GROUND LEASE

 

 

TABLE OF CONTENTS

 

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ARTICLE 1			FUNDAMENTAL LEASE PROVISIONS	1
ARTICLE 2			TERM AND RENT	2
2.1		Term		2
2.2		Quarterly Rent		2
2.3		Impositions		4
2.4		Late Charge		4
2.5		Interest on Overdue Amounts		4
2.6		Net Lease		4
2.7		Right of Offset		4
2.8		Early Termination		4
ARTICLE 3			USE OF THE PREMISES	4
3.1		Use		4
3.2		Condition of Premises		5
3.3		Compliance With Law		5
3.4		Environmental Compliance		5
3.5		Tenant’s Responsibility for Hazardous Materials		6
3.7		Permits and Licenses		6
ARTICLE 4			TAXES AND   UTILITIES	6
4.1		Payment of Taxes		6
4.2		Definition of “Taxes”		6
4.3		Tenant’s Right to Contest Taxes		7
4.4		Payment of Utilities		8
4.5		Interruption in Utility Service		8
ARTICLE 5			INSURANCE AND INDEMNIFICATION	8
5.1		Tenant’s Insurance		8
5.2		Policy Form		9
5.3		Subrogation Waiver		9
5.4		Payment of Insurance		9
5.5		Insurance Use Restrictions		9
5.6		Indemnification		10

 

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ARTICLE 6			MAINTENANCE AND REPAIRS	10
6.1		Tenant’s Obligations		10
6.2		Landlord’s Obligations		11
6.3		Landlord’s Rights		11
ARTICLE 7			ALTERATIONS	11
7.1		Consent to Alterations		11
7.2		Removal of Alterations		11
7.3		Alterations Required by Law		11
7.4		General Conditions Relating to Alterations		11
7.5		Liens		12
ARTICLE 8			DAMAGE, DESTRUCTION, OBLIGATION TO REBUILD	12
8.1		Obligation to Rebuild		12
8.2		No Abatement of Rent		13
ARTICLE 9			EMINENT DOMAIN	13
9.1		Total Taking		13
9.2		Partial Taking		13
9.3		Distribution of Award		13
ARTICLE 10			ASSIGNMENT AND SUBLETTING	13
10.1		Landlord’s Consent Required		13
10.2		No Release of Tenant		14
ARTICLE 11			DEFAULT; REMEDIES	14
11.1		Default		14
11.2		Remedies		15
11.3		Cumulative Remedies		15
ARTICLE 12			REPRESENTATIONS AND WARRANTIES; FINANCIAL REPORTING	15
12.1		Representations and Warranties		15
12.2		Financial Statements		16
ARTICLE 13			BUILDING AND IMPROVEMENTS; TRADE FIXTURES	16
13.1		Building and Improvements		16

 

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13.2		Depreciation and Investment Tax Credit		17
13.3		Trade Fixtures		17
13.4		Removal of Trade Fixtures		17
13.5		Financing of Tenant’s Property		17
ARTICLE 14			BANKRUPTCY OR INSOLVENCY	17
14.1		Liquidation		17
14.2		Reorganization		18
14.3		Conditions to Assumption		18
14.4		Conditions to Assignment		19
14.5		Reasonable Charges		19
ARTICLE 15			RIGHT OF FIRST OFFER	19
15.1		Right of First Offer		19
15.2		Closing		19
15.3		Termination of Right		19
15.5		Personal Right		20
15.6		Subordination		20
ARTICLE 16			UNDERGROUND STORAGE TANKS	20
16.1		Underground Storage Tanks		20
ARTICLE 17			LEASEHOLD MORTGAGE FINANCING	20
ARTICLE 18			GENERAL PROVISIONS	21
18.1		Quiet Enjoyment		21
18.2		Definition of Rent		21
18.3		Subordination		21
18.4		Surrender of Premises		21
18.5		Estoppel Certificates		21
18.6		Severability		22
18.7		Entire Agreement		22
18.8		Notices		22
18.9		Waivers		22
18.1	0	Recording		22

 

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18.11		Holding Over	22
18.12		Choice of Law	22
18.13		Attorneys’ Fees	22
18.14		Liability of Landlord	22
18.15		No Merger	23
18.16		Interpretation	23
18.17		Relationship of the Parties	23
18.18		Successors	23
18.19		Modifications	23
18.20		Brokerage Fees	23
18.21		Waiver of Redemption	23
18.22		Not Binding Until Executed	23
18.23		Counterparts	23
EXHIBIT A DESCRIPTION OF PREMISES			A-l
EXHIBIT B FORM OF MEMORANDUM OF GROUND LEASE			B-l
EXHIBIT C FORM OF DEED			C-l

 

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GROUND LEASE

 

In consideration of the rents and covenants set forth below, Landlord (as hereinafter defined) hereby leases to Tenant (as hereinafter defined), and Tenant hereby leases from Landlord, the Premises (as hereinafter defined), upon the following terms and conditions:

 

ARTICLE I

FUNDAMENTAL LEASE PROVISIONS

 

The provisions in this Article shall be referred to in this Lease as the “ Fundamental Lease Provisions .” Unless otherwise defined herein, capitalized terms used in this Lease shall have the meanings listed in the Fundamental Lease Provisions.

 

Commencement Date:	May 4, 2000
Landlord:	Big Kahuna, Inc.
	1007 Highway 98 East
	Destin, Florida 32540
	FAX: (850) 837-9268
Tenant:	Festival Fun Parks, LLC, dba Palace Entertainment
	18300 Van Karman Ave., Suite 900
	Irvine, California 92612
	FAX: (949) 261-1414
Premises:	That certain real property commonly known as the Big Kahuna’s Lost Paradise located at 1007 Highway 98 East, Destin, Florida, consisting of approximately 25 acres of real property located in the County of Oakloosa, State of Florida, together with all rights, appurtenances, interests, easements and privileges belonging or appertaining thereto (the “Property”) more particularly described in Exhibit “A” attached hereto.
Building:	All surface improvements and/or buildings located on the Premises.
Initial Term:	Twenty Five (25) years, commencing on the Commencement Date.
Renewal Terms:	Consecutive terms of five (5) years and four and one-half (4.5) years.
Rent:	Except for Lease Year 1, Tenant shall pay to Landlord, as quarterly rent (the “Quarterly Rent”) the following amounts for Lease Years 1-10:
Memorandum of Lease:	Landlord and Tenant shall execute a Memorandum of Lease, a form of which is attached hereto as Exhibit “B” to be recorded in the Official Records of Okaloosa County, Florida

 

LEASE YEAR		INCREASE OVER PRIOR LEASE YEAR		ANNUAL RENT
YEAR 1				$	600,000.00
YEAR 2		5.0	%	$	630,000.00
YEAR 3		5.0	%	$	661,500.00
YEAR 4		5.0	%	$	694,575.00
YEAR 5		5.0	%	$	729,303.75
YEAR 6		2.5	%	$	747,536.34
YEAR 7		2.5	%	$	766,224.75
YEAR 8		2.5	%	$	785,380.37
YEAR 9		2.5	%	$	805,014.88
YEAR 10		2.5	%	$	825,140.25

 

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	Quarterly Rent for Lease Years 11-25 shall be adjusted as provided for in Section 2.2.
Increase Date:	First anniversary of the Commencement Date, and every one (I) year thereafter.
Increase Percentage:	See Section 2.2 below.
Permitted Use:	A family entertainment and amusement center and such incidental uses which are consistent therewith. Tenant shall be permitted to sell beer and wine pursuant to its beer and wine license.

 

ARTICLE 2

TERM AND RENT

 

2.1                                  Term . The Initial Term of this Lease shall be as set forth in the Fundamental Lease Provisions. Provided Tenant is not then in default under this Lease, Tenant shall have the option to extend the Initial Term by the number of successive Renewal Terms described in the Fundamental Lease Provisions by giving Landlord written notice of its election to extend the term of this Lease by the succeeding Renewal Term not less than one (1) year prior to expiration of the Initial Term or the then current Renewal Term, as the case may be. Excepting the amount of the Minimum Quarterly Rent, the terms and conditions of this Lease shall apply during each Renewal Term. The Initial Term, as it may be extended by one or more Renewal Terms shall be hereinafter referred to as the “ Lease Term .”

 

2.2                                  Quarterly Rent .

 

2.2.1                            For the use and occupancy of the Premises, Tenant shall pay Landlord one-half (1/2) of Lease Year I Rent on July 15, 2000 and the remaining one-half (1/2) of Lease Year 1 Rent on September 15, 2000. Thereafter, Tenant shall pay Landlord Quarterly Rent commencing on January 1, 2001 and continuing on the first day of each April, July and October of each calendar thereafter during the Lease Term, without any offset or deduction except as provided in section 2.7 herein. Should the Lease Term commence on a day other than the first day of a calendar month, then the rental for such first fractional month shall be computed on a daily basis for the period from the Commencement Date to the end of such calendar month at an amount equal to 1/30th of the monthly Rent for each day. Should the Lease Term end on a day other than the last day of a calendar month, then the rental for such fractional month shall be computed on a daily basis at an amount equal to 1/30th of the monthly Rent for each day.  Tenant shall pay Landlord the Quarterly Rent in lawful money of the United States at the address for Landlord set forth in the Fundamental Lease Provisions, or to such other persons or at such other places as Landlord may designate in writing to Tenant.

 

2.2.2                            The Increase Percentage shall be determined as follows:

 

(a)                                   Quarterly Rent for Lease Years 1-10.  Except for payment of Lease Year 1 payments, the Quarterly Rent for Lease Years 1-10 shall be as set forth in the Fundamental Lease Provisions.

 

(b)                                  Quarterly Rent for Lease Years 11-20.  Commencing on the first day of the first month of the eleventh (11th) Lease Year (“First Adjustment Date”) Annual Rent shall be based upon a ten percent (10%) annual return or the value of the Premises as determined by an Appraisal (as defined in Section 2.2.3) of the Premises; provided, however, the Annual Rent for Lease Year 11 shall be (i) at a minimum of ten percent (10%) greater and

 

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(ii) at a maximum of twenty-five percent (25%) greater than the Annual Rent for Lease Year 10 (“Lease Year 11 Rent”). Tenant shall pay to Landlord Quarterly Rent in twelve (12) equal installments of the Lease Year 11 Rent. For each of Lease Years 12-20 the Quarterly Rent shall be adjusted by increasing the Quarterly Rent by two and one-half percent (2.5%) over the immediately prior Lease Year Quarterly Rent. The Appraisal shall be dated no earlier than thirty (30) days prior to the First Adjustment Date.

 

(c)                                   Quarterly Rent for Lease Years 21-25. Commencing on the first day of the first month of the twenty-first (21st) Lease Year (“Second Adjustment Date”) Annual Rent shall be based upon a ten percent (10%) annual return on the value of the Premises as determined by an Appraisal of the Premises; provided, however, the Annual Rent for Lease Year 21 shall be (i) at a minimum of ten percent (10%) and (ii) at a maximum of twenty-five percent (25%) greater than the Annual Rent for Lease Year 20 (“Lease Year 21 Rent”). Tenant shall pay to Landlord Quarterly Rent as twelve (12) equal installments of the Lease Year 21 Rent. For each of Lease Years 22-25 the Quarterly Rent shall be adjusted by increasing the Quarterly Rent by two and one-half percent (2.5%) over the immediately prior Lease Year Quarterly Rent. The Appraisal (as defined in Section 4.5) shall be dated no earlier than thirty (30) days prior to the Second Adjustment Date.

 

2.2.3                             Appraisal. Any appraisal required by this Lease shall be performed by an MAI certified Appraiser, which Appraiser is acceptable to Landlord and Tenant, each in its reasonable discretion, and is paid equally by Tenant and Landlord (“Appraisal”). In the event Landlord and Tenant are unable to agree on fair market rent for purposes of computing the value of the Premises as set forth herein, the parties shall apply the Baseball Arbitration method as set forth in Section 2.2.4 herein below to determine such value of the Premises

 

2.2.4                             Baseball Arbitration . For purposes of this Lease, Baseball Arbitration shall follow the following procedures:

 

(a)                                 Within twenty (20) days after Landlord and Tenant disagree on the value of the Premises, Tenant and Landlord shall each select an arbitrator (“Tenant’s Arbitrator” and “Landlord’s Arbitrator”, respectively) who shall be a qualified and impartial person licensed in the State of Florida as a MAI appraiser (“Appraiser”) with at least five (5) years of experience in appraising the type of matters for which they are called on to appraise hereunder in the area where the Premises are located

 

(b)                                Landlord’s Arbitrator and Tenant’s Arbitrator shall name a third arbitrator, similarly qualified, within ten (10) days after the appointment of Landlord’s Arbitrator and Tenant’s Arbitrator.

 

(c)                                 Said third arbitrator shall, after due consideration of the factors to be taken into account the prevailing market rate for base rent for tenants of comparable quality for lease extensions in property of comparable size, age, use, location and quality in the area where the Premises are located, taking into consideration the extent of the availability of such property as large as the Premises in the marketplace and all other economic terms then customarily prevailing in such similar ground leases in said marketplace, and hearing whatever evidence the arbitrator deems appropriate from the Appraiser, Landlord, Tenant, Landlord’s Arbitrator and Tenant’s Arbitrator and others and obtaining any other information the arbitrator deems necessary, in good faith, make its own determination of the fair market rental and/or value, as applicable for the Premises as of the commencement of the applicable Renewal Term(s) and within (30) days after the appointment of the third arbitrator, determine the fair market rent and/or value, as applicable for the Premises. The third arbitrator’s determination shall be in writing and counterparts thereof shall be delivered to Landlord and Tenant within said thirty (30) day period. The arbitrator shall have no right or ability to determine the fair market rent and/or value in any other manner. The third arbitrator’s determination shall be binding upon the parties hereto.

 

(d)                             The costs and fees of the third arbitrator shall be paid equally by both Landlord and Tenant.

 

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2.3                                  Impositions . In addition to the Minimum Quarterly Rent, as increased, Tenant shall pay to the parties respectively entitled thereto all impositions, insurance premiums, Taxes (as defined in Article 4), operating charges, maintenance charges, construction costs, accounting and legal fees, and any other charges, costs and expenses which arise or may be contemplated under any provision of this Lease during the Lease Term (collectively, the “ Impositions ”). Tenant shall furnish to Landlord, promptly after payment of any Taxes or insurance premiums, and, with respect to any other Impositions, promptly upon request of Landlord, official receipts or other satisfactory proof evidencing payment of such Impositions. Upon Tenant’s failure to pay such Impositions or failure to provide such proof, Landlord shall have the option to require Tenant to deposit with Landlord (i) funds sufficient for the payment of the current Impositions required to be paid by Tenant hereunder, and (ii) one-twelfth of the current annual or annualized Impositions, as the case may be (or those of the preceding years if the current amounts thereof have not been fixed), in advance and on the same day upon which the Minimum Quarterly Rent is due.

 

2.4                                  Late Charge .  If any installment of the Quarterly Minimum Rent, any Imposition or any other payment provided for under this Lease which is payable by Tenant is not received by Landlord within five days of the date when due, Tenant shall immediately pay Landlord an amount equal to 5% of the overdue amount as a late charge (the “ Late Charge ”).  Landlord and Tenant agree that the Late Charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of any such late payment by Tenant. Acceptance of the Late Charge by Landlord shall not constitute a waiver of Tenant’s default with respect to the overdue amount, nor prevent Landlord from exercising any other rights and remedies available to Landlord under this Lease.

 

2.5                                  Interest on Overdue Amounts .  The Minimum Quarterly Rent, the Impositions and all other amounts due Landlord under this Lease which are not paid when due shall bear interest at a per annum rate equal to the “prime rate” (or substantial equivalent) announced from time to time (as adjusted quarterly) by Bank of America, plus 2%, from the date due until paid; provided, however, that if such rate shall exceed the lawful rate of interest which Landlord is entitled to charge under applicable law, then the per annum rate of interest on any such overdue amounts shall be the maximum rate permitted by applicable law.

 

2.6                                  Net Lease . This Lease is what is commonly called a “triple net lease,” it being understood that Landlord shall receive the Minimum Quarterly Rent free and clear of any and all Taxes, other Impositions, liens, charges, or expenses of any nature whatsoever incurred in connection with the ownership and operation of the Premises.

 

2.7                                  Right of Offset . Tenant shall have the right to collect sums due from Landlord for “Damages” as defined in that certain Agreement for Purchase and Sale of Assets and Related Ground Lease dated as of April 28, 2000, executed by and between Landlord and Tenant (“Purchase Agreement”) by offsets from time to time against the Quarterly Rent due and payable by Tenant to Landlord, which offsets shall not exceed twenty-five percent (25%) of the Rent payable during any calendar year, as limited in the Purchase Agreement.  Upon determination of the offset amount between Tenant and Landlord as contemplated in the Purchase Agreement, Tenant, upon thirty (30) days written notice to Landlord, shall have the right to offset such amount from the next Quarterly Rent due Landlord. Tenant shall not be deemed to be in Default under this Lease as a result of the exercise of its offset rights and Landlord shall not have the right to terminate this Lease pursuant thereto.

 

2.8                                  Early Termination . In the event Tenant exercises its Recission Election (as such term is defined in Section 7.4 of the Purchase Agreement), pursuant to the terms and conditions pertaining to Tenant’s recission rights under the Purchase Agreement, including but not limited to Tenant’s right to elect to remove any and all capital improvements made by Tenant on the Premises and Landlord’s payment of all sums to Tenant as required under the Purchase Agreement, Tenant shall assign and delegate its interest in this Lease to Landlord and all of Tenant’s obligations under this Lease shall terminate.

 

ARTICLE 3

USE OF THE PREMISES

 

3.1                                  Use . Tenant shall use the Premises solely for the Permitted Use. Tenant may not use the Premises for any other purpose without obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld. Tenant has satisfied itself, and represents to Landlord, that such use is lawful and conforms to all applicable zoning and other use restrictions and regulations applicable to the Premises.

 

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3.2                                     Condition of Premises .  Tenant accepts the Premises in its “as is” condition. Tenant acknowledges that Landlord makes no warranty of any kind with respect to the Premises except as set forth in the Purchase Agreement.

 

3.3                                     Compliance With Law .

 

3.3.1                         Tenant shall, at Tenant’s sole expense, comply in all respects with all applicable laws, ordinances, orders, rules, regulations, of any governmental authorities and with any directive of any public officer which shall impose any violation, order or duty upon Landlord or Tenant with respect to the Premises or the use or occupation thereof or signage thereon, including, without limitation, any governmental law or statute, rule, regulation, ordinance, code, policy or rule of common law now or hereafter in effect relating to the environment, health or safety.

 

3.3.2                             Tenant shall not use or permit the Premises to be used in any manner which will result in waste or the creation of a nuisance, and Tenant shall maintain the Premises reasonably free of any objectionable noises, odors, or disturbances.

 

3.4                                     Environmental Compliance .

 

3.4.1                         Tenant shall not cause or permit any Hazardous Material to be brought upon, or used in or about the Premises by Tenant, its agents, employees, contractors, or invitees, without the prior written consent of Landlord (which consent Landlord shall not unreasonably withhold as long as Tenant demonstrates to Landlord’s reasonable satisfaction that such Hazardous Material is necessary or useful to Tenant’s business and will be used, kept, and stored in a manner that complies with all laws relating to such Hazardous Material.) Except as otherwise provided in Section 3.5, if Tenant breaches the obligations stated in the preceding sentence, and if the presence of Hazardous Material on the Premises caused or permitted by Tenant results in contamination of the Premises, and Landlord has not caused the contamination, then Tenant shall indemnify, defend, and hold Landlord harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities, or losses (including, without limitation, diminution in value of the Premises, damages for the loss or restriction on use of rentable or usable space or of any amenity of the Premises, damages arising from any adverse impact on marketing of space of the Premises, and sums paid in settlement of claims, attorneys’ fees, consultation fees, and expert fees) which arise during or after the term of this Lease as a result of such contamination.  This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation or site conditions or any cleanup, remedial, removal, or restoration work required by any federal, state, or local governmental agency or political subdivision because of Hazardous Material present in the soil or ground water on or under the Premises. Without limiting the foregoing, if the presence of any Hazardous Material on the Premises not caused by Landlord results in any contamination of the Premises, Tenant shall promptly take all actions at its sole expense as are recommended by environmental engineers hired by Tenant or Landlord and are necessary to return the Premises to the condition existing prior to the introduction of any such Hazardous Material to the Premises; provided that Landlord’s approval of such actions shall first be obtained, which approval shall not be unreasonably withheld, delayed or conditioned so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises.

 

3.4.2                         The provisions of this Section shall survive for a period of five (5) years following the expiration or termination of the Lease Term.

 

Capitalized terms used in this Section and not otherwise defined herein shall have the following meanings:

 

“ Hazardous Materials ” 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 local, state or federal law, (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.

 

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“ Environmental Laws ” means 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.

 

3.5                                  Tenant’s Responsibility for Hazardous Materials . Landlord and Tenant acknowledge that Landlord may become legally liable for the costs of complying with Laws relating to Hazardous Material which are not caused by Landlord or Tenant including the following: (i) Hazardous Material present in the soil or ground water on the Premises prior to or following the Commencement Date of this Lease; (ii) a change in Laws which relate to Hazardous Material which make Hazardous Material present on the Premises as of the Commencement Date, whether known or unknown to Landlord, a violation of such new Laws; (iii) Hazardous Material that migrates, flows, percolates, diffuses, or in any way moves on to or under the Premises before or after the Commencement Date; (iv) Hazardous Material present or under the Premises as a result of any discharge, dumping, or spilling (whether accidental or otherwise) on the Premises by other tenants of the Premises or their agents, employees, contractors, or invitees, or by others. Accordingly, Tenant agrees that the cost of complying with Laws relating to Hazardous Material on the Premises for which Landlord is legally liable shall be the responsibility and shall be paid by Tenant. To the extent any such expense relating to Hazardous Material is subsequently recovered or reimbursed through insurance, or recovery from responsible third parties, or other action, Tenant shall be entitled to a reimbursement to the extent it has paid the maintenance expense to which such recovery or reimbursement relates.
Survial

 

3.6                                  Survival . Provisions of this Section 3 shall survive for a period of five (5) years following the expiration or termination of the Lease Term.

 

3.7                                  Permits and Licenses .  Tenant shall be solely responsible to apply for and secure any building permit or permission of any duly constituted authority for the purpose of doing any of the things which Tenant is required or permitted to do under the provisions of this Lease.

 

ARTICLE 4

TAXES AND UTILITIES

 

4.1                                 Payment of Taxes . Tenant shall pay the Taxes (as defined in the following Section) applicable to the Premises during the Lease Term. Landlord shall provide Tenant with copies of any tax bills applicable to the Premises promptly after receipt of such bills. All such payments shall be made at least 15 days prior to the delinquency date of such payment. Tenant shall promptly furnish Landlord with satisfactory evidence that such Taxes have been paid. If any such Taxes paid by Tenant shall cover any period of time after the expiration of the Lease Term, Landlord shall reimburse Tenant to the extent required within thirty (30) days after receiving notice from Tenant and a copy of the paid Tax bill provided Tenant is not otherwise in default. If Tenant shall fail to pay any such Taxes, Landlord shall have the right (but not the obligation) to pay the same, in which case Tenant shall repay such amount plus any penalties and interest resulting therefrom to Landlord within 5 days after receipt of a bill therefor.

 

4.2                                 Definition of “Taxes ”. As used herein, the term “ Taxes ” shall include:

 

4.2.1                         any form of real estate tax or assessment, ad valorem tax or gross receipts tax, imposed by any authority having the direct or indirect power to tax, including any city, county, state, or federal government, or any school, agricultural, sanitary, fire, street, drainage, or other improvement district thereof, on, against or with respect to the Premises, this Lease, any legal or equitable interest of Landlord or any superior landlord in the Premises or in the real property of which the Premises are a part, Landlord’s right to rent or other income therefrom, and Landlord’s business of leasing the Premises;

 

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4.2.2                         any tax, fee, levy, assessment, penalty, interest or other charge (i) in substitution of, partially or totally, any tax, fee, levy, assessment, or charge hereinabove included within this definition of Taxes, or (ii) any tax or increase in any tax which is imposed as a result of a transfer, either partial or total, of Landlord’s interest in the Premises to Tenant, or (iii) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof; and

 

4.2.3                         all inspection fees, taxes, bonds, permits, certificates, assessments and sales, use, property or other taxes, fees or tolls of any nature whatsoever (together with any related interest or penalties) now or hereafter imposed against Landlord or Tenant by any federal, state, county or local governmental authority upon or with respect to the Premises or the use thereof or upon the possession, leasing, use, operation or other disposition thereof or upon the rents, receipts or earnings arising therefrom or upon or with respect to this Lease; and

 

4.2.4                         all taxes assessed against and levied upon trade fixtures, furnishings, equipment, and all other personal property of Tenant contained in the Premises or elsewhere, which Tenant shall cause to be separately assessed and billed directly to Tenant

 

Tenant shall pay when due or reimburse and indemnify and hold Landlord harmless from and against any Taxes. Notwithstanding the foregoing, the term “ Taxes ” shall not include any general income taxes, inheritance taxes, and estate taxes imposed upon Landlord.

 

4.3                                  Tenant’s Right to Contest Taxes .

 

4.3.1                         Tenant shall have the right, at its sole cost and expense, to contest the amount or validity, in whole or in part, of any Taxes by appropriate proceedings diligently conducted in good faith, but no such contest shall be carried on or maintained by Tenant after the time limit for the payment of any Taxes unless Tenant shall (i) pay the amount involved under protest; (ii) procure and maintain a stay of all proceedings to enforce any collection of any Taxes, together with all penalties, interest, costs and expenses, by a deposit of a sufficient sum of money, or by such undertaking, as may be required or permitted by law to accomplish such stay; or (iii) deposit with Landlord, as security for the performance by Tenant of its obligations hereunder with respect to such Taxes, 125% of such contested amount or such other reasonable security as may be demanded by Landlord to insure payment of such contested Taxes and all penalties, interest, costs and expenses which may accrue during the period of the contest. Upon the termination of any such proceedings, Tenant shall pay the amount of such Taxes or part thereof, as finally determined in such proceedings, together with any costs, fees (including all reasonable attorneys’ fees and expenses), penalties or other liabilities in connection therewith; provided, however, that if Tenant has deposited cash or cash equivalents with Landlord as security under clause (iii) above, then, so long as no default exists under this Lease, Landlord shall arrange to pay such Taxes (or part thereof) together with the applicable costs, fees and liabilities as described above out of such cash or cash equivalents and return any unused balance, if any, to Tenant. Otherwise, Landlord shall return to Tenant all amounts, if any, held by or on behalf of Landlord which were deposited by Tenant in accordance with such clause (iii).

 

4.3.2                         Tenant shall have the right, so long as Tenant is not in default hereunder and it provides advance written notice to Landlord, at its cost and expense, to seek a reduction in the valuation of the Premises as assessed for tax purposes and to prosecute any action or proceeding in connection therewith. Provided Tenant is not in default hereunder, Tenant shall be authorized to retain any tax refund of any tax paid by Tenant.

 

4.3.3                         Landlord agrees that whenever Landlord’s cooperation is required in any proceeding brought by Tenant to contest any tax, Landlord shall reasonably cooperate therein, provided same shall not entail any cost, liability or expense to Landlord. Tenant shall pay, indemnify and save Landlord harmless of and from, any and all liabilities, losses, judgments, decrees, costs and expenses (including all reasonable attorneys’ fees and expenses) in connection with any such contest and shall, promptly after the final settlement, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, and Tenant shall perform and observe all acts and obligations, the performance of which shall be ordered or decreed as a result thereof. No such contest shall subject Landlord to the risk of any civil liability or the risk of any criminal liability, and Tenant shall give such reasonable indemnity or security to Landlord as may reasonably be demanded by Landlord to insure compliance with the foregoing provisions of this Section.

 

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4.3.4                         Upon the occurrence of a Default hereunder, or if required by Landlord’s lender, Tenant agrees that upon Landlord’s election, Tenant shall establish such escrows for the payment of taxes as Landlord or Landlord’s lender may require. If established, Tenant shall pay all the aforesaid taxes and assessments in monthly installments on or before the first day of each calendar month in advance in an amount estimated by Landlord. Landlord reserves the right to bill monthly, quarterly, semi-annually or annually. In the event Landlord is required under any mortgage covering the Premises to escrow real estate taxes, Landlord may, but shall not be obligated to, use the amount required to be so escrowed, as a basis for its estimate of the monthly installments due from Tenant hereunder. Upon receipt of all tax bills and assessments attributable to any calendar year during the term hereof, Landlord shall furnish Tenant with a written statement of the actual amount of the taxes and assessments for such year. In the event no tax bill is available, Tenant will compute the amount of such tax. If the total amount paid by Tenant under this section for any calendar year during the term of this Lease shall be less than the actual amount due from Tenant for such year, as shown on such statement, Tenant shall pay to Landlord the difference between the amount paid by Tenant and the actual amount due, such deficiency to be paid within seven (7) days after demand therefor by Landlord; and if the total amount paid by Tenant hereunder for any such calendar year shall exceed such actual amount due from Tenant for such calendar year, such excess shall be credited against the next installment of taxes and assessments due from Tenant to Landlord hereunder. All amounts due hereunder shall be payable to Landlord at the place where the fixed minimum annual rental is payable. Tenant’s obligations under this section shall survive the expiration of the term of this Lease.

 

4.4                                    Payment of Utilities .  Tenant shall pay to the utility companies or other parties entitled to payment the cost of all water, heat, air conditioning, gas, electricity, telephone, and other utilities and services provided to or for the Premises, including, without limitation, connection fees and taxes thereon.  In the case of any utilities or services which are not separately metered and billed directly to Tenant, but are metered jointly with other premises, Tenant shall pay to the parties entitled thereto, a pro rata share based on Tenant’s usage of such utilities and services. Tenant, at Tenant’s sole cost and expense, shall have the right at any time, to seek a reduction in the utility charges that are to be paid by the Tenant.

 

4.5                                    Interruption in Utility Service .  Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility or other service being furnished to the Premises, and no such failure or interruption shall entitle Tenant to any abatement of, set off or reduction in the amounts payable to Landlord hereunder or otherwise entitle Tenant to terminate this Lease.

 

ARTICLE 5

INSURANCE AND INDEMNIFICATION

 

5.1                                  Tenant’s Insurance .  From and after March 20, 2000, Tenant shall carry and maintain, at its sole cost and expense, the following types and amounts of insurance:

 

Insurance Type		Amount of Coverage		Risks Covered
Commercial General Liability		$5,000,000 per occurrence and $25,000,000 in the aggregate		bodily injury, property damage, contractual liability, products and completed operations
Property Damage		full replacement value less slab,		“all risk”, including sprinkler damage
		foundation, supports and other customarily excluded Improvements
Business Interruption		not less than 4 installments of		loss of earnings by at least the perils of
		Minimum Quarterly Rent		fire and lightning, extended coverage,
				vandalism, malicious mischief and sprinkler leakage
Worker’s compensation		as required by law

 

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5.2                                  Policy Form .

 

5.2.1                         Tenant shall obtain all policies of insurance required by Section 5.1 from insurance companies having an A.M. Best rating of A- or better which are qualified to do business in the jurisdiction where the Premises are situated. All such policies shall be issued in the names of Landlord, Maxwell Joseph Bruner, George Brown and Tenant, and if requested by Landlord, any mortgagee or beneficiary of Landlord, as additional insureds.  In addition, all such policies providing coverage for physical damage include loss payee and mortgagee endorsement in favor of Landlord and Landlord’s mortgagee or beneficiary, respectively and as applicable.  The Tenant shall cause copies of such policies of insurance or originally executed certificates thereof to be delivered to Landlord prior to Landlord’s execution of this Lease, and not less than 30 days prior to any renewal thereof. As often as any such policy shall expire or terminate, Tenant shall procure and maintain renewal or additional policies with like terms. None of such policies shall contain any co-insurance requirements and all such policies shall provide for written notice to Landlord and any mortgagee or beneficiary of Landlord not less than 10 days prior to any modification, cancellation, lapse, or reduction in the amounts of insurance, and shall further provide that any loss otherwise payable thereunder shall be payable notwithstanding any act or negligence of Landlord or Tenant which might, absent such provision, result in a forfeiture of all or part of the payment of such loss. All general liability, property damage, and other casualty policies shall be written on an occurrence basis as primary policies, not contributing with or in excess of coverage which Landlord may carry.

 

5.2.2                         Tenant’s obligations to carry the insurance provided for above may be brought within the coverage of an “umbrella” policy or policies of insurance carried and maintained by Tenant; provided, however, that such policy or policies shall (i) have limits of not less than $25,000,000, (ii) name Landlord and any mortgagee or beneficiary of Landlord as additional insureds as their interests may appear, and (iii) provide that the coverage afforded Landlord will not be reduced or diminished by reason of the use of such blanket policies. Tenant agrees to permit Landlord at all reasonable times to inspect any policies of insurance of Tenant which Tenant has not delivered to Landlord.

 

5.2.3                         Landlord and Tenant agree that the insurance coverage required herein above are satisfactory at the inception of this Lease. Landlord and Tenant understand that the insurance requirements may reasonably change periodically during the Lease Term and, in the event of such changes, the minimum requirements of types of insurance, amounts of insurance and risks covered shall change. If at any time the Landlord and Tenant do not agree on such reasonably changed insurance requirements, then such dispute shall be referred to a mutually agreeable independent insurance consultant for a final decision.  If the parties cannot mutually agree on an independent insurance consultant, an independent insurance consultant shall be selected by lot with the Landlord suggesting one independent consultant and the Tenant selecting the other independent consultant. The decision of the independent insurance consultant so selected shall be final.

 

5.3                                  Subrogation Waiver .  Landlord (for itself and its insurer) hereby waives any rights, including rights of subrogation, and Tenant (for itself and its insurer) hereby waives any rights, including rights of subrogation, each may have against the other on account of any loss or damage occasioned to Landlord or Tenant, as the case may be, to their respective property, the Premises or its contents that are caused by or result from risks insured against under any insurance policies carried by the parties hereto and in force at the time of any such damage. The foregoing waivers of subrogation shall be operative only so long as available in the jurisdiction where the Premises are located and so long as no policy of insurance is invalidated thereby.

 

5.4                                  Payment of Insurance .  In the event that Tenant shall fail to obtain the insurance policies required hereunder or to pay the premiums due for the insurance policies required hereby, Landlord shall have the right, but not the obligation, to pay the same in which case Tenant shall repay such amount plus any penalties or additional amounts resulting therefrom to Landlord within ten (10) days after receipt of a bill therefor plus interest at the rate of 10% per annum.

 

5.5                                  Insurance Use Restrictions .  Tenant shall not carry any stock or goods or do anything in, on, or about the Premises which will substantially increase the rates of the insurance currently placed upon the building of

 

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which the Premises are a part, as long as Landlord shall not be responsible for such increased rates, and such increase will terminate upon termination of this Lease.

 

5.6                                  Indemnification .  Tenant shall indemnify Landlord for, defend Landlord against, and save Landlord harmless from, any liability, loss, cost, injury, damage or other expense or risk whatsoever that may occur or be claimed by or with respect to any person(s) or property on or about the Premises and resulting directly or indirectly from

 

(a)                                     the use, misuse, occupancy, possession or disuse of the Premises by Tenant or other persons claiming through or under Tenant, or their respective agents, employees, licensees, invitees, guests or other such persons;

 

(b)                                    the condition of the Premises;

 

(c)                                     any work or thing done in respect of construction of, in or to the Premises or any part of the improvements now or hereafter constructed on the Premises (other than work by Landlord);

 

(d)                                    any use, possession, occupation, operation, maintenance or management of the Premises or any part hereof caused by person’s other than Landlord;

 

(e)                                     any failure to, or to properly, use, possess, occupy, operate, maintain or manage the Premises or any part thereof caused by person’s other than Landlord;

 

(f)                                       the condition, including environmental conditions, of the Premises or any part thereof caused by person’s other than Landlord;

 

(g)                                    any negligence on the part of Tenant or any of its agents, contractors, servants, employees, licensees or invitees;

 

(h)                                  any accident, injury or damage to any person or property occurring in, on or about the Premises or any part thereof including any sidewalk adjacent thereto; or

 

(i)                                      any failure on the part of Tenant to perform or comply with any of the covenants, agreements, terms or conditions contained in this Lease on its part to be performed or complied with.

 

Landlord shall indemnify Tenant for, defend Tenant against, and save Tenant harmless from, any liability, loss, cost, injury or other expense or risk whatsoever that may occur or be claimed by or with respect to any person(s) or property on or about the Premises and resulting directly from the gross negligence or willful misconduct of Landlord.

 

ARTICLE 6

MAINTENANCE AND REPAIRS

 

6.1                                  Tenant’s Obligations . Tenant shall, at its sole cost and expense, maintain in good repair, order, and serviceable condition the Premises and every part thereof, including, without limitation, all buildings and improvements, and all equipment and systems servicing the Premises. Tenant shall at all times keep the parking lot, parking lot lighting, exterior walls, glass, partitions, doors, fixtures, equipment and appurtenances thereof in a reasonably satisfactory condition of cleanliness. Tenant shall not make any claim or demand upon or bring any action against Landlord for any loss, cost, injury, damage or other expense caused by any failure or defect, structural or non-structural, of the Premises or any part thereof, including the improvements and buildings thereon, unless such loss or defect is caused directly from the gross negligence or willful misconduct of Landlord occurring after the date hereof.

 

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6.2                                    Landlord’s Obligations .  Landlord have no obligation to repair and maintain the Premises, nor any improvements or equipment thereon, whether interior or exterior, structural or nonstructural, ordinary or extraordinary.  Tenant expressly waives the benefit of any statute or law now or hereafter in effect which would otherwise afford Tenant the right to terminate this Lease because of Landlord’s failure to keep the Premises in good order, condition, and repair, or the right to repair and offset the cost related thereto against rent.

 

6.3                                    Landlord’s Rights . If Tenant refuses or neglects to make repairs or maintain the Premises, or any part thereof, in a manner reasonably satisfactory to Landlord, without prejudice to any other remedy Landlord may have hereunder, upon giving Tenant 20 days prior written notice, Landlord shall have the right to enter the Premises and perform such maintenance or make such repairs on behalf of and for the account of Tenant.  In the event Landlord so elects, Tenant shall pay the cost of such repairs, maintenance, or replacements within 5 days following receipt of a bill therefor. Tenant agrees to permit Landlord or its agent to enter the Premises, upon reasonable notice by Landlord, during normal business hours for the purpose of inspecting the Premises.

 

ARTICLE 7
ALTERATIONS

 

7.1                                  Consent to Alterations . Tenant may, at its sole cost and expense, make alterations, replacements, additions, changes, and improvements (collectively referred to in this Article as “ Alterations ”) to the Building as it may find necessary or convenient for its purposes. Upon completion of any substantial work, Tenant shall provide to Landlord “as-built