SECOND AMENDMENT TO MODIFIED
INDUSTRIAL GROSS LEASE
THIS SECOND
AMENDMENT TO MODIFIED INDUSTRIAL GROSS LEASE (this “Second
Amendment”) is made as of June 26, 2009, by and between
DOOLITTLE WILLIAMS, LLC, a California limited liability company
(“Landlord”), and ENERGY RECOVERY, INC., a Delaware
corporation (“Tenant”).
A. Landlord
and Tenant entered into that certain Modified Industrial Gross
Lease dated as of November 25, 2008 (the “Original
Lease”), relating to certain premises described in the
Lease.
B. Landlord
and Tenant subsequently entered into that certain First Amendment
to Modified Industrial Gross Lease dated as of May 28, 2009
(the “First Amendment”). The Original Lease as amended
by the First Amendment is referred to herein collectively as the
“Lease”.
C. Landlord
and Tenant now desire to further amend the Lease to, among other
things, add additional space to the leased Premises, all as more
fully set forth below.
D. All
capitalized terms used in this Second Amendment shall have the
respective meanings given to them in the Lease unless otherwise
defined herein.
NOW, THEREFORE, in
consideration of the premises and the mutual covenants herein
contained and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereby
amend the Lease on the terms hereof effective as of the date
hereof, notwithstanding anything to the contrary contained
therein:
1. Expansion
of Warehouse Premises.
(a) The
increment of space in the Warehouse located at 2250 Williams
Street, San Leandro, California which is adjacent to the existing
Warehouse Premises and which is labeled “Expansion
Space” on the attached Exhibit 2, consisting of
approximately 45,000 rentable square feet, shall be defined and
referred to herein as the “Expansion Space” and shall
be added to the Premises covered by the Lease on the terms and
conditions set forth herein. Landlord and Tenant agree that for the
purpose of the Lease, as amended by this Second Amendment, the
Expansion Space shall be conclusively deemed to contain 46,250
square feet.
(b) As
used herein, the “Expansion Commencement Date” shall
mean the date on which Landlord tenders possession of the Expansion
Space to Tenant following the vacating of the Expansion Space by
the existing tenant, Portfolio Productions, Inc., a California
corporation, dba Sitcom (“Sitcom”) and otherwise in the
condition required by this Second Amendment. Landlord estimates
that the Expansion Commencement Date will occur on August 1,
2009 (the “Estimated Expansion Date”); provided,
however, that if Landlord is unable to
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tender
possession of the Expansion Space to Tenant in the condition
required by Section l(d) of this Second Amendment by the Estimated
Expansion Date, then: (i) the validity of this Second
Amendment shall not be affected or impaired thereby;
(ii) Landlord shall not be in default hereunder or be liable
for damages therefor; and (iii) Tenant shall accept possession of
the Expansion Space on the date when Landlord tenders possession
thereof to Tenant in the condition required by Section l(d) of this
Second Amendment. The term of the lease of the Expansion Space
shall begin on the Expansion Commencement Date and shall be
coterminous with the Term as defined in Sections 1 and 3.02 of
the Lease (i.e. ten (10) years from the Commencement Date, as
that term is defined in the Lease and amended by Section 7
below of this Second Amendment).
(c) As
of the Expansion Commencement Date, the definition of
“Warehouse Premises” in the Defined Terms of the Lease
shall be modified to provide that the “Warehouse
Premises” contains a total of 63,750 rentable square feet
consisting of the 17,500 rentable square feet in the originally
demised Warehouse Premises (referred to in this Second Amendment as
the “Original Warehouse Premises”) and the Expansion
Space consisting of 46,250 rentable square feet; provided, however,
that in the event the Expansion Commencement Date should occur
earlier than the Commencement Date for the rest of the Premises,
then the term “Warehouse Premises” as used in the Lease
as amended by this Second Amendment shall apply to the Expansion
Space only prior to the occurrence of the Commencement Date. The
Expansion Space shall remain a portion of the “Warehouse
Premises” throughout the Term of the Lease (including any
exercised Renewal Terms).
(d) Tenant
shall accept the Expansion Space in its “AS IS” state
and condition and Landlord shall have no obligation to make or pay
for any improvements or renovations in or to the Expansion Space or
to otherwise prepare the Expansion Space for Tenant’s
occupancy except that Landlord shall, at Landlord’s sole cost
and expense, prior to the Expansion Commencement Date, remove
Sitcom’s racks from the Expansion Space and repair any damage
caused by the rack removal or the vacating of the Expansion Space
by Sitcom.
2. Demising
Wall; Alterations; Restoration; Letter of Credit;
Permits.
(a) All
costs associated with the improvement and alteration of the
Expansion Space (collectively, the “Expansion Space
Alterations”) shall be borne solely by Tenant. Such Expansion
Space Alterations expressly include (i) the installation of a
demising wall (the “Demising Wall”) to separate the
Expansion Space from the remainder of the Warehouse that will
remain occupied by Sitcom (the “Sitcom Remainder
Space”) and (ii) any required seismic upgrades of the
Warehouse (the “Seismic Upgrade Work”). All Expansion
Space Alterations shall be performed in compliance with the terms
of Sections 8.02 and 7.05 of the Lease.
(b) Tenant
shall engage Engineered Construction Services Corporation
(“ECS”) as the construction manager for the Expansion
Space Alterations, including without limitation the construction of
the Demising Wall. Tenant shall obtain an estimate of ECS’s
fees for the construction management services to be provided in
conjunction with the Expansion Space Alterations, following which
Tenant shall contract directly with ECS for such work.
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(c) The
Demising Wall shall be erected between the Expansion Space and the
Sitcom Remainder Space with minimal disruption to Sitcom’s
use of and access to its premises, including minimizing all dust
and noise impacting the Sitcom Remainder Space. Further, Tenant
shall provide appropriate security for Sitcom’s warehouse
inventory located in the Sitcom Remainder Space throughout the
process of construction of the Demising Wall. Provided that Tenant
manages the process of construction of the Demising Wall in a
commercially reasonable manner, Tenant shall not be liable to
Sitcom or otherwise for payment of any claims asserted by Sitcom
for business interruption resulting from performance of any of the
Expansion Space Alterations, including the Demising Wall
construction and the Seismic Upgrade Work.
(d) Landlord
acknowledges and agrees that Tenant shall be permitted to perform,
subject to compliance with Sections 8.02 and 7.05 of the
Lease, the following alterations to the Expansion Space as part of
the Expansion Space Alterations:
(i) increase
the roof height of the Warehouse in a partial section over an area
of the Expansion Space that will house a large spray
dryer;
(ii) dig
an open trench pit for an iso-static press;
(iii) dig
an approximately 150-foot trench, approximately 12-20 inches deep,
for a kiln transfer car system;
(iv) build
a heat-resistant room for kiln exhaust equipment;
(v) modify
the roof structure to accommodate HVAC systems;
(vi) add
additional gas capacity up to 36 million BTU per
hour;
(vii) upgrade
the electrical system to accommodate multiple pieces of
machinery;
(viii) install
a dust collection system;
(ix) add
a water tank/berm system (transferred to the Expansion Space from
phase 1 construction in the original Warehouse
Premises);
(x) modify
the plumbing system as required;
(xi) perform
concrete floor work as required;
(xii) add
bathroom and office space as needed to accommodate staff needs;
and
(xiii) perform
such other work as may be required to adapt the Expansion Space to
Tenant’s industrial needs.
(e) Consistent
with the terms of Section 8.02 of the Lease, Tenant shall be
obligated to restore the Expansion Space to its original condition
existing prior to performance of
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the Expansion
Space Alterations, including removal of the concrete block portion
of the Demising Wall; provided, however, that Tenant’s
obligations under Section 8.02 with respect to the Expansion
Space expressly exclude the obligations (i) to return the roof
to its original height, (ii) to remove or undo any Seismic
Upgrade Work and (iii) to remove the parking corridor (as set
forth in Section 10.06) along the north wall (as shown on the
attached Exhibit 2). Notwithstanding the foregoing, Landlord
shall have the option, by not less than twelve
(12) months’ notice to Tenant, to authorize Tenant to
leave some or all of the Expansion Space Alterations in place upon
surrender of the Expansion Space at the end of the Term.
(f) If,
upon the date that is twelve (12) months before the expiration
of the Term, Tenant’s cash assets on hand as reported by its
most recent Form 10Q, is less than Three Million Dollars
($3,000,000) or upon an uncured material financial default by
Tenant (including without limitation Tenant’s failure to pay
rent when due following receipt of any applicable notice required
by the Lease), Landlord shall require Tenant to deliver to Landlord
an irrevocable standby letter of credit in an amount equal to
$250,000.00 (the “Letter of Credit”) to secure
Tenant’s obligations to restore the Premises as required by
Section 8.02 of the Lease and the foregoing Section 2(e) of
this Second Amendment, which Letter of Credit shall (1) be
addressed to Landlord, (2) be in a form reasonably
satisfactory to Landlord (3) be issued by a federally insured
financial institution with minimum assets of Ten Billion Dollars
($10,000,000,000.00) (the “Minimum Assets”), upon which
presentment may be made in a local office of the financial
institution, (4) allow for partial and multiple draws
thereunder, and (5) have an expiration date not earlier than
thirty (30) days after the scheduled Term expiration date (as
the same may be extended) or in the alternative, have a term of not
less than one (1) year. In addition, the Letter of Credit
shall provide that, in the event of Landlord’s assignment of
its interest in the Lease, the Letter of Credit shall be freely
transferable by Landlord to the assignee without charge to Landlord
or approval of the issuer. The Letter of Credit shall provide for
same day or next business day payment to Landlord upon the
issuer’s receipt of a sight draft from Landlord together with
Landlord’s certificate signed by two officers or managers
certifying that the requested sum is due and payable from Tenant
and Tenant has failed to pay, and with no other
conditions.
The
Letter of Credit shall be replaced by a new Letter of Credit if the
issuing financial institution: (i) has assets which fall below
the Minimum Assets; (ii) enters into any form of regulatory or
governmental proceeding, including without limitation any
receivership instituted or commenced by the Federal Deposit
Insurance Corporation (the “FDIC”); (iii) is
otherwise declared insolvent, is downgraded by the FDIC, is
determined to be less than well capitalized by the appropriate
Federal banking agency under the prompt corrective action rules of
the FDIC, or closes for any reason; or (iv) in any manner
communicates (including without limitation communications sent by
or on behalf of the FDIC) its unwillingness to honor the terms of
the Letter of Credit. If Tenant fails to deliver to Landlord the
replacement Letter of Credit within fifty (50) days following
Landlord’s written demand for same, Landlord shall be
entitled to draw down the entire Letter of Credit and, until Tenant
delivers to Landlord the replacement Letter of Credit as required
by this paragraph, hold the drawn cash as a security deposit (which
need not be segregated from Landlord’s other funds and which
shall not accrue interest for Tenant’s benefit, in each case
unless otherwise required by applicable law).
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In
the event that Tenant is in default under the terms and provisions
of the Lease with respect to Tenant’s restoration
obligations, Landlord shall have the right, at any time after such
default, without giving any further notice to Tenant: (1) to
make a partial draw upon said Letter of Credit in an amount
necessary to cure such default or (2) to draw down the entire
amount of such Letter of Credit at such time, and any such amounts
received by Landlord shall be held by Landlord (and need not be
segregated or accrue interest unless otherwise required by
applicable law) and shall be applied in accordance with the terms
of the Lease as amended hereby in the same manner as a security
deposit to cure Tenant’s default.
To
the extent that Landlord has not previously drawn upon the Letter
of Credit, and to the extent that Tenant is not otherwise in
default of its restoration obligations under the Lea
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