IRVINE RECREATION PARK GROUND LEASE

 

 

Section 1.3.                                    Funding of Partnership .

 

This Lease is contingent upon Camelot Park Family Entertainment Center, Inc., a California corporation (“Camelot”), funding a limited partnership to develop and operate a family-oriented amusement park. In the event that Camelot is unable to fully fund its limited partnership, this Lease shall automatically terminate, and Lessee shall not be liable to Lessor for any of the obligations set forth in this Lease, or otherwise. Lessor/Lessee shall verify the funding of the limited partnership on or before January 31, 1994, at 5:00 p.m. If the funding is not completed by January 31, 1994, and written verification received by Lessor on or prior to that date, Lessor may terminate this Lease.

 

Section 1.4.                                    Possession .

 

Possession of the Premises shall be delivered to Lessee at the beginning of the term.

 

Section 1.5.                                    Delay in Commencement .

 

Lessor shall not be liable to Lessee if Lessor does not deliver possession of the Premises to Lessee on the scheduled commencement date. Lessor’s nondelivery of the Premises to Lessee on that date shall not affect this Lease or the obligations of Lessee under this Lease except that the commencement date shall be delayed until Lessor delivers possession of the Premises to Lessee, and the Lease term shall be extended for a period equal to the delay in delivery of possession of the Premises to Lessee, plus the number of days necessary to end the Lease term on the last day of a month. If delivery of possession of the Premises to Lessee is delayed, Lessor and Lessee shall, upon such delivery, execute an amendment to this Lease setting forth the actual commencement date and expiration date of the Lease. Failure to execute such amendment shall not affect the actual commencement date and expiration date of the Lease.

 

Section 1.6.                                    Early Occupancy .

 

If Lessee occupies the Premises prior to the scheduled commencement date, Lessee’s occupancy of the Premises shall be subject to all of the provisions of this Lease. Early occupancy of the Premises shall not advance the expiration date of this Lease.

 

ARTICLE II

 

RENT

 

Section 2.1.                                    Rent .

 

Commencing on the fifteenth day of the month following the

 

2

 

opening of the improvements to the public for business, and thereafter for each month during the term hereof on the fifteenth day of the next succeeding month, Lessee shall pay to Lessor the following sums as rent for the Premises:

 

A.                       Seventeen and one-half percent (17.5%) of the Gross Revenues derived from the operation of the Premises during the month (until the gross amusement revenues from the Premises equals the sum of $3,500,000 for the current calendar year), exclusive only of the following: (1) food and beverage operations, and (2) any kind of sales tax, gross receipts tax, admissions tax, recreation tax, or similar tax, measured upon the Gross Revenues of the amusement park operations (the foregoing is hereby defined as the “Gross Amusement Revenues”);

 

B.                         After the Gross Amusement Revenues from the Premises equals the sum of $3,500,000 for the current calendar year, then twenty percent (20%) (rather than seventeen and one-half percent [17 ½%]) of the monthly Gross Amusement Revenues shall be paid as rent for the balance of such calendar year.

 

C.                         In addition thereto, Lessee shall pay to Lessor thirty-five percent (35%) See LTR to /\ to 40%—Amendment #1 of the net profit derived during the month from food and beverage operations on the Premises.

 

When calculating net profit derived during the month from food and beverage operations, gross income from such operations shall not be reduced by any general management expenses but shall be reduced by (i) the monthly pro rata share, based on square footage, devoted to the operations of the costs of advertising, heat, light, air conditioning, janitorial services, property taxes, insurance, (ii) all personnel costs allocable solely to the food and beverage operations, (iii) royalties or similar charges of any food and beverage franchisor, accounting services relating to the food and beverage operations and (iv) all other costs attributable solely to the food and beverage operations.

 

Lessee agrees to furnish or cause to be furnished to Lessor a statement of Gross Revenues of Lessee within fifteen (15) days after the close of each calendar month, and an annual statement, including a monthly breakdown of Gross Revenues, within forty-five (45) days after the close of each calendar year. Such statements shall include, among other appropriate items, Lessee’s Gross Income from Food and Beverages, and Lessee’s Gross Revenues (as the term “Gross Revenues” is defined in Article 2.5), and all deductions or exclusions therefrom used to calculate Lessee’s Gross Amusement Revenues, and Lessee’s Net Profit from Food and Beverages. Such statements shall be signed by a responsible officer of Lessee, if Lessee is a corporation, or by an authorized representative of Lessee’s General Partner, if Lessee is a limited partnership. Lessee shall keep (1) full and accurate books of account and records in accordance with Generally Accepted Accounting Principles

 

3

 

consistently applied, including, without limitation, a sales journal, general ledger, and all bank account statements showing deposits of Gross Revenue, (2) all such cash register receipts or copies of computerized cash receipt data with regard to the Gross Revenues, credits, refunds and other pertinent transactions made from or upon the Premises (including the Gross Revenues of any subtenant, licensee, or concessionaire), and (3) detailed original records of any exclusions or deductions from Gross Revenues (including any exclusions or deductions from gross sales of any subtenant, licensee or concessionaire). Such books, receipts and records shall be kept for a period of two (2) years after the close of each calendar year and shall be available for inspection and audit by Lessor and its representatives at the Premises or at the office of Lessee’s C.P.A. at all times during regular business hours. In addition, upon request of Lessor, Lessee agrees to furnish to Lessor a copy of Lessee’s State and Local Sales and Use Tax Returns, if required, in the state where the Premises are situated. The receipt by Lessor of any statement or any payment of Rent for any period shall not bind it as to the correctness of the statement or the payment. Lessor shall, within two (2) years after the receipt of any such statement, be entitled to an audit of such Gross Revenues (including the gross revenues of any subtenant, licensee, or concessionaire). Such audit shall be conducted either by Lessor or by a certified public accountant to be designated by Lessor during normal business hours at the principal place of business of Lessee. If it shall be determined as a result of such audit that there has been a deficiency in the payment of Rent, then such deficiency shall become immediately due and payable with interest at the maximum lawful rate from the date when said payment should have been made. In addition, if Lessee’s statement shall be found to have understated net sales by more than two percent (2%) and if Lessor is entitled to any additional Rent as a result of said understatement, or if such audit shows that Lessee has failed to maintain the books of account and records required by this Section so that Lessor is unable to verify the accuracy of Lessee’s statement, then Lessee shall pay to Lessor all reasonable costs and expenses (including reasonable auditor and attorneys’ fees) which may be incurred by Lessor in conducting such audit and collecting such underpayment, if any. Any information gained from such statements or inspection shall be confidential and shall not be disclosed other than to carry out the purpose hereof; provided, however, Lessor shall be permitted to divulge the contents of any such statements in connection with any financing arrangements or assignments of Lessor’s interest in the Premises or in connection with any administrative or judicial proceedings in which Lessor is involved where Lessor may be required to divulge such information.

 

If Lessee shall fail to pay, when the same is due and payable, any amounts due as Rent under this Lease, such unpaid amounts shall bear interest at the maximum lawful rate from the date due to the date of payment. In addition to such interest, Lessee acknowledges that the late payment by Lessee of any monthly installment of Rent

 

4

 

will cause Lessor to incur certain costs and expenses not contemplated under this Lease, the exact amount of which costs being extremely difficult or impractical to fix. Such costs and expenses will include, without limitation, administrative and collection costs, and processing and accounting expenses. Therefore, if any such installment is not received by Lessor from Lessee when due, Lessee shall immediately pay to Lessor a late charge equal to two and one-half (2.5%) of such installment. Lessor and Lessee agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Lessor for its loss suffered by such non-payment by Lessee. Acceptance of this late charge shall not constitute a waiver of Lessee’s default with respect to such nonpayment by Lessee nor prevent Lessor from exercising all other rights and remedies available to Lessor under this Lease.

 

Section 2.2.                                    Taxes and Other Governmental Charges .

 

A.                       Payment of Taxes . Lessee shall pay before delinquency during the term directly to the taxing authorities, as additional rent, all taxes, assessments, levies and other governmental charges of every description, whether general, special, ordinary, extraordinary or otherwise (individually “imposition” and collectively “impositions”) levied on or assessed against the Premises, improvements located on the Premises (hereinafter defined), personal property located on or in the Premises or an improvement, the leasehold estate, or any subleasehold estate, whether belonging to or chargeable against Lessor or Lessee.

 

Within thirty (30) days after request of Lessor, Lessee shall furnish to Lessor a copy(s) of the receipted tax bill(s) evidencing the payment of the imposition in question.

 

Lessee shall not be required to pay any municipal, county, state, or federal income or franchise taxes of Lessor, or any municipal, county, state or federal state, succession, inheritance, or transfer taxes of Lessor, nor shall Lessee be liable for any increase in real property taxes that result from a reassessment as a result of a change of ownership of the Lessor’s interest in the property. If at any time during the term the State of California or any political subdivision of the state, including any county, city, public corporation, district, or any other political entity or public corporation of this state, levies or assesses against Lessor a tax, fee, or excise on rents, on the square footage of the Premises, on the act of entering into this Lease, or on the occupancy of Lessee, or any other tax, fee, or excise, however described, as a direct substitution in whole or in part for any real property taxes, Lessee shall pay before delinquency that tax, fee, or excise on rents.

 

Lessee’s liability to pay impositions and taxes under this Section 2.2 shall be prorated on the basis of a 365-day year to

 

5

 

account for any fractional portion of a fiscal tax year included in the term at its commencement and at its end.

 

B.                         Creation of Special Assessment Districts . If during the term any governmental subdivision or agency shall undertake to create an improvement or special assessment district, the proposed boundaries of which shall include the Premises, Lessor and Lessee shall each be entitled to support or oppose the creation of such district or inclusion of the Premises therein or both, and to appear in any proceeding relating thereto as their respective interest in the Premises or otherwise may appear. Should either party receive any notice or other information relating to the proposed creation of any such district, the boundaries of which would include the Premises, such party shall promptly notify the other party and deliver to such other party a copy of the notice and/or information.

 

C.                         Right to Contest Taxes . Lessee may contest the validity or amount of any imposition agreed to be paid by Lessee and/or any assessed valuation upon which such imposition is or will be based provided Lessee protects Lessor and the Premises from any lien by adequate surety bond or other appropriate security. If Lessee undertakes any such contest, it shall so notify Lessor. Should Lessee be unsuccessful in any such contest, such imposition and any interest and/or penalties resulting therefrom shall be immediately paid to the taxing authorities in question. Lessee hereby agrees to hold Lessor and the Premises harmless from all costs and expenses that may result from Lessee’s contest of such imposition as herein provided. Lessor shall not be required to join in any proceeding or contest brought by Lessee unless the provisions of any law require that the proceeding or contest be brought by or in the name of the Lessor or any owner of the Premises. In that case, Lessor shall join in the proceeding or contest or permit it to be brought in Lessor’s name, all costs thereof including Lessor’s attorneys’ fees to be borne by Lessee.

 

D.                        Combined Assessment . If the Premises are assessed with other property of Lessor for purposes of property taxes, assessments, or other ad varolem or improvement levies, all taxes imposed on the entire parcel of which the Premises are a part shall, until the Premises are separately assessed, be prorated and Lessee shall pay that fraction of the entire tax computed as a proportion of the total area.

 

Section 2.3.                                    Payment of Rent .

 

All rent and other amounts payable by Lessee hereunder, shall be paid to lessor at the address set forth in this Lease. This Lease shall be deemed and construed to be a triple net lease, except as otherwise provided herein.

 

6

 

Section 2.4                                       Utilities .

 

Lessee shall pay, directly to the appropriate supplier, the cost of all natural gas, heat, light, power, sewer service, telephone, water, refuse disposal and other utilities and services supplied to the Premises. However, if any services or utilities are jointly metered with other property, Lessor shall make a reasonable determination of Lessee’s proportionate share of the cost of such utilities and services, and Lessee shall pay such share to Lessor within fifteen (15) days after receipt of Lessor’s written statement.

 

Section 2.5.                                    Gross Revenues .

 

The term “Gross Revenues” of Lessee, as used in this Lease, is defined to be all fees for use of any of Lessee’s facilities located on the Premises; plus all fees for services provided by Lessee on the Premises; plus the gross selling price of all merchandise, including food and beverages, on or from the Premises by Lessee, its subtenants, licensees and concessionaires, except as otherwise provided in Section 2.6 below, whether for cash or on credit and whether made by store personnel or by approved vending, video, pinball, or gaming machines and shall include, without limitation, the income from any rebates, display or advertising allowances and ticket sales. It shall also include only the gross mark up, if any, from sales of lottery tickets, money orders, and income from telephones, photocopy machines, fees on credit cards, postage stamps. “Gross Revenues” and “Gross Amusement Revenues” of Lessee shall not include:

 

A.                       The selling price of all merchandise returned by customers and accepted for full credit or the amount of discounts and allowances made thereon;

 

B.                         Goods returned to sources, or transferred to another store or warehouse owned by or affiliated with Lessee;

 

C.                         The price allowed on all merchandise traded in by customers for credit or the amount of credit for discounts and allowances made in lieu of acceptance thereof;

 

D.                        Cash refunds made to customers in the ordinary course of business, but this exclusion shall not include any amount paid or payable for what are commonly referred to as trading stamps;

 

E.                          Interest, service or sales carrying charges or other charges, however denominated, paid by customers for extension of credit on sales and where not included in the merchandise sales price;

 

F.                          Sales taxes, so-called luxury taxes, consumers’ excise

 

7

 

taxes, gross receipts taxes and other similar taxes now or hereafter imposed upon the sale of merchandise or services;

 

G.                         The transactions in which premium merchandise is exchanged for Premium Tickets won by players of amusement games, but the revenues received from the games or the sale of playing tokens or debit cards shall be included in Gross Revenues;

 

H.                        Sales of fixtures, equipment or property which are not stock in trade;

 

I.                             Gift certificates, or like vouchers, until such time as the same shall have been converted into a sale by redemption (excluding the conversion of “Premium Tickets” described in paragraph G. above).

 

All sales originating at the Premises shall be considered as made and completed therein, even though bookkeeping and payment of the account may be transferred to another place for collection and even though actual filing of the sale or service order and actual delivery of the merchandise may be made from a place other than the Premises. Each sale upon installments or credit shall be treated as a sale for the full cash price at the time of sale.

 

Except as herein expressly provided to the contrary, this Lease is intended to be, and shall be construed as, an absolute net lease, whereby under all circumstances and conditions (whether now or hereafter existing or within the contemplation of the parties) the Rent shall be, except as otherwise set forth herein, absolutely net to Lessor.

 

Section 2.6.                                    Revenues from Concessionaires and Sublessees .

 

Lessee may, without Lessor’s consent, contract with one or more Concessionaires and/or subtenants to perform activities complimentary to Lessee’s activities which would not ordinarily be conducted by Lessee, including, but not limited to, activities such as face painting, caricature artists, Santa booths, computer training, pony or haywagon rides, etc. So long as the aggregate space utilized does not exceed ten percent (10%) of either the enclosed or the unenclosed demised premises. These activities are defined as the “Permitted Concessions”. Notwithstanding the preceding, Permitted Concessions do not include food and beverage service. The Gross Revenues of Lessee shall include only the revenues received by Lessee from the Permitted Concessions and not the Gross Revenues of the Permitted Concessions. If either Lessor or Lessee believes that the percentage of Gross Revenues provided as rent under this Lease or to either the Permitted Concessionaire’s or other Concessionaires or sublessee’s is uneconomic or unjust to either Lessor or Lessee, the same will be submitted to binding arbitration as provided in Section 8.6 below.

 

8

 

ARTICLE III

USES OF PREMISES AND IMPROVEMENTS

 

Section 3.1.                                    Permitted Uses .

 

Lessee shall have the right to use and to permit the use of the Premises and improvements hereafter constructed therein for a family oriented amusement park and for such other lawful uses as Lessor shall consent to in writing, which consent shall not be unreasonably withheld. As used herein “a family oriented amusement park” shall include, but not be limited to, arcades, picnic facilities, video games, miniature golf, go-carts, motor raceway, theaters, batting cages, bumper boats, fish pond, games, radio-controlled vehicles, ancillary food services, related activities and attractions, and all future games and uses not inconsistent with family entertainment (“permitted uses”). As used herein “improvements” means and includes, without limitation, all buildings, paving and other physical structures on the Premises; all landscaping, excavations, planting and earth contours placed by human design on the Premises, and all fixtures, including trade fixtures of sublessees that cannot be removed without causing structure damage. Lessee may construct demolish, remove, replace, alter, relocate, reconstruct or add to improvements as provided in Section 4.1.

 

Section 3.2.                                    Restrictions, Easements, Zoning Changes and Use Permits .

 

The parties acknowledge that in order for Lessee to carry out its intended use of the Premises, it may be necessary, desirable, or required to obtain additional use, zoning, subdivision or other land use permits or approvals relating to any part of the Premises, including without limitation permits relating to the permitted uses. Lessor agrees, from time to time on the request of Lessee, to execute such documents, petitions and authorizations as may be appropriate or required in order to obtain such land use permits and approvals.

 

Lessee may enter into agreements restricting use of, and granting easements over the Premises, provided they are limited to the term of this Lease, and Lessor agrees to execute any such agreements at the request of Lessee consistent with the use of the Premises. Lessor grants to Lessee the right to grant to public utilities or public service corporations, for the purpose of serving only the Premises, rights of way or easements on or over the Premises for poles or conduits, or for underground services or both for telephone, electricity, water, sanitary or storm sewers or both, and for other utilities and municipal or special districts.

 

Section 3.3.                                    Signs .

 

Lessee shall be allowed to install all signs approved by appropriate governmental agencies anywhere on the Premises.

 

9

 

Section 3.4.                                    Exclusive Use .

 

Lessor agrees that it shall not enter into any other leases within a thirty (30) mile radius (as measured from the air) for a family oriented amusement park. This restriction shall not prohibit Lessor from operating bowling alleys, racquetball courts, family fitness centers or any other type of athletic center.

 

Section 3.5.                                    Approval by The Irvine Company .

 

Lessor’s and Lessee’s obligations under this Lease are expressly contingent upon approval by The Irvine Company of this Lease and the permitted uses and improvements which are contemplated in this Lease.

 

ARTICLE IV

 

IMPROVEMENTS

 

Section 4.1.                                    Lessee’s Duty to Construct New Improvements .

 

Within sixty (60) days after all governmental approvals have been obtained which are necessary for the construction and operation of a family oriented amusement park and for the construction of all the improvements set forth on Exhibit B, Lessee shall comply with the conditions of major construction below and shall commence the construction of the improvements set forth on Exhibit B.

 

Section 4.2.                                    Lessee’s Election to Construct New Improvements .

 

At any time during the term of this Lease, Lessee may, but is not obligated to, construct or otherwise make new improvements on any part or all of the Premises and to demolish, remove, replace, alter, relocate, reconstruct, or add to any then existing improvements in whole or in part, and to modify or change the contour or grade, or both, of the land, provided Lessee is not then in default under any condition or provision of this Lease and provided the improvements following the work are at least equal to the value to any improvements as they were before being demolished, removed, replaced, altered, relocated, reconstructed, modified or changed. All salvage shall belong to Lessee.

 

Section 4.3.                                    Conditions of Major Construction .

 

A.                       Before any major (i.e. of a value of $50,000 or greater) work or construction, alteration, or repair as defined in Section 4.1 or 4.2 above, is commenced on the Premises, and before any building materials have been delivered to the Premises by Lessee or under Lessee’s authority, Lessee shall comply with all the following conditions or procure Lessor’s written waiver of the

 

10

 

condition or conditions specified in the waiver:

 

1.                            Deliver to Lessor two (2) sets and obtain Lessor’s approval of preliminary construction plans and specifications of such work including, but not limited, to preliminary grading and drainage plans, soil tests, utilities, sewer and service connections, locations of ingress and egress to and from public thoroughfares, curbs, gutters, parkways, street lighting, designs and locations for outdoor signs, storage areas and landscaping, all sufficient to enable potential contractors and subcontractors to make reasonably accurate bid estimates and to enable Lessor to make an informed judgment about the design and quality of construction.

 

Lessor shall not unreasonably withhold approval of preliminary plans and specifications. Lessor shall communicate its approval or disapproval by notice to Lessee, and disapproval shall be accompanied by specification of the grounds for disapproval, provided that Lessor’s failure to provide to Lessee written disapproval within ten (10) days after receipt of the plans shall be conclusively considered to be approval.

 

Following Lessor’s first or any subsequent disapproval, Lessee may elect (i) to submit revised plans and specifications or (ii) to give notice contesting the reasonableness of Lessor’s disapproval. A contest of reasonableness shall be determined by arbitration under the jurisdiction of the American Arbitration Association in accordance with the Commercial Rules of such Association. If the reasonableness of Lessor’s disapproval is sustained, then Lessee shall perform as in (i) above; if it is not sustained, the plans and specifications shall be deemed approved.

 

2.                            Deliver to Lessor the written approval of the plans and specifications by the financial institution that shall have made the commitment for financing such work, if any.

 

3.                            Deliver to Lessor true copies of all governmental permits and authorizations required for such work, and one (1) complete set of final plans and specifications and working drawings consistent with the previously approved preliminary plans and specifications.

 

4.                            Notify Lessor of Lessee’s intention to commence such work at least twenty (20) days before commencement thereof or delivery of any materials. The notice shall specify the approximate location and nature of the intended improvements. Lessor shall have the right to post and maintain on the Premises any notices of non-responsibility provided for under applicable law and to inspect the Premises in relation to the construction at all reasonable times.

 

5.                            Deliver to Lessor true copies of all documents

 

11

 

evidencing the commitment of financing for the work. “Financing” includes both the construction (or interim) financing (loan); the take-out (also called permanent or long-term) financing (loan); and/or Lessee’s own capital funding.

 

6.                            Deliver to Lessor (i) certificates of insurance evidencing coverage for builder’s risk, (ii) evidence of workmen’s compensation insurance covering all persons employed in connection with the work and with respect to whom death or bodily injury claims could be asserted against Lessor or the Premises, and (iii) evidence that Lessee has paid or caused to be paid all premiums for the coverage described above in this subparagraph 6 and any increase in premiums on insurance provided for in Article VI on insurance sufficient to assure maintenance of all insurance above during the anticipated course of the work. Lessee shall maintain and keep in force and pay all premiums required to maintain and keep in force all insurance above at all times during which such work is in progress.

 

B.                         Completion of Construction . Once work is begun as required herein Lessee shall with reasonable diligence prosecute to completion all construction of improvements, subject to weather availability of labor and materials, additions or alterations. All work shall be performed in a good and workmanlike manner, shall substantially comply with plans and specifications submitted to Lessor as required herein and shall comply with all applicable governmental permits, laws, ordinances and regulations.

 

C.                         Notice of Completion . On completion of any substantial work of improvement during the term, Lessee shall file or cause to be filed a notice of completion. Lessee hereby appoints Lessor as Lessee’s attorney-in-fact to file the Notice of Completion on Lessee’s failure to do so after the work of improvement has been substantially completed.

 

D.                        Non-Liability of Lessor . Lessor’s approvals as required by this Section 4.3 shall not make Lessor responsible for the improvement with respect to which an approval is given or the construction thereof, and Lessee shall defend and indemnify Lessor against all liability and claims of liability for damage or injury to persons or property or for death of persons arising from or in connection with such improvement or construction.

 

E.                          Lessee’s Rights Regarding Improvements . After the completion of any new construction, Lessee shall have the right to alter, reconstruct, modify, remodel, relocate, remove and demolish all or any part of the improvements located on the Premises and any other improvements located on the Premises thereafter, and further, to locate and construct (all in accordance with the provisions of this Lease including, without limitation, this Article IV) any other improvements of any type or kind on the Premises; provided, however, that no such action shall be taken which will

 

12

 

substantially reduce the value of the improvements unless within reasonable time the improvements, when completed, will have a fair market value at least equal to the fair market value of the improvements immediately prior to the taking of such action.

 

Section 4.4.                                    Maintenance; Repairs; Alterations; Reconstruction .

 

Subject to the rights of Lessee set forth in Sections 4.1, 4.2 and 4.3, Lessee, at Lessee’s sole cost and expense, shall maintain the Premises and all improvements located thereon, throughout the term of this Lease, in a neat, sanitary manner and, in accordance with all applicable laws, ordinances, orders, rules, regulations and requirements of (i) federal, state, county, municipal and other governmental agencies having or claiming jurisdiction; (ii) the insurance underwriting board or insurance inspection bureau having or claiming jurisdiction; and (iii) all insurance companies insuring all or any part of the Premises or improvements or both. Without limiting the generality of the foregoing, Lessee shall perform each and every obligation set forth in clauses (1) through (5) of Section 1941.2(a) of the California Civil Code, any amendment thereof or any law of similar import that may hereafter be enacted.

 

Except as provided below, Lessee shall promptly and diligently repair, restore and replace as required to maintain or comply as above, or to remedy all damage to or destruction of all or any part of the improvements, resulting wholly or in part from causes required by this Lease to be covered by fire or extended coverage insurance if the cost of the work of improvement so required does not exceed that percentage of the replacement value of all improvements that would cause the repair or replacement work under then applicable governmental rules and regulations to comply with new and different standards or to cause the loss of any right to continue an existing non-conforming use so as to make the repair or replacement of the improvements prohibited or of so great an uninsured cost as to render the replacement of such improvements economically unfeasible of generating a fair return (defined as Ten Percent (10%) R.O.I.) to the Lessee. Such decree of destruction shall be referred to as the “New Codes Standards”. If the cost does so exceed the New Codes Standards, Lessee may nevertheless repair, restore and replace as above or may by notice elect instead to raise the improvements damaged or destroyed. If the damage or destruction to the improvements exceeds the New Codes Standards of the replacement value of all the improvements, and Lessee elects not to repair, restore and replace, the Lease shall terminate, and Lessor shall be entitled to all insurance proceeds from the insurance coverage described in Section 6.2 attributable to the Main Arcade Building, excluding trade fixtures, signs and trade facia features (herein collectively referred to as “Trade Fixtures”).

 

The completed work of maintenance, compliance, repair,

 

13

 

restoration or replacement shall be equal in value, quality and use to the condition of the improvements before the event giving rise to the work, except as expressly provided to the contrary by this Lease. Lessor shall not be required to furnish any services or facilities or to make any repairs or alterations of any kind in or on the Premises. Lessor’s election to perform any obligations of Lessee under this Lease or Lessee’s failure or refusal to do so shall not constitute a waiver of any right or remedy for Lessee’s default, and Lessee shall promptly reimburse, defend and indemnify Lessor against all liability, loss, cost, and expense arising from it.

 

Nothing in this provision defining the duty of maintenance shall be construed as limiting any right given elsewhere in this Lease to alter, modify, demolish, remove or replace any improvement, or as limiting provisions relating to condemnation or damage or destruction during the final year or years of the term. No deprivation, impairment or limitation of use resulting from any event or work contemplated by this paragraph shall entitle Lessee to any offset, abatement or reduction in rent nor any termination or extension of the Lease.

 

In determining whether Lessee had acted promptly as required under the foregoing paragraph, one of the criteria to be considered is the availability of any applicable insurance proceeds.

 

Section 4.5.                                    Right to Contest Government to Order .

 

Lessee has the right to contest by appropriate judicial or administrative proceeding, without cost or expense to Lessor, the validity or application of any law, ordinance, order, rule, regulation or requirement (hereinafter called law) that Lessee repair, maintain, alter or replace the improvements in whole or in part, and Lessee shall not be in default for failing to do such work until a reasonable time following final determination of Lessee’s contest. Lessor may, but is not required to, contest any such law independently of Lessee. Lessor may, and on Lessee’s notice of request shall, join in Lessee’s contest.

 

Section 4.6.                                    Major and Minor Distinguished .

 

A.                       Damage or Destruction During Beginning Years of Term . Lessor’s approval is not required for Lessee’s minor repairs, alterations or additions. “Minor” means a construction cost not exceeding $50,000. Construction costs includes the cost of labor, materials, and a reasonable profit to a general contractor and subcontractors for any demolition and any removal of existing improvements or parts of improvements, as well as for preparation, construction and completion of all new improvements, parts of improvements, reconstructions, maintenance and repairs.

 

“Major” repairs, alterations or additions are those not

 

14

 

defined as minor above. For major repairs, alterations or additions, Lessee shall comply with all conditions of major construction elsewhere in this Lease.

 

If Lessee’s proposed work does not substantially alter the then-existing use of the Premises, Lessor’s approval of plans and specifications shall not be required. If Lessor’s approval is required, the provisions relating to Lessor’s approval and the conditions of major construction shall apply.

 

B.                         Damage or Destruction During Final Years of Term . Lessee is relieved from the obligation to, but may, repair, restore or reconstruct improvements damaged or destroyed during the final five (5) years of the term if (1) the work of repairing, restoring or reconstructing would constitute a “major” repair or alteration as defined above; and (2) Lessee complies with all of the following conditions:

 

1.                            Lessor gives notice of the damage or destruction promptly but not later than thirty (30) days after the event, detailing facts that qualify the casualty under this provision;

 

2.                            Is not in default under any provision or condition of this Lease;

 

3.                            Within thirty (30) days after giving the notice above, effectively transfers to Lessor all right, title and interest in and to this Lease;

 

4.                            Pays in full, or has paid in full, any outstanding indebtedness incurred by Lessee and secured by an encumbrance or encumbrances on the leasehold;

 

5.                            Delivers possession of the Premises to Lessor and quit claims all right, title and interest in the land and improvements if, and promptly after, ceasing to do business on the Premises;

 

6.                            Causes to be discharged all liens and encumbrances resulting from any act or admission of Lessee; and

 

7.                            Relinquishes all remaining options to extend or renew the Lease, provided that the giving of notice of damage or destruction as a condition of relief from the obligation to repair, restore or reconstruct shall conclusively be construed as such relinquishment.

 

8.                            Relinquishes any right to insurance proceeds from the insurance coverage described in Section 6.2 attributable to the Main Arcade Building, excluding Trade Fixtures attached