relief against Developer and the Construction Contractor (as the case may be), or at the written election of the City, terminate this Payment Agreement,without the consent of the Developer. Upon the occurrence of an Event of Default, the City shall give written notice of its knowledge thereof to the Developer, and the Developer agrees to meet and confer with the Director and other appropriate City staff and consultants as to options available to assure timely completion of the Parking Structure. Upon the expiration of any applicable grace period, such options may include, but not be limited to the termination of this Payment Agreement by the City. If the City elects to terminate this Payment Agreement, the City shall first notify the Developer of the grounds for such termination and allow the Developer a minimum of thirty(30) days to eliminate or mitigate to the satisfaction of the Director the grounds for such termination. Such period may be extended if the Developer, to the reasonable satisfaction of the City, is 19 F:\TRANS\AGR\COPELAND\Pa1mSt\PaymcntAgmt(final)-0207.doc 2/102003 OL ^� i proceeding with diligence to eliminate or mitigate such grounds for termination. If at the end of such period (and any extension thereof), as determined solely by the City, the Developer has not eliminated or completely mitigated such grounds, to.the satisfaction of the City, the City may then terminate this Payment Agreement. Notwithstanding the foregoing, so long as an Event of Default has occurred, notice of which has been given by the City to the Developer, and such event has not been cured or otherwise eliminated by the Developer within any applicable grace period, the damages caused to City by such Event of Default shall be an offset against the obligation of City to pay the Payment Amount, and payment of the Payment Amount shall not be owing, due or payable until the amount of damages accruing to City due to such event or events shall have been finally determined and deducted from the Payment Amount. Such damages shall be limited to actual damages. 9.3 Force Majeure. The time for completion of the Work by Developer or the Construction Contractor may be extended only upon notice of a claim for delay from the party claiming an extension of the event causing a construction delay. Such claim of an extension will be allowed only if the delay is caused by the fault of the City, is due to a force majeure event beyond the control or reasonable anticipation of the obligated party, such as: an act of nature (e.g., unusual rain, that is, more rain or rainy days than commonly expected in view of weather records and forecasts); discovery during construction of unknown environmental, archaeological or geologic conditions; or events caused by independent third parties who have not contracted with the obligated party(e.g., government restrictions or vandalism that delay work or the supply of materials). The time for completion of construction may be so delayed only for the amount of time such delay causes a delay in the completion date resulting from the delaying event. No delay will be allowed, for instance, .for lack of funds, for failure to properly prepare for completion, for failure of the Developer, the Construction Contractor or a subcontractor or material supplier to perform or for a risk that due diligence could have anticipated. An extension will be allowed only for delays in the work of construction, and not delays for other reasons, such as inability to obtain financing, the failure of any person to perform Work required of that person, the failure to have complete working or field drawings or the failure to timely order Work, materials, supplies, trade performance or tools. Whenever performance of the Work is required of a party hereunder, that party shall use all due diligence and take all necessary measures in good faith to perform, but if completion of performance is delayed by reasons of floods, earthquakes or other acts of God, war, civil commotion, riots, strikes, picketing, or other labor disputes, damage to work in progress by casualty, material shortages, or by other cause beyond the reasonable control of the party (financial inability excepted), then the specified time for performance shall be extended by the amount of the claimed delay actually so caused. 10. MISCELLANEOUS 10.1 Limited Liability of City Personnel. No member of the City Council, or City staff member, employee or agent shall incur any liability hereunder to the Developer or any other party in their individual capacities by reason of their actions hereunder or execution hereof. 20 F:\TRANS\AGR\COPELAND\PalmSt\PaymrntAgmt(final)-0207.doc 2/10!2003 �r� 10.2 Audit. The Director and/or the Treasurer or:other finance officer of the City shall have the right, during normal business hours and upon the giving of two (2) business days prior written notice to the Developer, to review or have an appointed representative review, all books and records of the Developer pertaining to costs and expenses incurred by the Developer in to any of the Parking Structure, and any contracts awarded or orders given for the construction thereof or materials therefore. 10.3 Attorney's Fees. In the event that any action or suit is instituted by either party against the other arising out of this Payment Agreement, the party in whose favor final judgment shall be entered shall be entitled to recover from the other party all costs and expenses of suit, including reasonable attorneys' fees. 10.4 Notices. Any notice, payment or instrument required or permitted by this Payment Agreement to be given or delivered to either party shall be deemed to have been received when personally delivered, or transmitted by telecopy or facsimile transmission (which shall be immediately confirmed by telephone and shall be followed by mailing an original of the same within twenty-four hours after such transmission), or three business days following deposit of the same in any United States Post Office, registered or certified mail, postage prepaid, addressed as follows: Palm Street Parking Structure, LLC Post Office Box 1348 San Luis Obispo,California 93406 Attention: Tom Copeland With a copy to- K-Robin Baggett, Esq. Sinsheimer, Schiebelhut &Baggett 1010 Peach Street San Luis Obispo, California 93401 and,if to City, as follows: City of San Luis Obispo 990 Palm Street San Luis Obispo, California 93401-3249 Attention: City Administrative Officer Facsimile: (805)'781-7109 With a copy to: City Attorney City of San Luis Obispo 990 Palm Street San Luis Obispo, California 93401-3249 Facsimile: (805) 781-7409 21 F:\TRANS\AGR\COPEL.AND\PalmSt\PaymentAgmt(final)-0207.doe 2/10/2003 o��� l 2 Each party may change its address or addresses for delivery of notice by delivering written notice of such change of address to the other party. 10.5 Severability. If any part of this Payment Agreement is held to be illegal or unenforceable by a court of competent jurisdiction, the remainder of this Payment Agreement shall be given effect to the fullest extent possible. 10.6 Successors and Assigns. This Payment Agreement shall be not be assigned by the Developer, except as security to an Approved Lender. Neither the Palm Street Project Property nor the Parking Structure, or any portion thereof in progress of construction, shall be encumbered by Developer or the Construction Contractor as security for the Actual Costs or for any other indebtedness of Developer. Any such assignment in violation of this Payment Agreement shall be null and void, and shall not create any rights in the assignee. Any one or combination (including, without limitation, a consortium) of the following lending institutions are deemed to be an Approved Lender: 10.6.1 a commercial or savings bank whose deposits are insured by the Federal Deposit Insurance Corporation; 10.6.2 an insurance company or other company engaged in the ordinary course of business as a lender with net unencumbered assets in the amount of not less than $500,000,000 which is either. (a) duly licensed or registered with any regulatory agency having jurisdiction over its operation, or (b) is any other company not duly licensed or registered with any regulatory agency, provided such company is not under any order or judgment of any court or administrative agency restricting or impairing its operation as a lender where the restriction or impairment would be directly related to a proposed loan to Developer and which is regularly engaged in business in an office or location in the State of California. City agrees to reasonably cooperate with Developer and an Approved Lender to facilitate such financing, such as the execution of a consent to an assignment of this Payment Agreement for the purpose of such financing, provided that such financing complies with this Payment Agreement. City further agrees to enter into agreements with such Approved Lender regarding reasonable provisions for notices,priority of remedies, clarifications of procedures and other procedural matters that do not alter or modify any substantive rights of the City or obligations of Developer. Such agreements shall only be for the benefit of the Approved Lender in the due enforcement of its security, and shall not be for the benefit of or enforceable by Developer, nor shall it be deemed to amend the Payment Agreement between Developer and City. 10.7 Other Agreements. Nothing herein shall be construed as affecting the City's or the Developer's rights, or duties to perform their respective obligations, under other agreements, use regulations, building and safety codes, environmental laws, subdivision requirements or other laws, rules, regulations or policies relating to the development of the 22 F:\TRANS\AGR\COPEL.AND\Pa1mSt\PaymrntAgmgfinal)-0207.doc 2/102003 -bb/hh Parking Structure. This Payment Agreement shall not confer any additional rights, or waive any rights given, by either party hereto under any development or other agreement to which they are a party, except that City shall at all times be the third-party beneficiary of all contracts concerning the Parldng Structure and to which Developer is itself a party or a third-party beneficiary. To the extent any term or conditions of this Payment Agreement conflicts with any term condition of the Memorandum of Understanding, this Payment Agreement shall supersede and prevail over the Memorandum of Understanding. 10.8 Waiver. Failure by a party to insist upon the strict performance of any of the provisions of this Payment Agreement by the other party, or the failure by a party to exercise its rights upon the default of the other party, shall not constitute a waiver of such party's right to insist and demand strict compliance by the other party with the terms of this Payment Agreement thereafter. 10.9 Merg . No other agreement, statement or promise made by any party or any employee, officer or agent of any party with respect to any matters covered.hereby that is not in writing and signed by all the parties to this Payment Agreement shall be binding. 10.10 Parties in Interest. Nothing in this Payment Agreement, expressed or implied, is intended to or shall be construed to confer upon or to give to any person or entity other than the City and the Developer any rights, remedies or claims under or by reason of this Payment Agreement or any covenants, conditions or stipulations hereof; and all covenants, conditions, promises, and agreements in this Payment Agreement contained by or on behalf of the City or the Developer shall be for the sole and exclusive benefit of the City and the Developer. 10.11 Amendment. This Payment Agreement may be amended, from time to time,by written Supplement hereto and executed by both the City and the Developer. 10.12 Counterparts. This Payment Agreement maybe executed in counter-arts, each of which shall be deemed an original. 23 F:\TRANS\AGR\COPELAND\Pa1mSt\PaymentAgmt(final)-0207.doc 2/10/2003 10.13 Governing Law. The provisions of this Payment Agreement shall be governed by the laws of the State of California applicable to contracts made and performed in such State. PALM STREET PARKING STRUCTURE, LLC, a California limited liability company By: Tom Copeland Its: Managing Member CITY OF SAN LUIS OBISPO, a municipal corporation and Charter.City By: David F. Romero Mayor Attest: By: Lee Price City Clerk Approved as to Form: Gilbert A. ru o Acting City Attorney By: Herb Weiser City Special Counsel 24 F:\TRANS\AGR\COPELAND\Pa1mSt\Payn=tAgmgfinal}0207.doc 2/10/2003 a�LOA, ATTACHMENT 3 OPTION TO PURCHASE REAL PROPERTY This Option Agreement is made as of , by and between THE CITY OF SAN LUIS OBISPO, a municipal corporation and charter city ("City"), and SAN LUIS OBISPO COURT STREET, LLC, a California limited liability company("Copelands"). THE PARTIES HEREBY AGREE AS FOLLOWS: 1. The Property. The property (hereinafter, the "Property") consists of the five (5) parcels located in the block between Palm and Monterey Streets and Morro and Chorro Streets, in San Luis Obispo County, California, identified as portions of APN #002-416-034, #002-416-034, #002-416-029, #002-416-029, and #002-416-029, together with any improvements made thereon. A legal description of the Property is attached hereto and incorporated herein as Exhibit A. 2. Grant of Option. In consideration for the payment of Eighty-eight Thousand Five Hundred Dollars ($88,500) (the "Initial Option Price") on or before the Closing, as that term is defined in that certain Real Property Exchange Agreement, dated as of February , 2003, between the City and the Copelands, the City hereby grants to Copelands an option("Option')to purchase the Property at the Purchase Price on the terms and conditions set forth in this Option Agreement. 3. Term of Option. (a) The term of this Option shall commence as of the date of this Agreement and shall expire at 5 p.m., on the date which is eighteen months thereafter ("Initial Option Term'),unless extended as provided in the following sentences or otherwise by the written agreement of the parties. Copelands may extend the term of the Option (the "Option Term") up to three times for an additional year (each an"Additional Option Term') each, by paying to the City the sum of Twenty-nine Thousand Five Hundred Dollars ($29,500) (each an "Additional Option Price") for each such one year extension. Notwithstanding the foregoing, Copelands shall not be entitled to the first Additional Option Term unless prior to the end of the Initial Option Term, Copelands has submitted an application to the City for development (the"Development Application") of the project known as the"Chinatown Project" (the "Project') to be built on the Property consistent with paragraph 4A below and the Copelands shall not thereafter be entitled to any subsequent Additional Option Term unless, at the end of each Additional Option Period, either (i) the Development Application has been approved and has not been terminated and has not expired or (ii) it remains pending. Each Additional Option Price shall be paid to the City, if at all,prior to the expiration of the immediately preceding Option Term or Additional Option Term, as the case may be. The Option Term or any Additional Option Term may be terminated earlier by written agreement of the parties hereto. 4. Conditions of Exercise of the Option. The option is to be exercisable on the following conditions: A. The Option must be exercised, if at all, during the Option term or any duly exercised Additional Option Term. During such period, the Copelands shall pursue the issuance of building permits and other required regulatory entitlements (if any) ("Permits") for construction of a development on the Property consistent with paragraph 7 below B. The Option can be exercised only if all of the following conditions have been satisfied: 1 F:\TRANS\AGR\COPELAND\PalmSt\Opt on(fmal)-0207.doc 304800112/10/2003 ATTACHMENT 3 i. The Permits for construction of the Project have been issued and have not expired; ii. the Copelands have submitted evidence to City that the Copelands have the financial resources, from lenders and from equity funds and investors as may be necessary, in a sufficient amount to complete the construction and equipping of the Project in accordance with a budget prepared by Copelands; iii. the Copelands have entered into construction contracts for the Project evidencing that the work of construction can be completed within the budget; iv. Construction of the Retail Complex on the Court Street Project Property shall have been commenced as required under the Real Property Exchange Agreement referred to above, and, if construction shall have already commenced, construction to completion of the Retail Complex is being diligently pursued. 5. Restrictions on Title to the Property. The parties agree, and the Deed transferring title to the Property to Copelands shall reflect, that until substantial completion of the Project substantially in accordance with the Permit: (i) the use of the Property shall be limited and restricted to the construction of the Project, (ii) the Copelands shall not encumber the Property except as security for construction loans to finance the construction of the Project, and(iii) the City has the right of reverter and a power of termination(Civil Code section 885.010) to cause the title of the Copelands to the Property to terminate and to revert to the City if the construction of the Project pursuant to the Permit does not commence as required by this Agreement, or if construction is commenced, such construction is not completed. Upon the substantial completion of the Project in accordance with the Permit, the City shall execute and deliver to the Copelands, a Certificate of Completion in substantially the form attached hereto as Exhibit B which shall acknowledge that the deed restriction and any right of reverter in favor of the City shall have terminated. In the event the City, being entitled to do so, causes the title to the Property to revert to the City, the City shall pay to the Copelands an amount equal to the Purchase Price (as defined below). 6. Due Diligence Inspections by Copelands. Prior to the exercise of the option, the Copelands shall first have performed such due diligence as it elects to perform as to the condition of the title to the property and the suitability of the site of the property for the proposed uses and construction, and shall have inspected, investigated and tested the condition of the soil and the geology of the site and the presence of hazardous substances or archaeological materials and shall have accepted such conditions"as-is"with all defects, known or unknown, and without warranty,representation or promises of remediation or cure by the City. 7. The Project. The Project shall incorporate a retail and office space, as well as a downtown residential component for the upper floor or floors of the Project. In connection with the Project, Copelands shall be responsible to comply with all laws and to conform to all land use, building and safety and other regulatory laws, to bear the cost of any compliance with the California Environmental Quality Act or other laws, and to apply for and obtain any variances, zoning changes or other special permits as the Project may require, all of which shall be accomplished and obtained within the time allowed for exercise of this Option. This Option Agreement shall not constitute any agreement by the City to agree to take any action in its regulatory function to implement or favor the Project, to waive or reduce any fees, charges or exactions that are otherwise applicable or to agree to grant or issue any entitlement or permits. Copelands understands that it may be required to pay in-lieu parking fees in 2 F:\TRANS\AGR\COPELAND\Pa1mS t\Option(6na1)-0207.doc 3048002/21102003 a �� ATTACHMENT connection with the Project, as required by the City's then applicable ordinances and regulations, without any preference or reduction. 8. Exercise of the Option. Provided that Copelands is not in default under any term or provision of this Option Agreement, the conditions to the exercise of the Option have been satisfied and the City has certified in writing that Copelands have submitted evidence satisfactory to City that the conditions to the exercise of the Option referred to above have been satisfied, the Option may be exercised by Copelands delivering to Escrow Holder, as defined below, with a copy to the City, a copy of the Exercise Notice, in the form attached hereto as Exhibit C, and a copy of the Purchase Agreement grid Sale Agreement in the form attached hereto as Exhibit D ("Purchase Agreement")'. Prior to the time the Property is transferred, Copelands shall determine the status of title to the Property and accept it as- is. The City agrees not to add any encumbrance or lien, or suffer any such encumbrance or lien to exist, on the Property hereafter. The City shall not have any obligation to eliminate any exceptions identified in a title report obtained by the Copelands unless the City is not in compliance with the foregoing sentence. A. Purchase Price. The Purchase Price for the purchase of the Property if the title to the Property is vested in the Copelands, or its designee, during the initial 18 months shall be $2,950,000, net of all expenses and costs of such escrow and the transfer of title to the Property; provided that if the title to the Property is not vested in the Copelands during the Initial Term, the Purchase Price shall be increased at the rate of .0833% of$2,950,000 for each month or part thereof from the effective date of this Option until title is vested in the Copelands pursuant to the exercise of this Option. At the closing of escrow for the Property, Copelands shall be entitled to a credit against the Purchase Price for the Initial Option Price plus any Additional Option Price already paid to the City. B. Escrow. The escrow holder shall be Chicago Title Insurance Company ("Escrow Holder'). Upon delivery by Copelands to Escrow Holder of the Exercise Notice as provided above, Escrow Holder shall deliver the grant deed conveying the Property to Copelands in compliance with the escrow instructions provided in the Purchase Agreement and any further escrow instructions that may be submitted by both parties to Escrow Holder. .9. Specific Performance. Without waiving any other available rights or remedies, Copelands shall specifically have the right, if applicable,to sue in equity for specific performance of this Option Agreement or any part of this Option Agreement, and expressly the right to file a notice of pending action against the Property as provided in California Code of Civil Procedure Section 409 and Civil Code Section 1214, subject to all defenses, claims and rights to defend against such suits or to eliminate such notices if such notice or filing is found not to be appropriate or warranted. Except as provided by the foregoing, nothing contained herein shall be deemed an agreement by the City to grant rights to Copelands for specific performance, suits in equity, for the filing of notice of pending actions or other remedies that are not afforded to Copelands without agreement by City, by applicable law or principles of equity, nor shall City be deemed to waive or surrender any rights or remedies that City may have due to such actions by Copelands. 10. Disclaimer of Warranties. The City makes no representations or warranties regarding the Property. 11. Inspection; Indemnification. A. During the Option Term, Copelands and its designated agents and independent contractors, shall have the right, at their sole risk and expense, to enter onto the Property to the extent 3 F:\TRANSWGR\COPELAND\PalmSt\Option(final)-0207.doc 3048002/2/10/2003 ��� r ATTACHMENT 3 necessary for the purpose of conducting such surveys, tests and inspections as Copelands shall reasonably require, provided that Copelands shall not make any alterations to the Property, use any of the City's personal property in such survey, test or inspection or interfere with the City's use of the Property without the prior written consent of the City. Copelands shall leave the Property in the same condition as it was prior to such survey, test or inspection. B. Copelands agrees to indemnify and hold the City, its officers, shareholders and directors, employees, agents and representatives harmless from any and all costs, claims, expenses, liability and damages of any kind arising from or in connection with the conduction of such inspection, test or survey on the Property. 12. Failure to Exercise. Time is of the essence of this Option Agreement. If the Option is not exercised in the manner provided in Section 4 above before expiration of the Option Term or any Additional Term, as the case may be, this Option shall automatically terminate, and Copelands shall have no interest whatever in the Property. If the Closing never occurs or the Initial Option Price is not paid in a timely manner, then the Initial Option Term shall never commence, this Option shall automatically terminate, and Copelands shall have no interest whatever in the Property. This Option may not be revived by any subsequent payment or further action by Copelands, without the express written consent of the City. 13. QUitclaim. If this Option Agreement expires or is terminated, Copelands agrees, if requested by the City, to execute, acknowledge and deliver to the City a quitclaim deed within ten (10) days after such request quitclaiming its interest in this Option Agreement or the Property and to execute, acknowledge, and deliver any other documents required by the City or any title company to remove the cloud of this Option from the Property. 14. Expenses. Each of the parties shall bear its own respective costs and expenses incurred or to be incurred by it in negotiating and preparing this Option Agreement and in closing and carrying out the transactions contemplated by this Option Agreement, except as specifically provided in this Option Agreement. 15. Broker's Commission. The City and Copelands ("Indemnitors') hereby represent that there are no broker's commissions or finder's fees payable regarding this transaction and that neither the City nor Copelands has entered into any agreements or understandings with any broker or finder regarding this transaction. Indemnitors each agree to indemnify, defend and hold the other harmless from and against all liability, claims, demands, damages and costs of any kind arising from or connected with any broker's or finder's fees or commission or charge claimed to be due any person arising from any Indemnitors'conduct regarding this transaction. 16. Effect of Headings. The subject headings of the sections, paragraphs and subparagraphs of this Option Agreement are included for convenience only, and shall not affect the construction or interpretation of any of its provisions. 17. Modification, Waiver and Entire A eement. This Option Agreement and the Exhibits hereto constitute the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all other prior and contemporaneous agreements, representations and understandings of the parties. No supplement, modification or amendment of this Option Agreement shall be binding unless executed in writing by all the parties. No waiver of any of the provisions of this Option 4 F:\TRANS\AGR\COPELAND\Pa1mSt\Option(final)-0207.doc 3048002/2/10/2003 a-�c� AT TA r—IgIn CP;T Agreement shall be deemed, or shall constitute, a waiver of any other provisions, whether or not similar; nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. A Memorandum of Option shall be executed by the parties in recordable form which may be recorded by the Copelands,but.in the event of any inconsistency between the Memorandum and this Option Agreement, this Option Agreement shall prevail. 18. Counterparts. This Option Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 19. Partial Invalidity. The conditions and provisions of this Option Agreement shall be interpreted in such a manner as to enhance their enforceability, nonetheless, if any tenor, covenant, condition or provision of this Option Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions hereof shall remain in full force and effect and shall in no way be affected, impaired, or invalidated thereby. 20. Parties in Interest. Nothing in this Option Agreement, whether, express or implied, is intended to confer any rights or remedies under or by reason of this Option Agreement on any persons other than the .parties to it and their respective successors and assigns, nor is anything in this Option Agreement intended to relieve or discharge the obligations or liability of any third persons to any party to this Option Agreement, nor shall any provision give any third persons any right of subrogation or action against any party to this Option Agreement. 21. Successors and Assigns.. Notwithstanding Section 22 below,this Option Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, successors and assigns. 22. Assignment. Copelands may assign this Option Agreement to an affiliate controlled by, or under common control with, Copelands without the prior written consent of the City. 23. Recovery of Litigation Costs. If any legal action or other proceeding is brought for the enforcement of this Option Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Option Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs incurred.in that action or proceeding,in addition to any other relief to which it or they may be entitled. 24. Notice of Party Defaults. If the City or Copelands defaults in the due and timely performance of any of their warranties, covenants or agreements under this Option Agreement, the non- defaulting party or parties may give notice of such default in the manner provided in Section 26 below. The notice shall specify with particularity the default or defaults on which the notice is based and the defaulting party shall be given ten (10) days from the receipt of notice to cure its default. If the defaulting party does not cure its default within such ten-day (10-day) period, the non-defaulting party may avail itself of all legal rights and remedies available, subject to the terms of this Option Agreement. 25. Applicable Law. The validity, performance and enforcement of this Option Agreement shall be construed under the laws of the State of California applicable to agreements fully executed and to be performed in such state. 5 F:\TRANS\AGR\COPELAND\PalmSt\Option(6na1).0207.doc 304800221102003 n A 7: C,M7!y! J 26. Consent to Jurisdiction. The City and Copelands agree that any suit, action or other legal proceeding arising out of or in connection with this Option Agreement may be brought, and shall be brought only, in a superior or municipal court of the County of San Luis Obispo,State of California and hereby consent to the jurisdiction of any such court in any such suit, action or proceedings. The City and Copelands hereby waive any objection which such party may have to the laying of any such suit, action or proceeding in any such court. 27. Notices. All notices, requests, demands and other communications under this Option Agreement, except for the Exercise Notice which shall be personally delivered under Section 4 above, shall be in writing and shall be deemed to have been duly given on the date of service if served personally, by reliable overnight courier, or by telecopy transmission for receipt during the receiving parties' normal business hours to the party to whom notice is to be given, or on the third (3rd) day after mailing if mailed to the party to whom notice is to be given, by first class mail, registered or certified, return receipt requested,postage prepaid, and properly addressed as follows: City: City of San Luis Obispo 990 Palm Street San Luis Obispo, California 93401-3249 Attention: City Administrative Officer Facsimile: (805) 781-7109 With a copy to: City Attorney City of San Luis Obispo 990 Palm Street San Luis Obispo, California 93401-3249 Facsimile: (805) 781-7409 Copelands: Court Street Partners, LLC Post Office Box 1348 San Luis Obispo, California 93406 Attention: Tom Copeland With a copy to: K. Robin Baggett, Esq. Sinsheimer, Schiebelhut&Baggett 1010 Peach Street San Luis Obispo, California 93401 Facsimile: (805) 541-2802 Any party may change its address for purposes of this Section 26 by giving the other parties written notice of the new address in the manner set forth above. 28. Interpretation. This Option Agreement has been negotiated by the parties and each party had the opportunity to have this document reviewed by their respective legal counsel. That a party drafted the language of this Option Agreement shall not cause such language to be interpreted for or against such party. 6 F:\TRANS\AGR\COPELAND\Palm4t\Opdon(final)-0207.doc 3048002/2/10/2003 MF R' IN WITNESS WHEREOF, the parties to this Option Agreement have duly executed it as of the day and year first written above. SAN LUIS OBISPO COURT STREET, LLC, a California limited liability company By: Tom Copeland Its: Managing Member CITY OF SAN LUIS OBISPO, a municipal corporation and Charter City By: David F. Romero Mayor Attest: By: Lee Price City Clerk Approved as to Form: y, .. Gi ert A. o Acting City Attorney By: Herb Weiser City Special Counsel 7 F:\TRANS\AGR\COPELAND\Pa1mSt\Option(finap-0207.doc 304800212/10/2003 �� i ATTACHMENT- RESOLUTION NO. (2003 Series) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO FINDING THAT COMPETITIVELY BIDDING THE PARKING STRUCTURE TO BE CONSTRUCTED BY THE COPELANDS AND SOLD TO THE CITY IS IMPRACTICAL, UNAVAILING AND WOULD NOT PRODUCE ANY ADVANTAGE WHEREAS, the City and Court Street Partners, LLC and Palm Street Parking Structure, LLC (hereinafter collectively the "Copelands") desire to enter into agreements (the "Real Property Exchange Agreement" and the "Payment Agreement") to allow the development of a mixed-use retail, restaurant and office structure on the Court Street Parking Lot property owned by the City (hereinafter"Retail Project') and the development of a mixed-use parking and office structure on the property at the corner of Palm and Morro Street owned by the Copelands (hereinafter "Parking Structure Project"); and WHEREAS, the City does not now own, and would not own, the land upon which the Parking Structure Project is to be built unless both projects were concurrent; and WHEREAS, Copelands is the developer responsible for the construction of both projects described in the Real Property Exchange Agreement and is the same developer who is working with the same construction contractor that will be able to construct both projects at costs less than contracts bid separately for them would cost;and WHEREAS, the City is not contracting directly with the building contractor who is to actually perform the construction work through its contract with the Copelands; and WHEREAS, the availability of the Parking Structure Project is an essential component of the development of the Retail Project, neither of which projects would be implemented unless both were implemented under one coordinated effort that is inseparable; and WHEREAS, the construction schedule of both projects has to be closely coordinated and a separate bidding process for the Parking Structure Project contract will not be timely available; and WHEREAS, the City would not be able to cause the construction of the Parking Structure Project without the agreement of the Copelands to use its plans and specifications, and the amount of payment to the Copelands for the completion of the Parking Structure Project includes costs in addition to the actual cost of construction and includes consideration of the cost of the land as well. NOW,THEREFORE, BE IT RESOLVED that the Council of the City of San Luis Obispo does hereby incorporate each recital above as a finding of fact and further finds that the Retail Project and Parking Structure Project described in the Real Property Exchange Agreement are so intertwined and coordinated that attempting to obtain a separate construction contract through a process of competitive bidding for the construction of the Parking Structure is impractical, unavailing and would not result in any financial savings or advantage to the City. Upon motion of seconded by and on the following roll call vote: ATTACHMENTS Resolution No. (2003 Series) Page 2 AYES: NOES: ABSENT: The foregoing resolution was adopted this day of 200x. David F. Romero, Mayor ATTEST: Lee Price, C.M.C. City Clerk AgPPD AS TO FORM: Gilbert A. Trujh Acting City Attorney oL ' IoC