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HomeMy WebLinkAbout2004-08-03; City Council; 17740; Ground Lease Agreement Callaway Golfa w 13c a a U 6 .. z 0 F 0 A 0 z 3 0 0 a - AB# 17,740 MTG. 8-03-04 DEPT. ED TITLE: DEPT. HD. APPROVAL OF A GROUND LEASE AGREEMENT BETWEEN THE CITY OF CARLSBAD AND CALLAWAY CITY ATTY. GOLF COhIPANY FOR A PORTION OF APN 212-082-04,212- 082-05, AND 212-082-06 CITY MGR RECOMMENDED ACTION: ADOPT Resolution No. 2004-260 . approving ten (1 0) year ground lease agreement for a portion of APN 2 12-082-04,05, 24 00. consisting of approximately .84 acres, for the term August 1, 2004 to July 3 1, 20 14, with Callau ay Go1 f Company, and authorizing the Mayor to execute all documents. ITEM EXP LAN AT10 N : The City of Carlsbad is the owner of real property identified as CT 81-46, which consists of approximately 140 acres of raw land, which was previously identified as a part of Carlsbad Airport Centre industrial development. Although the land is currently undeveloped, the City has plans to construct an 1 8-hole golf course over most of the property. In 2000 Callaway Golf Company contacted the City to explore opportunities for lengthening the western portion of their test range on Dryden Place, to accommodate technology improvements in their products that effectively rendered the test range too short for testing. Callaway explored various expansion scenarios including use of a portion of the City owned property. Their evaluation included evaluation of the existing go1 f coiirse plans. environmental constraints, various possible grading and improvement scenarios, and costs. Callaway shared their findings with City staff and asked if the City would consider a leasc 01- sale of the property for expansion purposes. In order to evaluate potential impacts to the golf course project, Callaway hired P&D Consultants, who are also the City’s consultants for the golf course project. The conclusion of P&D was that westerly expansion of Callaway’s test range was feasible and would have little, if any, impact on the City’s ability to construct its golf course. Prior to staff bringing Callaway’s request for a lease or purchase to the City Council for consideration, staff requested and obtained a letter from both the U.S. Fish and Wildlife Services and the California Department of Fish and Game, concurring that Callaway’s proposal for expansion of the test facility over a .84 acre portion of the City’s property met the “Equivalency Findings” in the City’s Habitat Management Plan. Staff met with the City Council to discuss the leaselsale request and negotiations, and was instructed to draft a ground lease agreement with Callaway, which would prohibit any construction activities for the test range expansion until all permits Iia\.e becn obtained, and clearing and grubbing has begun on the municipal golf course project. The Planning Director has determined that leasing activities are exempt from the California Environmental Quality Act, pursuant to Section 15301 of the CEQA Guidelines. Section 15301 exempts projects or activities that consist of leasing of existing public facilities. However, additional environmental review of Callaway’s test range project is being processed concurrent with approval of the ground lease agreement, as part of the required Planned Industrial Permit process. \ PAGE 2 OF AGENDA BILL NO. 17,740 FISCAL IMPACT: The term of the lease is ten (10) years with an option to extend the original term for two (2) additional periods of five (5) years. The lease rate will be $1583 per month, with an annual adjustment of 3.5%. The lease rate was established based on an appraisal of the property and review of capitalization rates for ground leases for other public agencies. The first year revenue to the City will be $18,996.00. The ten year cumulative reveii~ie gencrated from the ground lease is approximately $222,801 .00. EXHIBITS: 2004- 1. Resolution No. 260 ten-year groundlease agreement for the term August 1, 2004 to July 3 1, 2014. of the City Council of the City of Carlsbad, California, approving a 2. Lease Agreement between the City of Carlsbad and Callaway Golf Company. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 RESOLUTION NO. 2004-260 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, APPROVING A TEN YEAR LEASE AGREEMENT AND AUTHORIZING THE MAYOR TO EXECUTE THE LEASE DOCUMENT WHEREAS, the City Council of the City of Carlsbad has determined that it is in the best interest of the City to enter into a ground lease for approximately .84 acres over a portion of APN 2 12-082-04, 05, & 06, with the Callaway Golf Company; and WHEREAS, the City Council is satisfied that the long-term lease arrangement will not negatiL ely impact the City’s plans for construction of the municipal golf course project; and WHEREAS, Callaway Golf Company has agreed to the terms and conditions of the ground lease. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California as follows: 1. 2. That the above recitations are true and correct. That the attached lease agreement, Exhibit 2, between the City of Carlsbad and Cal laway Go1 f Company is approved. That the Mayor is authorized to execute all documents related to leasing of a portion of APN 21 2-082-04, 05, & 06. 3. Ill Ill Ill Ill Ill Ill Ill Ill Ill 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PASSED. APPROVED. ANI1 AIIOPTED at a regular meeting of the City Council on the 3rd day Of Auaust 2004. by the following vote to wit: AYES: Council Members Lewis, Finnila, Kulchin, Hall NOES: None ABSENT: None City Clerk (SEAL) -2- 0 R I GINkI CITY OF CARLSBAD GROUND LEASE TO CALLAWAY GOLF COMPANY OF PROPERTY LOCATED ON A PORTION OF LOTS 68 & 69 OF CT NO. 81-46, UNIT NO. 3 CARLSBAD, CALIFORNIA, 92008 FOR TEN (IO) YEARS, ZERO (0) MONTHS COMMENCING AUGUST 1,2004 AND ENDING JULY 31, 2014 LEASE I, Basic Provisions (“Basic Provisions”) Parties: This Lease (“Lease”), dated for reference purposes only August 1, 2004 is made by and between The Citv of Carlsbad (“Lessor”) and Callaway Golf Company (“Lessee”), (collectively the “Parties”, or individually a “Party”). 1 .I 1.2 Premises: That certain real property, consisting of approximatelv .84 acres of Planned Industrial zoned property, located in the Citv of Carlsbad, County of San Dieqo. State of California, and qenerallv described as “ a portion of lots 68 and 69 of Carlsbad Tract No. 81-46, Unit 3.“ A leqal description of the premises, includinq any appurtenances, is included in Exhibit “A” attached to this lease. 1.3 Provision for Survey: Callaway Golf Company shall promptly cause a licensed surveyor or civil engineer to conduct an on-the-ground survey of the premises, to prepare from the survey a legal description satisfactory to the Lessor and any title company insuring the Lessor’s title, and to prepare a plot plan showing the location of any streets, easements, and rights of way over or in favor of the premises, and shall then promptly submit the plot plan and legal description to Lessor, to be attached to this lease as Exhibit B. 1.4 Term: Ten (IO) years and 0 months (“Original Term”) commencing Ausust 1, 2004 (“Commencement Date”) and ending Julv 31, 2014 (“Expiration Date”). 1.5 Option to Extend: Lessee and Lessor, if mutually agreed, may extend the original term of this lease for two (2) additional periods of five (5) years, subject to all provisions of this lease, including the provisions for adjustments to and variations in rent. Failure to exercise the option for any period shall nullify the option for all subsequent periods. Lessee shall be required to give Lessor written notice of its intent to extend the lease a not less than 180 days prior to the Expiration Date of the Term. After the exercise of any option to extend, all references in this lease shall be considered to mean the term as extended, and all references to termination or to the end of the term shall be considered to mean the termination or end of the term as extended. Lessee’s right to the option is subject to: 1. The following conditions precedent: a. The lease shall be in effect at the time notice of exercise is given and on the last day of the term. b. Lessee shall not be in default under any provision of this lease at the time notice of exercise is given or on the last day of the term or at anytime during the term. 2. Compliance with the following procedure for exercising the option: a. At least 180 days before the last day of the term, Lessee shall give Lessor written notice of irrevocably exercising the option. b. At least 90 days before the last day of the term, after receiving a notice from Lessee to exercise the option, Lessor shall approve or disapprove exercising of the option in writing to Lessee. c. In lieu of executing a new lease, each party shall, at the request of the other, execute a memorandum, in recordable form, acknowledging the fact that the option has been exercised and otherwise complying with the requirements of law for an effective memorandum or abstract of lease. InitiatsW PAGE 1 1.6 Base Rent: $1583.00 per month (“Base Rent”), payable on the first day of each month commencing August 1,2004 1.7 Adjustment to Base Rent: Base rent shall be adjusted annually on each anniversary of the Commencement date, by three and one-half percent (3.5%) for the Term of the lease. 1.8 Security Deposit: $ 4749.00 (“Security Deposit”). (See also Paragraph 5) 1.9 Agreed Use: Golf Test Ranae Facitlv use for testina of Golf Clubs and Golf m. (See also Paragraph 6) 1.10 Insuring Party. Lessor is the ”Insuring Party” unless otherwise stated herein. 1 .I 1 Addenda and Exhibits. Attached hereto are Exhibits A, B , all (See also Paragraph 8) of which constitute a part of the Lease. 2. Premises. 2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating rental, is an approximation that the Parties agree is reasonable and the rental based thereon is not subject to revision whether or not the actual size is more or less. Improvements. Prior to commencement of any construction, Leasee shall comply with the Conditions of Major construction below and shall commence the construction of improvements consisting of those as specified in PIP No. 9302-D Grading Permit No. TBD (Exhibit B). New Improvements. Except as otherwise expressly provided in this lease, Lessee shall not, without Lessor’s prior written consent, enlarge, remove, demolish, replace, or substantially alter any substantial improvement now or here after in place on the premises. Before any work of construction, alteration, or repair 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: a. Deliver to Lessor for Lessor‘s approval 2 sets of preliminary construction plans and specifications prepared by an architect or engineer licensed to practice as such in the State of California, 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, design and locations for outdoor storage areas, and landscaping, all sufficient to enable Lessor to make an informed judgment about the design and quality of construction and about any effect on the reversion. All improvements shall be constructed within the exterior property lines of the premises; provided that required work beyond the premises on utilities, access, and conditional use requirements do not violate this provision. With the plans, Lessee shall deliver to Lessor the certificate of the person or persons who prepared the plans and specifications certifying that the Lessee has fully paid for them or waiving payment and waiving any right to a lien for preparing them and permitting Lessor to use the plans without payment for purposes relevant to and consistent with this lease. 2.2 , HDP No. 0400 2.3 2.4 Conditions of Construction. Initialsp PAGE 2 b. Construction of improvements to the Premises shall not commence until after the City of Carlsbad has obtained its Grading Permit for the Carlsbad Municipal Golf Course project, and has begun its construction activity. c. Procure and deliver to Lessor evidence of compliance with all then applicable codes, ordinances, regulations, and requirements for permits and approvals, including but not restricted to a grading permit, building permits, zoning and planning requirements, and approvals from various governmental agencies and bodies having jurisdiction. d. Construction shall be completed and ready for use within one (1) year or whatever is required by code, whichever is shorter, after commencement of construction, provided that the time for completion shall be extended for as long as Lessee shall be prevented from completing the construction by delays beyond Lessee’s control; but failure regardless of cause, to complete construction within two (2) years following the commencement date of this lease shall, at Lessor‘s election exercised by notice, terminate this lease. e. All work shall be performed in a good and workmanlike manner, shall substantially comply with plans and specifications submitted to Lessor as required by this lease, and shall comply with all applicable governmental permits, laws, ordinances and regulations. Acknowledgements. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises and their suitability for Lessee’s intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefore as the same relate to its occupancy of the Premises, and (c) neither Lessor or Lessor’s agents have made any oral or written representation or warranties with respect to said matters other than as set forth in this Lease. Lessor makes no covenants or warranties respecting the condition of soil or subsoil or any condition of the premises. Notice of Changes in Plans. On completion of any work of improvement, Lessee shall give Lessor notice of all changes in plans or specifications made during the course of work and shall at the same time and in the same manner, supply Lessor with “as built” drawings accurately reflecting such changes. Lessor acknowledges that it is common practice in the construction industry to make changes during the course of construction on substantial projects. Changes that do not substantially alter plans and specifications previously approved by Lessor do not constitute a breach of Lessee’s obligations. 3. Term 3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.4. 3.2 Lessee Compliance. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of Insurance (Paragraph 8.4). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, Including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied. 4. Rent. Lease (except for the Security Deposit) are deemed to be rent (“Rent”). 2.5 2.6 4.1 Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this InitialsV,#V PAGE 3 4.2 Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating. 4.3 Rental Adjustment. The Base Rent payable pursuant to this Lease shall be increased by the sum of 3.5%, on each anniversary of the Commencement Date. Set forth below is a summary of the monthly Base Rent for each year of the Initial Term. The total amount of leased acreage per year is .84 acres. Year 1 : Year 2: Year 3: Year 4: Year 5: Year 6 Year 7 Year 8 Year 9 Year 10 $1583 per month, or $18,996 per year. $1638.40 per month, or $19,614 per year. $1695.74 per month, or $20,348.88 per year. $1755.09 per month, or $21,061.09 per year. $1816.52 per month, or $21,798.22 per year. $1 880.09 per month, or $22,561.18 per year. $1945.89 per month or $23,350.72 per year. $2014 per month or $24,168 per year. $2084.49 per month or $2501 3.88 per year. $2157.45 per month or $25,889.40 per year. 5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (IO) days after written request therefore deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublease or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease or if a comprehensive annual financial report to be provided to Lessor by Lessee reveals a change in the financial condition of Lessee, and following such change the financial condition of Lessee is, in Lessor’s reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on said change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within fourteen (14) days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within thirty (30) days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease. PAGE 4 Initials@ 6. Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use that is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to neighboring properties. 6.1 Agreed Use. 6.2 Hazardous Substances. (a) Reportable Uses Require Consent. The term “Hazardous Substance” as used in this Lease shall mean any product substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements. “Reportable Use” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements require that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefore. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to , the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit. (b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under, or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought on the Premises during the term of this Lease, by or for Lessee, or any third party. (d) Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its officers, officials, employees and agents, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease (c) Lessee Remediation. PAGE 5 with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties or hazardous condition that preexists the commencement of this lease). Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement. Lessee shall cooperate fully in any investigations or remediation measures at the request of Lessor, including allowing Lessor and Lessor‘s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities. 6.3 Lessee’s Compliance with Applicable Requirements. Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants which relate in any manner to the Premises, without regard to whether said requirements are now in effect or become effective after the Commencement Date. Lessee shall, within ten (IO) days after receipt of Lessor’s written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee’s compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements. Inspection; Compliance. Lessor and Lessor‘s consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times and upon reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease, in such a manner as to not unreasonably interfere with business of Lessee. The cost of any such inspections shall be paid by the Lessor, unless a violation of Applicable Requirements, or a contamination is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspections, so long as such inspection is reasonably related to the violation or contamination. 7. Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations. 7.1 Lessee’s Obligations. (a) In General. Subject to the provisions of Paragraph 2.2 (Improvements), 2.3 (New Improvements), 2.4 (Conditions of Construction), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 15 (Condemnation), throughout the term, Lessee shall, at Lessee’s sole cost and expense, maintain the premises and all improvements in good condition and repair, ordinary wear and tear excepted, orders and regulations of (1) federal, state, county, municipal and other governmental agencies and bodies having or claiming jurisdiction and all their respective departments, bureaus, and officials; (2) the insurance underwriting board or insurance inspection bureau having or claiming jurisdiction; and (3) all insurance companies insuring all or any part of the premises or improvements or both. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts require by Paragraph 7.1 (b) below. Lessee’s obligations shall include restorations, replacements, or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. (e) Investigations and Remediations. 6.4 PAGE 6 (b) Senrice Contracts. Lessee shall, at Lessee’s sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) driveways and parking lots, (vii) clarifiers, (viii) basic utility feed to the perimeter of the Building, and (ix) any other equipment, if reasonably required by Lessor. Lessor’s Obligations. Subject to the provisions of Paragraphs 2.2 (Improvements), 2.3 (New Improvements), 2.4 (Conditions of Construction), 9 (Damage or Destruction) and 15 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease. 7.2 7.3 Utility Installation; Trade Fixtures; Alterations. (a) Definitions; Consent Required. The term “Utility Installations” refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term “Trade Fixtures” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises. The term “Alterations” shall mean any modification of the improvements, other than Utility installations or Trade Fixtures, whether by addition or deletion. “Lessee Owned Alteration and/or Utility Installations” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent, which shall not be unreasonably withheld or delayed. (b) Consent. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee’s: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications, for work which costs $10,000 or more. Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation and/or upon Lessee’s posting an additional Security Deposit with Lessor. (c) Indemnification. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or material men’s lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (IO) days’ notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to one and one-half times the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor’s attorneys fees and costs. PAGE 7 Initials @’ 7.4 Ownership; Removal; Surrender; and Restoration. (a) Ownership. Subject to Lessor‘s right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises. (b) Removal. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent. (c) Surrender/Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or groundwater contaminated by Lessee. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express consent of Lessor shall constitute a holdover under the provisions of Paragraph 27 below. 8. Insurance; Indemnity. 8.1 Liability Insurance. (a) Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability Policy of Insurance protecting Lessee and Lessor against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $2,000,000 per occurrence with an “Additional Insured-Managers or Lessors or Premises Endorsement” and contain the “Amendment of the Pollution Exclusion Endorsement” for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “insured contract” for the performance of Lessee’s indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) Carried by Lessor. Lessor may maintain liability, in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. Property Insurance - Building, Improvements and Rental Value. (a) Building and Improvements. Lessee shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance 8.2 PAGE 8 Initialsw coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an insured Loss. (b) Rental Value. The Lessee shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor, insuring the loss of the full Rent for one (1) year. Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year’s loss of rent from the date of any such loss. Said insurance shall contain an agreed valuation provision In lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss. (c) Adjacent Premises. If the Premises are part of a parcel of land, or of a group of parcels owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such parcels and any buildings thereon, if said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises. 8.3 Lessee’s Property/Business Interruption Insurance. (a) Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $25,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force. (b) Business Interruption. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils. (c) No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease. Insurance Policies. Insurance required herein shall be by companies duly licensed or admitted to transact business in the State of California, and maintaining during the policy term a “General Policyholders Rating” of at least A-: V, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as shall be required by the Carlsbad City Council Policy existing at the time, or such other rating as may be required by a Lender. Lessee shall not do or permit to be done, anything that invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor original endorsements and certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor, Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If Lessee shall fail to procure and maintain the insurance required to be carried by it, the Lessor may, but shall not be required to, procure and maintain the same. Waiver of Subrogation. Without affecting any other rights or remedies, Lessee hereby releases and relieves Lessor, and waives any right to recover damages against Lessor, for loss of or damage to its property arising out of or incident to the perils required to be insured 8.4 8.5 PAGE 9 initials against herein. The effect of such release and waiver is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. Lessee agrees to have its respective property damage insurance carrier waive any right to subrogation that such company may have against Lessor. 8.6 Indemnity. Except for negligence of Lessor, its agents, employees, and contractors, or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor its officers, officials employees and agents, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified. Exemption of Lessor from Liability. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the parcel of which the Premises are a part, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor’s negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee’s business or for any loss of income or profit there from. 9. Damage or Destruction. 9.1 Definitions. 8.7 (a) “Premises Partial Damage” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total. (b) “Premises Total Destruction” shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total. (c) “Insured Loss” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.2(a), irrespective of any deductible amounts or coverage limits involved. (d) “Replacement Cost” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation. (e) “Hazardous Substance Condition” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. Partial Damage - Insured Loss. If a Premises Partial Damage that is an insured Loss occurs, then Lessor shall, at Lessor‘s expense, repair such damage (but not Lessee’s Trade 9.2 PAGE 10 Initials Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor‘s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. Partial Damage - Uninsured Loss. If a Premises Partial Damage that is not an insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor‘s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective sixty (60) days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within ten (IO) days after receipt of the termination notice to give written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty (30) days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice. Total Destruction. Notwithstanding any other provision hereof, if Total Destruction of a Premises occurs, this Lease shall terminate sixty (60) days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s damages from Lessee. Damage Near End of Term. If at any time during the last six (6) months of this Lease there is damage for which the cost to repair exceeds one (1) month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving a written termination notice to Lessee within thirty (30) days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten days after Lessee’s receipt of Lessor‘s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished. 9.3 9.4 9.5 9.6 Abatement of Rent; Lessee’s Remedies. (a) Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein. PAGE 11 (b) Remedies. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within sixty (60) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee’s election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within thirty (30) days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within said thirty (30) days, this Lease shall continue in full force and effect. “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. (c) Termination-Advance Payments. Upon termination of this Lease pursuant to Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor. (d) Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. IO. Quit Claim of Lessee’s Interest Upon Termination. Upon termination of this Lease for any reason, including but not limited to termination because of default by Lessee, Lessee shall execute, acknowledge and deliver to Lessor within thirty (30) days after receipt of written demand therefore a good and sufficient deed whereby all right, title and interest of Lessee in the demised premises is quitclaimed to Lessor. Should Lessee fail or refuse to deliver the required deed to Lessor, Lessor may prepare and record a notice reciting the failure of Lessee to execute, acknowledge and deliver such deed and said notice shall be conclusive evidence of the termination of this Lease and of all right of Lessee or those claiming under Lessee in and to the demised premises. 11. Real Property Taxes. Definition of “Real Property Taxes.” As used herein, the term “Real Property Taxes” shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises, Lessor’s right to other income therefrom, and /or Lessor’s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of the jurisdiction within which the Premises are located. This Lease may result in a taxable possessory interest subject to the payment of Real Property Taxes. The term “Real Property Taxes” shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises. 11 .I 11.2 Taxes. (a) Payment of Taxes. Lessee shall pay the Real Property Taxes applicable to the Premises during the term of this Lease. Subject to Paragraph 11.2(b), all such payments shall be made at least ten (1 0) days prior to any delinquency date. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee’s share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment. Lessee shall pay before delinquency all taxes and assessments of any kind assessed or levied upon Lessee or the Leased Premises by reason of this Lease or of any buildings, machines, or other improvements of any PAGE 12 initials nature whatsoever erected, installed or maintained by the Lessee or by reason of the business or other activities of Lessee upon or in connection with the Leased Premises. Lessee shall also pay any fees imposed by law for licenses or permits for any business or activities of Lessee upon the Leased Premises or under this Lease. If Lessee shall fail to pay any required Real Property Taxes, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefore upon demand. (b) Advance Payment. In the event Lessee incurs a late charge on any Rent payment, Lessor may, at Lessor‘s option, estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the installment due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sums as are necessary to pay such obligations. All moneys paid to Lessor under this Paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may at the option of Lessor, be treated as an additional Security Deposit. Joint Assessment. If the Premises are not separately assessed, Lessee’s liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available. 11.4 Personal Property Taxes. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause such property to be assessed and billed separately from the real property of Lessor. If any of Lessee’s said personal property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property within ten (IO) days after receipt of a written statement. 12. Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered. Lessee shall pay before delinquency any and all charges for utilities at or on the Leased Premises. 13. Assignment and Subletting. 11.3 13.1 Lessor’s Consent Required. (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment”) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent, which shall not be unreasonably withheld or delayed. (b) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee’s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than twenty-five percent (25%) of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever -. - PAGE 13 InitialsW - was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. “Net Worth of Lessee” shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles. (c) An assignment or subletting without consent shall, at Lessor’s option, be a Default curable after notice per Paragraph 14.1(d), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice, increase the monthly Base Rent to one hundred ten percent (1 10%) of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to one hundred ten percent (110%) of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to One Hundred Ten Percent (1 10%) of the scheduled adjusted rent. Terms and Conditions Applicable to Assignment and Subletting. (a) Any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach. (c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting. (d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, together with reasonable attorney’s fees incurred by Lessor in the review of said application, as consideration for Lessor‘s considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (9 Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing. Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease: provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent. Lessor shall not, by reason of the foregoing 13.2 (b) Pending approval or disapproval of an assignment. 13.3 PAGE 14 Initials - or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary. (b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor. (c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor‘s prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 14. Default; Breach; Remedies. Default; Breach. A “Default” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or rules under this Lease. A “Breach” is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period: (a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.2 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism. (b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) business days following written notice to Lessee. (c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, or (vii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (1 0) days following written notice to Lessee. (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease other than those described in subparagraphs 14.1(a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “debtor” as defined in 11 14.1 PAGE 15 Initials* U.S.C. 5 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days; (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. (f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false. (9) If the performance of Lessee’s obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor‘s refusal to honor the guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure, within sixty (60) days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease. Remedies. If Lessee fails to perform any of its affirmative duties or obligations, within ten (1 0) days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee’s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee upon receipt of invoice therefore. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashier’s check. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach: (a) Terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result there from, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent (1 %). Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 13. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 14.1 was not previously given, a notice to pay rent or quit, 14.2 PAGE 16 Initials v@ - or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 14.1. In such case, the applicable grace period required by Paragraph 14.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes due. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor‘s interests, shall not constitute a termination of the Lessee’s right to possession. (c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises. Late Charges. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal to ten percent (10%) of each such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor prevent the exercise of any consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s option, become due and payable quarterly in advance. 14.4 Interest. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within thirty (30) days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the thirty-first (31”‘) day after it was due as to non-scheduled payments. The interest (“Interest”) charged shall be equal to the prime rate reported in the Wall Street Journal as published closest prior to the date when due plus four percent (4%), but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 14.3. 14.3 14.5 Breach by Lessor. (a) Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than thirty (30) days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. (b) Performance by Lessee on Behalf of Lessor. In the event that Lessor does not cure said breach within thirty (30) days after receipt of said notice, or if having commenced said cure Lessee does not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent an amount equal to the greater of one month’s Base Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving Lessee’s right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor. PAGE 17 initials @ 15. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “Condemnation”), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of any building portion of the premises, or more than twenty-five percent (25%) of the land area portion of the premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within ten (IO) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (IO) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefore, in the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation. 16. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, or broker in connection with this Lease, and that no one is entitled to any commission or finder’s fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, or attorneys’ fees reasonably incurred with respect thereto. 17. Estoppel Certificates. (a) Lessee shall within ten (IO) days after written notice from Lessor, execute, acknowledge and deliver to Lessor a statement in writing in form similar to the then most current “Estoppel Certificate” form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Lessor. (b) If the Lessee shall fail to execute or deliver the Estoppel Certificate within such ten day period, the Lessor Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Lessor, (ii) there are no uncured defaults in the Lessors performance, and (iii) not more than one month’s rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Lessor’s Estoppel Certificate, and the Lessee shall be estopped from denying the truth of the facts contained in said Certificate. (c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 18. Definition of Lessor. The term “Lessor” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s Condemnation. Representations and Indemnities of Broker Relationships. PAGE 18 Initials@ interest in the prior lease. In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, and subject to the provisions of Paragraph 21 below, the original Lessor under this Lease, and all subsequent holders of the Lessor’s interest in this Lease shall remain liable and responsible with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substances as outlined in Paragraph 6.2 above. 19. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision thereof. 20. Days. Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days. 21. Limitation on Liability. Subject to the provisions of Paragraph 18 above, the obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, the individual partners of Lessor or its or their individual partners, directors, officers, or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against the individual partners of Lessor, or its or their individual partners, directors, officers or shareholders, or any of their personal assets for such satisfaction. 22. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 23. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. 24. Notices. Notice Requirements. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or US. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 24. The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing. 24.2 Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given three (3) business days after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day. 25. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or 24.1 PAGE 19 Initials@ condition thereof, Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor‘s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an Estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 26. Recording. Lessee shall execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. 27. No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to one hundred fifty percent (150%) of the Base Rent applicable during the month immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee. 28. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 29. Covenants and Conditions; Construction of Agreement. All provisions of this Lease to be observed or performed by Lessee and Lessor are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the parties, but rather according to its fair meaning as a whole, as if both parties had prepared it. 30. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of California. Any litigation between the Parties hereto concerning this Lease shall be initiated in North San Diego County Superior Court. 31. Subordination; Attornment; Non-Disturbance. Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, bond indebtedness, or other hypothecation or security device (collectively, “Security Device”), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “Lessor’s Lender”) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentations or recordation thereof. Attornment. Subject to the non-disturbance provisions of Paragraph 31.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior Lessor or with respect to events occurring prior to acquisition of ownership; (ii) be subject to any offsets or defenses which Lessee might have against any prior Lessor, or (iii) be bound by prepayment of more than one (1) month’s rent. Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “Non-Disturbance Agreement”) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee Binding Effect; Choice of Law. 31.1 31.2 31.3 PAGE 20 is not in Breach hereof and attorns to the record owner of the Premises. Further, within sixty (60) days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at Lessee’s option, directly contact Lessor‘s lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement. 31.4 Self-Executing. The agreements contained in this Paragraph 31 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein. 32. Signs. Lessee shall not place any sign upon the Premises without Lessor‘s prior written consent. All signs must comply with all Applicable Carlsbad Municipal Code Requirements. 33. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination, or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor’s failure within ten (IO) days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest. 34. Consents. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor’s actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefore. Lessor‘s consent to any act, assignment or subletting shall not constitute an acknowledgement that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of such consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within ten (1 0) business days following such request. 35. Quiet Possession. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions, and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof. 36. Options. Definition. “Option” shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor. Options Personal To Original Lessee. Each Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises 36.1 36.2 Initials j4 PAGE 21 and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting. Number and Term. Lessee may, at Lessee’s option, extend the Initial Term of this Lease for Two (2) periods of five (5) consecutive years, subject to all of the provisions of this Lease. Each Extension Term shall commence at the expiration of the Initial Term and or subsequent terms, and shall terminate on the last day of the Extension Term. After the exercise of an option to extend, all references in this lease to the “Term” shall be considered to mean the Term as extended, and all references to termination or to the end shall be considered to mean the termination of the Extension Term. Method of Exercise of Option: Subject to the provisions of Paragraph 1.5 (Option to Extend), Lessee may exercise Lessee’s Option by giving Lessor written notice by certified mail, return receipt requested. Written notice shall be given not less than one hundred and eighty (180) days prior to the expiration of the Term. If such notification is not given as stated above, this Option shall automatically expire. Calculation of Rent at Beginning of Option Period. The initial monthly Base Rent for the Extension Term shall be the Base Monthly Rent being paid during the last month of the prior Lease Term. The Base Rent shall be increased annually in accordance with Paragraph 4.3 (Rental Adjustment). 36.6 36.3 36.4 36.5 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given three (3) or more notices of separate Default, whether or not the Defaults are cured, during the twelve (I 2) month period immediately preceding the exercise of the Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 36.6(a). (c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term, (i) Lessee fails to pay Rent for a period of thirty (30) days after such Rent becomes due (without any necessity or Lessor to give notice thereof), (ii) Lessor gives to Lessee three (3) or more notices of separate Default during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. Broker Fees on Options. In the event Lessee exercises an Option to extend or renew this lease, no broker fees will be owed by Lessor. 37. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 38. Reservations. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions. 39. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom 36.7 Security Measures. PAGE 22 Initials the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. 40. Authority. If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each party shall upon request, deliver to the other party satisfactory evidence of such authority. 41. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 42. Offer. This Lease is not intended to be binding until executed and delivered by all Parties hereto. 43. Amendments. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee’s obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of financing or refinancing of the Premises. 44. Multiple Parties. If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease. 45. Construction. All improvements shall be constructed by a duly licensed contractor or contractors and shall be completed in an expeditious and workmanlike manner, with good and sufficient materials. 46 Abstract of Lease. This is the final Paragraph and Abstract of Lease dated WV_S”S+ 4 2004, between the CITY OF CARLSBAD, Lessor and Callaway Golf Company, Lessee, concerning the Leased Premises described in Exhibits “A and “B”, and referenced more specifically in Exhibit “C” ABSTRACT OF LEASE. PAGE 23 Initials LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures. Executedat: Carlsbad, California Executedat: Carlsbad, California J~A, ~-t,aood on: August 4, 2004 By LESSOR: W on: EE: Callaway Golf Company OL- City of Carlsbad ’Ronald A. Drapeau, CEO By: Name Printed: A. Title: Title: Mayor, Citv of Carlsbad By: Carlsbad, CA 92008 Name Printed: Lewis Address: 1200 Carlsbad Villaqe Drive Telephone: (760 ) 434-2821 Title: Facsimile: f7601720-9461 Address: Telephone: ( ) Facsimile: ( ) Federal ID No. Approved as to form and legality: By: i , MNALD R. BALL -- CITY ATTORNEY PAGE 25 Initials P PLEASE COMPLETE THIS INFORMATION. RECORDING REQUESTED BY: tr.h_lOr CA~~ AND WHEN RECORDED MAIL TO: THE ORIGINAL OF THIS DOCUMENT WAS RECORDED ON NOV 23,2004 GREGORY J SMITH, COUNTY RECORDER SAN DIEGO COUNTY RECORDER’S OFFICE TIME: 913 AM DOCUMENT NUMBER 2004-1 109048 I THISSPACE FORRECQBDERS UB ONLY (Please fill in document title(s) on this line) h&d& THIS PAGE ADDED TO PROVIDE ADEQUATE SPACE FOR RECORDING INFORMATION (Additional recording fee applies) 9/95 Ra.Fonn #R25 RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO: Carlsbad City Clerks Office 1200 Carlsbad Village Drive Carlsbad, CA 92008 ABSTRACT OF LEASE This Abstract of Lease , hereinafter “Abstract”, dated Auqust 4 2004, between the CITY OF CARLSBAD, Lessor and CALLAWAY GOLF COMPANY, Lessee, concerning the Leased Premises described in Exhibits “A and “B”, attached hereto and by this reference made a part herof. For good and adequate consideration, Lessor leases the Leased Premises to Lessee, and 2004, the Abstract of which is recored by the San Diego County Recorder’s Lessee hires for them from Lessor, for the term and on the provisions contained in the Lease dated Office as Document No. SCE A & t/C: prohibiting assignment, subleasing, and encumbering said leasehold without the express written consent of Lessor in each instance, all as more specifically set forth in said Lease, which said lease is incorporated in this Abstract by this reference. Auqust 4 , including without limitation provisions The term of this lease is ten (IO) years plus two (2) options of five (5) years, beginning August 1, 2004, and ending July 31,2014. This Abstract is not a complete summary of the Lease. Provisions in this Abstract shall not be used in interpreting the Lease provisions. In the event of conflict between this Abstract and other parts of the Lease, the other parts shall control. Execution hereof constitutes execution of the Lease itself. IN WITNESS WHEREOF, each of the undersigned has executed this Abstract as of the dates set forth in the respective notary acknowledgements attached hereto. Executed at: Carlsbad, Califoria Executed at: Carlsbad, California 3 ~ lcl Wli on: Auqust 4, 2004 @ fpp BYLESSOR: By : -*.ad- > cco City of Carlsbad Ronald A. Drapeau, CEO By: Name Printed: Name Printed: Claude A. Lewis Title: Title: Mavor, Citv of Carlsbad Address: 1200 Carlsbad Villaae Drive By: Carlsbad. CA 92008 Name Printed: Title: Facsimile: 1760) 720-9461 Address: Telephone: (760 \ 434-2821 Telephone: ( ) Facsimile: ( ) Federal ID No. PAGE 24 Initials w STATE OF CALIFORNIA) COUNTY OF SAN DIEGO) On VI rJ0q Lf+cPr- me I malm GICrCh I personally appeared d A. nrnoi?A& , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) idare subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. PAGE 26 . Initials CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT d c04 before me, &#r\i hlA SlCkw! PubIi'c, , Name and Tile of Mficer (e g , "Jane Doe, Notary Publlc") personally appeared to be the personm executed the instrument. WITNESS my hand and official seal. Signature of Notary Publlc Though the information below IS not required by law, it may prove valuable to persons relying on the document and could prevent fraudulent removal and reattachment of this form to another document. Description of Attached Document Title or Type of Document: fibs* Cd- C;q ' LmsG Document Date: &A c! Y, Number of Pages: 2 Capacity(ies) Claimed by Signer@) Signer's Name: a*D &.BWk%\ 0 Individual KCorporate Officer 0 Attorney-in-Fact 0 Guardian or Conservator Signer Is Representing: Signer's Name: 0 Individual 0 Corporate Officer Title@): C Partner - 0 Limited 0 General Attorney-in-Fact 0 Trustee Guardian or Conservator 0 Other: I I Signer Is Representing: I 'I 0 1994 National Notary Association * 8236 Remmet Ave., P.O. Box 7184 Canoga Park, CA 91309-7184 Prod. No. 5907 Reorder: Call Toll-Free 1-800-876-6827 EXHIBIT "A" LEGAL DESCRIPTION FOR LEASE PARCEL BEING A PORTION OF LOT 69 OF CARLSBAD TRACT NO. 81-46, UNIT NO. 3, IN THE CITY OF CARLSBAD, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 11289 FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, JULY 16,1985, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT A POINT IN THE SOUTHEASTERLY BOUNDARY LINE OF SAID LOT 69, DISTANT THEREON, 65 SO FEET FROM THE MOST NORTHEASTERLY CORNER THEREOF, THENCE SOUTHWESTERLY ALONG SAID SOUTHEASTERLY BOUNDARY LINE, S.32OO4'25'W. 374.77 FEET TO THE INTERSECTION WITH THE NORTHEASTERLY SIDELINE OF AN EXISTING EASEMENT, 20.00 FEET IN WIDTH IN FAVOR OF SAN DIEGO GAS AND ELECTRIC COMPANY FOR THE RIGHT AND PRIVILEGE TO TRIM TREES OUTSIDE OF THE 100.00 FOOT WIDE EXISTING EASEMENT FOR ELECTRICAL POWER TRANSMISSION PER DOCUMENT NO. 49242, RECORDED APRIL 15,1954, IN BOOK 5205 AT PAGE 419 OF OFFICIAL RECORDS; THENCE NORTHWESTERLY ALONG SAID NORTHEASTERLY EASEMENT SIDELINE, N.47'28 '1 8'W. 140.00 FEET; THENCE DEPARTING SAID NORTHEASTERLY EASEMENT SIDELINE, N.38"35'43" E. 182.04 FEET TO AN ANGLE POINT; THENCE N.43'23'01" E. 86.68 FEET TO AN ANGLE POINT; THENCE S.65'34'01" E. 41.37 FEET TO AN ANGLE POINT; THENCE N.69*10'40 E. 97.80 FEET TO THE POINT OF BEGINNING. CONTAINING AN AREA OF 0.843 ACRE. (36,740 SQUARE FEET) EXPiRES 9-30-.--- -...-* ~ .- EXHIBIT "B' n Q 2 I a 0 I- O _I I LEGAL DESCRlPnON PLAT U U 1 POINT OF BEGINNING LEASE PARCEL 0.843 ACRE (36,740 SQ. FEET) NORTHEASTERLY LINE / OF 20' WIDE S.D.G.E. EASEMENT MOST NORTHEASTERLY 'CORNER LOT 69 _J PALOMAR IYD PALOMAR AIPPORT~ ROAD VIClNlTY MAP NO SCALE PbD COMMTAMTS, M. 8954 RIO SAN DIEGO DRIM, SUIE 610 SAN DIEGO, CAL1FLX"lA 92108 PHONE (6f9) 291-1475 FAX (6?9) 291-1476 Wedaseday, March 10 2004 7:32 AM FA66 1 FROM 4 44 30 40 4.1 42 43 44 ..I-"- DIS?mCE .IlIC"--4-l 65.1000 374,7659 140. OVOV lea. 0197 66.6033 42.3673 97.00 OR 65.5000 Cl oewe CZoeitig line: N 0~~0~~00.0~~ 0.0000 from 4 to 4 Lat;ltude (W) : 0.000o Berhet;er: 1053,6570 Departure (E) : 0.0000 EPtot of di~eure: $:I0536569552 Axed : 36740.07 Square feet 0.0434 Acres _. -. .. , P'd 6T2'0l.1 .-