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1992-0407_HOLSTEN, TIM_Commercial LeaseAq&od/ay COMMERCIAL LEASE Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the premises hereinafter described on the terms and conditions set forth in this Lease Agreement, hereinafter called "this Lease." Basic Lease Provisions The words and figures set forth in Paragraphs A to N, both inclusive, are part of this Lease wherever reference is made thereto, unless they are expressly modified elsewhere in this Lease. A. Date of Execution: As of April 7 1992 B. Landlord: San Juan Capistrano Community Redevelopment Agency C. Tenant: Tim Holsten, a married man D. Tenant's Trade Name: Vaquero West Mercantile Company E. Premises: The property particularly described and depicted on the Plot Plan marked Exhibit A, located at: 26755 Verdugo Street San Juan Capistrano, California F. Premises: The area shown on Exhibit A containing the follow- ing approximate measurements: Frontage; 62,20 feet Depth: 62.75 feet Floor Area: 4,000 square feet G. Purpose (Use): The Premises shall be used for the operation of an Old West Outfitting, Haberdashery and General Mercantile store selling items at retail. Merchandise which may be sold, activities which may be conducted and services which may be performed in the Premises generally include the following: (i) general men's and women's Western wear, including shirts, blouses, skirts, pants, boots, hats, belts, Western wear clothing, accessories and jewelry; (ii) horseriding gear and accessories; (iii) saddles, tack and other leather goods; (iv) Western arts and crafts; (v) Western -oriented books; (vi) Indian jewelry; (vii) Western antiques, and (viii) other merchandise in good taste and quality, which relate to Western culture and history, provided if Landlord determines in its reasonable business judgment that such other merchandise is inconsistent with the items provided in (i) through (vii), inclusive, then Tenant shall discontinue the sale of such item(s) within fifteen (15) days after service of Landlord's written notice requiring that such item(s) be removed from sale. The second floor of the Premises shall be used for professional office space for attorneys, accountants, architects, insurance offices and other similar uses, provided that such office space shall not be used for any medical, dental or veterinary use. The Premises shall be used for the foregoing purposes and for no other use or purpose. (See Paragraph 14 of Lease.) H. Term: 10 years, with one 10 -year option I. Minimum Rent: $4,275.00 per month J. Security Deposit: None. K. Landlord's Address for Notices: 32400 Paseo Adelanto San Juan Capistrano, California 92675 L. Tenant's Business Address and Phone Number for Notices: 26755 Verdugo Street San Juan Capistrano, California 92675 M. Tenant's Resident Address and Phone Number: 27569 Via Fortuna San Juan Capistrano, California 92675 N. Tenant's Construction Requirements are set forth on Exhibit C. EXHIBITS: (Check if attached—) A - Site Plan X B - Schedule X C - Construction Obligations X D - Guarantee of Lease X LANDLORD: TENANT: San Juan Capistrano Community Tim Holsten Redevelopment Agency LEASE AGREEMENT 1. PREMISES. 1.1 Location: Tenant's Premises shall be located as shown on Exhibit A. The Premises shall include the planters adjacent to the Premises and the outdoor patio located at the rear of the Premises. 1.2 Lease: References to "this Lease" include all exhibits and matters incorporated by reference as part of this Lease, and the Basic Lease Provisions appearing on the Face Page. 1.3 Master Lease: References to "the Master Lease" shall mean that certain Ground Lease dated March 8, 1971 between National Producers Life Insurance Company, as Lessor, and Provincial Properties, Inc., as Lessee. 1.4 "As -Is": The Premises is leased to Tenant on an "as -is" basis, except that Landlord agrees at the time of delivery of possession of the Premises to Tenant the Premises shall be in the following condition: (a) The sewer lateral running from the Premises through the branch line to the main sewer shall be clear and free of obstructions. (b) Tenant hereby acknowledges that Landlord has advised it that friable asbestos or asbestos -containing material (collectively, "ACM") is or may be present in the Premises. Landlord shall have no obligation to remove any ACM from the Premises. 2. BUSINESS RIGHTS AND RESTRICTIONS. 2.1 Purpose: The premises shall be used solely for the purposes set forth in Paragraph G of the Basic Lease Provisions and Section 14 of the Lease and for no other purpose whatsoever. Tenant shall operate the business in the ground floor of the Premises under the trade name "Vaquero West Mercantile" or such other trade name to which Landlord may consent, such consent not to be unreasonably withheld. The subtenants in the office space on the second floor of the Premises shall have the right to operate their businesses under their own trade names, provided that Landlord has first consented thereto, such consent not to be unreasonably withheld. Tenant (and the office subtenants) shall have the right to place signage on the exterior and interior of the Premises, provided that all such signage complies with the applicable provisions of the San Juan Capistrano Municipal Code. Landlord hereby agrees that it will not lease or license space to any other tenant or occupant on property owned by Landlord within the one-half (1/2) mile area measured from the front door of the Premises to any store operating a business similar in nature and total concept to that of Tenant (i.e., an Old West Outfitting, Haberdashery and General Mercantile Store selling items at retail) ("Competing Use"). The foregoing shall not prohibit Landlord from leasing or licensing space to a tenant operating a Competing Use if (i) such tenant is a charity, museum or a non-profit organization or (ii) such tenant leases or licenses such space and operates the Competing Use as of the Date of Execution set forth in Paragraph A of the Basic Lease Provisions. In addition to the foregoing, Landlord shall not be prohibited from leasing or licensing space to a tenant operating a business comprised of a portion of the Competing Use, so long as such tenant does not operate the Competing Use in its entirety. 2.2 Restrictions: Tenant shall not, without Landlord's prior written consent, (a) conduct any auction or bankruptcy sale, (b) conduct any fire sale except as a result of a fire on the premises, (c) conduct a general close-out sale, provided Tenant may periodically close out lines of merchandise from time to time (provided that the same is not designated as a "fire sale," "bankruptcy sale," "going out of business sale" or similar appellation, (d) sell any so-called "surplus," "Army and Navy," or "secondhand" goods, as those terms are generally used at this time and from time to time hereafter, on or from the premises (except that the same shall not prevent the sale of 03/24/92 0787q/2299/000 -1- Paragraph Number 30 45 19 28 26 Face Page 2 5 10 25 18 34 12 17 11 44 13 9 36 35 41 16 20 24 14 46 43 1 39 22 38 27 33 4 8 37 42 40 15 23 31 32 21 6 3 7 29 COMMERCIAL LEASE Page Title Number ABANDONMENT ........................................... 20 ADDITIONAL PROVISIONS ................................. 25 ASSIGNMENT AND SUBLETTING ............................. 12 ATTORNEYS' FEES ....................................... 19 BANKRUPTCY OR INSOLVENCY .............................. 18 BASIC LEASE PROVISIONS ................................ BUSINESS RIGHTS AND RESTRICTIONS ...................... 1 COMMON AREA ........................................... 4 DAMAGE AND RESTORATION ................................ 8 DEFAULT............................................... 15 DELAYING CAUSES ....................................... 12 EFFECT OF CONVEYANCE .................................. 20 EMINENT DOMAIN ........................................ 9 ENTRY BY LANDLORD ..................................... 11 INTENTIONALLY OMITTED .................................. 9 GENERAL PROVISIONS .................................... 24 INDEMNITY: WAIVER ..................................... 10 INSURANCE............................................. 6 INTERPRETATION ........................................ 21 LANDLORD'S DEFAULT; NOTICE TO LENDER .................. 20 LATE CHARGES AND INTEREST ............................. 22 LIENS................................................. 11 NOTICES............................................... 14 OFFSET STATEMENT ...................................... 15 OPERATION OF BUSINESS ................................. 10 REQUEST FOR ASSIGNMENT/RIGHT OF FIRST REFUSAL .......... 25 OPTION TO EXTEND ...................................... 22 PREMISES .............................................. 1 PROHIBITION AGAINST RECORDING LEASE ................... 22 QUIET ENJOYMENT ....................................... 14 REAL ESTATE BROKERS; FINDERS .......................... 21 REMEDIES CUMULATIVE ................................... 19 REMOVAL OF TENANT'S PROPERTY .......................... 20 RENT.................................................. 3 REPAIRS, MAINTENANCE, ALTERATIONS ..................... 6 REPRESENTATIONS ....................................... 21 SAFETY AND HEALTH ..................................... 22 SEVERABILITY .......................................... 22 SIGNS AND ADVERTISING ................................. 11 SUBORDINATION ......................................... 14 SUBTENANCIES .......................................... 20 SUCCESSORS ............................................ 20 SURRENDER OF POSSESSION ............................... 14 TAXES................................................. 5 TERM.................................................. 3 UTILITIES ............................................. 5 WAIVER OF DEFAULT ..................................... 19 -i- consignment merchandise by Tenant, which may be used or secondhand), or (e) violate any restrictive use covenants. 2.3 Covenants and Easements: Tenant's consent shall not be required for the creation of any covenants, easements or rights of way which are created by or reasonably required by the action of any governmental authority. This Lease is subordinate and subject to all of the terms, conditions, rights and restrictions of the Master Lease. 2.4 Limitations on Use: No activity, occurrence or use shall be conducted or permitted on any part of the Premises which is obnoxious to, out of harmony with, or objectionable to the development or operation of the Premises and/or adjoining properties, including, without limitation, the following prohibited activities, occurrences and uses: (i) except as specifically provided below, no merchandise shall be displayed or sold outside the enclosed building areas on the Premises; nor shall any use other than parking and landscaping, be made of any outside areas; (ii) no solicitation of any kind, distribution or handbills or other materials, shall be permitted outside the enclosed building areas on the Premises; (iii) no loud speakers or other sound which may be heard or experienced outside the enclosed building areas on the Premises and no nuisance, incineration, fires on or adjacent to the Premises, explosion, obnoxious odor or obnoxious noise shall be permitted; (iv) no auction, fire, bankruptcy, going out of business or similar sale shall be conducted or advertised; (v) nothing shall be done which shall be injurious to the Premises or adjoining properties or unlawful or contrary to public policy or to a law, ordinance, regulation or requirement of any public authority, or would constitute an extra hazardous use, or would violate, suspend or void any policy of insurance required to be carried on the Premises or which would increase the rate of insurance thereon, and if the insurance cost be increased by such an act, the increased cost of such insurance shall also be paid by Lessee; (vi) no use shall be made of the sidewalk area on the Premises other than pedestrian movement; (vii) there shall not be permitted the use by the public, as such, of the Premises or any part thereof without restriction or in such manner as might reasonably tend to impair Lessor's title to the Premises or in such manner as might reasonably make possible a claim or claims of adverse usage or adverse possession by the public, as such, or of implied dedication of the Premises of any part thereof; (viii) no action or omission of Lessee shall permit any lien or encumbrance of any kind whatsoever to attach to the Premises; and (ix) no act or omission which would constitute a breach, or event which with passage of time, notice of either or them, would constitute a breach of any Reciprocal Easement Agreement. Notwithstanding the foregoing, Tenant shall be permitted to (i) subject to governmental regulations or laws, place a stationary wagon in the grass area in front of the Premises and which wagon (subject to governmental regulation or laws) may bear the trade name "Vaquero West Mercantile" and use said wagon, at the discretion of Tenant, for the promotion of Tenant's merchandise, and (ii) use the fenced outdoor patio adjacent to the rear of the patio for display and sales of merchandise and all other uses permitted under the Lease. 2.5 Compliance with Laws: Tenant shall throughout the lease term, at Tenant's sole cost and expense, promptly comply with all laws and ordinances and notices, orders, rules, regulations and requirements of all federal, state and municipal governments and appropriate departments, commissions, boards and officers thereof, and notices, orders, rules and regulations of the National Board of Fire Underwriters, or any other body now or hereafter constituted exercising similar functions, relating to all or any part of the premises, exterior as well as interior, foreseen or unforeseen, ordinary as well as extraordinary, structural as well as non-structural, or to the use or manner of use of the premises or to the sidewalks, curbs and access ways adjoining the premises; if Tenant should at any time receive notice of non-compliance with any of the foregoing it shall promptly give a copy of the same to Landlord. Without limiting the generality of the foregoing, Tenant shall keep in force at all times all licenses, consents and permits necessary for the lawful use of the premises for the purposes herein provided and Tenant shall pay all income taxes, license fees, and other taxes which are or may be assessed, levied or imposed upon Tenant in connection with Tenant's operation of its business upon the premises. The Tenant shall likewise observe and comply with the requirements of all policies of public liability, fire and other policies or insurance at any time in force with respect to the premises. 03/24/92 0787q/2299/000 -2- Notwithstanding the foregoing, in the event structural changes are required to be made as a result of changes in governmental regulations, such changes (i) shall be made at Tenant's cost and expense if such changes are required because of Tenant's retail use of the Premises and are at a cost of less than Ten Thousand Dollars ($10,000.00), and (ii) in all other circumstances, shall be made at Landlord's cost and expense, provided, in the event Landlord is required to make such changes, Landlord shall have the right to terminate this Lease upon written notice to Tenant in lieu of being required to make such changes. 2.6 Certificate of Occupancy: In no event shall Tenant open for business unless and until Tenant shall have obtained a Certificate of Occupancy from the appropriate governmental authorities. In the event Tenant or its agents have diligently applied for and pursued all required governmental permits, licenses and approvals for Tenant's business in the Premises, and have correctly, completely and timely made all required submittals in connection therewith, then in the event the sole reason Tenant has not obtained its Certificate of Occupancy by the specified date on the schedule set forth as Exhibit B is because of processing delays by the City of San Juan Capistrano, then such specified date shall be extended on a day-to-day basis until such time as the Certificate of occupancy is issued. The parties acknowledge any operation without a Certificate of occupancy shall and is deemed to be a substantial material breach. Such action shall cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Accordingly, in addition to all other remedies, Landlord may charge Tenant twice the minimum rent for the period Tenant is open for business without a Certificate of Occupancy, which the parties agree is a fair and reasonable estimate of the damage caused Landlord by such action. Acceptance of such rent shall not constitute a waiver of Tenant's default. 3. TERM. 3.1 Duration: The term of the Lease shall be for a period of ten (10) years set forth in paragraph H commencing upon the date Tenant's Certificate of Occupancy is issued (hereinafter called "Commencement Date"). 3.2 Cancellation: If for any reason whatsoever the term of this Lease has not commenced within one (1) year after the date of execution of this Lease, this Lease shall be automatically deemed cancelled and shall have no further force or effect. 4. RENT. 4.1 Amount: During the Lease Term, Tenant shall pay Landlord without prior demand, deduction, set-off, counterclaim or offset, except as otherwise specifically set forth in this Lease, the rent provided in this Lease in accordance with its terms and conditions. a. Fixed minimum rent will be at the monthly rate provided in Paragraph 1 of the Basic Provisions, payable on the first day of each month during the term. Fixed minimum rent shall commence upon the first day following the expiration of the tenth and one-half (10th 1/2) month after the Date of Execution of the Lease. The first month's rent shall be paid on the first day following the expiration of ten and one-half (10 1/2) months after the Date of Execution of the Lease. b. After the expiration of tenth and one-half (10th 1/2) month after the Date of Execution of the Lease, the fixed minimum rent payable by Tenant for the next twenty-three and one-half (23 1/2) months, shall be $3,875.00 per month rather than $4,275.00 per month. Commencing on the expiration of the thirty-fourth (34th) month following the Date of Execution of the Lease, fixed minimum rent shall be $4,275.00 per month for the remainder of the term of the Lease. 4.2 First Partial Month: If fixed minimum rent shall commence on a day other than the first day of a calendar month: 03/24/92 0787q/2299/000 -3- a. Fixed minimum rent for the first partial month shall be prorated on the basis which the number of days of the term of this Lease in such month bears to thirty (30), and as so prorated shall be paid on the first day of the following month. 4.3 Intentionally Omitted. 4.4 Definition of Rent: The term "rent", whenever used in this Lease, shall mean fixed minimum rent. 4.5 Accord and Satisfaction: No payment by Tenant or receipt by Landlord of a lesser amount of monthly rent or any other sum due hereunder, shall be deemed to be other than a payment of the earliest due rent or payment, nor shall any endorsement or statement on a check or any letter accompanying any such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or payment or pursue any other remedy available in this lease, at law or in equity. Landlord may accept any partial payment from Tenant without invalidation of any contractual notice required to be given herein (to the extent such contractual notice is required) and without invalidation of any notice given or required to be given pursuant to applicable law. 4.6 Catalogue Sales. All of Tenant's (or Tenant's concessionaires') sales from the Premises, and all of Tenant's sales from catalogues or by mail, shall be reported by Tenant as originating from San Juan Capistrano, California and San Juan Capistrano, California shall be deemed the "point of sale" for the purpose of determining sales tax liability for such sales. If a dispute arises regarding the point of sale of any item, the determination of the State Board of Equalization shall be controlling. In no event shall Tenant be required to pay the same sales tax on an item twice. 5. COMMON AREA. 5.1 Definition: The common area is that area adjacent to the rear of the premises commonly known as the multi -model parking area and waiting terminal ("common area"), which is not devoted permanently to the exclusive use of a particular tenant. 5.2 Construction: Landlord shall have the right to make modifications and improvements to the common area at its sole and absolute discretion. 5.3 Use. During the lease term Tenant, its subtenants, concessionaires, licensees, invitees, customers, and employees shall have the nonexclusive right to use the common area in common with Landlord, other tenants, and their respective subtenants, concessionaires, licensees, invitees, customers, and employees, subject to the provisions of this Lease. 5.4 Maintenance (Common Area): Landlord shall pay, and be responsible for maintaining all improvements on the common area in good and sanitary order, condition, and repair, including making replacements as Landlord deems necessary or desirable, including without limitation, (1) managing, (2) cleaning and removing rubbish and dirt, (3) labor, payroll taxes, materials, and supplies, (4) all utility services utilized in connection therewith, including sewer service fees, (5) maintaining, repairing, replacing paved and unpaved surfaces, curbs, directional and other signs, landscaping, lighting facilities, drainage, and other similar items, (6) all premiums on compensation, casualty, public liability, property damage, and other insurance on the common area, (7) rental cost for or straight-line depreciation on tools, machinery, and equipment used in connection with the above, (8) all real property and personal property taxes and assessments levied or assessed against the common area, and (9) any regulatory fee or surcharge or similar imposition imposed by governmental requirements based upon or measured by the number of parking spaces or the areas devoted to parking in the common area, (10) policing the parking areas (including costs of security guards, if necessary), (11) replacements, alterations or additions made in compliance with governmental requirements (the cost of such items to be depreciated or amortized as part of common area costs instead of direct costs if appropriate under generally accepted accounting principles), (12) Christmas decorations, 03/24/92 0787q/2299/000 -4- holiday decorations, promotional and shopping center grand opening costs, removal of hazardous or toxic materials. Notwithstanding any of the foregoing, if Tenant causes additional costs by reason of its operation, such as insurance, security or lighting for abnormal operating hours, Landlord may in its discretion charge such costs directly to Tenant. 5.5 Intentionally Omitted. 5.6 Operation and Control: Landlord shall have general possession and control of the entire common area and may from time to time adopt non-discriminatory rules and regulations pertaining to the use thereof. Landlord shall, except as otherwise provided herein, operate and maintain the common area during the lease term. The manner in which the common area shall be operated and maintained and the expenditures therefor shall be in the Landlord's sole discretion. Landlord reserves the right to appoint a substitute operator to carry out any or all of Landlord's rights and duties with respect to the common area as provided in this Lease; and Landlord may enter into a contract either by a separate document or in a lease agreement with such operator on such terms and conditions and for such period as Landlord shall deem proper. 5.7 Parking: Landlord may designate what part of the common area, if any, or other area, shall be used for automobile parking by employees of tenants, occupants, and licensees. No employee of any tenant, occupant, or licensee shall use any part of the common area for parking except such area or areas as may be so designated. As part of the Rules and Regulations Landlord may require Tenants to supply lists of license plate numbers of employees, the right to tow employee automobiles illegally parked without liability and/or the right to impose fines or charges on Tenant for illegally parked employee automobiles. 5.8 Obstructions: No fence, wall, structure, division, rail or obstruction shall be placed, kept, permitted or maintained upon the common area or any part thereof by Tenant; nor shall the sale, display, advertising, promotion, or storage of merchandise or any business activities of any kind whatsoever be conducted therein without Landlord's prior written consent; nor shall Tenant permit any person to use the common area for solicitations, demonstrations, or any other activities that would interfere with the conduct of business in the shopping center or which might tend to create civil disorder or commotion. 6. TAXES. 6.1 Personal Property Taxes: Tenant shall pay before delinquency all license fees, public charges, property taxes and assessments on the furniture, fixtures, equipment and other property of or being used by Tenant at any time situated on or installed in the premises. 6.2 Real Property Taxes: a. The cost of any real property taxes attributable to the Premises shall be paid for by Landlord. 6.3 Business Taxes: Tenant shall pay all special taxes and assessments or license fees levied, assessed or imposed by law or ordinance, by reason of the use of the premises for the specific purposes set forth in this Lease. 7. UTILITIES. Commencing with the Date of Execution of the Lease by both parties, Tenant shall pay before delinquency all charges for gas, electricity, power and telephone, used on or serving the premises during the lease term. Landlord shall pay for water and sewer service fees to the Premises. Nothing contained in this Lease shall limit Landlord in any way from granting or using easements on, across, over, and under the premises for the purpose of providing utility services. 03/24/92 0787q/2299/000 -5- 8. REPAIRS. MAINTENANCE. ALTERATIONS. 8.1 Landlord's Repairs: Landlord shall keep in good condition and repair (i) the major parking lot areas, and (ii) any sidewalks owned by the City of San Juan Capistrano in the vicinity of the Premises. Notwithstanding the foregoing, Landlord shall have no obligation to make any repairs to the parking lot or sidewalks resulting from Tenant's (or Tenant's agents', employees' or representatives') negligence or willful misconduct. 8.2 Tenant's Repairs: Except as expressly provided in Paragraph 8.1, Tenant shall make all required repairs, replacements or additions of any kind whatsoever upon the exterior or interior of the Premises (including plate glass). Tenant will paint the exterior of the building and maintain in good condition and repair the exterior and interior of the building comprising the premises, including the roof. Any equipment, facilities or fixtures shall, at Tenant's sole expense, be kept, repaired, maintained, and replaced, or added to, at all times by Tenant to keep same in good order and in sanitary and safe condition and repair and in accordance with all governmental requirements and insurance requirements. 8.3 Alterations: Tenant shall not make any alterations, changes or improvements (collectively called "improvements") in or to the interior or exterior of the premises without the prior written consent of Landlord. All improvements shall become part of realty upon installation thereof. Any interior work which may cause penetration through the roof of the building must receive Landlord's prior written consent and shall be accomplished at Tenant's sole risk. Tenant shall be liable for any consequential damages as a result of these improvements. Any contractor hired by Tenant shall be a bondable, licensed contractor, possessing good labor relations, and capable of performing quality workmanship. 8.4 Notice: Before the commencement of any alterations, Tenant, at its cost, shall furnish to Landlord a Performance and Payment Bond issued by an insurance company qualified to do business in California, in a sum equal to the cost of the alterations (as determined by the construction contract between Tenant and its contractor) guaranteeing the completion of the alterations to be performed by anyone other than Tenant free and clear of all liens and other charges, and in accordance with the plans and specifications. Tenant may perform the following items of work, provided that it complies with all governmental regulations or laws applicable to same, including, but not limited to, the following: (i) demolition of existing improvements; (ii) painting; (iii) finish work; (iv) minor electrical; and (v) carpentry. Tenant acknowledges that Landlord has the right to post Notice of Non -Responsibility in or on the Premises, as provided by law. 8.5 Status of Alterations: Any alterations made shall remain on and be surrendered with the Premises on the expiration or termination of the term, except that Landlord can elect within thirty (30) days before the expiration of the term, or within thirty (30) days after termination of the term, to require Tenant to remove any alterations that Tenant has made to the Premises. Notwithstanding the foregoing, provided Tenant is not in default at the expiration or earlier termination of the Term, Tenant shall be permitted to remove the following fixtures from the Premises: (i) custom cabinetry, (ii) pot-bellied stove and (iii) light fixtures. Tenant's right to remove such items shall be subject to Tenant's obligation, at its sole cost and expense, to repair any damage to the Premises caused by such removal. If Landlord so elects, Tenant, at its cost, shall restore the Premises to the condition specified in Paragraph 21. 8.6 As -Built Plans: On completion of any work of alteration, addition or improvement by Tenant, or any subtenant, Tenant shall supply Landlord with either (i) "as built" drawings or (ii) a copy of Tenant's final plans showing all field changes, either option accurately reflecting all such work. 9. INSURANCE. 9.1 Liability Insurance: a. From and after the date Tenant is given possession of the Premises, Tenant shall maintain in full force a policy or policies of 03/24/92 0787q/2299/000 -6- comprehensive liability insurance issued by one or more insurance carriers, insuring against liability for injury to or death of persons and loss of or damage to property occurring in or on the premises and any portion of the common area which is subject to Tenant's exclusive control. Said liability insurance shall be in an amount of not less than One Million Dollars ($1,000,000.00) combined single limit for bodily and personal injury and property damage, which amount may be reasonably increased from time to time by Landlord. b. Landlord shall during the lease term maintain in full force a policy or policies of comprehensive liability insurance issued by one or more insurance carriers, or through its Joint Powers Insurance Authority, insuring against liability for injury to or death of persons and loss of or damage to property occurring in or on the common area, except any portion thereon subject to Tenant's exclusive control. Said liability insurance shall be in an amount of not less than One Million Dollars ($1,000,000.00) combined single limit for bodily and personal injury and property damage. 9.2 Worker's Compensation Insurance: Tenant shall at all times maintain Worker's Compensation insurance in compliance with California law with limits of not less than One Hundred Thousand Dollars ($100,000.00). 9.3 Fire Insurance: a. Tenant shall pay for and shall maintain in full force and effect during the term of this Lease a standard form of extended coverage endorsement and standard form of lender's loss payable endorsement issued to the holder or holders of a mortgage or deed of trust secured by the premises, if any, in an amount equal to the full replacement cost (without deduction for depreciation) of the premises (including malicious mischief, special extended coverage, earthquake, and sprinkler leakage coverage, and rental insurance equal to fixed minimum rent for up to one (1) year. b. In addition to the foregoing, Tenant shall pay for and shall maintain in full force and effect during the term of this Lease a standard form policy or policies of fire, extended coverage and vandalism, with standard form of extended coverage endorsement covering all stock in trade, trade fixtures, equipment, and other personal property located in the premises and used by Tenant in connection with its business. C. In the event of a casualty, all proceeds of the insurance provided for in subparagraph a., above, shall be payable solely to Landlord. 9.4 Waiver of Subrogation: Each party ("insured") hereby waives its entire right of recovery against the other party, the other party's officers, directors, agents, representatives, employees, successors and assigns with respect to any loss of damage, including consequential loss or damage, to the insured's property caused or occasioned by any peril or perils (including negligent acts) covered by any policy or policies carried by the insured. 9.5 General Requirements: a. All policies of insurance to be carried hereunder by Tenant shall be written by companies satisfactory to Landlord and licensed to do business in California, and holding a Best's Policy Holding Rating of "A" and a size category of "XIV" or better. b. Each policy of public liability insurance required to be carried under Paragraphs 9.1a and b shall be primary and non-contributing with the insurance carried by the other party, except for automobile liability insurance carried by the other party, and shall be excess over such automobile liability insurance. C. Each policy required under Paragraph 9.1 shall expressly include, severally and not collectively, as named or additionally -named insured thereunder, the other party and any person or firm designated by the other party and having an insurable interest thereunder, hereinafter called "additional insured," as their respective interests may appear. 03/24/92 0787q/2299/000 -7- d. Said insurance shall not be subject to cancellation or reduction in coverage except upon at least thirty (30) days prior written notice to each additional insured. The policies of insurance or duly executed certificates evidencing them, together with satisfactory evidence of the payment of premiums thereon, shall be deposited with each additional insured at the commencement of the term and not less than thirty (30) days prior to the expiration of the term of such coverage. If the primary insured fails to comply with this requirement, any additional insured may obtain such insurance and keep it in effect, and the primary insured shall pay to the additional insured the premium cost thereof upon demand with interest from date of payment by the additional insured to the date of repayment by the primary insured. e. If Tenant fails to provide an appropriate certificate of insurance at least five (5) days after the Date of Execution and five (5) days prior to each anniversary of the Commencement Date thereof Landlord may procure such insurance and add the cost thereof to the next monthly rent due from Tenant with interest. 9.6 Blanket Insurance: Each party shall be entitled to fulfill its insurance obligations hereunder by maintaining a so-called "blanket" policy or policies of insurance in such form as to provide by specific endorsement coverage not less than that which is required hereunder for the particular property or interest referred to herein. 10. DAMAGE AND RESTORATION. 10.1 Duty to Restore: If the improvements on the premises are partially or totally damaged by fire or other casualty so as to become partially or totally untenantable, which damage is insured against under any policy of fire or extended coverage insurance then covering the damage improvements, this Lease shall not terminate and said improvements shall be rebuilt by Landlord with due diligence at Landlord's expense unless Landlord elects to terminate this Lease as provided in Paragraph 10.2. 10.2 Election to Terminate: If the improvements on the premises are damaged by an insured casualty to the extent of at least twenty-five percent (250) of their replacement cost (cost to repair or replace at the time of loss without deduction for physical depreciation) during the term of this Lease other than during the last three (3) lease years of said term, or to the extent of at least ten percent (100) thereof during the last three (3) lease years of said term or to any extent by an uninsured cause at any time during the lease term, or by an insured or uninsured cause during any extension or renewal of the lease term, Landlord shall, within not more than ninety (90) days after such damage, notify Tenant of Landlord's election to terminate this Lease or to restore the improvements on the premises and such portion of the improvements in the balance of the shopping center as in Landlord's sole discretion is necessary to create an economically feasible commercial unit. If Landlord elects to repair or restore the damage improvements, then with respect to the premises, Landlord and Tenant each shall restore them in the same manner and to the same extent as work was done by each of them in the original construction and fixturizing of the improvements. If Landlord elects not to restore as aforesaid, this Lease shall terminate effective as of the date of such damage upon the giving of notice of election by Landlord as aforesaid. If Landlord elects to restore or fails to give notice of its election as aforesaid, then this Lease shall remain in full force and effect. 10.3 Rent After Damage: If this Lease is not terminated as provided in this Paragraph 10, then during the period of repair and restoration the fixed minimum rent shall not be reduced or abated for the twelve (12) month -period after the date of the casualty. In the event the Premises are not restored within such twelve (12) -month period, then at the expiration of such twelve (12) -month period, the minimum rent and the common area expense reimbursement shall be proportionally reduced or abated in proportion to the portion of the Premises rendered unusable unless Tenant determines, in its reasonable business judgment, that the restored and/or undamaged portions of the Premises are inadequate to conduct Tenant's business in the Premises, in which event all minimum rent and common area expense reimbursement shall be abated until such time as the restored Premises is delivered to Tenant. 03/24/92 0787q/2299/000 -8- 11. INTENTIONALLY OMITTED. 12. EMINENT DOMAIN. 12.1 Definition: If there is any taking of or damage to all or any part of the premises or any interest therein because of the exercise of the power of eminent domain or inverse condemnation, whether by condemnation proceedings or otherwise, or any transfer of any part thereof or any interest therein made in avoidance thereof (all of the foregoing being hereinafter referred to as "taking") before or during the term hereof, the rights and obligations of the parties with respect to such taking shall be as provided in this Paragraph 12. 12.2 Total Condemnation: If there is a taking of all of the premises, this Lease shall terminate as of the date of such taking. 12.3 Partial Condemnation: If twenty-five percent (250) or more of the floor area of Tenant's premises shall be taken, either party shall be entitled to terminate this Lease; and the terminating party shall give the other party written notice of such election not later than thirty (30) days after the date Landlord delivers notice to Tenant that possession or title to the portion of the premises taken has vested in the condemnor. If neither party gives such notice or less that twenty-five percent (250) of the floor area of Tenant's premises shall be taken, this Lease shall remain in full force and effect and rent shall be adjusted as provided in Paragraph 12.7. 12.4 Common Area: If twenty-five percent (250) or more of the common area within a radius of four hundred (400) feet from the main entrance to the premises shall be taken, either party shall be entitled to elect to cancel and terminate this Lease and shall give the other party written notice of such election not later than thirty (30) days after the date Landlord delivers notice to Tenant that possession or title to said portion of the common area taken has vested in the condemnor. If neither party gives such notice or more than seventy-five percent (750) of said portion of the common area will be available after such taking, this Lease shall remain in full force and effect. In no event shall Tenant have the right to terminate this Lease if Landlord provides additional common area which, when combined with the remaining common area provides a common area which is at least seventy-five percent (750) as large as said portion of the common area before the taking. 12.5 Termination Date: If this Lease is terminated in accordance with the provisions of this Paragraph 12, such termination shall become effective as of the date physical possession of the condemned portion is taken. 12.6 Repair and Restoration: If this Lease is not terminated as provided in this Paragraph 12, Landlord shall at its sole expense restore with due diligence the remainder of the improvements occupied by Tenant so far as practicable to a complete unit of like quality, character, and condition as that which existed immediately prior to the taking, provided that the scope of the work shall not exceed the scope of the work to be done by Landlord originally in constructing the premises, and further provided that Landlord shall not be obligated to expend an amount greater than that which was awarded to Landlord for such taking. 12.7 Rent Adjustment: If this Lease is not terminated as provided in this Paragraph 12, the fixed minimum rent shall be reduced by that proportion which the floor area taken from the premises bears to Tenant's total floor area immediately before the taking. There shall be no other abatement. 12.8 Award: The entire award or compensation in such proceedings, whether for a total or partial taking or for diminution in the value of the leasehold or for the fee shall belong to and be the property of Landlord, provided that Tenant shall be entitled to recover from the condemnor such compensation as may be separately awarded by the condemnor to Tenant or recoverable from the condemnor by Tenant in its own right for the taking of trade fixtures and equipment owned by Tenant (meaning personal property, whether or not attached to real property, which may be removed without injury to the premises), for the expense of removing and relocating them, for loss of goodwill to Tenant's business, and for no other cause. 03/24/92 0787q/2299/000 -9- 12.9 Condemnation by Landlord: Landlord hereby agrees that the rights and obligations set forth above in Sections 12.1 through 12.9 inclusive shall not apply in the event of a condemnation (or transfer in lieu thereof) by Landlord or the City of San Juan Capistrano, and that Landlord shall not discriminate against Tenant in electing to condemn the Premises and as of the Date of Execution of Lease set forth in Paragraph A of the Basic Lease Provisions, Landlord is not contemplating the commencement of any condemnation proceedings against the Premises. 13. INDEMNITY: WAIVER. 13.1 Indemnity: Tenant shall indemnify and save Landlord harmless from and against any and all liens, claims, demands, actions, causes of action, obligations, penalties, charges, liability, damages, loss, cost or expense, including reasonable attorneys' fees for the defense thereof, arising from or connected with the conduct or management of the business conducted by Tenant on the premises or any portion of the common area which is under the exclusive control of Tenant (the premises and such portion of the common area which is under the exclusive control of tenant being referred to as "Tenant's premises" in Paragraphs 13.1 and 13.2), or the use or occupancy of Tenant's premises, or from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Lease, or from violations of or noncompliance with any governmental requirements or insurance requirements, or from any acts or omissions of Tenant or any person upon Tenant's premises by license or invitation of Tenant or occupying Tenant's premises or any part thereof under Tenant. 13.2 Waiver: All property kept, stored or maintained on Tenant's premises shall be so kept, stored or maintained at the sole risk of Tenant; and except in the case of Landlord's willful misconduct, Landlord shall not be liable, and Tenant waives all claims against Landlord, for damages to persons or property sustained by Tenant or by any other person or firm resulting from the building in which the premises are located or any roof or by reason of the Tenant's premises or any equipment located therein becoming out of repair, or through the acts or omissions of any persons present in or occupying any portion of the Premises, or for loss or damage resulting to Tenant or its property from burst, stopped or leaking sewers, pipes, conduits, or plumbing fixtures, or for interruption of any utility services, or from any failure or defect in any electric line, circuit, or facility, or any other type of improvement or service on or furnished to Tenant's premises or resulting from any accident in, on, or about Tenant's premises or the building in which the Tenant's premises are located. Landlord shall have no liability for conduct of others upon the premises. 14. OPERATION OF BUSINESS. Tenant shall continuously and uninterruptedly, subject only to Paragraph 18, during the entire lease term; (a) remain open for business at least forty-eight (48) hours per week; (b) adequately staff its store with sufficient employees to handle the maximum business and carry sufficient stock of merchandise of such amount, character and quality to accomplish this purpose; (c) keep the display windows and signs, if any, well lighted during the hours from sundown to 12 midnight; (d) keep the premises and exterior and interior portions of windows, doors and all other glass or plate glass fixtures in a neat, clean, sanitary and safe condition; (e) warehouse, store or stock only such merchandise as Tenant intends to offer for sale at retail; (f) refrain from burning any papers or refuse of any kind; (g) store in the area designated by Landlord all trash and garbage in neat and clean containers so as not to be visible to members of the public and arrange for the regular pickup and cartage of such trash or garbage at Tenant's expense or cooperate in the employment of a trash removal contractor designated by Landlord if Landlord deems it desirable to have all waste materials removed by one contractor; (h) observe and promptly comply with all governmental requirements and insurance requirements affecting the premises or any part of the common area which is under Tenant's exclusive control and promulgated during the term of this Lease; (i) not use or suffer or permit to be used the premises of any part thereof in any manner that will constitute a nuisance or unreasonable 03/24/92 0787q/2299/000 -10- annoyance to the public or to Landlord, or for any extra hazardous purpose, or in any manner that will impair the structural strength of the building or which the Premises are a part; (j) not sell any drug-related paraphernalia or otherwise operate a business known as a "head shop"; and (k) operate the type of business set forth in Paragraph G under the trade name set forth in Paragraph D. Notwithstanding the foregoing, in addition to the items set forth in Paragraph G of the Basic Lease Provisions, the Premises may also be used for (a) the demonstration, showcasing and highlighting of Western artisans and craftsmen in displays and living exhibits of skills and activities such as hatblocking, leather tooling, Western art and painting, silversmithing, glassblowing, bootmaking, Western photography, poetry reading and related activities of a similar nature; (b) the brokerage of Western excursions and outings (provided Tenant shall not broker any services which a traditional travel agency would offer); (c) the incidental sale of non-alcoholic beverages (such as Sarsaparilla) and penny candy; and (d) storage and warehousing of merchandise and supplies and office space specifically related to the operation of Tenant's business in the Premises. 15. SIGNS AND ADVERTISING. 15.1 General: Sign rights and criteria are set forth in the San Juan Capistrano Municipal Code Section 9-3.6032 and Paragraphs 15.2 and 15.3. 15.2 Interior: Tenant (and Tenant's office subtenants) may at their own expense erect and maintain upon the interior sales areas of the premises and the second floor all signs and advertising matter customary and appropriate in the conduct of their businesses which comply with governmental requirements or laws, subject to Landlord's right to remove any signs or advertising matter which violate Paragraphs 14(j), 15.3, or other provisions of this Lease. 15.3 Exterior: Tenant must, at his own expense, erect an exterior sign complying with all governmental requirements. Each occupant of the Premises shall be permitted to place at the entrance of each occupants' space a small sticker or decal, indicating hours of business, emergency telephone numbers and anything required by applicable regulatory agencies. Tenant shall at its own expense maintain and keep in good repair all such installations, signs, and advertising devices and shall pay all charges required to keep them in good repair. Tenant's sign must be installed and operating concurrent with its opening for business. Tenant's signs must be duly inspected and approved by the appropriate governmental department or authority. 16. LIENS. Tenant shall keep the premises free of any liens or claims of lien arising from any work performed, material furnished, or obligations incurred by Tenant in connection with the premises. If Tenant disputes the correctness or validity of any claim of lien, Tenant shall within ten (10) days after written request by Landlord record such bond as will release said property from the lien claimed. 17. ENTRY BY LANDLORD. Upon reasonable notice to Tenant (except in an emergency, in which event no such notice need be given) Landlord reserves, and shall at any and all times have, the right to enter the Premises during business hours (except in the event of an emergency) to inspect the same, to submit said Premises to prospective purchasers or tenants and to post notices of non -responsibility, without abatement of rent, and further providing that the business of the Tenant shall not be interfered with unreasonably. Tenant hereby waives any claim for damages or for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. Landlord shall have the right to use any and all means which Landlord may deem proper in an emergency, to obtain entry to the Premises without liability to Tenant except for any failure to 03/24/92 0787q/2299/000 -11- exercise due care for Tenant's property and any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant from the premises or any portion thereof. 18. DELAYING CAUSES. If either party is delayed in the performance of any covenant of this Lease because of any of the following causes (referred to elsewhere in this Lease as a "delaying cause"): acts of the other party, action of the elements, war, riot, labor disputes, inability to procure or general shortage of labor or materials in the normal channels of trade, delay in transportation, delay in inspections, or any other cause beyond the reasonable control of the party so obligated, whether similar or dissimilar to the foregoing, financial inability excepted, then such performance shall be excused for the period of the delay and the period for such performance shall be extended for a period equivalent to the period of such delay, except that the foregoing shall in no way affect Tenant's obligation to pay rent and other charges for the length of the term of this Lease. 19. ASSIGNMENT AND SUBLETTING. 19.1(a) When Consent Is Required: For a period of five (5) years from the Commencement Date, Tenant shall not directly or indirectly assign, encumber, alienate, or otherwise transfer (including any transfer by operation of law), or sell all or a majority of its interest under this Lease to any third party, or in any manner relinquish management and control of the premises to any other third party. After the expiration of this five (5) year period, Tenant shall have the right to assign this lease, or sublease any interest herein provided the prior written consent of Landlord is first obtained, such consent not to be unreasonably withheld. Notwithstanding the foregoing, the sale, assignment, transfer or disposition, whether for value, by operation of law, gift, will or intestacy, of (a) forty-nine percent (490) or less of the outstanding stock of Tenant if Tenant is a corporation, or (b) forty-nine percent (490) or less of the interest of any general partner, joint venturer, associates, or cotenant, if Tenant is a partnership, joint venture, association, or cotenancy, shall not at any time during the term be deemed an assignment or transfer which is prohibited or for which Landlord's consent is required. (b) Permitted Transfers. Notwithstanding (a) above, so long as Tenant retains control over the ground floor area of the Premises at any time during the term, Tenant may enter into agreements with other third parties in the form of licenses, subleases, concession agreements, consignments or any other appropriate marketing agreement which gives permission to a vendor or supplier of merchandise to display and sell their products on the Premises, provided such persons or entities conduct uses in conformance with Paragraph G of the Basic Lease Provisions (collectively, "Permitted Transfers"). Tenant may enter into or terminate such agreements for Permitted Transfers at will, in Tenant's discretion, as required, desired or necessary for the success of Tenant's business, and Landlord's consent shall not be required thereto and no transfer fees or other fees shall be payable under this Lease to Landlord with respect thereto. (c) Except for any Permitted Transfer or Exempt Transfer (as defined below) any request by Tenant to Landlord for Landlord's consent to any assignment or sublease shall be accompanied by the following: a. Complete financial information with respect to the proposed assignee or sublessee. b. Copies of all documents in connection with such sublease or assignment including, where appropriate, copies of documents with respect to a sale of Tenant's business. C. A description of the business experience of the proposed assignee or sublessee. 03/24/92 0787q/2299/000 -12- d. Proof that all payments due Landlord and all reports due have been delivered to Landlord. A Seven Hundred Fifty Dollar ($750.00) payment, to cover Landlord's handling charges for each such transaction it is requested to approve. (d) Exempt Transfer. Notwithstanding the foregoing, Landlord's prior written consent shall not be required and the fee set forth above shall not be payable in connection with (i) the assignment of the lease from Tim Holsten to a business entity to be formed named Vaquero West Mercantile Company, a California limited partnership, or San Juan Saloon Building, a California limited partnership or some other name reasonably approved by Landlord, whether such entity shall be a corporation, general partnership, limited partnership, joint venture or other form of business entity ("Exempt Transfer"), so long as (a) Tim Holsten shall not be relieved of any liability under the Lease as a result of such assignment and shall remain personally liable, (b) Tim Holsten executes a guarantee of the Lease in Landlord's standard form and (c) such assignee executes an instrument in form and content reasonably satisfactory to Landlord assuming all of Tenant's obligations under the Lease, and (ii) in the event of such a transfer as described in (i), above, Tim Holsten shall retain at least fifty-one percent (510) of any stock or interest in the assignee. 19.2 General Conditions: In the event of any assignment of this Lease, Tenant shall remain primarily liable on its covenants hereunder unless released in writing by Landlord. In the event of any assignment or sublease the assignee or sublessee shall agree in writing to perform and be bound by all of the covenants of this Lease required to be performed by Tenant. After any one assignment or subletting by Tenant of its interest in this Lease pursuant to Paragraph 19.1, no further assignment or subletting shall be made without Landlord's prior written consent. 19.3 Landlord's Rights with Respect to Tenant's Assignment or Subletting: Any assignment or subletting without the prior written consent of Landlord, which consent shall not be unreasonably withheld, shall be voidable at the election of Landlord, which election can be made at any time within two (2) months after Landlord is given written notice thereof. In the event that Tenant makes or suffers such assignment or subletting without Landlord's written consent (including assignment or subletting by operation of law), then such act or sufferance or assignment or subletting shall be deemed to grant an option to Landlord to terminate this Lease, and the tenancy created hereby (including subtenancies). Such option must be exercised by Landlord within two (2) months of the date it receives the written notices described herein; upon the exercise of said option by Landlord, Tenant shall have a reasonable time, not exceeding the end of the succeeding calendar month within which to vacate the entirety of the leased Premises, at which date the tenancy created by this Lease shall be deemed to have terminated, and any further occupancy by Tenant (and those holding under Tenant) shall constitute an unlawful detention. Landlord's consent to any assignment or subletting shall not relieve Tenant from each and all of Tenant's obligations hereunder and Tenant shall continue to remain jointly and severally liable hereunder with said assignee or subtenant. Landlord may exercise the rights granted in this Paragraph 19.3 at any time prior to receiving written notice if Landlord has actual notice of such assignment or subletting. 19.4 Termination of Subleases, Licenses and Concession Agreements: Notwithstanding any term or provision of this Lease, Tenant agrees that in the event of the expiration or earlier termination of this Lease, all subleases, license agreements, concession agreements and any other agreement pursuant to which anyone occupies all or any part of the Premises or operates any business therein shall automatically cease and terminate, whether Landlord's consent was required for such sublease, license agreement, concession agreement, other agreement or not. Tenant agrees that any such sublease, license agreement, concession agreement or other agreement shall contain a provision providing for the above and an acknowledgement by all parties thereto that such agreement shall at all times be subordinate to the Lease. 03/24/92 0787q/2299/000 -13- 20. NOTICES. Whenever under this Lease provision is made for notice, demand, or request for consent, it shall be in writing and signed by or on behalf of the party giving the notice or making the demand and served by registered or certified mail, or by telegraph, or facsimile transmission (FAX). If served by registered or certified mail, it shall be deposited in the United States mail postage prepaid, with return receipt requested, addressed to the party to whom such notice or demand is to be given at the address stated in Paragraphs L or M as the case may be, and shall be conclusively deemed served on the date indicated on the return receipt and if the receipt is not returned, then forty-eight (48) hours after mailing. If served by telegraph or facsimile transmission (FAX), service to the addressee shall be conclusively deemed made as confirmed by the telegraphic agency making delivery. The address of either party may be changed for the purpose of this Paragraph by notice to the other party. 21. SURRENDER OF POSSESSION. 21.1 Surrender: At the expiration of the tenancy created hereunder, whether by lapse of time or otherwise, Tenant shall remove all signs and surrender the premises broom clean and in the same condition and repair as at the commencement date of the Lease, ordinary wear and tear excepted, subject to the provisions of Article 33. 21.2 Holding Over: a. Other than (i) a holding over in accordance with Article 45 below or (ii) a holding over pending good faith negotiations between Landlord and Tenant for an extension or renewal of the Lease, in no event to exceed sixty (60) days, if Tenant holds the Premises after the expiration of the term hereof, such holding over shall, in the absence of a written agreement on the subject, be deemed to have created a tenancy from month to month, terminable on thirty (30) days' written notice by either party to the other, at a minimum monthly rental equal to 1.5 times the average monthly rental paid by Tenant to Landlord during the immediately preceding year, and otherwise subject to all terms of this Lease, including the payment of all other charges payable by Tenant hereunder. Neither acceptance of rent nor of anything contained in this subparagraph shall be construed as an express or implied consent to such holding over, nor affect Landlord's right to recovery of possession as a consequence of holding over. b. If Tenant fails to surrender the demised premises upon the termination of this Lease, Tenant shall indemnify and hold harmless Landlord from loss or liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant arising out of such failure. 22. QUIET ENJOYMENT. Subject to the provisions of this Lease and conditioned upon performance of all of the provisions to be performed by Tenant hereunder, Landlord shall secure to Tenant during the lease term the quiet and peaceful possession of the premises and all rights and privileges appertaining thereto. 23. SUBORDINATION. Tenant agrees that this Lease, at Landlord's option, shall be subordinated to any mortgages, trust deeds or other real property security interests that may hereafter be placed upon said premises and to any advances to be made thereunder, any interest thereon, and all renewals, replacements and extensions thereof, provided (i) that such mortgagees or beneficiaries first request such subordination, and (ii) that Tenant shall not be obligated to subordinate its rights pursuant to the Lease unless the mortgagees or beneficiaries concurrently enter into a non -disturbance agreement with Tenant in such mortgagee's or beneficiary's then standard form providing that Tenant's possession of the Premises and its rights under this Lease will not 03/24/92 0787q/2299/000 -14- be disturbed or affected (provided Tenant is not in default) by any actions taken by such holder of an interest to which this Lease is subordinated. Tenant shall execute and deliver, without cost to Landlord, whatever instruments may be required to effect such subordination. Tenant shall at any time, hereafter, on the request from Landlord execute any instruments, leases or other documents that may be required to render Tenant's interest hereunder prior to the lien of any Mortgage or Deed of Trust and the failure of Tenant to execute any such instrument, lease or other document shall constitute a default hereunder. However, should the demised premises be purchased or otherwise acquired by any person in connection with any sale or other proceeding under the terms of any mortgage or trust deed, this Lease shall, at the option of such person, continue in full force and effect, and Tenant hereby attorns and agrees to attorn to such person. Any breach of this Paragraph by Tenant shall be and is deemed to be a substantial material breach. 24. OFFSET STATEMENT. Tenant shall, at any time and from time to time within ten (10) days after written request therefor by Landlord, deliver a certificate to Landlord or to any proposed mortgagee, trust deed beneficiary, purchaser, or successor in interest, certifying the commencement and expiration date of the lease term, the security deposit held by Landlord, the date through which rental has been paid, that this Lease is then in full force and effect and setting forth the amount and nature of modifications, defenses, or offsets, if any, claimed by Tenant. If Tenant fails to deliver such certificate within said ten (10) -day period, Tenant hereby appoints Landlord as Tenant's attorney in fact for the purpose of completing, executing and delivering the certificate to the person or firm requesting it. Any breach of this Paragraph by Tenant shall be and is deemed to be a substantial material breach. Tenant hereby acknowledges that the failure to submit such certificate in a timely manner will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Accordingly, in addition to all other remedies, Landlord may impose a charge equal to one month's minimum rent for failure of Tenant to timely submit such certificate which the parties agree represents a fair and reasonable estimate of the damage caused Landlord by such failure. Acceptance of such charge shall not constitute a waiver of Tenant's default. 25. DEFAULT. 25.1 Notice and Remedies: In the case of Tenant's failure to pay rent or to perform any of Tenant's other obligations under this Lease, or any part thereof, when due or called for hereunder, (such failure in each instance being deemed to be a material breach) Tenant shall have a period of seven (7) days after service of written notice by Landlord specifying the nature of Tenant's default within which to cure such defaults provided that if the nature of a non -monetary default is such that it cannot be fully cured within said three (3) -day period, Tenant shall have such additional time as may be reasonably necessary (not exceeding one hundred twenty (120) days) to cure such default so long as Tenant begins promptly after service of Landlord's notice and proceeds diligently at all times to complete said cure. If Tenant fails to comply with the foregoing provisions, or if Tenant has breached its obligations in a fashion which cannot be cured, such as the submission of false financial statements of Tenant or a guarantor Tenant shall be deemed to be in material breach of this Lease, and Landlord with or without notice or demand of any kind shall have the following options: a. Landlord shall have the right to terminate this Lease by giving to Tenant written notice of such termination. b. If Landlord elects to terminate this Lease as provided in subparagraph (a) hereof, Landlord may then or at any time thereafter re-enter the Premises, or any part thereof, and expel or remove therefrom Tenant any other persons occupying the same, using such force as may be necessary so to do, and again possess and enjoy the Premises, without prejudice to any other remedies that Landlord may have by reason of Tenant's default or of such termination. 03/24/92 0787q/2299/000 -15- C. If Landlord elects to terminate this Lease, as provided in subparagraph (a) hereof, Landlord shall have all of the rights and remedies of a Landlord provided by Section 1951.2 of the California Civil Code. The amount of damages which Landlord may recover in the event of such termination shall include: (i) the worth at the time of award (computed by allowing interest at the maximum rate permitted by law) of the unpaid rent and charges equivalent to rent earned as of the date of termination hereof; (ii) the worth at the time of the award (computed by allowing interest at the maximum rate allowable by law) of the amount by which the unpaid rent and charges equivalent to rent which would have been earned after the date of termination hereof until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoid; (iii) the worth at the time of award (computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one percent (lo)) of the amount by which the unpaid rent and charges equivalent to rent for the balance of the term hereof after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; (iv) any other amount necessary to compensate Landlord for the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom; and (v) any other amount which Landlord may by law hereafter be permitted to recover from Tenant to compensate Landlord for the detriment caused by Tenant's default. d. After terminating this Lease pursuant to subparagraph (a) hereof, Landlord may, without any further demand or notice, remove any and all personal property located on the Premises and place such property in a public or private warehouse or elsewhere at the risk and sole cost and expense of Tenant. In the event that Tenant shall not immediately pay the cost of storage of such property after the same has been stored for a period of thirty (30) days or more, Landlord may sell any or all thereof at a public or private sale in such a manner and at such times and places as Landlord in its sole discretion may deem proper, without notice to or demand upon Tenant. Tenant waives all claims for damages that may be caused by Landlord's re-entering and taking possession of the Premises or by removing or storing or selling the property as herein provided, and Tenant shall indemnify and hold Landlord free and harmless from and against any and all losses, costs and damages, including without limitation all court costs and attorneys' fees of Landlord occasioned thereby. e. Landlord shall have the right to cause a receiver to be appointed in any action against Tenant to take possession of the Premises and/or to collect the rents or profits derived therefrom. Said receiver may, if it is necessary or convenient in order to collect such rents or profits, conduct the business and may use the same in conducting such business on the Premises without compensation to Tenant for such use. Neither the application for the appointment of such receiver nor the appointment of such receiver shall constitute an election on the part of the Landlord to terminate this Lease unless a written notice of such intention is given to Tenant. f. Landlord may at Landlord's election re-enter the Premises, and, without terminating this Lease, at any time and from time to time re -let the Premises and improvements or any part or parts of them for the account and in the name of Tenant or otherwise. Any re -letting may be for the remainder of the Term or for a longer or shorter period. Landlord may execute any leases made under this provision either in Landlord's name or in Tenant's name and shall be entitled to all rents from the use, operation, or occupancy of the Premises or improvements or both. Tenant shall nevertheless pay to Landlord on the due dates specified in this Lease the equivalent of all sums required of Tenant under this Lease, plus Landlord's expenses, less the avails of any re -letting or attachment. No act by or on behalf of Landlord under this provision shall constitute a termination of this Lease unless Landlord gives Tenant notice of termination. g. If Landlord elects to re-enter the Premises without termination, as provided in subparagraph (f) hereof, Landlord may at Landlord's election use Tenant's personal property and trade fixtures or any of such property and fixtures without compensation and without liability for use or damage, or store them for the account and at the cost of Tenant. The election of one remedy for any one item shall not foreclosure an election of any other remedy for another item or for the same item at a later time. 03/24/92 0787q/2299/000 -16- h. Notwithstanding anything to the contrary set forth herein, Landlord's re-entry to perform acts of maintenance of preservation of or in connection with efforts to re -let the Premises or any portion thereof, or the appointment of a receiver upon Landlord's initiative to protect Tenant's interest under this Lease shall not terminate Tenant's right to possession of the Premises or any portion thereof, and until Landlord does elect to terminate this Lease by written notice to Tenant, this Lease shall continue in full force and effect and Landlord may enforce all of Landlord's rights and remedies hereunder including, without limitation, the right to recover from Tenant as it becomes due hereunder all rent, additional rent and other charges required to be paid by Tenant under the terms hereof. Any re -letting by Landlord of the Premises and improvements, or any part or parts of them, shall be for the account and in the name of Tenant or otherwise. Any re -letting may be for the remainder of the term of this Lease or for a longer or shorter period. Landlord may execute any leases made under this provision either in Landlord's name or in Tenant's name and shall be entitled to all rents from the use, operation, or occupancy of the Premises or improvements or both. i. Nothing in this Article 25 shall be deemed to affect Landlord's right to defense and indemnification for liability or liabilities arising prior to the termination of this Lease for personal injuries or property damage under the indemnification clause or clauses contained in this Lease. j. In addition to the other remedies provided in this Lease, Landlord shall be entitled to injunctive relief in case of the violation, or attempted or threatened violation, of any covenant, agreement, condition or provisions of this Lease and to a decree compelling performance of any covenant, agreement, condition or provision of this Lease and to any other remedy allowed to Landlord at law or in equity. 25.2 Notice of Termination: No reentry or re -letting of the premises shall be construed as an election by Landlord to terminate Tenant's right to possession and this Lease unless a written notice of such intention is given by Landlord to Tenant; and notwithstanding any such re -letting without such termination, Landlord may at any time thereafter elect to terminate Tenant's right to possession and this Lease in the event that at such time Tenant remains in default hereunder. 25.3 Waiver of Notice; Performance by Landlord: Notwithstanding any provision of this Paragraph 25, (a) if Tenant is required to comply with any governmental requirement, Tenant shall not be entitled to notice of default from Landlord and right to cure beyond the period within which such compliance may be required by such requirement; or (b) ;if this Lease expressly provides that this Lease may be terminated effective on service of notice, Tenant shall be entitled to cure its default only if the right to cure is required by law; or (c) if in Landlord's judgment the continuance of any default by Tenant for the full period of notice provided for herein will jeopardize the premises or the rights of Landlord, Landlord may, with or without notice, elect to perform those acts in respect to which Tenant is in default for the account and at the expense of Tenant. If by reason of such default by Tenant, Landlord is compelled to pay or elects to pay any sum of money, including, but without limitation, reasonable attorneys' fees, such sum or sums so paid by Landlord, with interest thereon from the date of such payment at the rate provided in this Lease, shall be due from Tenant to Landlord on the first day of the month next following such payment by Landlord. 25.4 Interest: Any sum accruing to Landlord under the terms and provisions of this Lease which shall not be paid when due shall bear interest at the lower of eighteen percent (180) per annum or the highest rate permitted under the then existing Usury Statutes for non -consumer obligations, from the date the same becomes due and payable by the terms and provisions of this Lease until paid, unless otherwise specifically provided in this Lease. 25.5 Other Remedies: Nothing contained in this Lease shall limit Landlord to the remedies set forth in this Paragraph 25, and particularly those which are set forth in Paragraph 25.1; and upon Tenant's default Landlord shall be entitled to exercise any right or remedy then provided by law, including, but without limitation, the right to obtain injunctive relief 03/24/92 0787q/2299/000 -17- and the right to recover all damages caused by Tenant's default in the performance of any of its obligations under this Lease. 25.6 Default: In the event that Tenant is in default under any provision of this Lease more than four (4) times during any calendar year of the term of this Lease or any extension, then in addition to any and all other rights and remedies under this Lease or any applicable law, rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding Paragraph 4 or any other provision of this Lease to the contrary. 26. BANKRUPTCY OR INSOLVENCY. 26.1 In the event that Tenant shall become Debtor under chapter 7 of the Bankruptcy Code, and the Trustee or Tenant shall elect to assume this Lease for the purpose of assigning the same or otherwise, such election and assignment may only be made if all of the terms and conditions of this Lease are satisfied. If such Trustee shall fail to elect or assume this Lease within sixty (60) days after the filing of the Petition, this Lease shall be deemed to have been rejected. Landlord shall be thereupon immediately entitled to possession of the Premises without further obligation to Tenant or Trustee, and ;this Lease shall be cancelled, but Landlord's right to be compensated for damages in such liquidation proceeding shall survive. 26.2 In the event that a Petition for reorganization or adjustment of debts is filed concerning Tenant under Chapters 11 or 13 of the Bankruptcy Code, or a proceeding is filed under Chapter 7 of the Bankruptcy Code and is transferred to Chapters 11 or 13, the Trustee or Tenant, as Debtor -In -Possession, must elect to assume this Lease within seventy-five (75) days from the date of the filing of the Petition under Chapters 11 or 13, or the Trustee or Debtor -In -Possession shall be deemed to have rejected this Lease. No election by the Trustee or Debtor -In -Possession to'assume this lease, whether under Chapters 7, 11 or 13, shall be effective unless each of the following conditions, which Landlord and Tenant acknowledge are commercially reasonable in the context of a bankruptcy proceeding of Tenant, have been satisfied, and Landlord has so acknowledged in writing: a. The Trustee or the Debtor -In -Possession has cured, or has provided Landlord adequate assurance that: (1) Within ten (10) days from the date of such assumption the Trustee will cure all monetary defaults under this Lease; and (2) Within thirty (30) days from the date of such assumption the Trustee will cure all non -monetary defaults under this Lease. b. The Trustee or the Debtor -In -Possession has compensated, or has provided to Landlord adequate assurance that within ten (10) days from the date of assumption Landlord will be compensated for any pecuniary loss incurred by Landlord arising from the default of Tenant, the Trustee, or the Debtor -In -Possession as recited in Landlord's written statement of pecuniary loss sent to the Trustee or Debtor -In -Possession. C. The Trustee or the Debtor -In -Possession has provided Landlord with adequate assurance of the future performance of each of Tenant's, Trustee's or Debtor -In -Possession's obligations under this Lease; provided, however, that: (1) The Trustee or Debtor -In -Possession shall also deposit with Landlord, as security for the timely payment of rent, an amount equal to three (3) months' rent and other monetary charges accruing under this Lease; and (2) If not otherwise required by the terms of this Lease, the Trustee or Debtor -In -Possession shall also pay in advance on the date minimum rent is payable one -twelfth (1/12th) of Tenant's annual obligations under this Lease for maintenance, insurance and similar charges. 03/24/92 0787q/2299/000 -18- (3) From and after the date of the assumption of this Lease, the Trustee or Debtor -In -Possession shall pay as minimum rent an amount equal to the minimum rental otherwise payable hereunder, which amount shall be payable in advance in equal monthly installments on the date minimum rent is payable; (4) The obligations imposed upon the Trustee or Debtor -In -Possession shall continue with respect to Tenant or any assignee of the Lease after the completion of bankruptcy proceedings. 26.3 In the event that this Lease is assumed by a Trustee appointed for Tenant or by Tenant as Debtor -In -Possession under the provisions of Section 26.2 hereof and thereafter Tenant is liquidated or files a subsequent Petition for reorganization or adjustment of debts under Chapters 11 or 13 of the Bankruptcy Code, then, and in either of such events, Landlord may, at its option, terminate this Lease and all rights of Tenant hereunder, by giving Tenant written notice of its election to so terminate, by no later than thirty (30) days after the occurrence of either of such events. 26.4 When, pursuant to the Bankruptcy Code, the Trustee or Debtor -In -Possession shall be obligated to pay reasonable use and occupancy charges for the use of the Premises or any portion thereof, such charges shall not be less than the minimum annual rent as defined in this Lease and other monetary obligations of Tenant for the payment of maintenance, insurance and other charges payable by Tenant hereunder. 26.5 Neither Tenant's interest in the Lease, nor any lesser interest of Tenant herein, nor any estate of Tenant hereby created, shall pass to any trustee, receiver, assignee for the benefit of creditors, or any other person or entity, or otherwise by operation of law under the laws of any state having jurisdiction of the person or property of Tenant (hereinafter referred to as the "state law") unless Landlord shall consent to such transfer in writing. No acceptance by Landlord of rent or any other payments from any such trustee, receiver, assignee, person or other entity shall be deemed to have waived, nor shall it waive Landlord's right to terminate this Lease nor the need to obtain Landlord's consent for any transfer of Tenant's interest under this Lease without such consent. 27. REMEDIES CUMULATIVE. The various rights, elections, and remedies of Landlord and Tenant contained in this Lease shall be cumulative, and no one of them shall be construed as exclusive of any of the others, or of any right, priority, or remedy allowed or provided for by law. 28. ATTORNEYS' FEES. If either party hereto shall file any action or bring any proceeding against the other party arising out of this Lease or for the declaration of any rights hereunder, the prevailing party therein shall be entitled to recover from the other party, all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party as determined by the court. If either party ("secondary party") without its fault is made a party to litigation instituted by or against the other party ("primary party"), the primary party shall pay to the secondary party all costs and expenses, including reasonable attorneys' fees, incurred by the secondary party in connection therewith. 29. WAIVER OF DEFAULT. The waiver by either party of any default in the performance by the other of any covenant contained herein shall not be construed to be a waiver of any preceding or subsequent default of the same or any other covenant contained herein. The subsequent acceptance of rent or other sums hereunder by Landlord shall not be deemed a waiver of any preceding default other than the failure of Tenant to pay the particular rental or other sum or portion thereof so accepted, regardless of Landlord's knowledge of such preceding default at the time of acceptance of such rent or other sum. 03/24/92 0787q/2299/000 -19- 30. ABANDONMENT. Lessee shall not vacate or abandon the premises at any time during the term hereof; such act shall constitute a default. (The cessation of business for a continuous period of fifteen (15) days or more except by legal compulsion or force majeure not created by the act, omission or defalcation of Tenant shall conclusively be deemed an abandonment.) If Tenant shall abandon, vacate or surrender said premises or be dispossessed by process of law or otherwise, in addition to all other remedies of Landlord, any improvements, fixtures or personal property belonging to Tenant and left on the premises shall be deemed abandoned, and at the option of Landlord become the property of Landlord. 31. SUBTENANCIES. The voluntary or other surrender of this Lease by Tenant or a mutual cancellation of this Lease shall not effect a merger and shall, at Landlord's option, terminate all existing subtenancies or operate as an assignment to Landlord of any or all of such subtenancies. 32. SUCCESSORS. Subject to the provisions of Paragraph 19, this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their successors. The term "successors" is used herein in its broadest possible meaning and includes, but is not limited to, every person succeeding to any interest in this Lease or the premises, of Landlord or Tenant herein, whether such succession results from the act or omission of such party. Every covenant and condition of this Lease shall be binding upon all assignees, subtenants, licensees, and concessionaires of Tenant. 33. REMOVAL OF TENANT'S PROPERTY. Upon the expiration of the term of this Lease or upon any earlier termination thereof, Tenant shall remove at its own expense all trade fixtures, equipment, merchandise, and personal property (collectively called "Tenant's property" in this Lease) which were installed by Tenant or any subtenant, concessionaire of licensee in or upon the premises; but if Tenant is in default, Tenant shall not remove Tenant's property unless notified by Landlord so to do. In case of any injury or damage to the building or any portion of the premises resulting from the removal of Tenant's property, Tenant shall promptly pay to Landlord the cost of repairing such injury or damage. Tenant shall complete such removal by the time provided in the first sentence of this Paragraph 33 unless prevented from so doing by a delaying cause, or Landlord may, at Landlord's option, retain any or all of Tenant's property; and title thereto shall thereupon vest in Landlord without the execution of documents of sale or conveyance by Tenant, or Landlord may remove any or all items of Tenant's property from the premises and dispose of them in any manner Landlord sees fit, and Tenant shall pay upon demand to Landlord the actual expense of such removal and disposition together with interest from the date of payment by Landlord until repayment by Tenant. 34. EFFECT OF CONVEYANCE. If during the term of this Lease, Landlord conveys its interest in the premises, or this Lease, then from and after the effective date of such conveyance, and provided Landlord has given the transferee written notice of this Lease, including the provisions of Article 45, below, Landlord shall be released and discharged from any and all further obligations and responsibilities under this Lease except those already accrued of which Landlord has notice at the time of conveyance. 35. LANDLORD'S DEFAULT; NOTICE TO LENDER. 35.1 Landlord's Default: In the case of a monetary default, Landlord shall have a period of ten (10) days after notice thereof from Tenant to cure 03/24/92 0787q/2299/000 -20- such monetary default. In the case of a non -monetary default, Landlord shall commence promptly to cure such default immediately after receipt of written notice from Tenant specifying the nature of such default and shall complete such cure within thirty (30) days thereafter, provided that if the nature of the non -monetary default is such that it cannot be cured within said thirty (30) -day period, Landlord shall have such additional time as may be reasonably necessary to complete its performance so long as Landlord has proceeded with diligence after receipt of Tenant's notice and is then proceeding with diligence to cure such default. Tenant shall have no right to terminate this Lease or to withhold or to deduct rent as a remedy for any Landlord default hereunder, Tenants' only right shall be a claim for damages. 35.2 Notice to Lender: Whenever Tenant is required to serve notice on Landlord of Landlord's default, written notice shall also be served at the same time upon the mortgagee under any mortgage or beneficiary under any deed of trust. Such mortgagee or beneficiary -shall have the periods of time within which to cure Landlord's defaults as are provided in Paragraph 35.1, which periods shall commence to run ten (10) days after the commencement of the periods within which Landlord must cure its defaults under Paragraph 35.1. In this connection any representative of the mortgagee or beneficiary shall have the right to enter upon the premises for the purpose of curing the Landlord's default. Such mortgagee or beneficiary shall notify Landlord and Tenant in the manner provided by Paragraph 20 of the address of such mortgagee or beneficiary to which such notice shall be sent, and the agreements of Tenant hereunder are subject to prior receipt of such notice. 36. INTERPRETATION. The captions by which the paragraphs of this Lease are identified are for convenience only and shall not affect the interpretation of this Lease. Wherever the context so requires, the singular number shall include the plural, the plural shall refer to the singular, the neuter gender shall include the masculine and feminine genders. If there is more than one signatory hereto as Tenant, the liability of such signatories shall be joint and several. If any provision of this Lease shall be held to be invalid by a court, the remaining provisions shall remain in effect and shall in no way be impaired thereby. 37. REPRESENTATIONS. Tenant warrants and represents that there have been no representations or statements of fact with respect to the Premises, the surrounding area or otherwise whether by Landlord, its agents or representatives, any lease broker or any other person, which representations or statements have in any way induced Tenant to enter into this Lease or which have served as the basis in any way for Tenant's decision to execute this Lease, except as contained in this Lease. Tenant agrees and acknowledges that no lease broker, agent, or other person has had or does have the authority to bind Landlord to any statement, covenant, warranty or representation except as contained in this Lease and that no person purporting to hold such authority shall bind Landlord to any statement, covenant, warranty or representation except as contained in this Lease and that it is not reasonable for Tenant to have assumed that any person had or has such authority. Further, neither Landlord's execution of this Lease nor any other of its acts shall be construed in any way to indicate Landlord's ratification, consent to or approval of any act, statement or representation of any person except as specifically set forth in this Lease. 38. REAL ESTATE BROKERS; FINDERS. Each party represents that it has not had any dealings with any real estate broker, finder, or other person, with respect to this Lease in any manner. Each party shall hold harmless the other party from all damages resulting from any claims that may be asserted against the other party by any broker, finder or other person with whom the other party has or purportedly has dealt, except said brokers. Landlord and Tenant acknowledge that Tenant's legal counsel, Michael H. Udkovich ("Udkovich"), is a licensed California real estate broker. Tenant hereby confirms that no commission is payable to 03/24/92 0787q/2299/000 -21- Udkovich in connection with this transaction and Tenant hereby agrees to indemnify and hold Landlord harmless from any claim for such a commission. 39. PROHIBITION AGAINST RECORDING LEASE. Neither this Lease nor any memorandum thereof shall be recorded. The recordation hereof by or on behalf of Tenant shall be deemed a material breach. 40. SEVERABILITY. The unenforceability, invalidity, or illegally of any provision shall not render the other provisions unenforceable, illegal or invalid. 41. LATE CHARGES AND INTEREST. Tenant hereby acknowledges that late payment by Tenant to Landlord of rent and other sums due hereunder will cause Landlord 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 on Landlord by the terms of any mortgage or trust deed covering the premises. Accordingly, if any installment of rent or any other sum due from rent shall not be received by Landlord or Landlord's designee within five (5) days after such amount shall be due, Tenant shall pay to Landlord a late charge equal to ten percent (100) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payments by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. In addition, Tenant shall pay interest on all rentals and other charges not paid on the date when due at an annual interest rate of eighteen percent (180) or the highest rate permitted by law, whichever is lower. 42. SAFETY AND HEALTH. Tenant covenants at all times during the term of this Lease to comply with the requirements of the Occupational Safety and Health Act of 1970, 29 U.S.C. §651 et seq. and any analogous legislation in California (collectively the "Act"), to the extent that the Act applies to the premises and any activities thereon. Without limitation the generality of the foregoing. Tenant covenants to maintain all working areas, all machinery, structures, electrical facilities and the like upon the premises in a condition that fully complies with the requirements of the Act, including such requirements as would be applicable with respect to agents, employees or contractors of Landlord who may from time to time be present upon the premises (except to the extent that the particular activities of such agents, employees or contractors of Landlord on the premises require safety precautions or alterations of the conditions of the premises beyond the requirements of such Act otherwise applicable to the premises, in which event Tenant shall not be obligated to undertake or provide any such additional safety precautions or alterations of conditions), and Tenant agrees to indemnify and hold Landlord harmless from and against any liability, claim or damages, arising as a result of a breach of the foregoing covenant and from all costs, expenses and charges arising therefrom, including without limitation, reasonable attorneys' fees and court costs incurred by Landlord in connection therewith, which indemnity shall survive the expiration or termination of this Lease. 43. OPTION TO EXTEND 43.1 Option Term. Provided that Tenant is not in default of any provisions of the Lease at the time of exercise of the option provided herein or at any time thereafter prior to the commencement of the option term or no event has occurred which, given the passage of time or the giving of notice or both, could be declared a default, Tenant may extend the Term for an 03/24/92 0787q/2299/000 -22- additional one hundred twenty (120) months (such period being referred to herein as the "Option Term") only by giving Landlord written notice not more than two hundred forty (240) nor less than one hundred eighty (180) days before the expiration of the Term. All of the terms and conditions of the Lease, except this right to extend the Term, shall apply to the Option Term so far as applicable, and reference in the Lease to the "Term" shall be deemed to include the Option Term. Failure of Tenant to exercise the option provided herein shall cause the option to extend to immediately cease and terminate. 43.2 Confirming Memorandum. If the option provided herein is exercised by Tenant, Landlord and Tenant shall execute, acknowledge and deliver an amendment to the Lease acknowledging the fact that the option has been exercised and confirming the commencement and termination dates of the option term. In the event that Tenant shall fail to give Landlord notice of exercise of its option to extend granted herein, as provided above, the option to extend shall be terminated and, at Landlord's request, Tenant shall join with Landlord in executing and acknowledging a termination instrument in form suitable for recording in the public records of the County of Orange, to be effective upon the termination date of the term. 43.3 Time of the Essence/Strict Compliance Required. Time is of the essence of all of the foregoing provisions relating to Tenant's exercise of the option to extend the Term. Tenant's failure to exactly comply with any of the time or other requirements set forth herein shall cause the option to automatically cease and terminate and, in such event, the Lease shall terminate upon the expiration of the Term. 43.4 Nontransferable Option. The option to extend the Lease granted herein is granted solely to Tenant, shall be exercisable only by the original Tenant under the Lease, and shall not be assignable nor transferable. Any attempt to assign or transfer the option shall cause the option to automatically cease and terminate and, in such event, the Lease shall terminate upon the expiration of the Term. 43.5 Rental Increase. In the event Tenant has the right and properly exercises the option provided for above, then commencing on the first day of the Option Term, the Minimum Rent payable under this Lease shall increase to the then fair market rental value for the Premises, as agreed to by Landlord and Tenant. If the parties cannot agree on the determination of the fair market rental value for the Premises, then the same shall be determined in the following manner: Upon any objection to fair market rental properly and timely made, appraisal procedures shall be commenced, as provided herein. Within thirty (30) days following the receipt by Landlord of any notice from Tenant that Tenant objects to Landlord's determination of fair market rental, Landlord shall appoint a qualified MAI appraiser with at least ten (10) years' experience to act as an arbitrator, giving written notice of the appointment to Tenant. Within ten (10) days after Tenant's notification of the appointment, Tenant may also appoint a qualified MAI appraiser with at least ten (10) years' experience, and give written notice of same to Landlord. If Tenant fails to make such an appointment, Landlord shall have the right to cause its appointed arbitrator to proceed alone to determine fair market rental. If two arbitrators are appointed, as provided above, they shall select and appoint, in writing, a third arbitrator of similar qualifications to their own and give written notice to Landlord and Tenant of the appointment of same within ten (10) days after the appointment of the second arbitrator. If the two (2) arbitrators shall fail to appoint a third within the time period provided above, either party shall have the right to make application to the Superior Court of Orange County to appoint a third arbitrator. Landlord and Tenant shall each be entitled to be present at any proceeding regarding appointment of a third arbitrator. The appointed arbitrator(s) shall promptly fix a convenient time and place in Orange County for hearing the matter to be determined and shall give written notice of same to each party at least thirty (30) days prior to the date so fixed. The arbitrators, with reasonable diligence, shall hear and determine the matter and shall execute and acknowledge their determination, in writing, and deliver a copy to each of the parties. 03/24/92 0787q/2299/000 -23- The determination of a majority of the arbitrators (or if a majority cannot agree, then the average of the two determinations nearest in amount) shall determine the question and a judgment may be rendered by the Superior Court confirming the determination, or the same may be vacated, modified or corrected by the Court at the instance of either of the parties. Tenant shall pay for the services of the arbitrators, if any, and all other costs incurred in reaching a determination, provided, however, (i) each party shall bear its own attorneys' fees, if any, and (ii) if the arbitrated new Minimum Rent is ten percent (100) or more less than the Minimum Rent initially determined by Landlord, Tenant and Landlord shall equally share the costs of the services of the arbitrators. Pending the determination of the new Minimum Rent Tenant shall pay to Landlord the amount payable immediately prior to the commencement of the Option Term. After determination of the new Minimum Rent, Tenant shall either, within ten (10) days notice from Landlord, (i) pay any amount which should have been payable from the commencement of the Option Term, or (ii) elect not to so exercise the option provided for herein, in which event this Lease shall terminate and Tenant shall vacate the Premises on or before the expiration of the thirtieth (30th) day following Tenant's notice to Landlord electing not to exercise the option. Tenant's failure to so notify Landlord within such ten (10) -day period shall be deemed Tenant's acceptance of the new Minimum Rent. 44. GENERAL PROVISIONS. 44.1 No Partnership: Landlord shall not in any way or for any purpose be deemed a partner, joint venturer, or member of any joint enterprise with Tenant. 44.2 Covenants and Conditions: Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition. 44.3 Choice of Law: This Lease shall be governed by the laws of the State of California; any action brought to enforce or nullify this Lease or the provisions hereof must be brought in Orange County, State of California and in no other forum. Each party that executes this Lease as a Tenant specifically agrees and consents that service of legal process may be effected by personal delivery, or registered or certified mail, postage prepaid, with return receipt requested, mailed to the Tenant at the address specified in Paragraph M of the Basic Lease Provisions. Service shall be deemed to be completed as provided in Paragraph 20 (Notices) of this Lease. 44.4 Net, Net, Net Lease: Landlord and Tenant understand and agree that this Lease is what is commonly known in the business as a "net, net, net Lease." Tenant recognizes and acknowledges without limiting the generality of any other terms or provisions of this Lease, that it is the intent of the parties hereto that any and all rentals in this Lease provided to be paid by Tenant to Landlord, shall be net to Landlord, and any and all expenses incurred in connection with the premises or in connection with the operations thereon, including any and all general or special license fees, insurance premiums, public utility bills (except as provided in this Lease) and costs of repair, maintenance and operation of the premises and all buildings, structures, permanent fixtures and other improvements comprised therein, together with the appurtenances thereto, shall be paid by Tenant, in addition to the rentals herein provided for. 44.5 Financial Statements: If Landlord desires to finance, refinance, sell, transfer or otherwise convey the Premises, or any part thereof, then Tenant agrees to deliver to Landlord within ten (10) days after request, Tenant's financial statements for the immediately preceding three fiscal years of Tenant. 44.6 Time of Essence: Time is of the essence. 44.7 Incorporation of Prior Agreements; Amendments: This Lease contains all agreements of the parties with respect to any matters mentioned herein. No prior agreement or understanding pertaining to any matter shall be 03/24/92 0787q/2299/000 -24- effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. 44.8 Corporate Authority: If Tenant is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation with the duly adopted resolution of the Board of Directors of said corporation or in accordance with the bylaws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. Further, Tenant shall, within thirty (30) days after execution of this Lease, deliver to Landlord a certified copy of a resolution of the Board of Directors of said corporation authorizing of ratifying the execution of this Lease. 44.9 No Option: The submission of this Lease by Landlord, its agent or representative for examination or execution by Tenant does not constitute an option or offer to lease the Premises upon the terms and conditions contained herein or a reservation of the Premises in favor of Tenant, it being intended hereby that this Lease shall become binding upon Landlord only upon Landlord's delivery to Tenant of a fully executed counterpart hereof. 45. ADDITIONAL PROVISIONS. 45.1 Premises Taken "As Is": The demised Premises are leased to Tenant "as is", except as specifically provided in Section 1.4, without representation or warranty by the Landlord, and Tenant accepts the Premises in the condition existing as of the date of occupancy subject to all applicable zoning, municipal, county and state laws, ordinances, rules, regulations, orders, restrictions of record, and requirements in effect during the term or any period of the term hereof, regulating the leased Premises. Tenant has conducted its own inspections and has relied entirely thereupon and upon those of its agents, representatives and consultants in evaluating the Premises. 45.2 Hazardous Waste: Except for cleaning supplies used in the normal course of Tenant's business, Tenant shall not use, store or dispose of any hazardous materials including, without limitation, asbestos, formaldehyde, flammables or explosives on or about the premises without Landlord's prior written approval. Tenant shall supply Landlord, by February 1, of each year, a report of all hazardous materials used, stored or disposed of on or about the premises. Prior to the expiration of the tenancy created hereunder Tenant shall remove and within ten (10) days thereafter supply Landlord with a certificate executed by a licensed inspector that all hazardous materials have been removed from the premises. 46. REQUEST FOR ASSIGNMENT/RIGHT OF FIRST REFUSAL. 46.1 At any time during the term of the Lease, and provided Tenant is not then in default, and has not during the term been in default beyond any applicable cure period (and no event has occurred which, with the giving of notice or the passage of time, or both, could be declared a default), then (i) Tenant shall have the option to ask Landlord to assign the Lease to Tenant, subject to all of the terms and provisions of the Master Lease, and (ii) in the event Landlord elects to assign the Master Lease, Tenant shall have the right of first refusal to purchase such leasehold interest, (i) and (ii) both subject to the payment by Tenant to Landlord of the fair market value of the Master Lease. In the event that Tenant chooses to exercise the foregoing option (i) Tenant shall do so by giving written notice to Landlord of Tenant's election to exercise said option. In the event that Landlord elects to sell or assign the Master Lease, Landlord shall give Tenant written notice of same, setting forth in such notice the terms and provisions pursuant to which Landlord proposes to sell such Master Lease interest ("ROFR Offer"). Within fifteen (15) days after Tenant's receipt of such notice, Tenant shall in written notice to Landlord either (i) accept the ROFR Offer or (ii) reject the ROFR Offer. If Tenant fails to accept or reject the ROFR offer within such fifteen (15) -day period or proposes in any manner to vary the terms of the ROFR Offer, the ROFR Offer shall be deemed rejected by Tenant and thereafter Landlord shall be free to assign the Master Lease to any third party upon any terms and conditions. 03/24/92 0787q/2299/000 -25- If Tenant accepts the ROFR Offer as provided above, then within thirty (30) days after Tenant's acceptance of the ROFR Offer, Landlord and Tenant shall execute an Assignment Agreement incorporating the terms and provisions set forth in the ROFR Offer. In the event Tenant exercises its option pursuant to (i), above, then the following terms shall apply: within fifteen (15) days of giving of its notice, Tenant shall submit a written proposal for the fair market value of the interest to be acquired ("Option Interest"). Landlord shall respond to such proposal and if acceptable notify Tenant of such acceptance, and if not submit a written counterproposal. Should Landlord and Tenant fail to agree on a fair market value for the Option Interest within thirty (30) days of Tenant's written proposal, then either party may demand in writing that the fair market value of the Option Interest be determined by an appraisal, such appraisal to be conducted by three (3) appraisers, each of whom is a member of the American Institute of Real Estate Appraisers, qualified for the purpose of appraising this type of property, with at least five (5) years experience appraising property in the area in which the Premises are located. The appraisal of the fair market value of the Option Interest by such appraiser(s) shall be made in accordance with the then standard practices of the American Institute of Real Estate Appraisers. Within thirty (30) days after the service of written notice demanding an appraisal of the fair market value of the option Interest, both parties shall appoint in writing an appraiser and give written notice of such selection to the other party. In case of failure of either party hereto so to do within the time specified, then the appraiser duly appointed by the other party shall proceed to determine the said fair market value of the Option Interest as herein set forth, which appraisal shall be conclusive on the parties hereto. In the event both parties select an appraiser, the two (2) appraisers so appointed shall agree on the appointment of a third (3rd) appraiser, or if the two (2) appraisers cannot agree, the parties jointly, or either party may make application to the presiding judge of the Superior Court of orange County, State of California for the appointment of a third appraiser who shall also be a member of the American Institute of Real Estate Appraisers with similar qualifications as those provided above for the first two appraisers. The appraiser or three appraisers, as the case may be, shall promptly fix a time for completion of the appraisal which time shall be no later than sixty (60) days from the date of the appointment of the last appraiser. The appraisers shall notify Landlord and Tenant as to the date fixed for such completion and such appraisals shall be submitted to Landlord and Tenant on such date. Upon submission of the appraisals of the fair market value of the Option Interest by each of the appraisers, the two of such appraisals of the fair market value of the Option Interest which are nearer in amount shall be retained, and the third appraisal of the fair market value of the option Interest shall be discarded. The arithmetic average of the two retained appraisals shall be the said fair market value of the Option Interest. Each of the parties shall pay for the services of the appraiser appointed by each of them respectively, and one-half (1/2) of the cost of the services for the third (3rd) appraiser. If only one (1) appraiser is used, the cost of the services of such appraiser shall be divided equally between Landlord and Tenant. In the event the American Institute of Real Estate Appraisers shall cease to exist or cease to have local members, either party hereto may apply to the Presiding Judge of the Superior Court of Orange County to designate a class from which appraisers may be selected as provided above. The option and right of first refusal granted herein is granted solely to Tenant and is not assignable or transferable except with Landlord's prior written consent. Any attempt to assign or transfer said option and 03/24/92 0787q/2299/000 -26- right of first refusal without Landlord's prior written consent shall cause the option and right of first refusal to automatically cease and terminate. LANDLORD TENANT SAN JUAN CAPISTRANO COMMUNITY TIM HOLSTEN, a married man REDEVELOPMENT AGENCY By: DtS: hnirgn Kenneth F_ Friacc Tim Holsten ts: Stephen B. Mlian Atte s i �+ U Agency Sec tary (Seal) 03/24/92 0787q/2299/000 -27- LOT 11 (FORMERLY LOI VERDUGO STREET LOCATION U W- D s— 0R-T¢.(vn NNY, s a ST s Ei lr G&!. oBlSPo 4T• LOCATION MAP NO SCAL4 4 LOT 12 DRMERLY LOT 3) POINT OF •EGINNINA Ol N 84002'00"E 62.20' O2 N 6034'00"W 50.75' O3 S 83°26'00"W 4.20' 4O N 6034'00"W 12.00' O5 S 83026'00"W 46.00' O6 S 6034'00"E 12.00' O7 S 83026'00"W 12.00' �8 S 6034'00"E 50.39' City of I San Juan Capistrano MASTER GROUND LEASE SAN JUAN SALOON SITE EXHIBIT "A" EXHIBIT B SCHEDULE OF PERFORMANCE The Schedule of Performance is based on the date of execution of the lease agreement. Nothing within this schedule shall prevent the Lessee from completing any or all actions earlier than provided for in this Schedule of Performance Action LEASE EXECUTION Execution of the Lease Delivery of Property to Lessee PLAN CHECK Submittal of interior improvement plans for Plan Check Review Return of interior improvement plans with corrections by Building Department Submittal of interior improvement plans with corrections made Notification of Lessee that building permits can be issued Lessee pulls building permits MINOR EXTERIOR MODIFICATIONS Submittal of minor exterior modifications Approval of minor exterior modifications 4 Date Upon approval of by the Board of Directors of the San Juan Capistrano Community Redevelopment Agency Within 5 days of execution of lease Within 15 days of execution of lease 20 days after submittal 5 days after return 10 days after submittal 5 days after notification Within 15 days of execution of lease Within 15 days of submittal - Planning Director approval and agendized on next Planning Commission Consent Calendar CONSTRUCTION Commencement of construction Completion of construction Certificate of Occupancy 5 days after notification 90 days after Commencement of construction Within 10 days of final inspection after all applicable Department have signed off Certificate of Occupancy confirming all conditions have been met, no later than 100 days after commencement of construction EXHIBIT C CONSTRUCTION AND ACCEPTANCE OF PREMISES 1. PLANS AND SPECIFICATIONS. After the execution of the Lease, Tenant shall cause an architect selected by Tenant to prepare at Tenant's expense and within fifteen (15) days to deliver to Landlord fully dimensioned 1/4 -inch scale plans indicating the specific requirements of the interior space, showing clearly the store fronts, interior partitions, trade fixture plans, lighting, electric outlets, floor coverings, exterior signs, and other specific requirements of Tenant, all in conformity with Tenant's Work under Paragraph 7 below. These plans shall be subject to Landlord's approval. These Tenant plans, after being approved, will be hereinafter called "approved final construction Tenant plan." If for any reason whatsoever, a final construction Tenant plan is not approved according to the City of San Juan Capistrano's review process for interior improvements within 60 days after the date of this Lease, Landlord may terminate this Lease by notice to that effect to Tenant or complete premises typical to Landlord's specified requirements in which case Tenant will absorb all costs relating to Tenant construction requirements. Tenant shall be responsible for any and all fees and deposits associated with the planning and engineering review process, at its sole cost and expense. 2. EXTERIOR IMPROVEMENTS. Tenant has the right any time during the lease term to make application to Landlord and the City of San Juan Capistrano (the "City") for exterior improvements to the premises. Any and all exterior modifications must be approved according to the City's review process. Tenant shall be responsible for any and all fees and deposits associated with such review process, at its sole cost and expense. 3. DELIVERY OF PREMISES. Provided that the certificate of insurance provided for in Section 9.5, above, has been received by Landlord, Landlord shall tender delivery of the premises to Tenant for its fixturization and/or its tenant work within five (5) days after the Date of Execution. 4. INSTALLATION OF TENANT'S WORK. 4.1 Tenant, upon delivery of possession, shall thereupon immediately proceed with due diligence, at its own expense, to install therein Tenant's property (meaning all items of Tenant's Work and Tenant's trade fixtures, equipment and merchandise) without interference with other work, if any, and in compliance with all reasonable rules which Landlord may make. Tenant shall upon final completion of its work furnish Landlord with all certificates and approvals relating to any work or installations done by Tenant that may be required by any governmental or insurance requirements. Landlord shall have no responsibility for any loss of or damage to any of Tenant's property so installed or left on the premises. Tenant's entry prior to the commencement of the term of this Lease shall be subject to all of the provisions of this Lease other than the payment of rent and other charges to Landlord; and at all times after such entry, Tenant shall maintain or cause to be maintained in effect insurance complying with the provisions of this Lease, notwithstanding the fact that the term of this Lease shall not then have commenced. Landlord's Initials- Tenant's Initials: 03/24/92 0787q/2299/000 C-1 5. ACKNOWLEDGMENT OF CONDITION OF PREMISES. Tenant agrees that it has accepted the premises in its "as -is" condition, and Tenant hereby waives any right or claim against Landlord for any cause, directly or indirectly, arising out of the condition of the premises, appurtenances thereto, or the improvements, or equipment therein, and Landlord shall not be liable for any latent or patent defects therein. 6. PAYMENT FOR CHANGES IN WORK. No changes, modifications or alterations in the approved final construction Tenant plan can be made without the written consent of Landlord. Any additional charges, expenses or costs, including any increased fees which Landlord may be required to pay for architectural, engineering and other similar services arising by reason of any subsequent change, modification or alteration in the approved final construction tenant plan made at the request of Tenant, shall be at the sole cost and expense of Tenant and shall be paid by Tenant to Landlord before the performance of the work requested by Tenant. 7. TENANT'S CONSTRUCTION. No work is to be performed by Landlord. All items of work shall be provided by Tenant at Tenant's expense, and is called "Tenant's Work." Tenant's Work shall be in accordance with the schedule attached as Exhibit B to the Lease. LANDLORD TENANT SAN JUAN CAPISTRANO COMMUNITY TIM HOLSTEN, a married man REDEVELOPMENT AGENCY Atter l J Agency Sec tary (Seal) Director 03/24/92 0787q/2299/000 C-2 Tim Holsten Fxhi' " t D GUARANTEE OF LEASE THIS GUARANTEE OF LEASE (this "Guarantee") is entered into this 7th day of April 192 by and between Tim Holsten ("Guarantor"), and SAN JUAN CAPISTRANO COMMUNITY REDEVELOPMENT AGENCY ("Agency"). I. RECITALS A. A certain lease dated April 7. 1992 was executed by and between Agency, therein referred to as "Landlord", and Tim Holsten, a married man, therein and hereinafter referred to as "Tenant", covering certain premises in the City of San Juan Capistrano, County of Orange, State of California ("Lease"). B. Tenant desires to assign the Lease to San Juan Saloon Building, a California limited partnership ("Assignee"). C. Agency, as Landlord under the Lease, requires as a condition to its consent to the assignment that the undersigned guarantee the full performance of the obligations of Tenant or Assignee under the Lease. C. Guarantor is desirous that Landlord consent to the assignment of the Lease to Assignee. NOW, THEREFORE, in consideration of the consent by Agency to the assignment of the Lease to Assignee, Guarantor hereby unconditionally guarantees the full performance of each and all of the terms, covenants and conditions of the Lease to be kept and performed by Tenant or Assignee, as hereinafter provided. II. TERMS A. GUARANTOR'S OBLIGATIONS: 1. GUARANTEE OF TENANT'S PERFORMANCE. Guarantor unconditionally guarantees to Agency the full and complete performance of each and all of the terms, covenants and conditions of the Lease and any amendments thereto required to be performed by Tenant including, but not limited to, the payment of all fixed minimum rent and and any and all other charges or sums or any portion thereof to accrue or become due from Tenant or Assignee to Agency pursuant to the terms of the Lease ("Monetary Sums"). In no event shall the Monetary Sums be greater than Assignee's liability under the Lease, provided that no disability (including, but not limited to, a bankruptcy) of Assignee shall reduce or excuse Guarantor's obligations for payment of the Monetary Sums. 2. TENANT'S FAILURE TO PERFORM. If Tenant or Assignee fails to pay any of the Monetary Sums when due under the Lease, then, within thirty (30) days of written notice to Guarantor by Agency, Guarantor, by certified or cashier's check, shall pay to Agency or Agency's designated agent any such Monetary Sums as may be due and owing from Tenant or Assignee to Agency's by reason of Tenant's or Assignee's failure to so perform. 3. OTHER PROVISIONS. If Tenant or Assignee fails to perform any covenants, terms or conditions of the Lease as required to be performed, other than as provided for in Part II, Section A.2 of this Guarantee, then, upon written notice to Guarantor by Agency, Guarantor shall commence and complete performance of the conditions, covenants and terms within five (5) business days after the date of Agency's written notice to Guarantor of such failure by Tenant or Assignee to so perform; provided, in the event the performance by Guarantor cannot be completed within five (5) business days, Guarantor shall commence performance within that time and diligently pursue same to completion within a reasonable period of time. 4. ADDITIONAL DAMAGES AND INTEREST. In addition to the payment of the Monetary Sums and the performance of any and all other provisions, conditions and terms of the Lease which may be required of Guarantor by reason of Tenant's or Assignee's failure to perform, Guarantor agrees to pay to Agency any and all reasonable and necessary incidental damages and expenses incurred by Agency as a direct and proximate result of Tenant's failure to perform, which expenses shall include reasonable attorneys' fees. Guarantor further agrees to pay to Agency interest on any and all sums due and owing Agency by reason of Tenant's or Assignee's failure to pay same at the highest rate allowed by law at the time of payment. B. AGENCY'S RIGHTS: 1. ENFORCEMENT. Notwithstanding the provisions of Section A above, Agency reserves the right, in the event of any failure of Tenant or Assignee to pay the Monetary Sums, to proceed against Tenant, Assignee or Guarantor, or both, and to enforce against Guarantor or Tenant or Assignee, or all of them, any and all rights that Agency may have to the Monetary Sums with thirty (30) days prior written notice to Guarantor pursuant to a demand made on Guarantor. Guarantor understands and agrees that its liability under this Guarantee shall be primary and that, in any right of action which may accrue to Agency under the Lease or this Guarantee, Agency, at its option, may proceed against Guarantor without having taken any action or obtained any judgment against Tenant or Assignee. 2. DELAY IN ENFORCEMENT. Guarantor understands and agrees that any failure or delay of Agency to enforce any of its rights under the Lease or this Guarantee shall in no way affect Guarantor's obligations under this Guarantee. C. GUARANTOR'S WAIVERS: Guarantor hereby waives the following: 1. Any and all presentments and notices of nonpayment or nonperformance; 2. All defenses based upon any disability of Tenant, Assignee, release of Tenant's or Assignee's liability for any reason or any statute of limitations controlling obligations accruing under the Lease or this Guarantee; 3. Any and all rights it may have now or in the future to require or demand that Agency pursue any right or remedy Agency may have against Tenant, Assignee or any third party; 4. Any and all rights it may have to enforce any remedies available to Agency against Tenant, or Assignee now or in the future; 5. Any and all right to participate in any security deposit held by Agency under the Lease now or in the future; 6. The right to require Agency to proceed against Tenant or Assignee, exhaust any security which Agency now holds or may hold in the future from Tenant or Assignee or pursue any other right or remedy available to Agency; and 7. The provisions of Sections 2809, 2810, 2819, 2845 and 2850 of the California Civil Code. D. EXTENSIONS, AMENDMENTS, ASSIGNMENT OR SUBLEASE: Guarantor understands and agrees that its obligations under this Guarantee shall not be affected in any way by any extension, amendment or assignment or subletting of the Lease and in no way shall any such occurrence release or discharge Guarantor from its obligations under this Guarantee. 03/24/92 0787q/2299/000 -2- E. TENANT'S OR ASSIGNEE'S INSOLVENCY: 1. ASSUMPTION OF LIABILITY. Guarantor understands and agrees that, if Tenant or Assignee becomes insolvent or is adjudicated bankrupt, whether by voluntary or involuntary petition, or if any bankruptcy action involving Tenant or Assignee is commenced or filed, or if a petition for reorganization, arrangement or similar relief is filed against Tenant or Assignee, or if a receiver of any part of Tenant's or Assignee's property or assets is appointed by any court, Guarantor will pay to Agency the amount of all accrued, unpaid and accruing Monetary Sums to the date when the trustee or administrator accepts the Lease and commences paying same; provided, however, at such time as the trustee or administrator rejects the Lease, Guarantor shall pay to Agency all accrued, unpaid and accruing Monetary Sums under the Lease for the remainder of the Term. 2. AGENCY'S OPTION. Pursuant to the provisions of Part II, Section E.1 above, at the option of Agency as to the amounts owing for the unexpired term of the Lease if the Lease is rejected, Guarantor shall either: a. Pay to Agency an amount equal to the Monetary Sums which would have been payable for the unexpired term of the Lease reduced to its present day value; or b. Execute and deliver to Agency a new lease for the balance of the Term with the same terms and conditions as the Lease and with Guarantor as tenant thereunder. 3. EFFECT OF OPERATION OF LAW. Any operation of any present or future debtor's relief act or similar act or law or decision of any court shall in no way affect the obligations of Guarantor, Tenant or Assignee to perform any of the terms, covenants or conditions of the Lease or of this Guarantee. III. MISCELLANEOUS A. NOTICES. Any and all notices required under this Guarantee shall be made in writing and shall be mailed, first-class, certified mail, postage prepaid, return receipt requested to the party who is designated to receive the notice at the address set forth after its respective signature on this Guarantee, or at such other place as may be designated by that party from time to time upon written notice to the other party. B. EXTENT OF OBLIGATIONS. Notwithstanding anything to the contrary in this Guarantee, it is understood and agreed that this Guarantee shall extend to any and all obligations of Tenant or Assignee to Agency under the Lease and any amendments to the Lease. C. SUBROGATION. Guarantor understands and agrees that it shall have no right of subrogation against Tenant or Assignee until such time as all of Tenant's or Assignee's obligations to Agency have been fully paid and discharged. D. ASSIGNABILITY. This Guarantee may be assigned in whole or in part by Agency upon written notice to Guarantor. E. SUCCESSORS AND ASSIGNS. The terms and provisions of this Guarantee shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. F. MODIFICATION OF GUARANTEE. This Guarantee constitutes the full and complete agreement between the parties hereto and it is understood and agreed that the provisions hereof may only be modified by a writing executed by the parties hereto. G. NUMBER AND GENDER. As used herein, the singular shall include the plural and, as used herein, the masculine shall include the feminine and neuter genders. 03/24/92 0787q/2299/000 -3- H. CAPTIONS/HEADINGS. Any captions or headings used in this Guarantee are for reference purposes only and are in no way to be construed as part of this Guarantee. I. INVALIDITY. If any term, provision, covenant or condition of this Guarantee is held to be void, invalid or unenforceable, the remainder of the provisions hereof shall remain in full force and effect and shall in no way be affected, impaired or invalidated. J. JURISDICTION. The validity of this Guarantee and of any of its terms or provisions, as well as the rights and duties of the parties hereunder, shall be interpreted and construed pursuant to and in accordance with the laws of the State of California. K. ATTORNEYS' FEES. In the event it becomes necessary to judicially enforce any of the terms and provisions of this Guarantee, the prevailing party shall be entitled to its reasonable costs and expenses incurred with respect thereto including, but not limited to, reasonable attorneys' fees and such other costs and expenses as may be allowed by law. L. GUARANTEE OF PAYMENT AND PERFORMANCE. It is understood and agreed that this Guarantee is unconditional and continuing and is a guarantee of payment and performance and not of collection. M. JOINT AND SEVERAL OBLIGATION. If Guarantor is more than one (1) person, the obligations of the persons comprising Guarantor shall be joint and several and the unenforceability of this Guarantee or Landlord's election not to enforce this Guarantee against one (1) or more of the persons comprising Guarantor shall not affect the obligations of the remaining persons comprising Guarantor or the enforceability of this Guarantee against such remaining persons. IN WITNESS WHEREOF, the undersigned have executed this Guarantee and made it effective on the date first written above. GUARANTOR Address for notices: 267J —I�PR�Uao 5y- &2,6 c 6111311V 072.gn<o CA 92 e- J s' 03/24/92 0787q/2299/000 -4-