LEASE

 

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                                                                   EXHIBIT 10.36

 

                                      LEASE

 

      THIS LEASE (this "LEASE") is made and entered into as of the 30th day of

December, 2004, by and between PAPAGO PARAGON PARTNERS, LLC, an Arizona limited

liability company ("LESSOR") and THREE-FIVE SYSTEMS, INC., a Delaware

corporation ("LESSEE").

 

                                   WITNESSETH:

 

      For and in consideration of the mutual agreements, covenants and promises

set forth in this Lease and for other good and valuable consideration, Lessor

and Lessee agree as follows:

 

      1.     LEASED PREMISES: Lessor leases to Lessee and Lessee accepts and

leases from Lessor, upon the terms and conditions set forth in this Lease, that

certain real property located in Tempe, Maricopa County, Arizona, consisting of

approximately Five and 73/100 (5.73) acres and more particularly described on

EXHIBIT "A" attached to this Lease, together with all rights, privileges,

appurtenances and hereditaments thereto (the "LAND") and the building containing

approximately ninety seven thousand two hundred ten (97,210) rentable square

feet and other improvements now or hereafter located on the Land (the

"IMPROVEMENTS"; the Land and the Improvements being collectively called the

"PREMISES"), which is that certain real property located at 1600 North Desert

Drive, Tempe, Arizona 85281.

 

      2.     DURATION OF LEASE This Lease shall be in effect for a period of five

(5) years (the "LEASE TERM") commencing December 31, 2004 (the "COMMENCEMENT

DATE") and expiring on the date that is the last day of the calendar month that

is five (5) years thereafter, being December 30, 2009, unless this Lease shall

be sooner terminated as hereinafter provided. At the termination of this Lease,

all items of rent, taxes, insurance, utilities and other matters shall be

adjusted and prorated as of the date of termination, and Lessee shall pay to

Lessor, or Lessor shall pay to Lessee, as the case may be, such sums as shall be

required to accomplish the proration.

 

      3.     MASTER LEASE: This Lease is subject and subordinate to that certain

Ground Lease dated March 6, 1989 by and between the Salt River Project

Agricultural Improvement and Power District, as lessor and Papago Park Center,

Inc., as lessee and that certain Papago Park Center Ground Sublease between

Papago Park Center, Inc., as landlord and Three-Five Systems, Inc., as Tenant, a

Non-Disturbance, Recognition and Attornment Agreement between Three-Five

Systems, Inc., Papago Park Center, Inc. and the Salt River Project Agricultural

Improvement and Power District dated April 1, 1994; as evidenced by a Memorandum

of Non-Disturbance, Recognition and Attornment Agreement dated April 1, 1994 and

recorded April 8, 1994 in the Official Records of Maricopa County, Arizona as

Instrument No. 94-0287165 (collectively, the "MASTER LEASE"), the interest

therein of Three-Five Systems, Inc. having been acquired by Lessor immediately

prior the Commencement Date. For the benefit of the lessor under the Master

Lease, Lessee acknowledges that this Lease shall be subject and subordinate to

the Master Lease and the rights of the lessor under the Master Lease. In the

event the Master Lease is terminated, Lessee will attorn to the lessor under the

Master Lease as provided in ARTICLE 16 of the Master Lease.

 

      4.     RENT: Lessee shall, commencing on the Commencement Date and on the

first day of each calendar month thereafter, pay to Lessor as base rent (the

"BASE RENT") the sum of One Hundred Seven Thousand Three Hundred Thirty Six and

04/100 Dollars ($107,336.04) per month (One Million Two Hundred Eighty Eight

Thousand Thirty Two and 50/100 Dollars ($1,288,032.50) per annum). For the

 

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benefit of the lessor under the Master Lease, Lessor and Lessee confirm that the

Base Rent payable under this Lease equals or exceeds a reasonable share of the

minimum rent payable under the Master Lease.

 

      5.     PAYMENT OF RENT: Lessee shall pay the monthly installments of Base

Rent and all other sums due under this Lease to Lessor, without notice or

demand, and without deduction, abatement or setoff, on the first day of each

month during the Lease Term, at c/o Paragon Properties, 7202 East Carefree

Drive, Suite 200, Post Office Box 5061, Carefree, Arizona 85377, or at such

other place, or to such other person or persons as Lessor may designate in

writing. All sums due under this Lease shall be payable in current legal tender

of the United States of America. The extension of time for the payment of any

installment of Base Rent or any other sums due under this Lease, or the

acceptance by Lessor of any late payment, will not constitute the waiver of the

right of Lessor to insist on having all other payments due under this Lease made

in the manner and at the time herein specified.

 

      6.     LATE CHARGES: If any amount due to Lessor is not received in full by

Lessor on or before five (5) days after the date any such payment is due, then

Lessee shall pay to Lessor a late payment charge in the amount of five percent

(5%) of the delinquent payment. The parties acknowledge that the damages Lessor

will suffer in the event of late payments would be extremely difficult to

calculate and the parties agree that the foregoing late payment charge is a

reasonable estimate of Lessor's probable damages, and as such, constitutes a

reasonable charge for the expenses Lessor will suffer if Lessee fails to pay any

such sum when due, and is not a penalty. No payments need be accepted after such

five (5) day period unless accompanied by the late payment charge. This

provision shall not be construed to allow or permit Lessee to make payments

after the due date, or to waive any of Lessor's rights in connection with

delinquent payments.

 

      7.     ADDITIONAL RENT: In addition to Base Rent, all other amounts to be

paid by Lessee to Lessor pursuant to this Lease, if any, shall be deemed to be

Additional Rent (herein so called), whether or not designated as such and shall

be due and payable upon demand or together with the next succeeding installment

of Base Rent, whichever shall first occur. Lessor shall have the same remedies

for the failure to pay Additional Rent as for the nonpayment of Base Rent.

 

      8.     TAXES:

 

            (a) OCCUPANCY, SALES AND RENT TAXES: In addition to and together

with its payments of Base Rent and Additional Rent, Lessee shall pay to Lessor

any governmental taxes now or in the future imposed on Base Rent, Additional

Rent and other charges collected or paid pursuant to the terms of this Lease,

including, without limitation, state, county or local rental, occupancy, sales,

transaction privilege and excise taxes.

 

            (b) PERSONAL PROPERTY TAXES: Lessee shall pay to the appropriate

taxing authority, not later than ten (10) days prior to delinquency, all

personal property taxes assessed against any personal property of Lessee located

on or used in connection with the Premises.

 

            (c) REAL PROPERTY TAXES: Lessee shall pay all real property taxes

and assessments (including, but not limited to, water, irrigation project,

sewer, street, paving and other improvement lien assessments) against the

Premises commencing on the Commencement Date. Lessee shall arrange for the bill

for all real property taxes and assessments to be sent directly from the taxing

authorities to Lessee and Lessee shall pay all such real property taxes and

assessments to the appropriate taxing authorities prior to delinquency. Lessee

shall, promptly following Lessor's written request, provide to Lessor written

evidence

 

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of timely payment. Notwithstanding the provisions of this PARAGRAPH 8(c) to the

contrary, at any time following the occurrence of an Event of Default (as

defined in PARAGRAPH 24 below) with respect to any monetary obligation of Lessee

under this Lease, Lessor may, upon written notice to Lessee, require that Lessee

pay one-twelfth (1/12) of the estimated annual amount of such real estate taxes

and assessments to Lessor, together with and at the same time that each monthly

installment of Base Rent is due pursuant to PARAGRAPHS 4 AND 5 above. In such

event, Lessor shall notify Lessee of the most current tax assessment against the

Premises, together with Lessor's computation of the monthly amount of such tax

to be paid by Lessee. At the end of each full tax year during the Lease Term and

again at the expiration or termination of this Lease, Lessor and Lessee shall

calculate the actual tax paid or owing for the Premises, and Lessee shall be

credited or charged, as the case may be, for such adjustments as may be

necessary by reason of any difference between the actual amounts determined by

Lessor to have been paid or owing for the Premises (or the pro-rata portion of

such amount notwithstanding that payment to the taxing authority may not then be

due) and the amount of such taxes actually paid by Lessee to Lessor.

 

      9.     USE OF LEASED PREMISES: Lessee may occupy and use the Premises

throughout the Lease Term for such purposes and uses as may be permitted from

time to time under the Master Lease and for no other purpose. Lessee shall not

use or occupy or permit the Premises to be used or occupied, nor to do or permit

anything to be done in or on the Premises, in a manner which will in any way

make void or voidable any insurance then in force with respect thereto. Further,

Lessee shall not use or occupy the Premises, nor permit anything to be done in

or on the Premises which will constitute a public or private nuisance, or which

will violate the rights of adjoining landowners and Lessee shall not use or

occupy or permit the Premises to be used or occupied in any manner which will

violate any laws. Lessee shall fully comply with the Master Lease (except the

obligation to pay minimum rent under the Master Lease) and all covenants,

conditions and restrictions imposed upon the Land. Throughout the Lease Term,

Lessee, at its sole cost and expense, shall promptly remove any violation and

shall promptly comply with all present and future laws, ordinances, orders,

rules, regulations and requirements of all federal, state, and municipal

governments, courts, departments, commissions, boards, any national or local

Insurance Rating Bureau, or any other body exercising functions similar to those

of any of the foregoing, radical, foreseen or unforeseen, ordinary as well as

extraordinary, which may be related to the Premises, or any part thereof, or to

the use or manner of use of the Premises, or any part thereof, whether or not

the correction or removal so necessitated shall have been foreseen or unforeseen

or whether the same shall involve radical, extraordinary, or capital

construction or other disposition. Lessee shall not do or suffer any waste,

damage, disfigurement or injury to the Premises or any part thereof.

 

      10.    DISCONTINUANCE OF BUSINESS OPERATIONS: In the event the Master Lease

is terminated and Lessee is not occupying and conducing business in at least

forty percent (40%) of the Improvements or in the event the Base Rent payable

under this Lease does not yield to the lessor under the Master Lease the net

amount of minimum rent payable under the Master Lease (after considering the

expenses incurred by the Lessor under the Master Lease to hold, operate and

manage the Premises (if any)), then notwithstanding the non-disturbance

provisions of ARTICLE 16 of the Master Lease, the Lessor under the Master Lease

shall have the right to terminate this Lease at any time after the expiration of

the first nine (9) years of the Lease Term upon providing to Lessee one (1)

year's prior written notice and by paying to Lessee a termination payment equal

to one (1) year's Base Rent then payable as of the effective date of such

termination.

 

      11.    ALTERATIONS AND IMPROVEMENTS: Lessee shall have the right, at

Lessee's sole cost and expense, to make interior, non-structural alterations and

improvements to the Premises without the need to seek the prior written consent

of Lessor and, as required, by the Architectural Committee of the Board of

Papago Park Center's Owner's Association, as contained in the Declaration of

Covenants, Conditions and

 

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Restrictions for Papago Park Center (MCR 90-336258) (the "Declaration"). Any

exterior or structural alterations and improvements to the Premises shall

require the prior written consent of Lessor, which consent shall not be

unreasonably withheld, conditioned or delayed. It shall not be deemed

unreasonable for Lessor to withhold the requested consent if Lessor's lender

will not approve the proposed alterations/improvements; provided, however, that

Lessor agrees to cause Lessor's lender to agree in writing that Lessor's

lender's approval will not be unreasonably withheld, delayed or conditioned. If

Lessee wishes to make exterior or structural alterations or improvements to the

Premises, Lessee's request for consent shall be accompanied by plans and

specifications prepared by a licensed architect or a licensed structural

engineer. All improvements shall be made in a good, workmanlike and lien-free

manner, in compliance with the requirements of the Master Lease and all

applicable governmental regulations. All alterations, improvements, additions

and fixtures made or installed by Lessee shall remain upon the Premises at the

expiration or earlier termination of this Lease and shall become the property of

Lessor, unless Lessor shall, either prior to the expiration or termination of

this Lease, or within ten (10) days after the termination or expiration of this

Lease, give written notice to Lessee directing Lessee to remove the same or such

of the same as shall be specified by Lessor, and all damage occasioned in

connection with such removal shall be repaired by Lessee at its sole cost and

expense.

 

      12.    MAINTENANCE AND REPAIRS: Lessee, at its sole cost and expense, shall

maintain in good order and repair (making all necessary replacements, renewals,

and alterations, thereto) all portions of the Premises, interior and exterior,

glass, doors, signs, interior walls, ceilings, roof, parking areas, landscaping,

plumbing, heating, cooling, refrigeration (as to which heating and refrigeration

elements Lessee shall acquire and maintain during the term an HVAC maintenance

agreement with a licensed HVAC contractor for monthly changing of filters and

routine work, a copy of which contract shall be provided Lessor), electrical

systems, fixtures, plumbing systems and all other improvements now or hereafter

located on the Premises. Lessee hereby assumes the full and sole responsibility

for the condition, operation, repair, replacement, maintenance and management of

the Premises. Lessor and Lessee acknowledge and agree that prior to the

Commencement Date, Lessee caused the Improvements to be constructed on the land

and Lessee has been occupying the Premises since August 1, 1995. As such, Lessee

acknowledges, represents and warrants to Lessor that no representations,

inducements, understanding or anything of any nature whatsoever, made, stated or

represented by Lessor or anyone acting for or on Lessor's behalf, either orally

or in writing, have induced Lessee to enter into this Lease, and Lessee

acknowledges, represents and warrants that Lessee has entered into this Lease

under and by virtue of Lessee's own independent investigation. Lessee hereby

accepts the Premises in an "AS IS" and "WHERE IS" condition without warranty of

any kind, express or implied, including, without limitation, any warranty as to

title, physical condition or the presence or absence of Hazardous Materials, and

if the Premises are not in all respects entirely suitable for the use or uses to

which the Premises or any part thereof will be put, then it is the sole

responsibility and obligation of Lessee to take such action as may be necessary

to place the Premises in a condition entirely suitable for such use or uses. IN

CONNECTION WITH THE ABOVE, LESSEE HEREBY ACKNOWLEDGES AND REPRESENTS TO LESSOR,

THAT LESSEE CAUSED THE IMPROVEMENTS TO BE CONSTRUCTED ON THE LAND AND HAS

OCCUPIED THE IMPROVEMENTS SINCE AUGUST 1, 1995, LESSEE HAS HAD AMPLE OPPORTUNITY

TO INSPECT AND EVALUATE THE PREMISES AND THE FEASIBILITY OF THE USES AND

ACTIVITIES LESSEE IS ENTITLED TO CONDUCT THEREON; THAT LESSEE IS EXPERIENCED;

THAT LESSEE WILL RELY ENTIRELY ON LESSEE'S EXPERIENCE, EXPERTISE AND ITS OWN

INSPECTION OF THE PREMISES IN ITS CURRENT STATE IN PROCEEDING WITH THIS LEASE;

THAT LESSEE ACCEPTS THE PREMISES IN ITS PRESENT CONDITION, AND THAT, TO THE

EXTENT THAT LESSEE'S OWN EXPERIENCE WITH RESPECT TO ANY OF THE FOREGOING IS

INSUFFICIENT TO

 

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ENABLE LESSEE TO REACH AND FORM A CONCLUSION, LESSEE HAS ENGAGED THE SERVICES OF

PERSONS QUALIFIED TO ADVISE LESSEE WITH RESPECT TO SUCH MATTERS. LESSEE IS NOT

RELYING ON ANY EXPRESS OR IMPLIED, ORAL OR WRITTEN REPRESENTATIONS, OR

WARRANTIES MADE BY LESSOR OR ITS REPRESENTATIVES, OTHER THAN THOSE EXPRESSLY SET

FORTH IN THIS LEASE.

 

                                                         _______________________

                                                          Lessee's Initials

 

      13.    ACCESS: Lessor and its authorized representatives shall have, at all

reasonable times, upon not less than forty-eight (48) hours advance notice

(except in the event of an emergency, in which event only such notice as may be

reasonable under the circumstances shall be required), the right to enter the

Premises to inspect the same.

 

      14.    INDEMNIFICATION AND INSURANCE:

 

            (a)    INDEMNIFICATION AND WAIVER

 

                  (i)    INDEMNITY: To the fullest extent permitted by law, from

and after the Commencement Date, Lessee shall, at Lessee's sole cost and

expense, Indemnify Lessor Parties against all Claims arising from (i) any

Personal Injury, Bodily Injury or Property Damage whatsoever occurring in or at

the Premises; (ii) any Bodily Injury to an employee of a Lessee Party arising

out of and in the course of employment of the employee and occurring anywhere in

the Property; (iii) the use or occupancy, or manner of use or occupancy, or

conduct or management of the Premises or of any business therein; (iv) subject

to the waiver of subrogation provisions of this Lease, any act, error, omission

or negligence of any of the Lessee Parties in, on or about the Premises or the

Property; (v) the conduct of Lessee's business; (vi) any alterations,

activities, work or things done, omitted, permitted or allowed by Lessee Parties

in, at or about the Premises or Property, including the violation of or failure

to comply with, or the alleged violation of or alleged failure to comply with

any applicable laws, statutes, ordinances, standards, rules, regulations,

orders, or judgments in existence on the date of the Lease or enacted,

promulgated or issued after the date of this Lease including Hazardous Materials

Laws (defined below); (vii) any breach or default by Lessee in the full and

prompt payment of any amount due under this Lease, any breach, violation or

nonperformance of any term, condition, covenant or other obligation of Lessee

under this Lease, or any misrepresentation made by Lessee or any guarantor of

Lessee's obligations in connection with this Lease; (viii) all damages sustained

by Lessor as a result of any holdover by Lessee or any Lessee Party in the

Premises including, but not limited to, any claims by another tenant resulting

from a delay by Lessor in delivering possession of the Premises to such tenant;

(ix) any liens or encumbrances arising out of any work performed or materials

furnished by or for Lessee; or (x) any matter enumerated in PARAGRAPH 14(a)(ii)

below.

 

                  (ii)   WAIVERS: To the fullest extent permitted by law, from

and after the execution of this Lease by Lessor and Lessee, Lessee, on behalf of

all Lessee Parties, Waives all Claims against Lessor Parties arising from the

following: (i) any Personal Injury, Bodily Injury, or Property Damage occurring

in or at the Premises; (ii) any loss of or damage to property of a Lessee Party

located in the Premises or other part of the Premises by theft or otherwise;

(iii) any Personal Injury, Bodily Injury, or Property Damage to any Lessee Party

caused by other tenants of the Premises, parties not occupying space in the

Property, occupants of property adjacent to the Premises, or the public or by

the construction of any private, public, or quasi-public work occurring either

in the Premises or elsewhere in the Premises; (iv) any

 

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interruption or stoppage of any utility service or for any damage to persons or

property resulting from such stoppage; (v) business interruption or loss of use

of the Premises suffered by Lessee; (vi) any latent defect in construction of

the Improvements; (vii) damages or injuries or interference with Lessee's

business, loss of occupancy or quiet enjoyment and any other loss resulting from

the exercise by Lessor of any right or the performance by Lessor of Lessor's

maintenance or other obligations under this Lease, or (viii) any Bodily Injury

to an employee of a Lessee Party arising out of and in the course of employment

of the employee and occurring anywhere in the Premises.

 

                  (iii) DEFINITIONS: For purposes of this PARAGRAPH 14: (i) the

term "LESSEE PARTIES" means Lessee, any assignee or sublessee of Lessee and

their respective officers, directors, shareholders, members, partners,

affiliates, board members, staff, employees, members, agents, principals,

independent contractors, attorneys, accountants and representatives of the

referenced person and the predecessors, heirs, successors and assigns of any

such person (collectively, "REPRESENTATIVES"), and all persons and entities

claiming through any of these persons or entities; (ii) the term "LESSOR

PARTIES" means Lessor, Lessor's Representatives, the lessor under the Master

Lease, the fee owner of the Land and all persons and entities claiming through

any of these persons or entities; (iii) the term "INDEMNIFY" means indemnify,

defend (with counsel reasonably acceptable to Lessor) and hold free and harmless

for, from and against; (iv) the term "CLAIMS" means all liabilities, claims,

damages (including consequential damages), losses, penalties, litigation,

demands, causes of action (whether in tort or contract, in law or at equity or

otherwise), suits, proceedings, judgments, disbursements, charges, assessments,

and expenses (including attorneys' and experts' fees and expenses incurred in

investigating, defending, or prosecuting any litigation, claim, or proceeding);

(v) the term "WAIVES" means that the Lessee Parties waive and knowingly and

voluntarily assume the risk of; and (vi) the terms "BODILY INJURY", "PERSONAL

INJURY" and "PROPERTY DAMAGE" will have the same meanings as in the form of

commercial general insurance policy issued by Insurance Services Office, Inc.

most recently prior to the date of the injury or loss in question.

 

                  (iv)   SCOPE OF INDEMNITIES AND WAIVERS: It is the intent of

Lessor and Lessee that the indemnities and waivers contained in this PARAGRAPH

14 shall apply regardless of the active or passive negligence or sole, joint,

concurrent, or comparative negligence of any of the Lessor Parties, and

regardless of whether liability without fault or strict liability is imposed or

sought to be imposed on any of the Lessor Parties. The indemnities and waivers

contained in this PARAGRAPH 14 shall apply even if a Claim against a Lessor

Party was proximately caused by the negligence of that Lessor Party, but only to

the extent of insurance (or self insurance) maintained (or required to be

maintained) by Lessee under this Lease.

 

                   (v)    DUTY TO DEFEND: Lessee's duty to defend Lessor Parties

is separate and independent of Lessee's duty to Indemnify Lessor Parties.

Lessee's duty to defend includes Claims for which Lessor Parties may be liable

without fault or may be strictly liable. Lessee's duty to defend applies

regardless of whether issues of negligence, liability, fault, default or other

obligation on the part of Lessee Parties have been determined. Lessee's duty to

defend applies immediately, regardless of whether Lessor Parties have paid any

sums or incurred any detriment arising out of or relating, directly or

indirectly, to any Claims. It is the express intention of Lessor and Lessee that

Lessor Parties will be entitled to obtain summary adjudication regarding

Lessee's duty to defend Lessor Parties at any stage of any Claim within the

scope of this PARAGRAPH 14.

 

                  (vi)   OBLIGATIONS INDEPENDENT OF INSURANCE: The

indemnification provided in this PARAGRAPH 14 shall not be construed or

interpreted as in any way restricting, limiting or modifying Lessee's insurance

or other obligations under this Lease, and the provisions of this PARAGRAPH 14

are independent of Lessee's insurance and other obligations. Lessee's compliance

with the insurance

 

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requirements and other obligations under this Lease does not in any way

restrict, limit or modify Lessee's indemnification obligations under this Lease.

 

                  (vii) SURVIVAL: The provisions of this PARAGRAPH 14 will

survive the expiration or earlier termination of this Lease until all Claims

against Lessor Parties involving any of the indemnified or waived matters are

fully and finally barred by the applicable statutes of limitations.

 

            (b)    WAIVER OF SUBROGATION: Lessor and Lessee each hereby waive any

rights one may have against the other and their respective Representatives, on

account of any loss or damage occasioned to Lessor or Lessee, as the case may

be, or their respective property, the Premises, or its contents arising from any

risk generally covered by a policy of "CAUSES OF LOSS - SPECIAL FORM" property

insurance and from any risk covered by any policy of property insurance (or self

insurance) then in effect. In addition, Lessor and Lessee, for themselves and on

behalf of their respective insurance companies, waive any right of subrogation

that any such insurance company may have against Lessor, Lessor's lender or

Lessee, and their respective Representatives as the case may be. It is the

intent of the parties that with respect to any loss from a named peril required

to be covered under a policy of property insurance, the parties shall look

solely to their respective insurance company for recovery. The foregoing waivers

of subrogation shall be operative only so long as available in the State of

Arizona and provided further that no policy of insurance is invalidated thereby.

 

            (c)    LESSEE'S INSURANCE: From and after the Commencement Date,

Lessee shall carry, at Lessee's sole cost and expense, the following types of

insurance, in the amounts specified or in such higher amounts as may be

reasonably requested by Lessor and which are customary in the Phoenix, Arizona

metropolitan area.

 

                  (i)    Commercial general liability insurance for personal

injury, bodily injury (including wrongful death) and damage to property with a

combined single limit of not less than Five Million and No/100 Dollars

($5,000,000.00), per occurrence, Five Million and No/100 Dollars

($5,000,000.00), annual aggregate, insuring against any and all liability of the

insured with respect to the Premises, or arising out of the maintenance, use or

occupancy thereof, including Premises operations, products and completed

operations and owned, hired and non-owned automobiles, utilizing ISO policy form

CG 0001, or its equivalent. The commercial general liability insurance policy

shall contain a contractual liability endorsement specifically deleting the

contractual liability exclusion for Personal Injury. The policy required

pursuant to the provisions of this PARAGRAPH 14(c)(i) shall not have a

deductible in excess of Ten Thousand and No/100 Dollars ($10,000.00).

 

                  (ii)   A policy or policies of workers' compensation insurance

with an insurance carrier and in amounts approved by the Industrial Commission

of the State of Arizona and a policy of employer's liability insurance with

limits of liability not less than One Million and No/100 Dollars

($1,000,000.00), each accident; One Million and No/100 Dollars ($1,000,000.00),

disease policy limit; and One Million and No/100 Dollars ($1,000,000.00),

disease each employee. Both such policies shall contain waivers of subrogation

in favor of Lessor.

 

                  (iii) "CAUSES OF LOSS-SPECIAL FORM" property insurance,

including coverage for flood, terrorism, sprinkler leakage, vandalism and

malicious mischief covering the entire Premises (Land and Improvements),

including all of Lessee's leasehold improvements, alterations, additions or

improvements made pursuant to PARAGRAPHS 10 AND 11, removable personal property

from time to time in, on or upon the Premises, in an amount not less than one

hundred percent (100%) of the full replacement cost

 

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of the Premises without depreciation, together with insurance against sprinkler

damage, vandalism and malicious mischief, as well as the following endorsements:

boiler and machinery, difference in conditions, business income and extra

expense (with extended period of indemnity), service interruption and building

ordinance or law and against such other risks or hazards and in such amounts as

the Lessor shall reasonably require. 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 PARAGRAPH 16. The policy

required pursuant to this PARAGRAPH 14(c)(iii) shall not have a deductible in

excess of Twenty Five Thousand and No/100 Dollars ($25,000.00).

 

                   (iv)   If all or any portion of the Premises is used for the

sale of alcoholic beverages (whether for on premises or off premises

consumption), the policy of commercial general liability insurance required

pursuant to clause (i) above shall include coverage for employer's liability,

host liquor liability, liquor liability and so-called "DRAM SHOP" liability

coverage with a combined single limit of not less than Five Million and No/100

Dollars ($5,000,000.00), per occurrence.

 

                  (v)    Appropriate insurance coverage insuring Lessor and

Lessee against any and all liability with respect to the release, transportation

and/or use by Lessee, any sublessee or assignee of Lessee and/or their

respective agents, servants, contractors or employees of Hazardous Materials

during the Lease Term and for such additional periods of time within which

Lessor or Lessee may be liable with respect to Hazardous Materials (as defined

in PARAGRAPH 50 below) under applicable Hazardous Materials Laws (as defined in

PARAGRAPH 50 below). Such insurance shall be carried in amounts, in a form and

from carriers as Lessor shall reasonably approve and shall name Lessor as an

additional insured.

 

                  (vi)   During the course of construction of any Improvements on

the Land, Lessee shall procure and maintain in full force and effect "CAUSES OF

LOSS - SPECIAL FORM" builder's risk insurance, including coverage for vandalism

and malicious mischief satisfying the requirements of PARAGRAPH 14(d)(iii)

above. The policies of builder's risk insurance shall cover Improvements in

place and all material and equipment at the job site furnished under contract,

but may exclude contractors', subcontractors' and construction manager's tools

and equipment and property owned by contractors' or subcontractors' employees.

 

All policies of insurance to be procured by Lessee shall be issued by insurance

companies having a claims paying rating ability of not less than NAIC 1 as

established by the Securities Valuation Office of the National Association of

Insurance Commissioners (or an equivalent Standard & Poors, Moody's or Duff &

Phelps rating), qualified to do business in the State of Arizona. All property

policies shall be issued in the name of Lessee, and shall name Lessor as a "LOSS

PAYEE". All liability policies obtained by Lessee shall name Lessor, any lender

to Lessor, the lessor under the Master Lease and the fee owner of the Land as

additional insureds. In addition, Lessee's liability insurance policies shall be

endorsed as needed to provide cross-liability coverage for Lessee, Lessor, any

lender of Lessor, the lessor under the Master Lease and the fee owner of the

Land and shall provide for severability of interests. Evidence of insurance

meeting the requirements of Acord Form No. 27 (March 1993) or such other

evidence as may be reasonably acceptable to Lessor and evidence of required

additional insured endorsements on ISO Form CG 20-26 (collectively referred to

in this PARAGRAPH 14(c) as "CERTIFICATES") shall be delivered to Lessor within

ten (10) days after the Commencement Date and thereafter, executed copies of

renewal policies or Certificates thereof shall be delivered to Lessor within

thirty (30) days prior to the expiration of the term of each such policy. All

commercial general liability insurance policies shall contain a provision that

Lessor, although named as an additional insured, shall nevertheless be entitled

to recovery under the policy for any loss occasioned to

 

                                       8

<PAGE>

 

Lessor and its Representatives by reason of the negligence of Lessee. As often

as any such policy shall expire or terminate, renewal or additional policies

shall be procured and maintained by Lessee in like manner and to like extent.

All policies of insurance delivered to Lessor must contain a provision that the

company writing the policy will give Lessor twenty (20) days notice in writing

in advance of any cancellation or lapse or the effective date of any material

change in the policy, including any reduction in the amounts of insurance. All

commercial general liability, property damage and other casualty policies shall

be written as primary policies and shall provide that any insurance which Lessor

may carry is strictly excess, secondary and non-contributing with any insurance

carried by Lessee. The insurance requirements contained in this PARAGRAPH 14 are

independent of Lessee's waiver, indemnification and other obligations under this

Lease and shall not be construed or interpreted in any way to restrict, limit or

modify Lessee's waiver, indemnification or other obligations or to in any way

limit Lessee's obligations under this Lease.

 

            (d)    SELF INSURANCE: Lessee shall have the right to self-insure for

the liability insurance and the property insurance required by this PARAGRAPH

14, subject to the requirements of this PARAGRAPH 14(d):

 

                  (i)    For purposes of this PARAGRAPH 14(d), "SELF-INSURANCE"

shall mean that Lessee is itself acting as though it were the insurance company

providing the insurance required under the provisions of this PARAGRAPH 14 and

Lessee shall pay any amounts due in lieu of insurance proceeds as required under

the provisions of this Lease, which amounts shall be treated as insurance

proceeds for all purposes under this Lease.

 

                  (ii)   All amounts which Lessee pays or is required to pay and

all losses or damages resulting from risks for which Lessee has elected to

self-insure shall be subject to the waiver of subrogation provisions in

PARAGRAPH 14(b) above and shall not limit Lessee's indemnification obligations

set forth in PARAGRAPH 14(a) above.

 

                  (iii) Lessee's right to self-insure and to continue to

self-insure is conditioned upon and subject to:

 

                        (a)    The Lessee having a tangible net worth, calculated

            in accordance with generally accepted accounting principles,

            consistently applied, of at least Three Hundred Million Dollars

            ($300,000,000.00) and net current assets, calculated in accordance

            with generally accepted accounting principles, consistently applied,

            of at least Seventy Five Million and No/100 Dollars

            ($75,000,000.00); and

 

                        (b)    Upon Lessor's written request, the Lessee

            providing the most recently available audited financial statement,

            prepared in accordance with generally accepted accounting

            principles, consistently applied, to Lessor on or before the date

            which is thirty (30) days prior to the upcoming annual anniversary

            of