GROUND LEASE

Exhibit 10.38

GROUND LEASE

BETWEEN

The City of Pocatello,

a municipal corporation of Idaho

(“Landlord”)

and

Hoku Materials, Inc.,

a Delaware corporation

(“Tenant”)

as of

March 22, 2007

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T ABLE OF C ONTENTS

(CONTINUED)

 

 

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T ABLE OF C ONTENTS

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E XHIBITS

 

GROUND LEASE

T HIS G ROUND L EASE (“ Lease ”) is made as of the 22 ^nd day of March, 2007 by and between T HE C ITY OF P OCATELLO , a municipal corporation of Idaho (“ Landlord ”), and H OKU M ATERIALS , I NC . , a Delaware corporation (“ Tenant ”), hereinafter “ Party ” or “ Parties ” as appropriate.

THE PARTIES HERETO HEREBY MUTUALLY COVENANT AND AGREE AS FOLLOWS:

1. P REMISES ; L EASEHOLD IMPROVEMENTS ; C ONSENT TO F INANCING .

1.1 Premises.

Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, that certain vacant land consisting of approximately sixty-seven (67) acres located near S. Philbin Road, in the County of Bannock, State of Idaho, legally described in attached Exhibit “A” attached hereto as hereinafter provided and depicted on the Map attached as Exhibit “B” , together with all easements which are now or in the future may be appurtenant thereto (“ Premises ”). Landlord represents and warrants to Tenant that, notwithstanding anything to the contrary on Exhibit C to this Lease, Tenant has a legal right to access the premises from South Philbin Road over an “at grade” railroad crossing (the “ Access Right ”). In addition, Landlord covenants to use its best efforts to obtain and record one or more easements to the real property described in Exhibit A for ingress, egress, and utilities in form and substance reasonably satisfactory to Tenant (the “ Easement ”). Landlord acknowledges and agrees that time is of the essence in obtaining and recording the Easement. Landlord represents to Tenant that the Premises, and each of Tenant and all of the Tenant Parties as defined in Section 8.1, as well as their customers and guests shall have non-exclusive ingress and egress to and from the Premises and, except to the extent set forth in this Lease or to the extent that Tenant enters into an agreement with any third party, the Premises shall not be burdened in any manner by any access or other rights granted to any third parties; provided, however, that the foregoing shall not apply to: (i) agreements reached in cooperation with Landlord and other third parties for easement rights for utilities or other similar easements, provided that such agreements and instruments are disclosed prior to the Effective Date and do not materially interfere with Tenant’s use of the Premises for purposes permitted under Section 6.1 below, Tenant’s occupancy of the Premises and do not otherwise materially and adversely increase Tenant’s obligations or decrease Tenant’s rights under this Lease, and (ii) other rights or obligations of Landlord or Tenant which may be contained in this Lease. Tenant agrees to accept possession of the Premises from Landlord on the terms and conditions of this Lease upon the Effective Date hereof subject to (a) all current matters of public record (subject to the provisions in the immediately following paragraph), and (b) all applicable zoning, municipal, county, state and federal laws, ordinances and regulations governing and regulating the use of the Premises which exist or which are hereinafter enacted.

 

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1.2 Construction of Leasehold Improvements by Tenant.

Landlord and Tenant acknowledge and agree that Landlord is leasing the Premises to Tenant with the expectation that Tenant shall develop the Premises with a polysilicon manufacturing facility and related improvements, including, without limitation, loading areas, perimeter sidewalks, parking areas, landscaping, trash enclosures and signage (all of such buildings and related improvements, collectively, the “ Leasehold Improvements ”), all of which development shall be subject to the express terms and conditions of this Lease. For purposes of this Lease, the “Project” means the Premises and such Leasehold Improvements.

1.3 Construction of Infrastructure by Tenant; Reimbursement Through TIF.

Tenant shall cause to be constructed such roadways, railroad lines, power lines, natural gas, sewer, water and utility transmission structures as Tenant reasonably determines are required in connection with the Project (“ Infrastructure ”), at Tenant’s cost and expense, subject to Tenant’s right under the tax increment financing agreement to be negotiated between the parties prior to the Effective Date (the “ TIF Agreement ”) to have (i) a portion of the Taxes (as defined in Section 4.1 below) and assessments on the Leasehold Improvements and (ii) costs and expenses incurred by Tenant in connection with the Infrastructure, reimbursed in the manner and amount to be set forth in the TIF Agreement.

1.4 Landlord’s Consent to Leasehold Improvement Financing.

Landlord hereby consents to Tenant’s grant of a security interest in Tenant’s leasehold interest under this Lease in connection with the senior secured credit facility (“ Leasehold Improvement Financing ”) between Tenant as Borrower and any lender to Tenant (“ Lender ”), the proceeds of which will be used to fund a portion of the costs and expenses of the Project, and any modification or refinancing thereof. Landlord agrees to execute such further assurances in connection with such Leasehold Improvement Financing and any amendments or refinancing thereof as Lender, or any successive lender, may reasonably require.

2. L EASE T ERM ; C ONSENT ; A CCESS .

2.1 Term.

This Lease shall be effective upon the date (“ Effective Date ”) that the last Party hereto executes this document. The term of this Lease (“ Term ”) shall expire on December 31, 2106, unless this Lease shall sooner terminate or be extended pursuant to the terms and conditions herein. Notwithstanding anything to the contrary herein, Tenant may terminate this lease and surrender the Premises upon written notice to Landlord, with no further liability to Landlord, at any time prior to Landlord obtaining and recording the Easement; provided, however that if Tenant has commenced Leasehold Improvements, Tenant shall comply with Section 5.4(b) in connection with such termination and surrender of the Premises. For purposes of this Lease, the term “Lease Year” shall mean each calendar year during the Lease Term commencing on the Effective Date.

 

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2.2 Pre-Term Access.

Tenant shall be entitled to enter the Premises at any time following mutual execution of this Lease for purposes of conducting such investigations, tests and/or studies as Tenant deems desirable. Such access to the Premises shall be subject to all terms and conditions of this Lease. Notwithstanding anything to the contrary contained in this Lease, Tenant shall not perform or cause to be performed any tests or studies affecting or relating to the soils or subsurface areas below the Premises or any other portion of the Project without providing prior written notice to Landlord. Tenant hereby indemnifies and holds Landlord harmless from any and all costs, losses, damages or expenses of any kind or nature arising out of or resulting from such activities upon the Premises or Project by Tenant, or its agents, employees or contractors other than to the extent caused by (i) the negligence, willful act or omission of Landlord or Landlord Parties (as defined in Section 8.1 hereof); or (ii) as a result of the discovery by Tenant of a pre-existing condition on the Premises or the Project.

2.3 Inspections and Due Diligence.

Except as otherwise provided herein, Tenant acknowledges and agrees that prior to its execution of this Lease, it has had ample opportunity to inspect the Premises and to perform such due diligence as it deemed appropriate and necessary to satisfy it that the Premises and Project are suitable for its intended use. In connection with Tenant’s due diligence, Landlord and Tenant agree as follows:

(a) Title, Survey, Soils. Prior to the Effective Date, Landlord shall provide to Tenant the following: (a) a current preliminary ALTA report acceptable to Tenant (“ Title Report ”) from First American Title Company (“ Title Company ”), showing Landlord as the fee owner of the Premises, together with copies of all easements, covenants, restrictions, agreements or other documents which affect the Premises; (b) a copy of the subdivision map of the Project, if any, and an ALTA survey prepared by a civil engineer that shows the boundaries and location of the Premises as a legal parcel and the locations of all easements, certified by a licensed surveyor or civil engineer licensed in Idaho, in form reasonably acceptable to Tenant and Lender; (c) such soil tests and/or environmental audits as are in Landlord’s possession; and (d) Phase I and Limited Phase II environmental site assessment reports in form and substance satisfactory to Tenant and Lender. Attached hereto as Exhibit “C” is a list of the exceptions approved by Tenant (the “ Approved Exceptions ”). Tenant shall obtain a commitment for the issuance of an ALTA policy of title insurance issued by the Title Company, insuring the priority of Tenant’s leasehold interest over all matters of record set forth in the preliminary ALTA report other than the Approved Exceptions and a commitment for the issuance of an ALTA lender’s policy of title insurance issued by the Title Company, insuring the priority of Lender’s security interest in Tenant’s leasehold interest over all matters of record set forth in the preliminary ALTA report other than the Approved Exceptions. Landlord shall be liable for the cost of the ALTA leasehold and lender’s policies and all reasonable and customary endorsements thereto.

(b) Permit Approvals and Feasibility Contingencies; Tenant’s Right to Terminate. This Lease is subject to Landlord’s recording the Easement and to Tenant’s ability to obtain the approvals and permits necessary to permit it to construct and operate the Leasehold Improvements (“ Required Permits ”). Tenant will use commercially reasonable good faith

 

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efforts to diligently pursue receipt of the Required Permits. Notwithstanding the nature of the delaying cause (including Force Majeure delays as defined in Section 20.3), in the event that either the Easement has not been recorded by the Effective Date or such Required Permits as are necessary to commence construction of the polysilicon manufacturing facility that is a part of the Leasehold Improvements (the “ Preliminary Permits ”) have not been obtained during the period between the date of this Lease and December 31, 2010 (“ Permit Period ”), then Tenant may elect to terminate this Lease upon written notice to the Landlord, and the Parties will be released from further obligations to one another under this Lease, except for those which accrued prior to the date of termination and which by law or the terms of this Lease survive such termination.

2.4 Landlord’s Covenant of Quiet Enjoyment.

Landlord covenants and warrants that, so long as Tenant performs the obligations of Tenant contained herein and is not in default in the performance of any of such terms, conditions, obligations, liabilities, or covenants, Landlord shall not interfere with Tenant’s (and its permitted subtenants’, successors’ and assigns’) free, peaceable, exclusive and quiet use and enjoyment of the Premises, subject to the terms and conditions herein, and subject to: (a) the rights of the Parties as set forth in this Lease; and (b) the Approved Exceptions and any agreements and encumbrances to which this Lease is or will be subordinate in accordance with the provisions of this Lease.

2.5 No Subordination.

Fee title to the Leased Premises is held by Landlord, free and clear of all encumbrances other than the Approved Exceptions. Landlord shall not attempt to grant any right that is superior to Tenant’s rights under this Lease and Tenant shall not be required to subordinate its interest hereunder.

3. R ENTAL A MOUNTS .

3.1 Base Rent.

Tenant’s obligation to pay Base Rent for the Premises shall commence on the Effective Date (“ Rent Commencement Date ”). Beginning on the Rent Commencement Date and thereafter throughout the Term, Tenant shall pay to Landlord as annual base rent (“ Base Rent ”) for the Premises the sum of One and 00/100 Dollars ($1.00) per Lease Year, payable on each anniversary of the Effective Date, in advance, without any notice, abatement, set-off, demand or deduction whatsoever. Tenant may prepay the Base Rent for the remaining Term in whole or in part at any time. The Base Rent for the first partial Lease Year (since the Effective Date is not January 1) shall be paid upon execution of this Lease.

3.2 Payment of Additional Rent.

Beginning on the Rent Commencement Date, any and all charges and sums other than the payment of Base Rent payable by Tenant under this Lease (including, but not limited to, Tenant’s utility expenses, personal property taxes and Taxes on the Leasehold Improvements pursuant to Section 4.1), shall constitute additional rent hereunder (“ Additional Rent ”). Except as otherwise expressly provided herein, all costs, expenses, and obligations of every kind or

 

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nature whatsoever relating to the Premises, or any improvements thereon which may arise or become due during the Term of this Lease, shall be paid by Tenant as set forth herein. Nothing herein contained shall be deemed to require Tenant to pay or discharge any liens or mortgages of any character whatsoever which may exist or hereafter be placed upon the Premises by an affirmative act or omission of Landlord. Should a rental period commence and/or end on a day other than the first (1st) or last day of a year, then the installment of annual rent for such partial year shall be prorated on the basis of a three hundred and sixty five (365) day year.

3.3 Interest on Past Due Amounts.

Except as provided below, if Tenant shall neglect or fail to pay any amount required to be paid under this Lease by Tenant, and if Landlord pays such amount, Tenant promises to pay to Landlord, in addition to such unpaid amounts, interest upon such unpaid amounts from the date paid by Landlord until the date Landlord receives reimbursement from Tenant, at the rate of six percent (6%) per year (the “Interest Rate”).

4. T AXES AND A SSESSMENTS ; P RORATIONS .

4.1 Taxes and Assessments on Land and Leasehold Improvements.

Under no circumstances shall Tenant be responsible for paying real property taxes on the land described in Exhibit “A” (the “ Land ”). Landlord hereby confirms that the Land is tax exempt as a result of being owned by Landlord. In the event that Landlord were to transfer the fee title to the land to a third party and such transfer were to result in the Land losing its tax exempt status, the owner of fee title to the Land, and Landlord’s successor in interest to the Landlord’s interest under this Lease shall pay any and all real property taxes on such Land directly to the appropriate governmental authority prior to the delinquency date established by the applicable taxing authority. Tenant shall pay one hundred percent (100%) of the real property taxes assessed against the Leasehold Improvements (together with the personal property taxes required to be paid by Tenant pursuant to Sections 4.3 and 4.4 below, the “ Taxes ”) directly to the appropriate governmental authority prior to the delinquency date established by the applicable taxing authority, subject to Tenant’s right under the TIF Agreement to have a portion of the Taxes and assessments on the Leasehold Improvements reimbursed in the manner and amount set forth in the TIF Agreement. Tenant’s liability to pay such Taxes shall be prorated on the basis of a three hundred sixty-five (365) day year to account for any fractional portion of any calendar year.

4.2 Right to Contest.

Tenant shall have the right to contest the amount or validity of any Taxes payable with respect to the Leasehold Improvements, in whole or in part, by appropriate administrative and legal proceedings, either in its own name, Landlord’s name or jointly with Landlord, without any cost or expense to Landlord and Tenant may postpone payment of any such contested Taxes pending the prosecution of such proceedings and any appeals so long as Landlord’s property interest is not jeopardized. Tenant may elect to pay such Taxes under protest. Landlord shall execute and deliver to the Tenant whatever documents may be reasonably necessary or proper to permit Tenant to so contest any such Taxes or which may be necessary to secure payment of any refund (with respect to a tax year or portion thereof during the Term of this Lease) which may result from any such proceedings.

 

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4.3 Personal Property Taxes.

Tenant shall also pay before delinquency all taxes (including sales and use taxes), assessments, license fees and public charges levied, assessed or imposed upon its business operation as well as upon its merchandise, furniture, fixtures, equipment and other personal property. In the event any such items of property are assessed with property of Landlord, such assessment shall be equitably divided between Landlord and Tenant. In such event, Tenant shall pay Landlord Tenant’s equitable contribution towards such taxes and assessments, in addition to (but not as a component of) any other contributions, personal property taxes, Tenant’s insurance, repairs, maintenance or replacements of personal property or improvements or any other charge under this Lease.

4.4 Other Taxes.

If at any time during the Term of this Lease the methods of taxation prevailing at the execution hereof shall be altered so that in lieu of, or as a supplement to, or a substitution for, the whole or any part of the Taxes now levied, assessed or imposed on the Leasehold Improvements, there shall be levied, assessed or imposed a tax, assessment, levy, imposition or charge, wholly or partially as a capital levy or otherwise, on the rents received therefrom, or a tax, assessment, levy (including but not limited to any municipal, state or federal levy), imposition or charges measured by or based in whole or in part upon the Leasehold Improvements or Premises and imposed upon Landlord, or a license fee measured by the Rent payable under this Lease, then all such taxes, assessments, levies, impositions, charges or the part thereof so measured or based, shall be deemed to be included within the term “Taxes” as defined in Section 4.1, and Tenant shall pay and discharge the same as herein provided in respect of the payment of Taxes, to the extent that any of the foregoing taxes or excises are in lieu of, or in substitution (in whole or in part), for ordinary property Taxes, and the amount of such tax or excise on rents that Tenant is required to pay as “Taxes” under this Section 4.4 will be computed as if the Leasehold Improvements were the only property subject to such taxes and excises.

4.5 Exclusion From Taxes.

Nothing contained in this Lease shall require Tenant to pay any franchise, estate, gift, corporate, inheritance, or succession tax of Landlord or any income, value added, or excess profits tax of Landlord or on the Land.

4.6 Prorations.

In the event of commencement or termination of this Lease at a time other than the beginning or end of one of the specified rental periods, Base Rent and Additional Rent shall be prorated as of the date of commencement or termination, and in the event of termination for reasons other than default and except as otherwise expressly provided in this Lease, all prepaid rent shall be refunded to Tenant.

 

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5. M AINTENANCE .

5.1 Maintenance of Leasehold Improvements.

The Leasehold Improvements and the Premises shall be maintained at the sole cost and expense of Tenant in accordance with Section 5.4, below. Except as otherwise expressly provide in this Lease, Tenant shall further be solely responsible for any and all repairs, alterations and/or corrective work as may be required from time to time after the Effective Date. All such improvements shall be owned by Tenant during the Term and shall be subject to Tenant’s right to remove at the end of the Term.

5.2 Mechanic’s Liens.

Tenant agrees that it will pay or cause to be paid all costs and expenses for work done or caused to be done by it on the Premises and for Leasehold Improvements, and will keep the Premises, the Leasehold Improvements, and Tenant’s leasehold interest free and clear of all mechanic’s, materialmen’s, contractor’s or subcontractor’s liens, and other liens on account of any work done for Tenant or persons claiming under it. No such payment shall be construed as Base Rent or Additional Rent. Tenant agrees to, and shall, indemnify, defend and hold Landlord harmless from and against all liability, loss, damage, costs and attorneys’ fees, and all other expenses by reason of claims of lien of laborers or materialmen or others for work performed or materials or supplies furnished for Tenant or persons validly claiming under it, together with reasonable attorneys’ fees and all costs and expenses incurred by Landlord to negotiate, settle, defend or otherwise protect itself against such claims.

(a) In the event a lien shall be recorded against the Premises on account of work done or caused to be done by Tenant, Tenant shall have the right to contest the same by appropriate action so long as Landlord’s property interest is not jeopardized. If the lien claimant commences foreclosure of the lien, Tenant will have twenty (20) days after commencement of such action in which to (i) cause said lien to be removed or (ii) post a bond or cash deposit equal to one hundred fifty percent (150%) of the amount of the disputed claim with a company or companies reasonably satisfactory to Landlord and thereafter diligently contest the validity of the lien. If Tenant shall fail to cause said lien to be removed or post the bond within said twenty (20) day period, Landlord may (but shall not be so required to), upon an additional five (5) day notice to Tenant, pay the claim giving rise to such lien and any costs associated therewith, and the amounts so paid by Landlord, together with reasonable attorneys’ fees incurred in connection therewith, shall be immediately due and owing from Tenant to Landlord, as Additional Rent, and Tenant shall pay the same to Landlord within twenty (20) days after receipt of an invoice showing the costs incurred, and if not paid within such time period, such costs will bear interest from the dates of Landlord’s payments at the Interest Rate.

(b) Should Tenant receive notice of any claims of lien filed against the Premises or of any action affecting the title to the Premises, Tenant shall immediately give Landlord written notice thereof.

 

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5.3 Alteration of Leasehold Improvements.

Landlord agrees that Tenant may, at its own expense, from time to time during the term hereof, make such alterations, additions and changes in and to the Premises and Leasehold Improvements as Tenant may elect. All work with respect to any alterations, additions and changes must be done in a good and workmanlike manner and diligently prosecuted to completion. Any such changes, alterations and improvements shall be performed and done in accordance with the laws and ordinances relating thereto.

5.4 Maintenance and Repair; Surrender Condition.

(a) Tenant agrees that, at all times from and after the Effective Date, at no cost or expense to Landlord, it will repair, replace and maintain the Leasehold Improvements located on the Premises, and any utility lines located on or under or exclusively serving the Premises, in good, first-class condition and repair, and in accordance with the requirements of any governmental authority or agency having jurisdiction thereof.

(b) Upon any surrender of the Premises, Tenant may remove, but shall not be required to remove, all or any portion of the Leasehold Improvements and shall redeliver to Landlord the Premises and all Leasehold Improvements not removed by Tenant in neat and clean condition free of debris, in good order and state of repair, ordinary wear and tear and casualty excepted, and in compliance with Article 21.

5.5 Right of Entry.

(a) Landlord reserves the right at all reasonable times and upon not less than 48 hours prior written notice to Tenant (except in the case of an emergency) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, mortgagees; (iii) show the Premises to prospective tenants during the last twelve (12) months of the Term; (iv) post notices of non-responsibility, (v) perform services required of Landlord; and (vi) perform any covenants of Tenant which Tenant fails to perform (subject to any notice and/or grace periods contained in this Lease). Landlord may make any such entries without the abatement of Rent and may take such reasonable steps as required to accomplish the stated purposes; provided, however, each such entry shall be made in reasonable manner which, to the maximum extent reasonably possible, does not interfere with Tenant’s business operations or security systems or those of Tenant’s subtenants. Further, Tenant shall have the right to accompany Landlord during any such entry (except in the case of an emergency). Nothing herein contained shall imply any duty on the part of Landlord to do any such work which under any provision of this Lease Tenant may be required to do, nor shall it constitute a waiver of Tenant’s default in failing to do the same.

6. U SE .

6.1 Use.

Tenant shall have the right to use the Project for any legal use, including, without limitation, the construction and operation of a polysilicon manufacturing facility.

 

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6.2 Security for Premises.

Tenant acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises. Tenant assumes all responsibility for the protection of Tenant, its agents, employees, tenants and invitees, and the property of Tenant and its agents, employees, tenants and invitees, from the action of third parties.

6.3 Signage.

(a) Subject to Tenant’s compliance with applicable codes, zoning ordinances and any other governmental requirements, Tenant may affix and maintain such signs, advertising placards, names, insignia, trademarks and descriptive materials as it may elect.

(b) Tenant acknowledges that the entire cost of installation, maintenance and removal of all Tenant’s signage permitted hereunder shall be borne solely by Tenant and Tenant shall maintain or cause to be maintained all such signage in good and proper condition. All Tenant signs shall at all times be and remain the property of Tenant and may be removed at Tenant’s election, cost and expense at any time on, or prior to, the expiration or earlier termination of the Term of this Lease.

6.4 Compliance With Laws.

Tenant shall comply with all governmental laws, ordinances and regulations now in force, or which may hereafter be in force, applicable to the Premises as a result of Tenant’s use of the Premises and with any order, directive, or certificate of occupancy properly issued as a result of Tenant’s use of the Premises, all at Tenant’s sole expense. In the event of any changes in laws, ordinances or regulations after the Effective Date, Tenant shall be obligated to comply with such changes when and if such compliance is required under the applicable laws, ordinances and regulations. Without limiting the foregoing, Tenant shall be responsible for compliance with all requirements of the Americans with Disabilities Act of 1990 as it may be amended and as supplemented by further laws from time to time. Notwithstanding anything to the contrary contained in this Lease, Tenant’s obligations to comply with governmental laws, ordinances, regulations, orders, or directives relating to Hazardous Materials, as defined in Section 21.9, are governed by Article 21, and not this Section 6.4.

7. R EPRESENTATIONS AND W ARRANTIES .

7.1 No Violation.

Landlord and Tenant hereby each represent and warrant to the other that their respective performance and compliance with the terms, provisions and conditions of this Lease does not and will not conflict with or result in any violation of any of the terms, conditions, or revisions of an agreement, obligation, judgment, decree, order, statute, rule or regulation applicable to Landlord or to Tenant.

 

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7.2 Landlord’s Covenants, Representations and Warranties.

Landlord hereby covenants, represents and warrants to Tenant that:

(a) Landlord is the owner in fee of the Premises and will not transfer its interest in the Premises without first giving one hundred and eighty (180) days prior notice to Tenant.

(b) Landlord has the full power, right and authority to enter into and execute this Lease.

(c) Those persons whose signatures are hereinafter evidenced on this Lease on behalf of Landlord are duly authorized signatories of Landlord, fully empowered to commit and bind Landlord to those certain terms, covenants and conditions set forth herein for the Term of this Lease.

(d) To Landlord’s actual knowledge, the Premises are not contaminated by any Hazardous Materials as defined in Section 21.9.

(e) To Landlord’s actual knowledge, there are no suits, proceedings, litigation (including zoning or other land use regulation proceedings), condemnation or investigations pending or threatened against or affecting Landlord or the Premises which would prevent Landlord from meeting any of its obligations under this Lease or adversely affect Tenant’s use or occupancy of the Premises or prohibit Tenant from developing or operating the Premises.

(f) To Landlord’s actual knowledge there are no liens, encumbrances, or any other defects in title pertaining to the Premises which are not shown on the Preliminary Title Report, and that documents delivered by Landlord to Tenant are true and correct copies of the originals thereof.

7.3 Tenant’s Representations and Warranties.

Tenant hereby represents and warrants to Landlord that:

(a) Tenant has the full power, right and authority to enter into and execute this Lease; and

(b) Those persons whose signatures are hereinafter evidenced on this Lease on behalf of Tenant are duly authorized signatories of Tenant, fully empowered to commit and bind Tenant to those certain terms, covenants and conditions set forth herein for the Term of this Lease.

8. I NDEMNIFICATION .

8.1 Tenant Indemnification.

Tenant agrees to protect, defend, indemnify and hold Landlord and Landlord’s interest in the Premises harmless from and against any and all loss, damage and liability arising

 

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from (i) Tenant’s failure to perform and observe its covenants hereunder, (ii) any act or omission of Tenant or its officers, agents, employees, independent contractors, licensees, subtenants and the subtenants’ employees, concessionaires or assignees (collectively, “ Tenant Parties ”) causing loss or damage to the Premises or the Project or any acts or omissions of patrons or customers of Tenant or any subtenants causing loss or damage to the Premises or the Project, (iii) the occupation, use, possession, conduct or management of the Premises and Project by Tenant or the Tenant Parties or (iv) any work or thing whatsoever done in or on the Premises and Project by Tenant or the Tenant Parties; provided that the terms of the foregoing indemnity shall not apply to the negligence or willful misconduct of Landlord or its officers, agents, employees, independent contractors, licensees, concessionaires or assignees (collectively, “ Landlord Parties ”). The provisions of this Article 8 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination.

8.2 Landlord Indemnification.

Landlord agrees to protect, defend, indemnify and hold Tenant and Tenant’s interest in the Premises and Project harmless from and against any and all loss, damage and liability arising from (i) Landlord’s failure to perform and observe its covenants hereunder, (ii) any act or omission of Landlord or any Landlord Parties causing loss or damage to the Premises or the Project, (iii) any work or thing whatsoever done in or on the Premises or Project by Landlord or Landlord Parties; (iv) any action by a third party, including an action pursuant to a court order or the enforcement of applicable law that restricts or otherwise limits the Access Right; and (v) any actual or alleged violation of the National Historic Preservation Act (16 U.S.C. 470) or other state or federal law concerning the preservation or protection of historic properties; provided that the terms of the foregoing indemnity shall not apply to the negligence or willful misconduct of Tenant or Tenant Parties. The provisions of this Article 8 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination.

9. I NSURANCE .

9.1 General Liability.

Commencing upon Tenant’s entry upon the Premises and thereafter during the Term of this Lease, Tenant shall carry and maintain commercial general public-liability insurance against claims for personal injury, death or property damage upon or about the Premises and the Leasehold Improvements thereon. The amount of coverage shall be not less than Three Million Dollars ($3,000,000.00) per person, per occurrence. Notwithstanding the foregoing amount of coverage required, Tenant’s coverage hereunder may be part of a blanket or umbrella policy(ies) if the combination of Tenant’s underlying and umbrella or blanket policies meet the coverage requirements hereunder and further contain a per location endorsement (or other similar endorsement reasonably acceptable to Landlord) which would guarantee Landlord the amount of the coverage required herein. In the event that Tenant elects to utilize any blanket or umbrella policy(ies), Tenant’s underlying policy for such coverage shall not be less than One Million Dollars ($1,000,000.00) per person, per occurrence. During any construction, Tenant shall obtain a “course of construction” endorsement to such policies. The policies shall also

 

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insure Tenant’s contractual liability under the indemnity provisions of this Lease and contain a cross-liability endorsement. Tenant may carry and maintain during the entire Term, at Tenant’s sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article 9, and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant’s operations therein, as Tenant may elect.

9.2 Fire and Extended Coverage.

Upon the commencement of construction of the Leasehold Improvements and continuing thereafter during the Term of this Lease, Tenant shall carry and maintain fire and extended coverage (“ All-Risks ”) insurance on the Premises and Leasehold Improvements located thereon, in an amount not less than the full replacement costs of the Leasehold Improvements. Any policy proceeds shall be used for the repair or replacement of the property damaged or destroyed unless this Lease shall cease and terminate under the provisions of Article 11.

9.3 Tenant’s Personal Property.

During the Term of this Lease, Tenant shall maintain in full force and effect on all Tenant’s Property from time to time in, on or upon the Premises, fire and extended coverage (“ All-Risks ”) insurance in the amount of the full replacement value thereof. Any policy proceeds shall be used for the repair or replacement of Tenant’s Property damaged or destroyed unless this Lease shall cease and terminate under the provisions of Article 11.

9.4 Policies and Certificate of Insurance.

Evidence of all such insurance shall be promptly provided to Landlord upon Landlord’s request. The policies of insurance required under this Article 9 shall be issued by good, responsible companies, qualified to do business in the State of Idaho, with a general policy holders’ rating of at least A and a financial rating of at least Class VIII as rated in the most currently available “Best’s Key Rating Guide”. Tenant shall use commercially reasonable efforts to cause all policies of insurance of Tenant and its subtenants to name, as additional insureds, Landlord and such persons and affiliated entities and lenders of Landlord that are parties in interest or otherwise have an insurable interest, as Landlord may reasonably request. As often as any such policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All policies required under this Lease shall be written as primary coverage not contributing with or being in excess of any other coverage carried by Landlord. Tenant’s coverage hereunder may be part of a blanket or umbrella policy if the same meets the requirements set forth, above. All policies of casualty insurance required hereunder shall include a clause or endorsement denying the insurer any rights of subrogation against the other party to the extent rights have been waived by the insured before the occurrence of injury or loss. Each party waives any rights of recovery against the other for injury or loss to property arising from any peril to the extent insured against under any casualty insurance policy carried by it, or required to be carried hereunder. Tenant shall cause the insurance companies issuing property damage insurance to waive any rights of subrogation that such companies may have against Landlord.

 

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9.5 Workman’s Compensation.

Tenant shall carry workman’s compensation insurance in such amounts as are required by applicable law.

10. D AMAGE OR D ESTRUCTION .

10.1 Obligation to Restore.

In case of damage to or destruction of the Leasehold Improvements by a risk that is not required to be covered by insurance as set forth in Article 9 of this Lease, the repair costs for which Tenant reasonably believes will be in excess of five percent (5%) of the replacement costs thereof, Tenant shall have the right to terminate this Lease by giving written notice to Landlord within ninety (90) days of such damage or destruction. In case of damage to or destruction of the Leasehold Improvements by a risk required to be covered by insurance as set forth in Article 9 of this Lease, this Lease shall not terminate. If this Lease is not terminated, Tenant shall promptly, restore, rebuild, replace or repair the Leasehold Improvements with improvements of comparable value and quality as existed immediately prior to such damage or destruction. Tenant shall promptly and diligently process applicable insurance claims. Such restoration, repair or rebuilding shall be commenced as promptly as possible following Tenant’s receipt of the proceeds of insurance, and shall thereafter be prosecuted with due diligence. Notwithstanding the foregoing, however, in the case of: (i) damage to or destruction of the Leasehold Improvements during the last five (5) years of the Lease Term that renders them inaccessible or unusable for purposes of conducting Tenant’s business; or (ii) in the event that the reasonable cost estimate to reconstruct the Leasehold Improvements exceeds fifty percent (50%) of the replacement value of the Leasehold Improvements, Tenant may elect to terminate this Lease by giving Landlord written notice of such election within ninety (90) days following the casualty, in which event Tenant shall have no obligation to restore, rebuild, replace or repair the Leasehold Improvements, provided, however, Tenant shall either, at its cost or with the proceeds of casualty insurance, clear the Premises of debris and return the same to a safe and neat and clean condition.

Notwithstanding the foregoing, the proceeds of insurance payable on account of the casualty required to be carried under this Lease, whether actually carried or not (plus the amount of any deductible or self-insured retention level, which will be paid by Tenant) will be the “Restoration Fund.” The Restoration Fund will be made available to pay the costs of such work, in the same manner including, but not limited to, fund control, as proceeds of a construction loan are subject to disbursement.

Tenant will not be required to incur costs for the restoration in excess of the Restoration Fund proceeds, but will cause the Leasehold Improvements, to the extent feasible, to be restored: (i) to a complete architectural unit, (ii) in condition appropriate to permit continuation of Tenant’s business operation, and (iii) to substantially the same value and utility as immediately before the casualty, to the extent feasible (taking into consideration, among other matters, the amount of the Restoration Fund).

 

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10.2 Reconstruction and Repair Requirements.

Tenant shall notify Landlord in writing prior to commencing its plan for reconstruction or repair.

10.3 Mutual Release.

Upon any termination of this Lease under any of the provisions of this Article 10, or Article 2.1, the Parties shall be released thereby without further obligations to the other Party coincident with the surrender of possession of the Premises by Tenant to Landlord, except for financial obligations which have accrued prior to the surrender and remain unpaid and any and all obligations of Landlord or Tenant accruing prior to the date of surrender which by law or through the provisions of this Lease shall survive any termination of this Lease. Furthermore, in the event of termination, all proceeds from insurance policies maintained under Section 9.2 shall be disbursed and paid to Tenant.

11. C ONDEMNATION .

11.1 Total/Partial Condemnation.

In case all of the Premises, or such part thereof as shall materially and substantially interfere with Tenant’s and/or its subtenants’ ability to conduct its business upon the Premises, shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, Tenant shall have the right to terminate this Lease effective as of the date possession is required to be surrendered to said authority; provided, however, that Landlord and Tenant shall each remain liable for financial obligations which have accrued prior to the surrender and remain unpaid and any and all obligations of Landlord or Tenant accruing prior to the date of surrender which by law or through the provisions of this Lease shall survive any termination of this Lease. Tenant’s allocation shall be a sum attributable to the fair market value of Tenant’s interest in the Premises and the fair market value of Tenant’s interest in all Leasehold Improvements.

In the event the amount of property or the type of estate taken shall not materially and substantially interfere with the ability of Tenant and/or its subtenants to conduct its business upon the Premises, Tenant may not terminate this Lease and Landlord shall be entitled to the entire amount of the award relating to Landlord’s fee interest in the Premises without abatement, set-off or deduction for any estate or interest of Tenant, provided, however, Tenant shall be entitled to that portion of an award allocable to the Leasehold Improvements and allocable to the value of Tenant’s leasehold estate. Tenant shall restore the Premises to substantially their same condition prior to such partial taking to the extent of any award proceeds received by Tenant.

11.2 Temporary Condemnation.

In the event of a taking of the Premises or any part thereof for temporary use, (i) this Lease shall be and remain unaffected thereby and Rent shall not abate, and (ii) Tenant shall be entitled to receive for itself such portion or portions of any award made for such use with respect to the period of the taking which is within the Term. For purposes of this Section 11.2, a “temporary taking” shall be defined as a taking for a period of one hundred eighty (180) days and not beyond the Term.

 

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12. O CCUPANCY T RANSACTIONS ; T RANSFERS AND S UBLETTING .

12.1 Definitions.

As used in this Article 12, the following definitions shall apply:

“ Transfer ” means any voluntary, unconditional and present transfer of some or all of Tenant’s interest, rights and duties in this Lease and/or the Leasehold Improvements and/or Premises, including Tenant’s right to use, occupy and possess the Premises and Leasehold Improvements, but shall not mean (i) Tenant’s delegation of rights and duties to or possession of the Premises by management companies engaged by Tenant, (ii) transfers contemplated or permitted by the governing documents of Tenant or within and between Tenant and its members or shareholders, (iii) a sublease of Tenant’s right to use, occupy and possess the Premises, in whole or in part, including a sub-sublease thereof or any assignment of a sublease or sub-sublease, or (iv) Permitted Transfers, as defined in Section 12.8 below;

“ Encumbrance ” means any mortgage, deed of trust, pledge, hypothecation, lien, or other security arrangement encumbering Tenant’s interest under this Lease;

“ Change of Control ” means the transfer by sale, assignment, death, incompetency, trust, operation of law, or otherwise of any shares, voting rights or ownership interest which will result in a change in persons exercising, or who may exercise, effective control of Tenant, unless such change results (i) from a transaction which is excluded from the definition of “Transfer” set forth above, or (ii) from the trading of shares listed on a recognized public stock exchange. If Tenant is a private corporation whose stock becomes publicly held, the transfers of such stock from private to public ownership shall not be deemed a Change of Control;

“ Occupancy Transaction ” means any Transfer or Change of Control, or other arrangement whereby the identity of the person or persons using, occupying or possessing the Premises or Leasehold Improvement changes, excluding (i) Permitted Transfers, as defined in Section 12.8 below, (ii) Leasehold Mortgages, which are subject to the express provisions of Section 12.9 below, (iii) any financings of furniture, fixtures, equipment and other personal property (“ Tenant’s FF&E ”) which are subject to the express provisions of Section 12.10 below; and

“ Transferee ” means the proposed assignee, subtenant, mortgagee, beneficiary, pledgee or other recipient of Tenant’s interests, rights or duties in this Lease or the Premises in the Occupancy Transaction.

“ Permitted Transfer ” has the definition set forth in Section 12.8 below.

 

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12.2 Restrictions.

(a) Occupancy Transactions Other Than Encumbrances. Tenant shall not enter into, or consent to, an Occupancy Transaction without first procuring Landlord’s written consent, which Landlord shall not withhold unreasonably. The Parties agree, however, that the manner of operation of the Premises and conduct of business thereon by Tenant will have an impact on the quality, reputation and financial condition of the City of Pocatello. Accordingly, the Parties agree that in approving or disapproving of any proposed Occupancy Transaction, it shall not be unreasonable for Landlord to withhold its consent if any of the following situations exist or may exist:

(i) Use. The Transferee’s contemplated use of the Premises following the proposed Occupancy Transaction is not the Permitted Use or a change in use that has been approved by Landlord pursuant to Section 21.10 below regarding Hazardous Materials;

(ii) Business Experience. In Landlord’s reasonable business judgment, the transferee or those to whom Transferee delegates management functions lacks sufficient business reputation or experience to operate a successful business of the type and quality permitted under this Lease;

(iii) Amendment to Lease. The Transferee requests an amendment of this Lease other than the identity of Tenant;

(iv) Breach of Agreements. The proposed Occupancy Transaction would involve a change from the Permitted Use that would breach any covenant of Landlord respecting radius, location, use or exclusivity in any other lease, financing agreement or other agreement relating to the Project or obligation existing as of the Effective Date; or

(v) Financial Strength. The proposed Transferee of Tenant’s obligations hereunder does not demonstrate to Landlord’s reasonable satisfaction sufficient financial strength to meet the monetary obligations of Te