COMMERCIAL GROUND LEASE

 

 

TABLE OF CONTENTS

 

				Page
1.	DEFINITIONS			1
	1.1	Lease Year		1
	1.2	Hazardous Material		1
	1.3	Environmental Law		2
2.	PREMISES			2
	2.1	Ownership of Improvements		2
	2.2	Title and Condition		2
3.	TERM OF LEASE			3
4.	MONTHLY BASE RENT			3
	4.1	Net-Net-Net Lease; Non-Terminability		3
	4.2	Monthly Base Rent		4
5.	INCREASES IN MONTHLY RENT			5
	5.1	Monthly Base Rent Adjustments		5
6.	SUBSTITUTE RENT AND INCREASES			5
7.	SECURITY DEPOSIT			6
8.	USE OF THE PREMISES			6
9.	PROPERTY TAXES, ASSESSMENTS AND UTILITIES			6
	9.1	Tenant’s Required Payments		6
	9.2	Payments Not Required by Tenant		7
	9.3	Assessments		7
	9.4	Utility Payments		7
	9.5	Tenant’s Right to Contest Utility Charges, Contest Taxes and Seek Reduction of Assessed Valuation of the Premises		7
	9.6	Landlord Not Required to Join in Proceedings or Contest Brought by Tenant		8
10.	BUILDING AND IMPROVEMENTS; TRADE FIXTURES			8
	10.1	Building and Improvements		8
	10.2	Depreciation and Investment Tax Credit		8
	10.3	Trade Fixtures		8
	10.4	Removal of Trade Fixtures		9
	10.5	Waiver of Landlord’s Lien		9
11.	MAINTENANCE OF THE PREMISES			10

 

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				Page
	11.1	Obligation to Maintain the Premises		10
	11.2	Obligation to Keep the Premises Clean		10
	11.3	Compliance with Law		10
12.	REPAIRS AND ALTERATIONS			11
	12.1	Right to Make Alterations		11
	12.2	Tenant Shall Not Render Premises Liable For Any Lien		11
13.	INDEMNITY AND INSURANCE			12
	13.1	Indemnification		12
	13.2	Exculpation of Landlord		13
	13.3	Insurance Company Requirement		13
	13.4	Insurance Certificate Requirements		13
	13.5	Minimum Acceptable Insurance Coverage Requirements		13
	13.6	Additional Insureds		14
	13.7	Mortgage Endorsement		15
	13.8	Renewals, Lapses or Deficiencies		15
	13.9	Adjustment of Claims		15
	13.10	Separate Insurance		16
	13.11	Waiver of Subrogation		16
14.	PARTIAL AND TOTAL DESTRUCTION OF THE PREMISES			16
	14.1	Obligation to Repair and Restore		16
	14.2	Termination of Lease If Repair or Restoration Not Feasible		16
	14.3	Damage or Destruction During Last Five Years of Lease Term		17
15.	CONDEMNATION			18
	15.1	Condemnation Damages		18
	15.2	Termination of Lease Due to Condemnation		19
16.	ASSIGNMENT AND SUBLETTING			20
	16.1	Tenant’s Right of Assignment and Subletting		20
	16.2	Landlord’s Option to Preserve Subtenancies		20
	16.3	Tenant’s Assignment of All Rent from Subletting as Security for Tenant’s Obligations		20
	16.4	Continuing Obligation of Tenant		21
	16.5	Fees and Costs with Regard to Proposed Assignment or Sublease		21

 

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				Page
	16.6	Landlord’s Right of Assignment		21
17.	DEFAULT			22
	17.1	Default		22
	17.2	Remedies		23
	17.3	Landlord’s Self-Help		24
	17.4	Intentionally Omitted		24
	17.5	No Waiver		24
	17.6	Late Charge		24
	17.7	Multiple Remedies, No Waiver		25
	17.8	Tenant Waiver		25
	17.9	Default by Landlord		25
18.	RIGHT OF INSPECTION			26
19.	WAIVER OF BREACH			26
20.	NOTICES			26
	20.1	Notice Requirements		26
	20.2	Payments Under Lease		27
21.	RELATIONSHIP OF THE PARTIES			27
22.	SUBORDINATION, ATTORNMENT AND ESTOPPEL			28
	22.1	Subordination and Non-Disturbance		28
	22.2	Attornment		28
	22.3	Estoppel Certificate		28
	22.4	Protection of Landlord’s Mortgagee		29
23.	TENANT’S FINANCIAL STATEMENTS			29
24.	ATTORNEYS’ FEES			30
	24.1	Recovery of Attorneys’ Fees and Costs of Suit		30
	24.2	Party to Litigation		30
	24.3	Landlord’s Consent		30
25.	LEASEHOLD MORTGAGE			30
	25.1	Tenant’s Right to Encumber		30
	25.2	Rights of Tenant’s Mortgagee		31
26.	AUTHORITY TO MAKE LEASE; COVENANT OF QUIET ENJOYMENT			33

 

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				Page
	26.1	Full Power and Authority to Enter Lease		33
	26.2	Quiet Enjoyment		33
	26.3	No Violation of Covenants and Restrictions		33
27.	HAZARDOUS MATERIAL			33
	27.1	Environmental Compliance		33
	27.2	Tenant’s Responsibility for Hazardous Materials		34
	27.3	Survival		34
	27.4	Reporting and Inspections		34
28.	GENERAL PROVISIONS			37
	28.1	Gender; Number		37
	28.2	Captions		37
	28.3	Exhibits		38
	28.4	Entire Agreement		38
	28.5	Drafting		38
	28.6	Modification		38
	28.7	Joint and Several Liability		38
	28.8	Governing Law		38
	28.9	Attorneys’ Fees		38
	28.10	Time of Essence		39
	28.11	Severability		39
	28.12	Successors and Assigns		39
	28.13	Independent Covenants		39
	28.14	Right of First Offer		39
	28.15	Procedure Upon Purchase		40
	28.16	Information Provided		41
	28.17	No Lease Until Accepted		41
	28.18	Counterparts		41
	28.19	Limitation on Landlord’s Liability		41
	28.20	Consents		42
	28.21	Reservations of Landlord		42
	28.22	Construction of Lease		42

 

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					Page
	28.23	Conflict Between Terms of Lease and Loan Documents of Landlord’s Lender			43
EXHIBIT “A”			LEGAL DESCRIPTION OF REAL PROPERTY		1
EXHIBIT “B”			GUARANTY		1
EXHIBIT “C”			MEMORANDUM OF LEASE		1
EXHIBIT “D”			SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT		1

 

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COMMERCIAL GROUND LEASE

 

This Commercial Ground Lease (the “Lease”) is dated for reference purposes only as of July 20, 1999, is made by and between NEWPORT EXCHANGE PROPERTIES, LLC, a Delaware limited liability company (“Landlord”), and MALIBU CENTERS, INC., a Delaware corporation (“Tenant”), with reference to the recitals set forth below. All obligations hereunder of Tenant are guaranteed by MALIBU ENTERTAINMENT WORLDWIDE, INC., a Georgia corporation (“Guarantor”).

 

RECITALS

 

A.             Landlord is the owner of that certain real property (the “Premises”), which legal description is attached hereto and incorporated herein as Exhibit “A,” commonly known as:

 

Malibu SpeedZone

17871 Castleton Street

City of Industry, California 90278

 

B.              Landlord desires to lease the Premises to Tenant, and Tenant desires to lease the Premises from Landlord pursuant to the provisions of this Lease.

 

C.              This Lease shall not be effective unless and until Tenant shall deliver a guaranty executed by Guarantor in the form attached hereto as Exhibit “B”.

 

1.

 

DEFINITIONS

 

The following terms, when used in this Lease, shall have the meaning set forth in this Section 1.

 

1.1            Lease Year

 

The term “Lease Year” shall mean the first twelve (12) full calendar months after the Commencement Date (as defined in Section 3) and each subsequent twelve (12) month period thereafter during the term and any Extensions.

 

1.2            Hazardous Material

 

The term “Hazardous Material” means any substance, material, or waste which is toxic, ignitable, reactive, or corrosive and which is or becomes regulated by the local or state governmental authority or the United States Government. The term “Hazardous Material” includes, without limitation, any material or substance which is (i) defined as a “hazardous waste,” “extremely hazardous waste,” “restricted hazardous waste,” “hazardous substance,” or “hazardous material,” by any law, statute, regulation, order, or rule now or hereafter promulgated by any governmental entity, whether local, state, or federal, (ii) oil and petroleum products and their by-products, (iii) asbestos, or asbestos-containing materials, (iv) designated as a “hazardous substance” pursuant to the Federal Water Pollution Control Act, (v) defined as a “hazardous waste” pursuant to the Federal Resource Conservation and Recovery Act, or (vi) defined as a

 

 

“hazardous substance” pursuant to the Comprehensive Environmental Response, Compensation and Liability Act or any other law, statute, regulation, order, or rule now or hereafter promulgated by any governmental entity, whether local, state, or federal.

 

1.3            Environmental Law

 

The term “Environmental Law” shall mean any law, statute, regulation, order, or rule now or hereafter promulgated by any governmental entity, whether local, state, or federal, relating to air pollution, water pollution, noise control, and/or transporting, storing, handling, discharge of or disposal of Hazardous Material, including, without limitation, the following: the Clean Air Act; the Resource Conservation and Recovery Act, as amended by the Hazardous Waste and Solid Waste Amendments of 1984; the Comprehensive Environmental Response Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986; the Toxic Substances Control Act; the Federal Insecticide, Fungicide and Rodenticide Act, as amended; the Safe Drinking Water Act; OSHA; the Hazardous Liquid Pipeline Safety Act; the Hazardous Materials Transportation Act; and the National Environmental Policy Act, as the same may be amended from time to time.

 

2.

 

PREMISES

 

Landlord leases to Tenant and Tenant leases from Landlord the Premises on the terms and conditions set forth in this lease.

 

2.1            Ownership of Improvements

 

During the term of this Lease, the buildings and other improvements which are permanently affixed to the Premises (the “Improvements”; it being provided that the Premises shall include the Improvements unless the context clearly indicates otherwise) shall be and remain the property of Tenant; upon the expiration or earlier termination of this Lease, the Improvements shall automatically become the property of Landlord without any compensation therefor and Tenant shall execute and deliver all such deeds and instruments of conveyance as may be required to confirm such title in Landlord. All obligations of Tenant hereunder with respect to the Premises shall also be obligations with respect to the Improvements and Landlord shall have no obligations or otherwise (except as expressly set forth herein) with respect to the Improvements (including, without limitation, as to the payment of any Taxes, costs or expenses relating to the same and Tenant shall be solely responsible therefore).

 

2.2             Title and Condition

 

The Premises are demised and let subject to (a) the existing state of the title thereof as of the commencement of the term of this Lease, (b) any state of facts which an accurate survey or physical inspection thereof might show, and (c) all zoning regulations, restrictions, rules and ordinances, building restrictions and other laws and regulations now in effect or hereafter adopted by a governmental authority having jurisdiction. Tenant developed the Premises and sold the Premises to Landlord; Tenant acknowledges that Tenant has inspected the Premises and Tenant accepts the Premises in its existing condition, “AS IS” and subject to all defects and

 

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conditions, whether patent or latent, and subject further to all legal requirements such as taxes, assessments, zoning, use permit requirements and building codes, based solely on Tenant’s own inspection, analysis and evaluation and not in reliance on any representations, warranties or information provided by or on behalf of Landlord. Landlord makes no representation or warranty with respect to the condition of the Premises or its fitness or availability for any particular use or any related matter.

 

3.

 

TERM OF LEASE

 

The effective date (the “Commencement Date”) of this Lease shall be the date of the recording of the deed transferring ownership of the Premises from Tenant to Landlord. Concurrently with recording the deed, the Memorandum of Lease, a copy of which is attached hereto and incorporated herein as Exhibit “C” shall be recorded. The expiration date of the term shall be last day of the month twenty-four (24) years thereafter (“Term”); the foregoing period of approximately twenty-four years is referred to herein as the “Initial Term”. The Term of Lease may be extended for two (2) additional periods of five (5) years each (“Extension(s)”), commencing at midnight on the date on which the Initial Term or any preceding Extension expires. Each Extension shall be automatic and the parties shall be bound by this Lease for such Extension unless Tenant gives Landlord notice, at least fifteen (15) months prior to the expiration of the Initial Term or preceding Extension, that Tenant does not intend any further Extension to occur, in which case the Initial Term or the Extension shall expire at the end of the Initial Term or the current Extension. References to the Term of the Lease shall include extensions, if any. Except as otherwise expressly stated, the terms and conditions of this Lease shall remain in effect during any Extension, renewal, or holdover of the initial Term.

 

4.

 

MONTHLY BASE RENT

 

4.1            Net-Net-Net Lease; Non-Terminability

 

(a)            This is a completely ABSOLUTE NET LEASE. All costs and expenses arising out of the use and occupancy of the Premises and the Improvements, including, but not limited to, ad valorem taxes, maintenance, and insurance, as set forth below, are payable by Tenant. It is the intention of Landlord and Tenant that the Monthly Base Rent (as defined below) and other sums and charges provided herein shall be absolutely net to Landlord. Tenant shall pay all costs, charges, obligations, assessments, and expenses of every kind and nature against or relating to the operation and/or use of the Premises and the Improvements, which may arise, accrue or become due during the Term hereof, or which may pertain to this transaction, whether or not now customary or within the contemplation of the parties hereto, and which, except for the execution and delivery of this Lease, would have been payable by Landlord.

 

(b)                   Except as otherwise expressly provided herein, this Lease shall not terminate, nor shall Tenant have any right to terminate this Lease nor shall Tenant be entitled to any abatement or reduction of rent hereunder, nor shall the obligations of Tenant under this Lease be affected,

 

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by reason of (i) any damage to or the destruction of all or any part of the Premises from whatever cause, (ii) the taking of the Premises or any portion thereof by condemnation, requisition or otherwise for any reason (iii) the prohibition, limitation or restriction of Tenant’s use of all or any part of the Premises, or any interference with such use, (iv) Tenant’s acquisition or ownership of all or any part of the Premises otherwise than pursuant to an express provision of this Lease, or (v) any other cause whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding. It is the intention of the parties hereto that the obligations of Tenant hereunder shall be separate and independent covenants and agreements, that the Monthly Base Rent, the additional rent and all other sums payable by Tenant hereunder shall continue to be payable in all events and that the obligations of Tenant hereunder shall continue unaffected, unless the requirement to pay or perform the same shall have been terminated pursuant to an express provision of this Lease.

 

(c)            So long as Landlord is not in default beyond expiration of all applicable cure periods, Tenant agrees that it will remain obligated under this Lease in accordance with its terms, and that it will not take any action to terminate, rescind or avoid this Lease, notwithstanding (i) the bankruptcy, insolvency, reorganization, composition, readjustment, liquidations, dissolution, winding-up or other proceeding affecting Landlord or any assignee of Landlord in any such proceeding and (ii) any action with respect to this Lease which may be taken by any trustee or receiver of Landlord or of any assignee of Landlord in any such proceeding or by any court in any such proceeding.

 

Except as otherwise expressly provided herein, and except to the extent such waiver is invalid under applicable law, Tenant waives all rights which may now or hereafter be conferred by law (i) to quit, terminate or surrender this Lease or the Premises or any part thereof, of (ii) to any abatement, suspension, deferment or reduction of the Monthly Base Rent, additional rent or any other sums payable under this Lease.

 

4.2            Monthly Base Rent

 

Tenant shall pay to Landlord as monthly rent the sum of Sixty Nine Thousand Four Hundred Seventy Nine and No/100 Dollars U.S. ($69,479.00) (the “Monthly Base Rent”) per month. Monthly Base Rent shall be payable by Tenant to Landlord in advance in equal monthly installments on the first day of each calendar month, without prior notice, invoice, demand, deduction, or offset whatsoever, except as expressly set forth herein. Landlord shall have the right to accept all rent and other payments, whether full or partial, and to negotiate checks and payments thereof without any waiver of rights, irrespective of any conditions to the contrary sought to be imposed by Tenant. All rent shall be paid to Landlord at the address to which notices to Landlord are given. The Monthly Base Rent for any partial month shall be prorated based upon a thirty (30) day month. In the event that Tenant receives a written notice from Landlord’s Lender (as defined in Section 13.7) instructing Tenant to pay Monthly Base Rent and all other sums due or payable under this Lease directly to Landlord’s Lender, Tenant shall make such payments to Landlord’s Lender and Tenant is hereby released from liability to Landlord on account of any such payments made by Tenant to Landlord’s Lender.

 

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5.

 

INCREASES IN MONTHLY RENT

 

5.1            Monthly Base Rent Adjustments

 

The capitalized terms used in this Section 5.1 are defined below. Effective on each Adjustment Date, Monthly Base Rent shall be increased by the increases in the CPI with the percentage increase to be determined by multiplying the Monthly Base Rent then in effect by a fraction, the numerator of which shall be the Variable Index and the denominator of which shall be the Base Index. The product thus obtained shall be payable in advance in consecutive monthly installments on the first day of each month until the next Adjustment Date, or the expiration of the Term, as the case may be. Notwithstanding anything contained herein to the contrary, in no event shall the Monthly Base Rent in effect prior to an Adjustment Date be reduced if the change in the percentage change in the CPI is negative. Landlord’s delay or the failure of Landlord, beyond commencement of any Adjustment Date, in computing or billing for these adjustments will not impair the continuing obligation of Tenant to pay the rent adjustments. In applying the foregoing formula for Monthly Base Rent adjustments, the following terms shall have the following meanings:

 

5.1.1         “Adjustment Date” shall mean, as the case may require, every fifth anniversary of the Commencement Date during the Initial Term (and every fifth anniversary of the Commencement Date thereafter during the Term in the event Tenant exercises its option(s) for the Extension(s)); provided, however, if the Commencement Date is other than the first day of the month, then “Adjustment Date” shall mean, as the case may require, the first day of the first month occurring after every fifth anniversary of the Commencement Date.

 

5.1.2         “Base Index” shall mean the CPI for the first month of the first Lease Year.

 

5.1.3         “CPI” shall mean the Consumer Price Index for All Urban Consumers, All Items Index Base Year 1982 - 1984 = 100, as published by the Bureau of Labor Statistics, United States Department of Labor (U.S. City Average), or, if such index is discontinued, the most nearly comparable index published by the Bureau of Labor Statistics or other official agency of the United States Government.

 

5.1.4         “Initial Monthly Base Rent” shall mean the Monthly Base Rent payable by Tenant for the first full calendar month of the first Lease Year.

 

5.1.5         “Variable Index” shall mean the CPI for the month in which the Adjustment Date occurs.

 

6.

 

SUBSTITUTE RENT AND INCREASES

 

This Section was deleted Intentionally

 

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7.

 

SECURITY DEPOSIT

 

This Section was deleted Intentionally

 

8.

 

USE OF THE PREMISES

 

Tenant shall use the Premises for a multi-purpose, interactive entertainment facility and, with the prior written consent of Landlord which shall not be unreasonably withheld, such other uses as permitted by applicable zoning and use regulations and covenants, conditions and restrictions. Tenant has satisfied itself, and represents to Landlord, that such use is lawful and conforms to all applicable zoning and other use regulations, including without limitation all covenants, conditions and restrictions, applicable to the Premises. Tenant shall, at Tenant’s expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements in effect during the Term or any part of the Term hereof, regulating the use by Tenant of the Premises, including, without limitation, the obligation at Tenant’s cost, to alter, maintain, or restore the Premises in compliance and conformity with all laws relating to the condition, use, or occupancy of the Premises during the Term (including applicable requirements to the extent set forth in the Americans with Disabilities Act). In the event that the Premises shall cease to be operated primarily for a multi- purpose, interactive entertainment facility, other than a temporary interruption of operation for the purpose of remodeling, or reconstruction following damage by casualty, Landlord shall have the right to elect to terminate this Lease by written notice given at anytime thereafter, and upon such termination Tenant’s obligations under this Lease shall cease to accrue, provided Landlord’s right to terminate shall expire six (6) months following Landlord’s receipt from Tenant of written notice of Tenant’s cessation of operation of a multi-purpose, interactive entertainment facility.

 

9.

 

PROPERTY TAXES, ASSESSMENTS AND UTILITIES

 

9.1            Tenant’s Required Payments

 

As additional rent, Tenant shall directly pay not later than forty-five (45) days prior to delinquency, all ad valorem taxes, assessments, license fees, costs incurred pursuant to covenants and restrictions affecting both Landlord’s and Tenant’s interest in the Premises, and other charges (collectively referred to as “Taxes”) levied or assessed against all merchandise, personal property, real property, buildings and improvements, and any other obligations which are or may become a lien or levied against the Premises. Tenant shall provide Landlord with evidence of payment of Taxes promptly upon request. If at any time during the Term, the state in which the Premises are located or any political subdivision of the state, including any county, city, county and city, public corporation, district, or any other political entity or public corporation of that state, levies or assesses against Landlord a tax, fee, or excise on (i) rents, including, if applicable,

 

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property taxes, insurance, maintenance, and other costs incurred by Tenant by which Landlord may benefit; (ii) on the square footage of the Premises; (iii) on the act of entering into this Lease; or (iv) on the occupancy of Tenant, or levies or assesses against Landlord any other tax, fee, or excise, however described, including, without limitation, a so-called value added tax, as a direct substitution in whole or in part for, or in addition to, any real property taxes, Tenant shall directly pay before delinquency that tax, fee, or excise. It is the intention of Tenant and Landlord that all new and increased ad valorem assessments, taxes, fees, levies, and charges, and all similar assessments, taxes, fees, levies, and charges be included within the definition of taxes for the purpose of this Lease.

 

9.2            Payments Not Required by Tenant

 

Notwithstanding the foregoing, Tenant shall not be required to pay any municipal, county, state, or federal income or franchise taxes of Landlord, or any inheritance, or transfer taxes of Landlord, except to the extent levied in substitution for Taxes payable under Section 9.1 hereinabove.

 

9.3            Assessments

 

If any assessment for a capital improvement made by public or governmental authority shall be levied or assessed against the Premises, and the assessment is payable either in a lump sum or on an installment basis, then Tenant shall have the right to elect the basis of payment. If Tenant shall elect to pay the assessment on the installment basis, then Tenant shall pay only those installments, which shall become due and payable or which shall accrue during the Term of this Lease.

 

9.4            Utility Payments

 

As additional rent, Tenant shall promptly pay when due all charges for water, gas, electricity, and all other utilities furnished to or used upon the Premises, including all charges for installation, termination, and relocations of such services, whether such payment is to be made to Landlord or directly to the particular utility provider.

 

9.5            Tenant’s Right to Contest Utility Charges, Contest Taxes and Seek Reduction of Assessed Valuation of the Premises

 

Tenant, at its sole cost, shall have the right, at any time, to seek a reduction in the assessed valuation of the Premises or to contest any taxes or utility charges that are to be paid by Tenant. If Tenant seeks a reduction or contests any taxes or utility charges, the failure on Tenant’s part to pay the taxes or utility charges shall not constitute a default as long as Tenant complies with the provisions of this Section 9. Tenant may use any means allowed by statute to protest property tax assessments or utility charges as defined in this Section 9 as long as Tenant remains current as to all other terms and conditions of this Lease. If, during the protest period, any Lease defaults occur and the protested taxes or assessments have not been paid, then Tenant shall furnish to Landlord a surety bond issued by an insurance company qualified to do business in the state where the Premises are located. The amount of bond shall equal one hundred ten percent (110%) of the total amount of taxes in dispute. The bond shall hold Landlord and the

 

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Premises harmless from any damage arising out of the proceeding or contest and shall insure the payment of any judgment that may be rendered.

 

9.6            Landlord Not Required to Join in Proceedings or Contest Brought by Tenant

 

Landlord shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of the law require that the proceeding or contest be brought by or in the name of Landlord or the owner of the Premises. In that case, Landlord shall join in the proceeding or contest or permit it to be brought in Landlord’s name as long as Landlord is not required to bear any cost or incur any liability. Tenant, on final determination of the proceeding or contest, shall immediately pay or discharge any decision or judgment rendered, together with all costs, charges, interest, and penalties incidental to the decision or judgment.

 

10.

 

BUILDING AND IMPROVEMENTS; TRADE FIXTURES

 

10.1          Building and Improvements

 

During the Term of this Lease provided Tenant is not in default, Tenant shall have the right to sell, transfer, convey or mortgage any or all of Tenant’s Property without Landlord’s consent. Tenant shall not demolish or remove the Improvements or any additions, alterations, modifications and replacements thereto unless Tenant immediately thereafter replaces the same with other Landlord approved (if approval is required pursuant to Section 12.1 hereof) improvements of at least equal value and prior to such demolition or removal provides Landlord with reasonably adequate assurance of its timely replacement of the Improvements to be demolished or removed. All right, title, and interest of Tenant in the Improvements and all additions, alterations, modifications, and replacements thereto and thereof shall cease, expire, and vest exclusively in Landlord effective as of the expiration or any termination of this Lease.

 

10.2           Depreciation and Investment Tax Credit

 

During the Term of this Lease, Tenant alone shall be able to claim depreciation and investment tax credit for taxation purposes (or to permit its subtenants the right to such benefits) on any building improvements and fixtures and any changes, additions, and alterations therein and thereto and any replacements thereof.

 

10.3          Trade Fixtures

 

Notwithstanding anything contained herein to the contrary, Landlord acknowledges and agrees that the furniture, trade fixtures, equipment, machinery, furnishings, signs, and other articles of personal property (collectively, “Trade Fixtures”) now located or hereafter placed or installed in, on, or about the Premises shall be and remain the property of Tenant (except as hereinafter otherwise provided), Tenant shall have the right, at any time during the Term, at Tenant’s sole cost and expense, to install and affix in, to, or on the Premises, such Trade Fixtures for use in Tenant’s trade or business as Tenant, in its sole and absolute discretion, may deem advisable. Trade Fixtures that can be removed without structural damage to the Premises or any building or improvements thereon shall remain the property of Tenant and may be removed or

 

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replaced by Tenant at any time or times prior to the expiration or earlier termination of this Lease, provided Tenant is not in default under this Lease and as further set forth in Section 10.4 following. In the event of such removal, any damage occasioned to the Premises shall be fully repaired at the sole cost and expense of Tenant.

 

10.4          Removal of Trade Fixtures

 

At the expiration or earlier termination of this Lease, provided Tenant is not in default, Tenant, at its election, may remove (i) Tenant’s movable Trade Fixtures and other personal property not permanently affixed to the Premises; and (ii) Tenant’s signs (collectively, “Tenant’s Property”). All leasehold improvements, alterations and additions to the Premises, HVAC equipment, permanently attached lighting fixtures, electric switch boxes, plumbing, restroom fixtures, floor coverings, and other like items which are permanently affixed to the Premises, more commonly defined as fixtures, shall become the property of the Landlord immediately following the expiration, or any termination of this Lease. Any of Tenant’s Property not removed within sixty (60) days following the expiration or earlier termination of this Lease shall be deemed abandoned by Tenant and, at Landlord’s option, shall become the property of Landlord as owner of the real property to which they are affixed. Tenant, at its sole cost and expense, immediately shall repair any damage occasioned to the Premises by the removal of Tenant’s Property. Upon the expiration or earlier termination of this Lease, Tenant shall leave the Premises in a neat and clean condition, free of debris, normal wear and tear excepted.

 

10.5          Waiver of Landlord’s Lien

 

From time to time, some or all of Tenant’s Property may be financed or owned by someone other than Tenant. To the extent that any of Tenant’s Property is financed or owned by someone other than Tenant, Landlord agrees that such Tenant’s Property is not Landlord’s property no matter how the same is affixed to the Premises or used by Tenant and agrees to recognize the rights of the lender, owner or secured creditor or lessor (“Secured Party”) of Tenant’s Property. Landlord hereby waives any claim arising by way of any Landlord’s lien (whether created by statute or by contract but excluding any judgment lien) or otherwise with respect to Tenant’s Property and agrees, if confirmation of said waiver is requested by Tenant, or Secured Party, to promptly sign and deliver to any such Secured Party a waiver of any lien Landlord may have on Tenant’s Property (“Landlord’s Lien Waiver”). If said confirmation is requested by Tenant or Secured Party, Landlord agrees to execute and deliver Landlord’s Lien Waiver within fifteen (15) days from Tenant’s or Secured Party’s request therefore or Landlord shall have conclusively deemed to have granted confirmation of Landlord’s Lien Waiver thereafter and Landlord agrees that tenant and any Secured Party may thereafter rely thereon and Landlord shall be estopped from raising any claim of lien on Tenant’s Property. Landlord also agrees that all of Tenant’s Property that is not subject to an interest from Secured Party shall be the property and remain the property of Tenant or Tenant’s assignee or transferee.

 

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11.

 

MAINTENANCE OF THE PREMISES

 

11.1          Obligation to Maintain the Premises

 

During the Term of this Lease, Tenant shall, at its own expense, keep and maintain the entire Premises in good order and repair at least equal to the condition at the Commencement Date, including, but not limited to, the interior, exterior, foundations, floors, walls, roof, and structure of the building; and the sidewalks, curbs, walls, trash enclosures, landscaping with sprinkler system (if installed), light standards, and parking areas which are a part of the Premises. Tenant shall make such repairs and replacements as may be necessary. The Premises shall be returned to Landlord at the termination or expiration of this Lease in good condition at least equal to the condition at the Commencement Date, ordinary wear excepted. In the event of destruction of the Premises by fire or casualty, the condition of Premises upon termination of this Lease shall be governed by Section 14 or Section 15, respectively.

 

11.2          Obligation to Keep the Premises Clean

 

Tenant shall keep the Premises, including sidewalks adjacent to the Premises and loading area allocated for the use of Tenant, reasonably clean and free from rubbish and debris at all times. Tenant shall store all trash and garbage within the Premises and arrange for regular pickup and cartage of such trash and garbage at Tenant’s expense.

 

11.3          Compliance with Law

 

Tenant shall, at its sole expense, fully, diligently and in a timely manner comply with and shall cause the Premises to comply with all applicable laws, building codes, regulations, ordinances, rules, directives, covenants, or restrictions of record, the requirements of any applicable insurance underwriter or rating bureau, which relate in any manner to the Premises or any part thereof, including without limitation all conditions imposed upon the development of the Premises (collectively, “ Applicable Requirements ”), without regard to whether such Applicable Requirements are now in effect or become effective hereafter, including those which require the making of any structural, unforeseen or extraordinary changes, whether or not any of the same, involve a change in applicable law or requirements. Tenant shall, within 10 days after receipt of Landlord’s written request (which request shall be made not more often than annually, other than in connection with a sale or refinancing by Landlord as to the Premises in which case such request may be made at any time), provide Landlord with copies of all permits and other documents, and other information evidencing Tenant’s compliance with any Applicable Requirements specified by Landlord, and shall immediately upon receipt, notify Landlord in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Tenant or the Premises to comply with any Applicable Requirements.

 

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12.

 

REPAIRS AND ALTERATIONS

 

12.1          Right to Make Alterations

 

(a)            At all times during the Term of this Lease, except as provided in Section 17, Tenant shall have the right to make alterations, additions, and improvements to the Premises, including the redevelopment of the Premises for a new or related use, as permitted by Section 8. In the event that Tenant shall perform construction, erection, modification, repair, or alteration of the Premises (“Work”), Tenant shall comply with the provisions of this Section 12. Except as specified in Sections 10.1 and 10.4, any Improvements and any alterations, additions, or replacements thereto which may be made or installed by Tenant shall remain upon the Premises and, at the termination or expiration of this Lease, shall be surrendered with the Premises to Landlord. It shall be a condition of the performance of any Work that: (i) the market value of the Premises shall not thereby be lessened, and (ii) all Work shall be done in a workmanlike manner with only high quality building materials and shall comply with all applicable building codes and other applicable laws, ordinances, regulations and orders of all federal, state, county and local governmental agencies having jurisdiction over the Premises and the requirements of any insurance policy required to be maintained by Tenant hereunder and with the orders, rules and regulations of the National Fire Protection Association or any other body exercising similar functions. The Work and all additions, alterations, substitutions and replacements of a value in excess of two hundred thousand dollars ($200,000.00) will be done under the supervision of a certified architect or engineer and shall be performed only by competent and qualified contractors duly licensed under the laws of the State of California pursuant to written contracts with such contractors. In the event that Work costing in excess of five hundred thousand dollars ($500,000.00) is to be performed, Landlord may require that Tenant’s contractor furnish performance and lien payment bonds issued by a licensed corporate surety on terms and conditions and in amounts satisfactory to Landlord.

 

12.2          Tenant Shall Not Render Premises Liable For Any Lien

 

(a)            Tenant shall have no right, authority, or power to bind Landlord, or any interest of Landlord in the Premises, or right of lien for the payment of any claim for labor, material, or for any charge or expense incurred to maintain, to repair, or to make alterations, additions, and improvements to the Premises. Tenant shall in no way be considered the agent of Landlord in the construction, erection, modification, repair, or alteration of the Premises. At all times during the Term, Tenant shall keep the Premises and all Improvements now or hereafter located on the Premises free and clear of all liens and claims of liens for labor, services, materials, supplies, or equipment performed on or furnished to the Premises. Notwithstanding the above, Tenant shall have the right to contest the legality or validity of any lien or claim filed against the Premises. No contest shall be carried on or maintained by Tenant after the time limits in the sale notice of the Premises for any such lien or claim or beyond 30 days after service on Tenant of written request from Landlord to remove such lien unless Tenant (i) shall have duly paid the amount involved under protest; (ii) shall have procured and recorded a lien release bond from a bonding company acceptable to Landlord in an amount not less than one and one-half (1-1/2) times the amount involved; or (iii) shall have procured a stay of all proceedings to enforce collection.

 

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Upon a final adverse determination of any contest, Tenant shall pay and discharge the amount of the lien or claim determined to be due, together with any penalties, fines, interest, cost, and expense which may have accrued, and shall provide proof of payment to Landlord. Should Tenant fail to pay and discharge or cause the Premises to be released from any such lien or claim of lien within 30 days after service on Tenant of written request from Landlord to do so, Landlord may pay, adjust, compromise and discharge any such lien or claim of lien on such terms and manner as Landlord may deem appropriate. In such event, Tenant shall, on or before the first day of the next calendar month following any such payment by Landlord, reimburse Landlord for the full amount paid by Landlord in paying, adjusting, comprising, and discharging such lien or claim of lien, including any attorneys’ fees and other costs expended by Landlord, together with interest as provided herein from the date of payment by Landlord to the date of repayment by Tenant.

 

(b)            Landlord shall, at any and all times during the Term, have the right to post and maintain on the Premises and to record as required by law any notice or notices of nonresponsibility provided for by the mechanics’ lien laws of the State of California. Tenant shall give Landlord written notice not less than 15 days’ prior to the time Landlord must file and post such notice of non-responsibility for its full force and effect under the law. In the event that Tenant shall perform the Work utilizing only its direct employees, which employees are not hired specially for the performance of the Work, and the value of materials used in performance of the Work, to the extent the same are not fully paid for in advance of delivery to the Premises, is less than twenty-five thousand dollars ($25,000.00), then Tenant need not give Landlord notice as required in this subsection (b).

 

13.

 

INDEMNITY AND INSURANCE

 

13.1          Indemnification

 

Tenant shall indemnify, defend, and protect Landlord, and hold Landlord harmless from any and all loss, cost, damage, expense, liability (including, without limitation, court costs and reasonable attorneys’ fees) incurred in connection with or arising at any time and from any cause whatsoever in or about the Premises, other than damages to the extent caused by the negligence or willful misconduct of Landlord or its agents and employees, including, without limiting the generality of the foregoing: (i) any default by Tenant in the observance or performance of any of the terms, covenants, or conditions of this Lease on Tenant’s part to be observed or performed; (ii) the use or occupancy of the Premises by Tenant or any person claiming by, through, or under Tenant; (iii) the condition of the Premises or any occurrence or happening on the Premises from any cause whatsoever, or (iv) any acts, omissions, or negligence of Tenant or any person claiming by, through, or under Tenant, or of the contractors, agents, servants, employees, or licensees of Tenant or any such person, in, on, or about the Premises, either prior to or during the Term (including, without limitation, any holdovers in connection therewith), including, without limitation, any acts, omissions, or negligence in the making or performance of any alterations. Tenant further agrees to indemnify and hold harmless Landlord, Landlord’s agents, from the against any and all loss, cost, liability, damage, and expense (including, without limitation, reasonable attorneys’ fees) incurred in connection with or arising from any claims by any

 

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persons by reason of injury to persons or damage to property occasioned by any use, occupancy, condition, occurrence, happening, act, omission, or negligence referred to in the preceding sentence. The provisions of this Section shall survive the expiration or sooner termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination, and shall not be limited by reason of any insurance carried by Landlord and Tenant.

 

13.2          Exculpation of Landlord

 

Landlord shall not be liable to Tenant for any damage to Tenant or Tenant’s property for any cause, except for any damage to Tenant or Tenant’s property resulting from the willful acts and negligence of Landlord or its authorized representatives. Tenant waives all claims against Landlord for damage to person or property arising, or asserted to have arisen, for any reason, except that Landlord shall be liable to Tenant for any damage to Tenant resulting from the willful acts and negligence of Landlord and its authorized agents, provided that under no circumstances shall Landlord be liable for any injury to Tenant’s business or for any loss of income or profit. Subject to the foregoing provisions, Landlord agrees to, and does hereby indemnify and hold Tenant and its officers, directors, employees, agents and affiliates and their respective assets free and harmless against and from any and all liabilities, claims, losses, damages, and expenses (including attorneys’ fees and court costs) resulting from or arising out of Landlord’s failure to perform any of Landlord’s obligations under this Lease when and as required by the terms hereof.

 

13.3          Insurance Company Requirement

 

Insurance required by this Lease shall be issued by companies holding a general policyholder’s rating of at least A VII as set forth in the most current issue of Best’s Insurance Guide and authorized to do business in the state in which the Premises are located. If this publication is discontinued, then another insurance rating guide or service generally recognized as authoritative shall be substituted by Landlord.

 

13.4          Insurance Certificate Requirements

 

13.4.1                         Tenant shall deliver to Landlord certificates evidencing the existence and amounts of the insurance with loss payable clauses as required herein. No policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days’ prior written notice to Landlord.

 

13.4.2                   The insurance required to be maintained herein may be carried under blanket policies. The insurance shall provide for payment of loss jointly to Landlord and Tenant. A stipulated value or agreed amount endorsement deleting the co-insurance provision to the building policy shall be procured.

 

13.5          Minimum Acceptable Insurance Coverage Requirements

 

13.5.1                         Tenant shall, at Tenant’s expense, obtain and keep in full force during the Term of this Lease a policy of combined single limit bodily injury and property damage insurance insuring Tenant (with Landlord as an additional insured) against any liability arising out of the ownership, use, occupancy, or maintenance of the Premises and all of

 

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its appurtenant areas. The insurance shall be in an amount not less than Three Million and No/100 Dollars ($3,000,000.00) per occurrence. The policy shall provide blanket contractual liability coverage. In addition, Tenant shall, at Tenant’s expense, obtain and keep in full force during the Term of this Lease an umbrella liability policy in an amount not less than Ten Million and No/100 Dollars ($10,000,000.00) in excess of primary insurance. The insurance required to be carried by Tenant hereunder shall be primary and not contributory to any other insurance maintained by Landlord.

 

13.5.2       Tenant shall, at Tenant’s expense, obtain and keep in force during the Term of this Lease a policy or policies of insurance covering loss or damage to the Premises. The insurance shall be in an amount not less than the replacement value of the building(s) less slab, foundation, supports and other customarily excluded improvements against all perils of fire, extended coverage, vandalism, malicious mischief, and special extended perils (“All Risks,” as such term is used in the insurance industry). The policy shall include a code upgrade endorsement. In addition, Tenant shall, at Tenant’s expense, obtain and keep in force during the Term of this Lease a policy or policies of insurance covering loss or damage due to earthquake and/or flood, subject to reasonable and customary limits and provisions for Southern California.

 

13.5.3         Tenant shall also obtain and keep in force during the Term of this Lease a policy of Business Interruption insurance covering loss of income against all perils listed in Section 13.5.2, on an actual loss sustained basis for a period of recovery required (or that would have been required, subject to a maximum of twelve (12) months) to resume normal operations.

 

13.5.4       Tenant shall also obtain and keep in force during the Term of this Lease a worker’s compensation policy, insuring against and satisfying Tenant’s obligations and liabilities under the worker’s compensation laws of the state in which the Premises are located, including Employer’s Liability insurance, in an amount of not less Five Hundred Thousand and No/100 Dollars ($500,000.00).

 

13.6          Additional Insureds

 

Tenant shall name as additional Insureds on all insurance, Landlord, Landlord’s successor(s), assignee(s), nominee(s), nominator(s), and agents with an insurable interest as follows:

 

[                               , ITS OFFICERS, DIRECTORS, AND ALL SUCCESSOR(S), ASSIGNEE(S), SUBSIDIARIES, CORPORATIONS, PARTNERSHIPS, PROPRIETORSHIPS, JOINT VENTURES, FIRMS, AND INDIVIDUALS AS HERETOFORE, NOW, OR HEREAFTER CONSTITUTED ON WHICH THE NAMED INSURED HAS THE RESPONSIBILITY FOR PLACING INSURANCE AND FOR WHICH SIMILAR COVERAGE IS NOT OTHERWISE MORE SPECIFICALLY PROVIDED.]

 

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13.7           Mortgage Endorsement

 

If requested by Landlord, the policies of insurance required to be maintained hereunder shall bear a standard first mortgage endorsement in favor of any holder or holders of a first mortgage lien or security interest in the Premises (excluding the Improvements) (“Landlord’s Lender”) with loss payable to such holder or holders as their interests may appear.

 

13.8          Renewals, Lapses or Deficiencies

 

Tenant shall, at least thirty (30) days prior to the expiration of such policies, furnish Landlord with renewal certificates of insurance or renewal binders. Should Tenant fail to provide to Landlord the renewals or renewal binders, or in the event of a lapse or deficiency of any insurance coverage specified herein for any reason, Landlord may immediately replace the deficient insurance coverage with a policy of insurance covering the Premises of the type and in the limits set forth above. Upon written notice from Landlord of the placement of insurance, Tenant shall immediately pay to Landlord, as additional rent, an amount equal to the total cost of premiums and expense of such insurance placement. Tenant shall not do or permit to be done anything, which shall invalidate the insurance policies. If Tenant does or permits to be done anything which shall increase the cost of the insurance policies, then upon Landlord’s demand Tenant shall immediately pay to Landlord, as additional rent, an amount equal to the additional premiums attributable to any acts or omissions or operations of Tenant causing the increase in the cost of insurance.

 

13.9          Adjustment of Claims

 

Insurance claims by reason of damage to or destruction of any portion of the Premises shall be adjusted by Tenant, but Landlord and Landlord’s Lender shall have the right to join with Tenant in adjusting any such loss, and Tenant shall provide them both with ample notice and opportunity to do so. If the entire amount of any proceeds paid pursuant to any such claim shall not exceed $100,000 then such proceeds paid pursuant to any such claim shall be paid to Tenant by the recipient thereof but only upon certificates of Tenant, delivered to Landlord from time to time as the work of rebuilding, replacing and repairing the damage or destruction to the Premises required hereunder progresses, each such certificate describing such work for which Tenant is requesting payment, the cost incurred by or payment sought from Tenant in connection therewith and stating that Tenant has not theretofore received payment for such work. If the entire amount of any proceeds paid pursuant to any such claim shall exceed $100,000 then such proceeds paid pursuant to any such claim shall be held in a trust fund or construction disbursement escrow designated by Landlord, which may be administered by Landlord’s Lender or established at a place and with a trustee or administrator of Landlord Lender’s choosing, and disbursed to Tenant in a commercially reasonable manner that assures the lien free completion of the rebuilding, replacements and repairs; provided, however, that any insurance proceeds remaining after the repair, restoration, reconstruction and/or replacement of the damaged or destroyed buildings or improvements has been completed to the satisfaction of Landlord (the “Remaining Insurance Proceeds”) shall be allocated between Tenant and Landlord as follows: (i) that percentage of the Remaining Insurance Proceeds which equals the percentage of the unexpired portion of the Initial Term, at the time the repair, restoration, reconstruction and/or replacement of the damaged or destroyed buildings has been completed, shall belong to and be the sole property of Tenant;

 

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and that percentage of the Remaining Insurance Proceeds which equals the percentage of the expired portion of the Initial Term, at the time the repair, restoration, reconstruction and/or replacement of the damaged or destroyed buildings has been completed, shall belong to and be the sole property of Landlord. No payment of any proceeds shall be made to Tenant pursuant to this Section if any default shall have happened and be continuing under this Lease unless and until such default shall have been cured or removed; during the pendency of such default if this Lease has not been terminated, Landlord shall either hold such proceeds in an escrow or similar account for application subject to the provisions hereof or apply the same to the restoration of the Improvements or if the Lease has been terminated Landlord shall retain all such proceeds.

 

13.10        Separate Insurance

 

Tenant shall not obtain or carry separate insurance concurrent in form or contributing in the event of loss with that required in this Section 13 to be furnished by Tenant unless Landlord is included therein as a named insured, with loss payable as in this Lease provided. Tenant shall immediately notify Landlord whenever any such separate insurance is obtained and shall deliver to Landlord the policies or certificates evidencing the same.

 

13.11        Waiver of Subrogation

 

Without affecting any other rights or remedies, Landlord and Tenant each hereby release and relieve the other, and waive their right to recover damages against the other, for loss of damage to its respective property arising out of or incident to the perils required to be insured against herein and actually so insured. The effect of such release and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable thereto. Landlord and Tenant agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Landlord or Tenant, as the case may be, so long as the insurance is not invalidated thereby.

 

14.

 

PARTIAL AND TOTAL DESTRUCTION OF THE PREMISES

 

14.1          Obligation to Repair and Restore

 

In the event any part or all of the Premises shall at any time during the Term of this Lease be damaged or destroyed, regardless of cause, Tenant shall give prompt notice to Landlord. Tenant shall substantially repair and restore the Premises to its original condition, including buildings and all other improvements on the Premises, as soon as circumstances permit. Tenant shall hold Landlord free and harmless from any and all liability of any nature whatsoever resulting from such damage or destruction, and such repairs and restoration. Tenant, and not Landlord, shall be responsible for paying for any cost of repairs and restoration in excess of the proceeds available from insurance policies procured by Tenant.

 

14.2          Termination of Lease If Repair or Restoration Not Feasible

 

Notwithstanding the provisions of Section 14.1, in the event any substantial portion or all of the Premises shall at any time during the Term of this Lease be damaged or destroyed,

 

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regardless of cause, and the Premises cannot be legally repaired or restored to substantially the same condition and use in existence prior to such damage or destruction (Tenant hereby agrees that it shall use its best efforts to so repair or restore the Premises, including, without limitation, applying for and prosecuting all necessary governmental approvals), Tenant shall have the right to terminate this Lease by giving Landlord sixty (60) days written notice of its intention to terminate the Lease, provided that (i) Tenant has maintained all insurance required by this Lease, (ii) the loan by Landlord’s Lender is paid in full prior to such termination and (iii) all insurance proceeds relating to the Premises (including the Improvements), including any excess coverage maintained by Tenant, shall be first applied to the payment in full of the loan by Landlord’s Lender, including, if necessary, the continuation of the debt service payments under said loan until a defeasance is permitted under said loan, and thereafter Tenant shall be entitled to and receive a portion of the remaining insurance proceeds in an amount equal to the product of (a) the remaining insurance proceeds after the loan by the Landlord’s Lender has been paid in full multiplied by (b) the percentage of the unexpired portion of the Initial Term at the time of such damage or destruction and Landlord shall be entitled to and receive a portion of the remaining insurance proceeds in an amount equal to the product of (c) the remaining insurance proceeds after the loan by the Landlord’s Lender has been paid in full multiplied by (d) the percentage equal to the expired portion of the Initial Term at the time of such damage or destruction. In the event of such damage or destruction and the Prem