17. ACI Holdings, Inc.
City Hall
10300 Torre Avenue
Cupertino, CA 95014-3255
Telephone: (408) 777-3220
Fax: (408) 777-3366
CITY OF
CUPEIUINO
DEP ARTMENT OF ADMINISTRATIVE SERVICES
SUMMARY
Agenda Item No: 11
SUBJECT AND ISSUE
Meeting Date: June 19,2007
Extend agreement for consultation services with ACI Holdings, Inc.
BACKGROUND
In 1996/97, Apple Inc. was in the midst of a significant restructuring. Part of this restructuring
included decisions about the location of various sales and marketing facilities, which had
economic impacts on the City of Cupertino. As part of this effort, the City entered into a five-
year consultant agreement with ACI Holdings, Inc. to provide an incentive for Apple to generate
new sales tax activities within the City. In June 2002, the City extended its agreement for an
additional five years. This month, Apple approached the City and asked for an additional five-
year extension on this agreement, which is set to expire on June 30, 2007. No other changes in
terms or conditions have been proposed.
The agreement with ACI has both advantages and disadvantages, as set forth below:
Advantages
. Provides the City an average of $2.5 million in sales tax per year as opposed to $290,000 per
year prior to the agreement.
. Promotes corporate involvement.
Disadvantages
. Removes approximately $2.2 million per year from total municipal sales tax receipts and
remits these monies to ACI Holdings, Inc.
RECOMMENDA nON
Direct staff of council's preference.
Submitted by:
Approved for submission:
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Carol A. Atwood
Director of Administrative Services
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David W. Knapp
City Manager
Printed on Recycled Paper
AGREEMENT FOR
CONSUL T A TION SERVICES
WHEREAS, ACI Holdings, Inc., a Delaware corporation (hereinafter "Consultant") has
submitted a proposal to the City of Cupertino (hereinafter "City") to provide City with consulting
services consisting of the assessment and creation of new sales and use tax revenue sources for
City to be derived from Apple Inc., a California corporation, and its subsidiaries (hereinafter
collectively referred to as "Apple"); and
WHEREAS, it is intended by Consultant and City that said services will be automatically
self- funding because Consultant is willing to receive its compensation for said services on a
contingency basis solely and entirely derived from new sales or use tax revenue generated by
Apple for the benefit of City which City would not otherwise realize; and
WHEREAS, Consultant and City wish to enter into this Agreement for the purposes
described above:
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Services to be Performed by Consultant
Consultant shall perform the following services (collectively, the "Services") under this
Agreement:
(a) Assess and detail the current sales and use tax revenue received by City from
Apple.
(b) Recommend new methodologies to increase the sales or use tax for City to be
developed and implemented through corporate reorganization efforts at Apple.
( c) Provide to City a detailed analysis and description of any new local sales and use
tax revenue received by City from Apple.
2. Compensation to be Received by Consultant
As consideration for Consultant's performance of the Services, as described in Paragraph
I, above, Consultant shall receive the following compensation for each City fiscal year
during the term covered by this Agreement, as follows:
(a) If, for any fiscal year during the term covered by this Agreement, new local tax
revenue equals any amount less than Two Hundred Fifty Thousand Dollars
($250,000), then in such event Consultant will receive no compensation with
respect to such fiscal year.
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(b) If, for any fiscal year during the term covered by this Agreement, new local tax
revenue equals Two Hundred Fifty Thousand Dollars ($250,000), then Consultant
will receive the sum of Sixty-Two Thousand Five Hundred Dollars ($62,500) as
compensation with respect to such fiscal year.
( c) If, for any fiscal year during the term covered by this Agreement, new local tax
revenue exceeds Two Hundred Fifty Thousand Dollars ($250,000) but is less than
Five Hundred Thousand Dollars ($500,000), then Consultant will receive the sum
of Sixty-Two Thousand Five Hundred Dollars ($62,500) plus an amount equal to
twenty-five percent (25%) of all such additional new local lax revenue between
Two Hundred Fifty Thousand Dollars ($250,000) and Five Hundred Thousand
Dollars ($500,000).
(d) If, for any fiscal year during the term covered by this Agreement, new local tax
revenue exceeds Five Hundred Thousand Dollars ($500,000) but is less than One
Million Dollars ($1,000,000), then Consultant shall receive the sum of One
Hundred Twenty-Five Thousand Dollars ($125,000) plus an amount equal to forty
percent (40%) of all such new local tax revenue between Five Hundred Thousand
Dollars ($500,000) and One Million Dollars ($1,000,000).
( e) If, for any fiscal year during the term covered by this Agreement, new local tax
revenue exceeds One Million Dollars ($1,000,000), then Consultant shall receive
the sum of Three Hundred Sixty-Two Thousand Five Hundred Dollars ($362,500)
plus an amount equal to fifty percent (50%) of all such new local tax revenue in
excess of One Million Dollars ($1,000,000).
3. Sole Compensation
Both City and Consultant expressly acknowledge and agree that Consultant will receive
no compensation for any Services rendered under this Agreement other than the
compensation described in Paragraph 2, nor shall Consultant be entitled to any
reimbursement from City for any costs or expenses incurred by Consultant in performing
or preparing to perform any Services under and pursuant to this Agreement.
4. Payment Schedule
Not later than thirty (30) days after the date on which City receives from the Board of
Equalization of the State of California, a total of $250,000 or more of new local sales tax
revenue which accrued from sales taxes paid by Apple during a fiscal year covered by this
Agreement, City shall pay the Consultant the compensation described in Paragraph 2 of
this Agreement. Within 30 days, after the City receives from the State of California
additional new local sales tax revenue paid by Apple within the same fiscal year as the
initial payment, City shall pay to the Consultant additional compensation as described in
Paragraph 2 of this Agreement.
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5. Definitions
As used in this Agreement, the following terms shall have the following meanings:
"Local sales tax revenue" means that portion of the total sales and use tax paid by Apple
which is actually received by City.
"New local sales tax revenue" means total sales and use tax paid by Apple which is
actually received by City, as calculated for each fiscal quarter, minus the sales tax from
Apple's Company Store located as of the date of this Agreement on Apple's R&D
campus in the City of Cupertino and minus use tax on purchases by Apple, in each case
calculated for the quarter in question.
6. Term
This Agreement shall commence on July 1, 2007 and shall apply to the City's 2007-08,
2008-09, 2009-10, 2010-11 and 2011-12 fiscal years. This Agreement shall expire on
June 30, 2012, and will have no further force or effect; provided, however, that
Consultant shall be entitled to receive any compensation due to it under this Agreement
for the City fiscal year expiring on June 30, 2012, which compensation shall be paid as
provided in Paragraph 7, below.
7. Fiscal Year
For purposes of this Agreement, City and Consultant agree City's fiscal year begins on
July 1 of each calendar year and ends on June 30 ofthe succeeding calendar year.
8. Indemnification; City's Warranty and Representation
Consultant agrees to indemnify, defend (if so requested by City, and with counsel of
Consultant's choice but reasonably acceptable to City), and hold City, its officers and
employees, harmless from any claim, action, or lawsuit brought or maintained by any
third party against City as a result of any activity of either party in performing any acts
under this Agreement, except to the extent that any such claim, action or lawsuit arises
out of or in connection with any negligence or willful misconduct on the part of any of
the said indemnified persons. Consultant will also defend (if so requested by City, and
with counsel of Consultant's choice but reasonably acceptable to City) City, its officers
and employees from any legal action challenging the validity of this Agreement. If any
court of competent jurisdiction orders the return to City of any funds paid to Consultant
by City as compensation for Consultant's performance of the Services under this
Agreement, Consultant shall hold City, its officers, and employees harmless from any
claims Consultant may have for reimbursement or contribution with respect to any said
sums.
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9. Integration Clause; Modification of Agreement
The provisions of this Agreement contain the entire understanding of City and Consultant
related to the subject matter of this Agreement. No oral agreements, understandings or
promises made by the parties or their agents which are not contained in this Agreement
are binding. This Agreement may only be modified by written agreement executed by
both parties.
IN WITNESS WHEREOF, Consultant and City have executed this Agreement by their
duly authorized representatives, on the dates set forth below, to be effective as provided, above.
CITY OF CUPERTINO
Date:
By
City Manager, City of Cupertino
ACI HOLDINGS, INC.,
a Delaware corporation
Date:
By
Peter Oppenheimer
Chief Financial Officer & Senior Executive
Vice President
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#/7
The Honorable Kris Wang
Mayor
City of Cupertino
10300 Torre Avenue
Cupertino, CA 95014-3202
,
.
Dear Mayor Wang and City Council members:
Apple has enjoyed a thirty-year partnership with the City of Cupertino, and we are very
proud that our partnership is stronger than ever. We work hard to be a good neighbor to
our residents, to provide high quality jobs, and to enrich and be involved in the local
community .
Ten years ago, we partnered with Cupertino to bring significant revenue locally and to
share that revenue through a tax sharing agreement. Through this policy, Apple's
fmancial success is Cupertino's fmancial success - a unique partnership that brings the
city and Apple even closer.
On Tuesday, June 19th, our tax sharing agreement will be up for renewal before you. We
respectfully request your continued support of this agreement, which keeps sales tax
dollars in Cupertino and allows Apple to continually re-invest in our community.
Please contact me with any questions at 408-974-2503.
CC: David Knapp, City Manager
Carol Atwood, Director, Administrative Services
I'.p;:lle
1 Infinite Loof'
Cupertino, CA 95014
T 408 996-1010
F 408996-0275
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