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Item 4C City of Southlake Values: Integrity ♦ Innovation ♦ Accountability ♦ Commitment to Excellence ♦ Teamwork M E M O R A N D U M November 10, 2020 To: Shana Yelverton, City Manager From: Alison Ortowski, Assistant City Manager Subject: Item 4C: Approve an economic development agreement between the City of Southlake and VariSpace Southlake LLC Action Requested: Approval agreement as presented. Background Information: In September 2019, VariDesk LLC purchased the property located at 1900 W. Kirkwood Boulevard, an approximately 350,000 Class A office building that was last occupied almost fifteen years ago. This complex includes a campus setting with three connected buildings, two buildings with three floors and one building with five floors. With their purchase of the property, VariDesk proposed bringing their new VariSPace workspace venture to Southlake by renovating and redeveloping the property as a professional office space, inclusive of individual and group workspaces, available for lease to tenants with various space requirements. Renovations include exterior upgrades, the addition of a fitness center, on-site café coffee bar, shared conference and training areas, five outdoor courtyard areas and furnishings and equipment for all office spaces. After renovation, the campus will include approximately 350,000 leasable square feet and accommodate approximately 1500 tenant employees. On February 4, 2020, the City Council directed City Manager Shana Yelverton to enter into a Memorandum of Understanding (MOU) with VariDesk LLC whose purpose was to establish the mutually-agreed upon terms of a future incentive agreement between the two entities in order to improve the City’s commercial Class A office market by redeveloping an aging property that has been vacant for almost fifteen years, making it more attractive to users in the Item 4C: Economic Development Agreement with VariSpace Southlake LLC City Council Meeting Date: November 17, 2020 Page 2 of 22 City of Southlake Values: Integrity ♦ Innovation ♦ Accountability ♦ Commitment to Excellence ♦ Teamwork marketplace, increasing viability for occupancy and growing the local employment base. The proposed agreement includes provisions that are in alignment with the MOU with some adjustments to the specified minimum capital investment and total job creation numbers. These adjustments have been made based on updated construction estimates and additional evaluation made by VariSpace Southlake related to occupancy of the facility. The proposed agreement also includes a number of performance requirements related to minimum capital investment, leasing thresholds, taxable value and employment targets. Strategic Link: C4 Attract & keep top-tier businesses to drive a dynamic & sustainable economic environment There are also a number of elements of the City’s Comprehensive Plans that support approval of this agreement. Citizen Input/ Board Review: 1/28/2020: Community Enhancement and Development Corporation Board of Directors reviewed the application for incentive consideration and provided comments as to alignment with the City’s public investment policy and goals. Financial Considerations: Following are financial aspects of the development and associated agreement: General Fund Sales Tax Program Grant Payments The agreement provides for the following payments to VariSpace Southlake LLC from sales taxes generated by the project: • Construction Materials: The City will pay VariSpace Southlake 100% of the general fund sales and use taxes received by the City that are attributable to the purchase of construction materials used on the project. Payments will not exceed $183,500. Item 4C: Economic Development Agreement with VariSpace Southlake LLC City Council Meeting Date: November 17, 2020 Page 3 of 22 City of Southlake Values: Integrity ♦ Innovation ♦ Accountability ♦ Commitment to Excellence ♦ Teamwork • Permitting and Impact Fees Offset: The City will pay VariSpace Southlake an amount equal to 100% of the general fund sales and use taxes received by the City that are attributable solely to the sale of taxable items by businesses operating at the site as a repayment equal to actual permitting and impact fees incurred by Company. Payments will not exceed $35,000. Tax Abatement The agreement includes provisions to provide an abatement of real and business personal property taxes for a term of 10 year and the total amount abated will not exceed $930,000. The agreement stipulates the amount to be abated based on the taxable value as follows: Taxable Value Abatement Amount $55,127,400 and above 80% $55,127,399-49,178,000 70% $49,177,999-42,275,800 60% $42,274,999-36,235,700 50% $36,234,999-33,074,790 40% $33,074,789 and below 0% The agreement states that if values fall below $33,074,790, VariSpace Southlake LLC shall forfeit the tax abatement for that corresponding tax year. The agreement also states that if VariSpace Southlake LLC fails to make the minimum capital investment of $55,127,400, they will not be entitled to any tax abatement. Other Provisions and Performance Requirements The agreement includes a provision requiring that VariSpace Southlake LLC meet certain employment goals as follows: No later than Number of Total FTEs January 1, 2022 400 January 1, 2023 900 January 1, 2024 1200 January 1, 2025 1500 Item 4C: Economic Development Agreement with VariSpace Southlake LLC City Council Meeting Date: November 17, 2020 Page 4 of 22 City of Southlake Values: Integrity ♦ Innovation ♦ Accountability ♦ Commitment to Excellence ♦ Teamwork If employment targets are not met, VariSpace Southlake LLC must pay the City $1000 for each FTE not created or maintained. The agreement also states that the average salary for all FTEs may not be less than $70,000 throughout the term of the agreement. And finally, as stated previously, the agreement requires a minimum capital investment of $55,127,400 with the same corresponding taxable value minimum in order to qualify for the maximum incentive. The minimum capital investment is required in order for VariSpace Southlake LLC to receive the sales and use tax payments and tax abatement. The minimum taxable value is required to receive the full 80% abatement allowed. Additionally, VariSpace Southlake LLC must demonstrate they have entered into binding lease agreements with third-party tenants for at least 40% of the rentable square feet of the facility prior to receiving their first reimbursement payment. Chief Financial Officer Sharen Jackson has reviewed all terms, including the capital investment and taxable value provisions and has concluded that these amounts should generate a return sufficient to warrant public investment. The current annual benefit from the site is minimal. CFO Jackson estimates that the annual benefit during the abatement will average approximately $62,000 with the annual benefit after the abatement averaging about $206,000. Legal Review: The proposed agreement was reviewed and approved by the City Attorney. Alternatives: Approve the agreement with changes discussed by the City Council or direct staff to revise the agreement and return for City Council consideration at a future meeting Supporting Documents: Economic Development Agreement Public Investment Policy Statement Page 1 ECONOMIC DEVELOPMENT AGREEMENT BETWEEN THE CITY OF SOUTHLAKE, TEXAS AND VARISPACE SOUTHLAKE LLC This Economic Development Agreement (“Agreement”) is made and entered into by and between the City of Southlake, Texas (“City”) and VariSpace Southlake LLC, a Texas limited liability company (“Company”). For convenience, City and Company may sometimes hereafter be referred to individually as a “Party” and collectively as the “Parties.” WITNESSETH: WHEREAS, the City has previously elected to become eligible to participate in tax abatement agreements, in accordance with Section 312.002(a) of the Texas Tax Code; and WHEREAS, the City also adopted and reaffirmed tax abatement guidelines and criteria, in accordance with Section 312.002 of the Texas Tax Code (hereinafter referred to as the “Tax Abatement Guidelines and Criteria”); and WHEREAS, the Tax Abatement Guidelines and Criteria constitute appropriate guidelines and criteria governing tax abatement agreements to be entered into by the City, as contemplated by Chapter 312 of the Texas Tax Code, as amended; and WHEREAS, on or about June 2, 2020, the City Council of the City of Southlake, Texas, adopted Ordinance No. 1127 establishing a Tax Abatement Reinvestment Zone (“Zone”) in the City of Southlake, Texas, for commercial-warehouse tax abatement, as authorized by Chapter 312 of the Texas Tax Code; and WHEREAS, Company owns the real property located within the Zone and seeks to receive incentives from the City, including tax abatement; and WHEREAS, the abatement of real and tangible personal property taxes within the Zone will maintain and enhance the economic and employment base of the City, thereby benefiting the City, in accordance with the Tax Abatement Guidelines and Criteria and Chapter 312 of the Texas Tax Code; and WHEREAS, the City Council of the City of Southlake, Texas, finds that the contemplated use of the Real Property, and the improvements to the Real Property as set forth in this Agreement, and the other terms hereof are consistent with encouraging continued reinvestment within the Zone in the City of Southlake, Texas, in accordance with the purposes for its creation, and are in compliance with the Tax Abatement Guidelines and Criteria, and Chapter 312 of the Texas Tax Code; and Page 2 WHEREAS, Company acknowledges and agrees that the tax abatements granted by this Agreement are contingent upon its compliance with this Agreement in accordance with the terms and conditions set forth herein; and WHEREAS, the City also desires to provide incentives to Company pursuant to Chapter 380 of the Texas Local Government Code in consideration of Company locating its business to the City; and WHEREAS, the City has concluded and hereby finds that this Agreement promotes economic development in the City of Southlake, Texas, and, as such, meets the requirements of Article III, Section 52-a of the Texas Constitution, by assisting in the development and diversification of the economy of the State of Texas and the City, by eliminating unemployment or underemployment in the State of Texas and the City, enhancing business and commercial activity within the State of Texas and the City, and is for all purposes a governmental function of the City for the benefit of the citizens of the City and the State of Texas and WHEREAS, the City further finds that providing the incentives is in furtherance of City-identified goals, including: (a) supporting comprehensive plan implementation; (b) adding to target industry inventory; (c) supporting identified workforce goals related to daytime population; (d) improving the City’s commercial Class A office market by redeveloping an aging property that has been vacant for almost fifteen (15) years, making it more attractive to users in the marketplace and increasing viability for occupancy; and WHEREAS, the City further finds that providing the incentives would be in alignment with the City’s comprehensive plan, including: (a) 2035 Vision, Goals, and Objectives; (b) the 2035 SH 114 Sector Plan; and (c) the 2035 Economic Development Master Plan. NOW THEREFORE, for and in consideration of the agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows: ARTICLE 1 DEFINITIONS The following words shall have the following meanings when used in this Agreement: The terms “Agreement”, “Act”, “City”, “Tax Abatement Guidelines and Criteria”, “Company”, “Parties”, “Party”, and “Zone” shall have the meanings provided above. “Base Year Tax Value” means the assessed value of the Real Property according to the Tarrant Appraisal District for Tax Year 2020. Page 3 “Capital Investment” means the actual costs attributable to the construction of the Improvements and related infrastructure, including labor and materia ls, engineering costs, surveying costs, fees of consultants, permit and inspection fees, and Tangible Personal Property located on the Real Property after the date of this Agreement that are subject to ad valorem taxes. It does not include acquisition cost s of land, insurance costs, marketing costs, or any interest paid to finance the purchase of the Capital Investment. “Company Records” has the meaning as described in Section 3.6 of this Agreement. “Effective Date” means the last date this Agreement is executed by the Parties. “Event of Bankruptcy or Insolvency” means the dissolution or termination of a Party’s existence as a going business, insolvency, appointment of receiver for any part of such Party’s property and such appointment is not terminated within ninety (90) days after such appointment is initially made, any general assignment for the benefit of creditors, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against such Party and such proceeding is not dismis sed within ninety (90) days after the filing thereof. “Expiration Date” means March 31 of the calendar year following the tenth (10 th) anniversary date of the First Year of Abatement, unless sooner terminated as provided herein. “Facility” means the existing building owned by Company and located on the Real Property. “First Year of Abatement” means the earlier of (i) the Tax Year beginning on January 1 immediately following the date Company has achieved its Capital Investment obligations in Section 3.1 of this Agreement; or (ii) at Company’s election in writing to City, the Tax Year in which Company achieves its Capital Investment obligations in Section 3.1 of this Agreement “FTE” means any employee on a forty (40) hour or more per week schedule or the combination of two (2) or more employees on part-time schedules equaling at least forty (40) hours per week. “Impositions” means all taxes, assessments, use and occupancy taxes, charges, excises, license and permit fees, and other charges by public or governmental authority, general and special, ordinary and extraordinary, foreseen and unforeseen, which are or may be assessed, charged, levied, or imposed by any public or governmental authority on the Company or any property or any business owned by Company within the City. “Improvements” means the structural modifications or renovations made to the Facility, as more particularly described on the attached Exhibit “B,” and other ancillary Page 4 facilities, such as reasonably required parking and landscaping more fully described in the submittals filed by Company with the City, from time to time, in order to obtain a building permit(s). “Payment Request” means a written request from Company to the City for payment of a City incentive which request shall be accompanied by evidence reasonably satisfactory to the City to establish that Company is in compliance with this Agreement. The Payment Request must be submitted in accordance with the notice provisions of this Agreement. “Real Property” means the land located at 1900 West Kirkwood Boulevard and more particularly described on the attached Exhibit “A”. “Related Agreement” means any agreement (other than this Agreement) by and between the City and Company. “Sales and Use Tax” means the City’s municipal sales and use tax, currently at the rate of one percent (1.0%) pursuant to Chapter 321 of the Texas Tax Code, as amended; provided, however, should the electors of the City reallocate the Sales and Use Tax or should the Texas Legislature amend the applicable Tax Code provision to increase or decrease the amount of allowed municipal sales and use tax, then in the event of a decrease, Sales and Use Tax shall mean the actual amount of sales and use tax received by the City, and in the event of an increase, the Sales and Use Tax shall mean one percent (1.0%). “Sales and Use Tax” specifically excludes sales taxes collected for the Southlake Park Development Corporation, the Crime Control and Prevention District, the Community Enhancement and Development Corporation, or any other economic development tax collected now or in the future. “Substantial Completion Deadline” means June 30, 2021. “Tangible Personal Property” shall have the same meaning assigned by Texas Tax Code, Section 1.04, and shall mean Tangible Personal Property owned by Company, including but not limited to furniture, fixtures, leasehold improvements, vehicles and equipment located at the Real Property (or within the Facility) which, at the time of execution of this Agreement is not on th e tax rolls of the City. Tangible Personal Property does not include inventory, supplies, freeport goods or goods in transit. “Tax Year” shall have the meaning assigned to such term in Section 1.04 of the Texas Tax Code (i.e., the calendar year). “Taxable Value” means the appraised value as certified by the Tarrant Appraisal District as of January 1 of a given year. “Term” shall have the meaning assigned to such term in Section 2.2 of this Agreement. Page 5 ARTICLE 2 PROGRAM AND TERM 2.1 Program. A program authorized under Chapter 380 of the Texas Local Government Code is hereby established to bring Company and the Improvements to the City. The terms of this Agreement implement the program. 2.2 Term. The Term of this Agreement will commence on the Effective Date and will continue until the Expiration Date, unless sooner terminated as provided herein. ARTICLE 3 COMPANY OBLIGATIONS 3.1 Lease Hurdle and Capital Investment. On or before the Substantial Completion Deadline, Company must make a Capital Investment in an amount of no less than $55,127,400 and enter into binding lease agreements with third-party tenants for at least 40% of the rentable square feet of the Facility. Within thirty (30) days of Substantial Completion Deadline, Company must provide sufficient evidence to the City of the Capital Investment and Lease Hurdle in a manner acceptable to the City. 3.2 Taxable Value. Company agrees that beginning with the First Year of Abatement and continuing thereafter throughout the Term, the total Taxable Value of the Real Property (as improved by the Improvements, but excluding land value) will be at least $44,652,400 and the total Taxable Value of the Tangible Personal Property will be at least $10,475,000. 3.3 FTEs. (a) Required FTEs. Company agrees that in order to receive tax abatement or other incentives under this Agreement, a minimum of 1500 FTEs must be employed (either by Company or third party tenants) at the Facility and retained thereafter for the Term of this Agreement according to the following schedule: No later than Number of Total FTEs January 1, 2022 400 January 1, 2023 900 January 1, 2024 1200 January 1, 2025 1500 (b) Company agrees that all leases with third party tenants of the Facility will contain provisions which (i) require tenants to certify FTE numbers to Company in order for Company to make its certification requirements in Sections 3.3(c) and 3.9; and (ii) allow the City, or such other persons or entities designated by the City for the purposes of inspecting, at tenant’s office, during Tenant’s normal business hours, paper and electronic Page 6 records, books, documents, or any other items related to tenant’s FTE numbers, provided that the City has provided five (5) business days prior notice, and the City or its representatives shall not unduly disrupt Tenant's operations. The City agrees, to the extent allowed by law, to maintain the confidentiality of a tenant’s FTE related records. (c) Payment in lieu of FTEs. The parties acknowledge that the City’s adopted Comprehensive Plan anticipates that City’s public-private partnerships will help retain and enhance the City’s economic base, and that Company’s obligation to create and maintain the FTE levels in Section 3.3(a) are necessary in achieving such goals. Company will annually certify (by providing exact total FTE numbers) that FTE levels have been met in the certification described in Section 3.9 of this Agreement. If the FTE levels are not met in any given year, Company will pay City an amount of $1000 for each FTE not created or maintained in accordance with Section 3.3.(a) with payment due no later than 30 days after City’s receipt of the certification; provided, however, that in no event shall the sum of all payments made under this Section be greater than the amount of the sales tax rebates and amount of property taxes abated under this Agreement. Provided Company makes the payment in this Section when applicable, Company’s failure to comply with 3.3.(a) shall not be an event of default subject to termination and repayment pursuant to Section 5.2 of this Agreement. (d) Average Salary. The average salary for all FTEs working at the Facility may not be less than $70,000 throughout the Term of this Agreement. 3.4 Improvements. No later than the Substantial Completion Deadline, Company must have completed the Improvements. 3.5 Good Standing. Company must not have an uncured breach or default of this Agreement or a Related Agreement. 3.6 Audit. Company shall grant access to the City, or such other persons or entities designated by the City for the purposes of inspecting, at Company’s office, during Company’s normal business hours, paper and electronic records, books, documents, tangible accounting procedures, tangible practices or any other items related to Company’s performance of this Agreement (“Company Records”), provided that the City has provided five (5) business days prior notice, and the City or its representatives shall not unduly disrupt Company's operatio ns. The foregoing notwithstanding, all records, books, documents, accounting procedures, practices or any other items relevant to the performance of this Agreement shall be subject to examination or audit by the City, or such other persons or entities desi gnated by the City in accordance with state and federal laws, regulations or directives applicable to Company’s performance of this Agreement. The City agrees, to the extent allowed by law, to maintain the confidentiality of Company Records. Page 7 3.7 Undocumented Workers. Company certifies that Company, and its branches, divisions and departments, do not and will not knowingly employ an undocumented worker in accordance with Chapter 2264 of the Texas Government Code, as amended. If during the Term of this Agreement, Company, or any of its branches, divisions or departments is convicted of a violation under 8 U.S.C. § 1324a(f), Company shall repay the amount of the public subsidy provided under this Agreement plus interest, at the rate of ten percent (10%), not later than the 120th day after the date the City notifies Company of the violation. 3.8 Building Products and Materials. The Parties find that the Real Property constitutes an area of architectural importance and significance and the City Counc il of the City hereby designates it as an area of architectural importance and significance for purposes of Chapter 3000 of the Texas Government Code. In consideration of the mutual covenants and conditions contained herein, Company voluntarily consents to the application of all City rules, charter provisions, ordinances, orders, building codes, and other regulations existing as of the Effective Date (the “Regulations”) that govern the use or installation of a building product or material in the constructi on, renovation, maintenance, or other alteration of a commercial building on the Real Property, regardless of whether a different building product or material is approved for use by a national model code published within the last three code cycles that app lies to the construction, renovation, maintenance, or other alteration of the building. In addition, Company voluntarily consents to the application of the Regulations that establish a standard for a building product, material, or aesthetic method in construction, renovation, maintenance, or other alteration of a commercial building, regardless of whether the standard is more stringent than a standard for the product, material, or aesthetic method under a national model code published within the last three code cycles that applies to the construction, renovation, maintenance, or other alteration of the building. The Parties agree that: i) the City will not issue any permits for the Real Property in violation of this section; ii) the covenants contained within this section constitute a material term of this Agreement; iii) Company’s voluntary consent to the application of the Regulations to the Real Property constitutes a material inducement for the City to authorize and grant the incentives described in thi s Agreement; iv) the covenants contained herein shall bind Company and all successors and assigns; and v) this section shall survive termination or expiration of this Agreement. 3.9 Certification of Compliance. Company shall, before May 1 of each calendar year that this Agreement is in effect, certify in writing to the City that it is in compliance with each term of this Agreement. On or before May 1 of each year, Company shall provide to the City written certification that Company is in compliance with each applicable term of this Agreement. Such certification shall be in a form reasonably satisfactory to the City, and shall include, at a minimum, information supporting Company’s conclusions that it met each condition and requirement to incentives set forth in this Agreement. The certification of compliance that the Company will submit is included in Exhibit “C” of this agreement. Any failure of the City to request or demand such certification shall not constitute a waiver of such certification or any future certification; provided, however, Page 8 that if the City fails to request or demand such certification and Company fails to provide such certification, the City shall give such party written notice of such failure and such party shall provide such certification within thirty (30) days of such party's receipt of such notice. 3.10 Required Use. The Real Property and the Improvements constructed thereon at all times shall be used in the manner i) that is consistent with the City’s comprehensive zoning ordinance and all other City development and building regulations, as amended, and ii) that, during the period taxes are abated hereunder, is consistent with the general purposes of encouraging development or redevelopment of the Zone. 3.11 Annual Exemption. It shall be the responsibility of Company to file an annual exemption application form for the Real Property and Tangible Personal Property with the Tarrant Appraisal District. A copy of the respective exemption application shall be submitted to the City upon request. 3.12 Rendering Value. Company shall annually render the value of the Tangible Personal Property to the Tarrant Appraisal District, and provide a copy of the same to the City upon written request. 3.13 Access to City. Company will provide access to and authorize inspection of the Real Property and Facility by City employees to ensure that the Improvements are constructed according to the specifications and conditions of the Agreement. 3.14 Sales Tax Reports. Company will provide the City, on a quarterly basis, a copy of the financial report it submits to the Texas Comptroller relating to the remission of Sales and Use Taxes collected in the City as a result of Company’s operation at the Real Property and construction of the Improvements (“Sales Tax Report”). Additionally, Company hereby grants consent for the Texas Comptroller’s office to release the monthly reported figures along with any State audit adjustments to the City. The Parties designate this Agreement as a revenue sharing agreement entitling the City to request Sales and Use Tax information from the Comptroller, pursuant to section 321.3022, Texas Tax Code, as amended. Company further agrees to provide City any other reasonable documentation in a form acceptable to City t hat establishes and proves amounts necessary for City to make the Sales and Use Tax grants as provided in this Agreement. Company agrees to provide the City any reasonable documentation in a form reasonably acceptable to the City that establishes and docu ments purchases made by Company in accordance with Section 4.2(a) of this Agreement. ARTICLE 4 CITY OBLIGATIONS Subject to Company’s continued satisfaction of its obligations as required by this Agreement, and subject to the provisions of this Agreement, the City agrees to the following: Page 9 4.1 Tax Abatement. (a) The City grants Company an abatement of eighty percent (80%) of the Taxable Value of the Real Property and grants Company an abatement of eighty percent (80%) of the Taxable Value of the Tangible Personal Property, for a period of ten (10) consecutive years, beginning with the First Year of Abatement. Notwithstanding the foregoing, the actual percentage of Taxable Value of the Real Property subject to abatement for each year this Agreement is in effect will apply only to the portion of the Taxable Value of the Real Property that exceeds the Base Year Tax Value. The actual percentage of Taxable Value of the Tangible Personal Property subject to abatement for each year this Agreement is in effect will apply only to Company’s Tangible Personal Property that is added to the Real Property subsequent to the execution of this Agreement. Notwithstanding the foregoing, the total amount of real property and tangible personal property taxes abated under this Agreement must not exceed $930,000. (b) Notwithstanding the foregoing, if as of January 1 of any given Tax Year, the Taxable Value of the Tangible Personal Property and Real Property is below $55,127,400 as required by Section 3.2, the City will grant an abatement of the Taxable Value of the Tangible Personal Property and Real Property subject to abatement according to the following schedule: (c) Taxable Value Abatement Amount $55,127,400 and above 80% $55,127,399-49,178,000 70% $49,177,999-42,275,800 60% $42,274,999-36,235,700 50% $36,234,999-33,074,790 40% $33,074,789 and below 0% (d) Notwithstanding the foregoing, Company will not be entitled to any tax abatement under this Agreement until it has provided City with evidence that it has made the Capital Investment in accordance with this Agreement. (e) Notwithstanding any provision in this Agreement to the contrary, the Rea l Property and Tangible Personal Property shall not be entitled to tax abatement for more than ten consecutive (10) years. (f) Pursuant to section 312.204 of the Texas Tax Code, this Agreement is subject to the rights of holders of outstanding bonds of the City. Page 10 4.2 Chapter 380 Sales and Use Tax Rebates. (a) Construction Materials. The City agrees that it shall pay to Company an amount equal to one hundred percent (100%) of the Sales and Use Tax received by the City attributable to the purchase of construction materials by Company or contractors retained by Company in connection with the construction of the Improvements prior to the Substantial Completion Deadline; provided, however, that under no circumstances will the aggregate grant payments under this subsection exceed $183,500. (b) Permitting and Impact Fees. City agrees to pay Company an amount equal to 100% of the Sales and Use Tax generated by and attributed solely to the sale of taxable items by businesses operating within the Real Property during a period beginning on the second full calendar quarter after the Substantial Completion Deadline, and continuing thereafter throughout the Term of this Agreement as a repayment equal to actual permitting and impact fees incurred by Company; provided, however, that under no circumstances will the aggregate grant payments under this subsection exceed $35,000. (c) Timing of Payments. The grants in this Section 4.2 will be paid on a quarterly basis. The City agrees to make quarterly payments to Company within forty-five (45) days following its receipt of the latter of: i) the Sales Tax Reports each month of the applicable calendar quarter; ii) the reports or other information establishing the amounts of received Sales and Use Tax from the Comptroller’s office for each month in the applicable calendar quarter; iii) the City’s receipt of the Sales and Use Tax from the Comptroller’s office for each month of the applicable calendar quarter; and iv) a Payment Request. (d) Erroneously Paid Sales and Use Tax. In the event the Comptroller determines, for any reason, that any Sales and Use Taxes were erroneously paid to City from the sales provided for herein and the City is required to rebate or repay any portion of such taxes, the amount of such rebate or repayment shall be deducted from the calculation of the Sales and Use Taxes received by the City under this Agreement, and in the event the calculation of Sales and Use Taxes paid for a grant under this Section 4.2 shall reflect an overpayment by the City to Company, Company agrees to reimburse the City the amount of such overpayment within sixty (60) days of the City’s notification. Notification of any such required adjustment will be provided to Company at the earliest practical date. This section will survive termination of this Agreement. ARTICLE 5 TERMINATION; REPAYMENT; OFFSET 5.1 Termination. This Agreement terminates on the Expiration Date, and may, prior to the Expiration Date, be terminated upon any one or more of the following: Page 11 (a) by mutual written agreement of the Parties; (b) upon written notice by either Company or the City, if the other Party defaults or breaches any of the terms or conditions of this Agreement and such default or breach is not cured within thirty (30) days after written notice thereof; (c) upon written notice by the City, if any Impositions owed to the City by Company shall have become delinquent (provided, however, Company retains the right to timely and properly protest and contest any such taxes or Impositions); (d) upon written notice by the City, if Company suffers an Event of Bankruptcy or Insolvency; or (e) upon written notice by Company or the City, if any subsequent Federal or State legislation or any decision of a court of competent jurisdiction declares or renders this Agreement invalid, illegal, or unenforceable. 5.2 Repayment. (a) Company Repayment. In the event this Agreement is terminated by the City pursuant to Section 5.1 (b), (c), (d), or (e), Company shall within 30 days of termination refund to the City: i) an amount equal to the amount of all rebates that have been provided by the City to Company prior to the date of such termination, plus interest at the rate of interest periodically announced by the Wall Street Journal as the prime or base commercial lending rate, or if the Wall Street Journal shall ever cease to exist or cease to announce a prime or base lending rate, then at the annual rate of interest from time to time announced by Citibank, N.A. (or by any other New York money center bank selected by City) as its prime or base commercial lending rate, accruing from the Effective Date until paid; and ii) the amount of all taxes abated under this Agreement. Upon termination of this Agreement by the City, all taxes abated as a result of this Agreement shall become a debt to the City as liquidated damages, and shall become due and payable not later than thirty (30) days after a notice of termination is provided. The Parties acknowledge that actual damages in the event of default would be speculative and difficult to determine. The City shall have all remedies for the collection of the abated tax provided in the Texas Tax Code for the collection of delinquent property tax. The City at its sole discretion has the option to provide a repayment schedule. The liquida ted damages shall constitute a tax lien against the Real Property and Company’s Tangible Personal Property. Further, the liquidated damages shall incur penalties and interest as provided for delinquent taxes in the Texas Tax Code and shall commence to accrue after expiration of the thirty (30) day payment period. Page 12 (b) Survival of Repayment Obligations. The repayment obligations of Company set forth in this Section 5.2 shall survive termination of this Agreement. 5.3 Offsets. The City may, at its option, offset any amounts due and payable under this Agreement against any debt (including taxes) lawfully due to the City from Company, regardless of whether the amount due arises pursuant to the terms of this Agreement, a Related Agreement or otherwise, and regardless of whether or not the debt due the City has been reduced to judgment by a court. ARTICLE 6 MISCELLANEOUS 6.1 Binding Agreement. The terms and conditions of this Agreement are binding upon the successors and assigns of the Parties. 6.2 Limitation on Liability. It is understood and agreed between the Parties that Company, in performing its obligations under this Agreement, is deemed to have acted independently, and the City assumes no responsibilities or liabilities to third parties in connection with these actions. 6.3 No Joint Venture. It is acknowledged and agreed by the Parties that the terms hereof are not intended to and shall not be deemed to create a partnership or joint venture among the Parties. 6.4 Authorization. Each Party represents that it has full capacity and authority to grant all rights and assume all obligations that are granted and assumed under this Agreement. 6.5 Notice. Any notice required or permitted to be delivered hereunder shall be deemed received three (3) days thereafter if sent by United States Mail, postage prepaid, certified mail, return receipt requested, addressed to the Party at the address set forth below (or such other address as such Party may subsequently designate in writing) or on the day actually received if sent by courier or otherwise hand delivered. If intended for City to: City of Southlake 1400 Main Street, Ste. 460 Southlake, Texas 76092 Attention: City Manager If intended for Company, to: ____________________________ ____________________________ ___________________________ 6.6 Entire Agreement. This Agreement is the entire agreement between the Parties with respect to the subject matter covered in this Agreement. There is no other Page 13 collateral oral or written agreement between the Parties that in any manner relates to the subject matter of this Agreement, except as provided in any exhibits attache d hereto. 6.7 Governing Law. The substantive laws of the State of Texas (and not its conflicts of law principles) govern all matters arising out of, or relating to, this Agreement and all of the transactions it contemplates, including without limitation its validity, interpretation, construction, performance and enforcement. Mandatory and exclusive venue for any action concerning this Agreement must be in a court of competent jurisdiction in Tarrant County, Texas 6.8 Amendment. This Agreement may only be amended by the mutual written agreement of the Parties. 6.9 Legal Construction. In the event any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, the remainder of this Agreement shall stand, shall be enforceable and shall be read as if the Parties intended at all times to delete said invalid, illegal, or unenforceable provisions. 6.10 Counterparts. This Agreement may be executed in counterparts. Each of th e counterparts shall be deemed an original instrument, but all of the counterparts shall constitute one and the same instrument. 6.11 Exhibits. All exhibits to this Agreement are incorporated herein by reference for all purposes wherever reference is made to the same. 6.12 Successors and Assigns. This Agreement may not be assigned without the prior written consent of the other party. 6.13 Survival of Covenants. Any of the representations, warranties, covenants, and obligations of the Parties, as well as any rights and benefits of the Parties, pertaining to a period of time following the termination of this Agreement shall survive termination. 6.14 Limitation of Damages. The Parties agree that no Party will be liable to the other under this Agreement for indirect, special, consequential damages (including lost profits), or exemplary damages. 6.15 Legislative or Judicial Changes. In the event of any legislative or judicial interpretation that limits or restricts the City’s ability to pay the rebates described in this Agreement, the abatement of taxes, or otherwise extracts or imposes any penalty or other restriction upon the payment of the rebates or abatement of taxes, such payments and abatements will cease as of the effective date of such l imitation or restriction and be of no further force, effect, or consequence in which event the City shall be under no further obligation to Company as of the effective date of such limitation or restriction. Page 14 6.16 Attorney’s Fees. In the event it should become necessary to take legal action to interpret or enforce the terms of this Agreement, the prevailing Party in such action shall be entitled to recover from the non-prevailing Party reasonable attorney’s fees and costs of court. CITY: CITY OF SOUTHLAKE, TEXAS ____________________________________ Laura Hill, Mayor Date : _______________________________ COMPANY: VariSpace Southlake LLC, a Texas limited liability company By: _______________________________ Name: _______________________________ Title: _______________________________ Date: _______________________________ Page 15 EXHIBIT “A” Real Property Page 16 EXHIBIT “A” Real Property Page 17 EXHIBIT “B” Improvements Property Type Description Proposal / Est Fee Land Land Purchase*$4,620,000 Real Property Building Purchase*$20,380,000 Real Property Building Update Survey $2,500 Real Property Environmental Testing - Asbestos Survey $9,500 Real Property Concrete Cylinder Strength Testing $500 Real Property Geotechnical Engineering Services $8,300 Real Property Exterior Borings $1,100 Real Property Building Evaluation $98,500 Real Property Design and pricing $201,000 Real Property Architecture $50,000 Real Property Signage $32,000 Real Property Building Owners and Managers Association (BOMA) $23,000 Real Property Tenant lease / Infrastructure Package $1,000,000 Real Property Tenant Space Planning $50,000 Real Property Media Lab (Rendering Allow)$13,000 Real Property Structure Tone Contract $21,115,000 Real Property Low Voltage $500,000 Real Property Flooring - QuestMark $168,000 Real Property Roof replacement $855,000 Real Property DAS Safety Repeater System $145,000 Personal Property FF&E for common spaces (gym, coffee bar, conference & break rooms)$2,000,000 Personal Property FF&E for tenants $8,475,000 Total Personal Property $10,475,000 Total Real Property $44,652,400 Total Land $4,620,000 Total $59,747,400 * The total purchase contract price, $25M, for the property was not broken out between the purchase price of the land and building. Amounts are estimated based on appraised values. Page 18 EXHIBIT “C” Certification of Compliance Full Time Tenant Employees Full Time Company Employees Total Full Time Employees - Current Name Description of Operations Description Job Types at Facility Other Information Estimated Average Salary Current Name Description of Operations Description Job Types at Facility Other Information Estimated Average Salary Current Name Description of Operations Description Job Types at Facility Other Information Estimated Average Salary Current Name Description of Operations Description Job Types at Facility Other Information Estimated Average Salary Current Name Description of Operations Description Job Types at Facility Other Information Estimated Average Salary Current Name Description of Operations Description Job Types at Facility Other Information Estimated Average Salary Signature Printed Name Date (a) Required Full Time Employees (b) Tenant Information We hereby certify that the above noted full time employees are correct and that the average annual salary of the company and tenant employees is at or above $70K, to the best of our knowledge. We have provided the current tenant mix, type of operations, type of jobs at facility, and researched estimated average salaries based on publicly available information. (c) Certification Public InvestmentPerfect is closer than you think. SelectSouthlake.com Public Investment Perfect is closer than you think. SelectSouthlake.com 1400 Main Street Suite 460 Southlake, Texas 76092 817-748-8039 www.SelectSouthlake.com 1400 Main Street Suite 460 Southlake, Texas 76092 817-748-8039 www.SelectSouthlake.com City of Southlake Policy Statement for Public Investment related to Economic Development General Purpose and Objectives of Incentives The City of Southlake is committed to an ongoing improvement in the quality of life for its citizens through the attraction and retention of high quality development that drives a dynamic and sustainable economic environment. Southlake will, on a case-by-case basis, consider providing inducement packages as a stimulus for economic development activity including business attraction, relocation and retention. • Project supports comprehensive plan implementation • Project will retain, expand, or attract targeted industries • Project will contribute to a top-tier workforce by retaining or expanding daytime population and preferred job types • Project includes preferred quality of life benefits such as open space preservation and project enhancements • Public investment is performance-based and considers reasonable return on investment via direct financial return and other indirect benefits • Investments will be made into projects sponsored by a financially-viable company in good legal standing with the City and State • Project will make a unique or unequaled contribution to development or redevelopment efforts in the City of Southlake, due to its magnitude, significance to the community or aesthetic quality Public Funds Investment Guiding Principles In carrying out its economic development objectives, the City of Southlake will adhere to the following guiding investment principles to best determine the strategic investment of its resources in eligible projects: Criteria Recommendations for investment will be based on evaluation of criteria including the following: Fiscal Impact • What is the estimated total value of capital investment for buildings, other real property improvements and furniture, fixtures and equipment? • What is the value of the Real and Business Personal Property that will be added to the tax rolls? • How much direct sales tax will be generated? • Will infrastructure construction be required? • Will the project generate overnight stays in the community? If so, how many annually? • What is the estimated return on public investment? Employment Impact • How many jobs will be brought to Southlake? • How many jobs will be retained? • What types of jobs will be created? • What will the total annual payroll be? • What is the average annual salary of jobs created and/or retained? Community Impact • How compatible is the project with the City’s comprehensive plan goals? • How does the project support goals related to preferred quality of life benefits such as preservation of open space and project enhancements? Project Eligibility • Does the project meet the following minimum preferred thresholds? • Capital investment: $5,000,000 • Jobs created or retained: 100 • Average annual total compensation of jobs created or retained: $50,000 • Average education level: 4-year degree • Target industry alignment If the project does not meet the preferred thresholds, will it make a unique or unequaled contribution to the development or redevelopment efforts in the City? How? Public Investment Perfect is closer than you think. SelectSouthlake.com Public Investment Perfect is closer than you think. SelectSouthlake.com 1400 Main Street Suite 460 Southlake, Texas 76092 817-748-8039 www.SelectSouthlake.com 1400 Main Street Suite 460 Southlake, Texas 76092 817-748-8039 www.SelectSouthlake.com Target Industries The Southlake 2035 Economic Development Master Plan specifies these target industries: Niche Retail • Full-service and limited-service restaurants (unique, independent restaurants, farm-to-table, chef-driven, etc.) • Specialty grocery (organic/local, specialty foods, dine-in or take-away house made prepared foods, artisanal cafe, wine and cheese from around the globe) • House & home retail (furnishings and appliances, home design showrooms, smart home technology) • Health, beauty and wellness (salons, spas, fitness training/gyms, yoga studios) • Culinary Hub (farm-to-table, farmers market, specialty food retailers, commercial grade kitchens, culinary business incubator) Office • Corporate headquarters and regional offices (large scale, build-to-suit campus office) • Multi-tenant garden-style (professional services: accountants, engineers/planners/architects, information technology, lawyers, advertising and media, management consulting, actuary) Medical and Healthcare • Health, beauty and wellness (specialized facilities for cosmetic procedures, healthy living, etc.) • Specialized pediatric and senior clinic / outpatient facilities • Specialized medical facilities for surgical procedures (implanted medical devices, bariatric, etc.) • Medical/wellness hub along SH 114 • Research & Development Center Finance, Insurance and Wealth Management • Corporate headquarters and regional offices • Professional services Information Technology and Media • Corporate headquarters and regional offices • Professional services • Telecommunications Biotechnology and Pharmaceuticals • Corporate headquarters and regional offices • Research and development Applicants are encouraged to visit www.Southlake2035.com to review the master plan for industry specifics and further detail. Public InvestmentPerfect is closer than you think. SelectSouthlake.com Public Investment Perfect is closer than you think. SelectSouthlake.com 1400 Main Street Suite 460 Southlake, Texas 76092 817-748-8039 www.SelectSouthlake.com 1400 Main Street Suite 460 Southlake, Texas 76092 817-748-8039 www.SelectSouthlake.com The following economic development investment tools are available for use by the City of Southlake for those economic development projects that meet the eligibility criteria. Not all tools are available for each project and projects may be offered more than one tool. The type and number of investment tools to be used is the sole discretion of the Southlake City Council. Investment from the City of Southlake does not preclude other state and county incentives. Exclusionary Factors Even though a project might meet all of the minimum project qualifications, it will not be considered for public investment if any of the following factors apply: • If the project would, for any reason, result in a net reduction of the ad valorem tax valuation of all facilities in the City owned by the company, or its parent, subsidiary or affiliated companies, assistance will not be provided. • Investment will not be provided to companies not in good legal standing with the state or that have not met their obligations as businesses in the City of Southlake. • No prior commitment to investment shall be binding if the company originally receiving the assistance assigns it to another company, unless the City has consented to such assignment in writing, as specified in an approved investment agreement. • The financial condition of the company receiving the assistance must not be such that the ability of the company to meet its obligations is uncertain. Available Investment Tools Eligible Activities Investment funds may be used for one or more of the following eligible activities to assist a targeted industry in locating in the City or to facilitate a redevelopment project: • Capital investments related to real property construction and acquisition • Improvements to an existing building • On-site and/or off-site infrastructure • Site enhancements that the City may choose to support in order to encourage upgraded aesthetics or amenities. Examples include parks and open space, public art, decorative fountains, underground utilities and enhanced landscaping • Other purposes which bring value to the community as determined by the Southlake City Council Tax abatement This is a tool whereby all or a portion of the increase in the value of real and/or business personal property can be exempted from taxation. Legal authority for tax abatements comes from Chapter 312 of the Texas Property Tax Code; therefore, cities must meet the provisions of the Code when using abatements. Chapter 380 economic development grants This incentive option is authorized under Chapter 380 of the Texas Local Government Code. It is an agreement between the taxpayer and taxing entity to offer a variety of fee-based or tax-based incentives, grants (which may or may not be repaid), or rebates. This is a flexible option, but there are certain state law requirements that must be met in all cases. Infrastructure participation The City of Southlake has a track record of facilitating development through enhancement of water, sewer and roadway infrastructure relevant to sites selected for significant projects as needed. Tax Increment Reinvestment Zone Tax Increment Financing is a tool to finance public improvements within a defined area. The improvements should enhance the environment and attract new investment. The statutes governing tax increment financing are in Chapter 311 of the Texas Tax Code. Public Improvement Districts (PID) A PID is a defined geographical area established to provide specific types of improvements or maintenance within the area which are financed by assessments against the property owners within the area. Chapter 372 of the Texas Local Government Code authorizes the creation of PIDs by cities. Fee waivers or reimbursement The City of Southlake will consider a waiver or reimbursement of development fees on eligible projects. Public Investment Perfect is closer than you think. SelectSouthlake.com Public Investment Perfect is closer than you think. SelectSouthlake.com 1400 Main Street Suite 460 Southlake, Texas 76092 817-748-8039 www.SelectSouthlake.com 1400 Main Street Suite 460 Southlake, Texas 76092 817-748-8039 www.SelectSouthlake.com Process Other Southlake Financial Policies Governing Public Funds Investment Considerations How to Apply Fill out and submit a Request for Investment Application. Application forms, deadlines and meeting information can be obtained by contacting the economic development office at 817-748-8039 or by email at econdev@ci.southlake.tx.us. A full review of the application with the economic development staff is recommended prior to submission. Southlake has the following additional policies and guidelines that further define specific types of public investment. • Tax Abatement Policy • Economic Development Investment Fund Expenditure Guidelines • Southlake TIRZ #1 Expenditure Guidelines • Hotel Occupancy Tax Fund Expenditure Guidelines Economic development office staff can provide copies of these documents and review applicability prior to submission of a request. Requests for public investment are facilitated by the economic development and finance staff through a process described in the “Procedure for Investment Consideration” which is provided as an attachment to the Request for Investment Application document. All proposed incentives are subject to review and comment by the Community Enhancement and Development Corporation Board and final City Council approval. Return on Investment Considerations Each eligible project must provide a return on investment (ROI) for the public funds investment provided. The City of Southlake calculates ROI for both direct and indirect benefits. The specific ROI will be determined through analysis of: • The project’s total capital investment and resulting taxable value generating an annual increase of property tax revenue • The number and types of jobs to be created or retained • The project’s estimated ability to generate direct sales tax revenue as well as indirect sales tax revenue • The project’s estimated ability to generate overnight stays that result in direct hotel occupancy fund revenue as well as indirect revenue associated with visitors contributing to the Southlake economy All public investment will be considered on a project-by-project basis by applying the guidelines in this policy statement. The City is not obligated to make any investments. In considering whether or not to provide investment in a project and if so how much, the City will take into account assistance made by private sources to support the project locating in the City. The guidelines in this policy statement are only applicable to projects for which a completed Request for Investment Application has been submitted to the City’s Economic Development Department. These guidelines are subject to change, and any changes will be applied to all projects for which a final Economic Development Investment Agreement has not yet been approved by the City Council.