HomeMy WebLinkAbout15 - Balboa Bay Club Ground LeaseQ �gVVFpRr
CITY OF
NEWPORT, BEACH
City Council Staff Report Agenda Item No. 15
May 22, 2012
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Dave Kiff, City Manager
949- 644 -3001 , dkiff @newportbeachca.gov
PREPARED BY: Rob Houston, Assistant to the City Manager
APPROVED:.
TITLE: Assignment of Balboa Bay Club Ground Lease
ABSTRACT:
The Balboa Bay Club is located upon City administered tidelands and is subject to a
50 -year ground lease. The City received a request to approve assignment of the
ground lease from Balboa Bay Club, Inc., to Todd M. Pickup and Devon R. Martin as
trustees of the Vintage Trust II, dated July 19, 2007.
RECOMMENDATIONS:
(1) Approve the proposed assignment of the Balboa Bay Club ground lease from
Balboa Bay Club, Inc., to Todd M. Pickup and Devon R. Martin as trustees of the
Vintage Trust II, dated July 19, 2007 and find that Balboa Bay Club, Inc., is not
currently in default under the Ground Lease; and
(2) Authorize the Mayor and the City Clerk to sign the Estoppel Certificate and
Consent to Ground Lease Assignment on behalf of the City.
FUNDING REQUIREMENTS:
There is no fiscal impact related to this item.
DISCUSSION:
On October 25, 2000, the City of Newport Beach ( "City ") and the Balboa Bay Club, Inc.
( "BBC ") entered into a 50 -year Ground Lease ( "Lease ") for tidelands property on which
the BBC operates its multi -use hotel and club facility. On May 1, 2012, the BBC notified
the City of its intention to assign the Lease to Todd M. Pickup and Devon R. Martin as
trustees of the Vintage Trust ll, dated July 19, 2007 ( "Assignees ").
Under the Lease, the City is required to take two actions in response to the BBC's
notification: (1) respond within 15 days with an Estoppel Certificate certifying to the best
Assignment of Balboa Bay Club Ground Lease
May 22, 2012
Page 2
of the City's knowledge BBC is not, or is, in default under the Lease; and (2) respond
within 30 days with the City's consent, or rejection, to the assignment. Both timelines
are set up within the Lease so that any delay by the City results in automatic approval.
The City Manager secured a time extension from BBC to allow the City Council to
consider BBC's assignment request at its regular meeting on May 22, 2012.
The Lease sets forth specific standards for assignment, as noted in Articles XII and XIII.
These standards are intended to protect the City's (and the public's) interest in the
property and also to assure a continuing successful business operation and related
cash flow. As required by Lease Section 12.1, the City's Finance Department
conducted an audit of BBC's compliance with its obligations under the Lease. A copy of
the audit is included with this staff report. The audit confirmed that BBC is current with
all of their obligations under the Lease and is not currently in default with any term.
Therefore, staff recommends the City Council approve the attached Estoppel Certificate
finding that BBC is not in default under the Lease.
To conduct due diligence of the Assignees, the City hired Economic & Planning
Systems, Inc. ( "EPS ") to perform an independent review. EPS submitted its findings in
a final report dated May 17, 2012. The EPS final report is attached to this staff report.
The main focus of EPS' review was in reference to Article XIII of the Lease (Assignment
and Subleasing); particularly, Section 13.1(a), which requires the Assignees' net worth
to be at least equal to the greater of (i) $4 million plus cost of living, or (ii) at least 10%
of the fair market value of the leasehold; Section 13.1(b), which requires the Assignees
to be qualified managers (defined within the Lease to be a person experienced with the
operation of a hotel and restaurant) or have a binding contract with a qualified manager;
and Section 13.1(c), which requires the Assignees to have a reputation for honesty,
integrity, and sound business practices. As detailed in the attached report, EPS found
the Assignees meet or exceed the criteria established in Lease Sections 13.1(a), (b)
and (c). Therefore, staff recommends the City Council approve the Balboa Bay Club
Consent to Ground Lease Assignment.
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this action is not subject to the California
Environmental Quality Act ( "CEQK) pursuant to Sections 15060(c)(2) (the activity will
not result in a direct or reasonably foreseeable indirect physical change in the
environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378)
of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it
has no potential for resulting in physical change to the environment, directly or
indirectly.
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of
the meeting at which the City Council considers the item).
I
Assignment of Balboa Bay Club Ground Lease
May 22, 2012
Page 3
Submitted by:
Dave Kiff
City Manager
Attachments: A. Estoppel Certificate
B. Consent to Ground Lease Assignment
C. City's Audit of BBC's Compliance with the Lease
D. EPS' Final Report
3
y
Attachment A
LANDLORD ESTOPPEL CERTIFICATE
TO: The following interested parties (collectively, the "Interested Parties "):
Todd M. Pickup and Devon R Martin as trustees of the Vintage Trust II, dated July 19,
2007 ( "Purchaser'); International Bay Clubs, Incorporated ("Parent"), Balboa Bay
Club, Inc. (the "Tenant'), and U. S. Bank National Association.
Purchaser, Parent and the Beverly K. Ray Trust established March 10, 1997, by Beverly K. Ray
as Trustor ( "Seller") have entered into that certain Stock Purchase Agreement dated April 30,
2012, pursuant to which Seller is selling to Purchaser all of the outstanding and issued shares in
Parent (hereinafter, the "Transaction ").
This Estoppel Certificate ( "Certificate ") is executed pursuant to Section 12.1 of that certain
Ground Lease, dated as of October 25, 2000 (as modified, assigned and/or supplemented, the
"Lease "), by and between the City of Newport Beach ( "Landlord ") and Balboa Bay Club, Inc.,
with respect to that certain premises as defined in the Lease and located at 1221 West Coast
Highway, Newport Beach, California 92663 (the "Premises ").
LANDLORD HEREBY REPRESENTS, WARRANTS, CERTIFIES, AND AGREES AS
FOLLOWS:
1. A true and correct copy of the Lease is attached hereto as Exhibit A and is comprised of
the instruments attached as Exhibit A.
2. Landlord is the owner /trustee of the fee interest in the Premises and has not assigned,
transferred, mortgaged or encumbered all or any portion of the right, title and interest of
Landlord under the Lease or in the Premises.
3. The Tenant has accepted and now occupies the Premises and is and has been open for
business in the Premises since October 25, 2000. The conduct of such business falls within the
permitted uses stipulated in the Lease. The Lease tern commenced on October 25, 2000, and is
currently scheduled to expire on October 24, 2050. The Lease contains a right of extension or
renewal as follows: N /A.
4. The current nonconforming residential use known as the Terrace Apartments may
continue in accordance with the terms of that certain Lease Restriction dated May 12, 2000, and
recorded September 29, 2000, as Instrument No. 00- 520062 in the Official Records of Orange
County, as amended by a document recorded October 25, 2000, as Instrument No. 00- 574249.
5. All Rent, including without limitation, all Percentage Rent (as defined in the Lease) has
been timely paid by Tenant through June 30, 2012 (Base Rent) and March 31, 2012 (Percentage
Rent) and the applicable Percentage Rent is set forth by category in Exhibit B. The current Base
Rent (as defined in the Lease) is $2,072,266. The next Adjustment Date (as defined in the
Lease) for the Base Rent shall occur on December 1, 2013.
Landlord Estoppel Certificate Page 1
5
b. The Lease is valid and binding and in full force and effect, constitutes the entire
agreement between Landlord and Tenant, and has not been modified, changed, altered, amended
or supplemented in any respect (except as may be indicated at the end of this Paragraph 6), and is
the only lease or agreement between Tenant and Landlord affecting the Premises.
7. A security deposit of $ 0 has been paid to Landlord under the Lease.
8. To the best current knowledge of Landlord:
a. There are no Events of Default (as defined in the Lease) by Tenant and no events
have occurred which, with the giving of notice or the passage of time or both,
would constitute an Event of Default with respect to Tenant. The Tenant is in full
compliance with its obligations under the Lease and all nonmonetary covenants
and conditions under the Lease to be performed on or before the date on which
the Lease is assigned and transferred to Purchaser ( "Transfer Date ") by Tenant
have been performed to the satisfaction of Landlord.
b. There are no defenses or off -sets in favor of either party to the Lease.
C. All required Tenant requests for consent or the approval of Landlord under the
Lease have been timely made and timely granted by Landlord under the Lease.
d. Tenant has not waived any of its rights under the Lease.
9. The amount currently on deposit in the Reserve Account (as defined in the Lease) is
$512,000.
This certification is made knowing that Interested Parties shall rely upon the truth of this
certificate in completing the Transaction in accordance with and subject to the Request for
Consent to Deemed Assignment of the Balboa Bay Club, Inc. of even date herewith. This
Certificate may also be relied upon by any Mortgagee (as defined in the Lease).
Dated effective as of the _ day of
2012.
[SIGNATURES ON NEXT PAGE]
Landlord Estoppel Certificate
Page 2
6
APPROVED AS TO FORM:
CITY ATTORNEY'S OFFICE
Date:
By:
Aaron C. Harp
City Attorney
ATTEST:
Date:
By:
Leilani I. Brown
City Clerk
Landlord Estoppel Certificate
Page 3
7
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1
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This document w electrot
F, ''AajorA, Exhibit
Recordd in Official Recoros,Uounly OT Urange
NIEitiIORANDUt1 `I�, Clerk-Record &,-- -
24,00
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
International Bay Clubs, Inc.
1221 W. Coast Highway
Newport Beach, California 92663
2000057381811:07am 10/25100
10828 M11 10
0.00 0.00 0.00 0.00 18.00 0.00 0.00 0.00
MEMORANDUM OF GROUND LEASE
This Memorandum of Ground Lease ( "Memorandum ") is entered into effective as of October
;�5 , 2000 (the "Commencement Date "), by and between THE CITY OF NEWPORT
BEACH, a municipal corporation ( "Landlord "), and BALBOA BAY CLUB, INC., a California
Corporation ( "Tenant').
RECITALS
A. Landlord and Tenant have entered into that certain Ground Lease (the "Lease ") dated
as of the Commencement Date relating to certain real property located in the City of
Newport Beach, County of Orange, State of California described more particularly on
E.chibit A attached hereto and by this reference made a pact hereof (the "Premises ").
Landlord and Tenant each desires to execute this Memorandum for recordation in the
real property records of the County of Orange in order to memorialize the existence of
the Lease.
NOW THEREFORE, with reference to the foregoing recital, the parties hereto agree as
follows:
Lease of Premises. Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the Premises, on the terms and conditions set forth in the Lease.
2. Term. The term of the Lease shall be for a period of fifty (50) years commencing
upon the Commencement Date, unless sooner terminated pursuant to the provisions of
the Lease.
NB !:'939111
Incorporation of Lease. This instrument is a memorandum of the Lease and is
subject to all of the terms and conditions of the Lease. The terms of the Lease shall
prevail if there is any inconsistency between the terns of this instrument and the terms
of the Lease.
M
IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum as of the
date first set forth above.
THE CITY OF NEWPORT BEACH,
a municipal corporation
IN
BALBOA BAY CLUB, INC.,
a California Corporation
By:
4,1tCl&af:iirma_ o_ the a ci
By:. C_ �
Its: Chief Executive Officer
N B I :419393?.! z
/0
IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum as of the
date first set forth above.
THE CITY OF NEWPORT BEACH,
a municipal corporation
C
BALBOA BAY CLUB, INC.,
a California Corporation
By: _
Its:
By:
Its:
NB 1:493932.1
STATE OF CALIFORNIA
) ss.
COUNTY OF ORANGE )
On October 6, 2000, before me personally appedeo-�— -. a
personally known tome (or proved to me on the basis of satisfactory evide e) to e person
whose name is subscribed to the within instrument and acknowledged to me that he xecuted the
same in his authorized capacity, and that by his signature on the instrument the person, or entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal..
r WILLIE UPTON
cGM.k4, + 125"21
(SEAL) Q w VOTARY PUEUCLALIFORNIAQ
ORANGE COUNTY 0
�COMh1. EXP. MARCH 11, 2OO.i'' Notary Public
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On October T, 2000, before me personally appeare
personally known to me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his signature on the instrument the person, or entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
N6
I�
y WILLIES UPTON 1/
=NOTARYPU8LIC
(SEAL) • — °r-
-C !'ORH1AQ
GRANGE COU: 1 ?'!
Notary Public
N6
I�
Government Code 27361.7
I certify under the penalty of perjury that the notary seal on
this document read as follows:
Name of Notary:
Date Commission Expires:
County where bond is Filed
Commission No.:
Manufacturer /Vendor No.
Willie Upton
March 11, 2004
Orange
1256421
MGC1
Place of execution - Newport Beach
4FRULI 4 Ifl
Y NATIO L T.I. COMPANY
Date - October 25, 2000
W
CALIFORNIA ALL - PURPOSE ACKNOWLEDGMENT
State of California
County
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County of v r c"��
On 1\ i before me,
Dale �^
personally appeared
cnr+ ,' FLS ER
+ Commies ion T 1174a29
i -® Notary Public - CalifaTtia
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Orange County
My Comm. _-C-}es Feb 21, 2_M2
Place Notary Seal Above
a
ss.
Zoersonally known to me
proved to me on the basis of satisfactory
evidence
to be the person(* whose named is! re
subscribed to the within instrument and
acknowledged to me he he /they executed
the same in Is er /their authorized
capacity(ij, and That by his her /their
signature(on the instrument the person , or
the entity upon behalf of which the person
acted. executed the instrument.
W' I N Sand and dificial
Sign tare o Notary Pablic
OPTIONAL
Though the information below is not required by law, it may prove valuable to persons relying on the document
and could prevent fraudulent removal and reattachment of this form to another document.
Description of Attached
Title or Type of Document: _
Document Date:
Number of Pages: ,
Signer(s) Other Than Named Above: L 2:' 4
Ili
Capacity(ies) Claimed by Signer
Signer's Name:
❑1 Individual
• Corporate Officer — Tide(s):
• Partner — ❑ Limited ❑ General
❑ Attorney in Fact
❑ Trustee
❑ Guardian or Conservator
❑ Other:
Signer Is Representing:
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EXHIBIT A
LEGAL DESCRIPTION
ALL THAT CERTAIN LAND SITUATED I1 THE STATE OF CALIFORNIA, COUNTY OF ORANGE,
CITY OF NEWPORT BEACH, DESCRIBED AS FOLLOWS:
PARCEL 1:
THAT PORTION OF LOT 171, BLOCK 54 OF IRVINE'S SUBDIVISION, AS SHOWN ON A :FLAP
RECORDED IN BOOK 1, PAGE 88 OF MISCELLANEOUS RECORD MAPS, IN THE OFFICE OF
THE COUNTY RECORDER OF ORANGE COUNTY, CALIFORNIA, AND THAT PORTION OF THE
NAVIGABLE TIDE AND SUBMERGED LANDS, DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE U.S. BULKHEAD LINE EXTENDING FROM U.S. BULKHEAD
STATION NO. 129 TO U.S. BULKHEAD STATION NO. 130, AS SAID BULKHEAD LINE AND
BULKHEAD STATIONS ARE LAID OUT AND SHOWN ON A 1N4AP OF NEWPORT BAY,
CALIFORNL4, SHOWING HARBOR LINES APPROVED BY THE WAR DEPARTMENT, JANUARY
18, 1917, SAID POINT BEING DISTANT SOUTH 61 DEGREES 01'07" EAST, MEASURED ALONG
SAID BULKHEAD LINE, 1498.00 FEET FROM THE INTERSECTION OF SAID BULKHEAD LINE
1�ITH THE SOUTHWESTERLY PROLONGATION OF THE CENTERLINE OF IRVINE AVENUE, AS
SHOWN ON A M]AP OF FIRST ADDITION-TO NEWPORT HEIGHTS, RECORDED IN BOOK 4,
PAGE 94 OF MISCELLANEOUS N•LAPS. IN THE OFFICE OF THE COUNTY RECORDER OF SAID
ORANGE COUNTY', SAID POINT ALSO BEING ON THE SOUTHEASTERLY BOUNDARY LINE. OF
PARCEL 1, PER A DEED OF TRUST RECORDED MARCH 30, 1966 IN BOOK 7884, PAGE 298
OF OFFICIAL RECORDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID ORANGE
COUNTY; THENCE ALONG SAID SOUTHEASTERLY" BOUNDARY LINE, THE FOLLOWING
COURSES: NORTH 28 DEGREES 58'53" EAST 130.00 FEET; THENCE NORTH 27 DEGREES 00'
00" WEST 16.66 FEET: THENCE NORTH 28 DEGREES 58'53' EAST 195.71 FEET TO A POINT
IN THE SOUTHWESTERLY LINE OF THE 100 -FOOT RIGHT -OF -WAY OF THE CALIFORNIA
STATE
HIGHWAY ORA -60 -B, THENCE LEAVING SAID SOUTHEASTERLY BOUNDARY, SOUTH 74
DEGREES 21' 30" EAST ALONG SAID SOUTHWESTERLY LINE, 130.08 FEET TO THE
BEGINNING OF A TANGENT CURVE CONCAVE NORTHERLY, HAVING A RADIUS OF 2550.00
FEET; THENCE EASTERLY 715.57 FEET ALONG SAID CURVE THROUGH A CENTRAL ANGLE
OF 16 DEGREES 04'41" TO AN INTERSECTION WITH THE NORTHEASTERLY PROLONGATION
OF THE NORTHWESTERLY LINE OF TRACT NO. 1140, AS SHOWN ON A MAP THEREOF
RECORDED IN BOOK 36, PAGE 28 OF MISCELLANEOUS NiAPS, IN THE OFFICE OF THE
COUNTY RECORDER OF SAID ORANGE COUN'T'Y: THENCE SOUTH 28 DEGREES 58' 53" WEST
975.03 FEET TO A LINE PARALLEL WITH AND DISTANT SOUTHWESTERLY 350.00 FEET
FROM SAID BULKHEAD LINE; THENCE FORTH 61 DEGREES 01' 07" WEST 776.91 FEET
ALONG SAID PARALLEL LINE OF THE SOUTHWESTERLY PROLO \GATION OF THE SOUTH.,
EASTERLY LINE OF SAID PARCEL 1: THENCE ALONG SAID PROLONGATION AND S. AID
A -1 15
SOUTHEASTERLY -LINE, NORTH 28 DEGREES 58' 53" EAST 350.00 FEET TO THE POINT OF
BEGINNING.
PARCEL 2:
THAT CERTAIN PARCEL OF I AND 130RE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE U.S. BULKHEAD LINE, EXTENDING FROM U.S. BULKHEAD
STATION NO. 129 TO U.S. BULKHEAD STATION NO. 130, AS SAID BULKHEAD LINE AND
BULKHEAD STATION'S ARE LAID OUT AND SHOAtit'; ON A MAP OF NEWPORT BAY,
CALIFORNIA, SHOWING HARBOR LINES APPROVED BY THE VVAR DEPARTMENT, JANUARY
18, 1917, 'WHICH SAID POINT IS DISTANT SOUTH 61 DEGREES 01' 07" EAST, MEASURED
ALONG SAID BULLHEAD LINE, 700.00 FEET FROM THE INTERSECTION OF SAID BULKHEAD
LINE WITH THE SOUTHWESTERLY PROLONGATION OF THE CENTERLINE OF IRVINE
AVENUE, AS SHO«'� ON A MAP OF FIRST ADDITION TO NEWPORT HEIGHTS RECORDED IN
BOOK 4, PAGE 94 OF 19ISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER
OF SAID COUNTY, SAID POINT OF INTERSECTION BEING THE MOST SOUTHERLY CORNER
OF LOT H OF TRACT NO. 919 AS PER MAP RECORDED IN BOOK 29, PAGES 31 TO 34
INCLUSIVE OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY; THENCE NORTH 28 DEGREES 58' 53" EAST 154.19 FEET TO A POINT IN THE
SOUTHWESTERLY- LINE OF THE 100 -FOOT RIGHT OF WAY OF THE CALIFORNLA STATE
HIGHWAY ORA -60 -13, SAID POINT BEING RADIAL TO ENGINEER'S STATION 6 +56.15 IN THE
CENTERLINE OF SAID HIGHWAY, SAID RADIAL BEARS NORTH 19 DEGREES 37' 57" EAST
FROM SAID POINT, SAID SOUTMVESTERLY" LINE BEING A CURVE CONCAVE
NORTHEASTERLY AND HAVING A RADIUS OF 2050.00 FEET; THENCE SOUTHEASTERLY
ALONG SAID SOUTHWESTERLY LINE, THROUGH A CENTRAL ANGLE OF 3 DEGREES 59' 27 ",
142.79 FEET TO A TANGENT LINE; THENCE SOUTH 74 DEGREES 21'30' EAST ALONG SAID
TANGENT LINE AND SAID SOUTHWESTERLY LINE, 662.08 FEET; THENCE SOUTH 28
DEGREES 50' 53" WEST 195.71 FEET; THENCE SOUTH 27 DEGREES 00' 00" EAST 16.66
FEET; THENCE SOUTH 28 DEGREES 58'53u }VEST 480.00 FEET TO A LINE PARALLEL WITH
AND SOUTHWESTERLY 350.00 FEET FROM SAID BULKHEAD LINE; THENCE NORTH 61
DEGREES 01'07" WEST ALONG SAID PARALLEL LINE, :A DISTANCE OF 798.00 FEET TO A
POINT WHICH BEARS SOUTH 28 DEGREES 58' 53" WEST 350.00 FEET FROM THE POINT OF
BEGINNIN'G'; THENCE NORTH 28 DEGREES 58'53" EAST 350.00 FEET TO THE POINT OF
BEGINNING.
EXCEPT THAT PORTION DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE SOUTHERLY LINE OF THE 100 -FOOT RIG HT OF WAY- OF THE
CALIFORNIA STATE HIGHWAY ORA -60 -13, SAID POINT OF BEGINNING BEING AT RIGHT
ANGLES TO ENGINEER'S STATION 7 +95.46 IN THE CENTERLINE OF SAID HIGHWAY; THENCE
SOUTH 15 DEGREES 38'30" WEST 44.00 FEET; THENCE NORTH 74 DEGREES 21' 30" WEST
34.00 FEET; THENCE NORTH 15 DEGREES 38'30" FAST TO AN INTERSECTION WITH THE
SAID SOUTHERLY LINE OF THE STATE HIGHWAY; THENCE SOUTHWESTERLY ALONG SAID
SOUTHERLY Ll : \E TO THE POINT OF BEGI \til \G.
A -2 1 (9
PARCEL 3:
A NON- EXCLUSIVE EASE \MELT FOR INGRESS AND EGRESS OVER THAT CERTAIN PARCEL OF
LAND INCLUDED WITHIN A STRIP OF LAND 25.00 FEET IN WIDTH, THE NORTHEASTERLY
LINE OF WHICH IS DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE U.S. BULKHEAD LINE EXTENDING FROM U.S. BULKHEAD
STATION NO. 129 TO U.S. BULKHEAD STATION NO. 130, AS SAID BULKHEAD LINE AND
BULKHEAD STATIONS ARE LAID OUT AND SHOWN" ON A MAP OF NEWPORT BAY,
CALIFORNIA, SHOWING HARBOR LINES APPROVED BY THE WAR DEPARTMENT, JANUARY
18, 1917, WHICH SAID POINT IS DISTANT SOUTH 61 DEGREES 01'07" EAST, MEASURED
ALONG SAID BULKHEAD LINE, 700.00 FEET FROM THE INTERSECTION OF SAID BULKHEAD
LINE WITH THE SOUTHWESTERLY PROLONGATION OF THE CENTE -RLINE OF IRVINE
AVENUE, AS SHOWN ON A bLAP OF FIRST ADDITION TO NEWPORT HEIGHTS RECORDED IN
BOOK 4, PAGE 94 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER
OF SAID COUNTY, SAID POINT OF INTERSECTION BEING THE MOST SOUTHERLY CORNER
OF LOT H OF TRACT NO. 919, AS PER MAP RECORDED IN BOOK 29, PAGES 31 TO 34
INCLUSIVE OF MISCELLANEOUS :BAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY; THENCE NORTH 28 DEGREES 58' 53" EAST 154.19 FEET TO A POINT IN' THE
SOUTHWESTERLY" LINE OF THE 100 -FOOT RIGHT OF WAY OF THE CALIFORNIA STATE
HIGHWAY ORA -60 -B, SAID POINT BEING RADIAL TO ENGINEER'S STATION 6+56.15 IN THE
CENTERLINE OF SAID HIGHWAY, SAID RADIAL BEARS NORTH 19 DEGREES 37' 57" EAST
FRO.I SAID POINT, SAID SOUTHWESTERLY LINE BEING A CURVE CONCAVE
NORTHEASTERLY AND HAVING A RADIUS OF 2050.00 FEET; THENCE SOUTHEASTERLY
ALONG SAID SOUTHWESTERLY LINE, THROUGH A CENTRAL ANGLE OF 3 DEGREES 591 27 ",
142.79 FEET TO A TANGENT LINE; THENCE SOUTH 74 DEGREES 21'30" EAST ALONG SAID
TANGENT LINE AND SAID SOUTHWESTERLY LINE, 662.08 FEET TO THE TRUE POINT OF
BEGINNING; THENCE SOUTH 74 DEGREES 21'30" EAST 130.08 FEET TO THE BEGINNING
OF A CURVE ON SAID SOUTHWESTERLY LINE, CONCAVE NORTHEASTERLY, HAVING A
RADIUS OF 2550.00 FEET; THENCE SOUTHEASTERLY 715.56 FEET ALONG SAID CURVE,
THROUGH A CENTRAL ANGLE OF 16 DEGREES 04' 40" TO THE NORTHEASTERLY
PROLONGATION OF THE NORTHWESTERLY LINE OF TRACT N0. 1140, AS PER FLAP
RECORDED IN BOOK 36, PAGE 28 OF MISCELLANEOUS NLAPS I\ THE OFFICE OF THE
COUNTY RECORDER OF SAID COUNTY.
THE SOUTHWESTERLY LINE OF SAID 25.00 -FOOT STRIP IS TO BE SHORTENED SO AS TO
TERNIINATE IN SAID NORTHWESTERLY PROLONGATION AND LENGTHENED SO AS TO
TERi1NATE ON A LINE WHICH BEARS SOUTH 28 DEGREES 58'534 WEST FROM THE TRUE
POINT OF BEGINNING.
PARCEL 4:
A NO\- EXCLUSIVE EASEMENT FOR AUTO PARKING PURPOSES OVER THE SOUTHWESTEI LY
20.00 FEET OF THE NORTHEASTERLY 45.00 FEET OF THAT CERTAIN PARCEL 1•IORE
PARTICULARLY DESCRIBED AS FOLLOWS:
A -3
BEGINNING AT A POINT ON" THE U.S. BULKHEAD LINE EXTENDING FROM U.S. -K-LKHE-AD
STATION NO. 129 TO U.S. BULKHEAD STATION NO. 130. AS SAID BULKHEAD LINE AND
BULKHEAD STATIO-NS ARE LAID OUT AND SHOW.-N ON A \ln'P OF NEV"PORT B.
CALIFORNIA, SHOWING IL;RBOR LINES APPROVED BYTFE WAR DEPARTMENT, JANUARY
rl rl
18, 1917, WHICH SAID POINT 1-6 DISTANT SOUTH 61 DEGREES 01' 07 EAST, MEASURED
ALONG SAID BULKH1110 LINE. 700.00 FEET FROM THE iNTERSECTION'OF SAID BULKHEAD
LINE WITH THE SOUTHWESTERLY PROLONGATION OF THE CENTERLINE OF IRVINE
AVENUE, AS SHOW'tNON ANIAP OF FIRST ADDITION TO NE%VPORT HEIGHTS RECORDED IN
BOOK 4, PAGE 94 OF MISCELLANEOUSNIAPS IN THE OFFICE OF THE COUNTY RECORDER
OF SAID COUNTY, SAID POINT OF INTERSECTION BEING THE MOST SOUTHERLY-CORNER
OF LOT H OF TRACT NO. 919, AS SHOWN' ON' A NIAP RECORDED IN BOOK 29, PAGES 31 TO
34 INCLUSIVE OF N-11SCELLANEOUSNIAPS IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY: THENCE NORTH 28 DEGREES 58'53" EAST 154.19 FEET TO A POINT IN THE
SOUTHWESTERLY LINE OF THE 100-FOOT RIGHT OF WAY OF THE CALIFOR-1NIA STATE
HIGHWAY ORA-60-13, SAID POINT BEING RADIAL TO ENGINEER'S STATION 6+56.15 IN THE
CENTERLINE OFSAID HIGMV-AY, SAID RADIAL BEARS NORTH 19 DEGREES 37,371, FAST
FROM SAID POINT, SAID SOUTHWESTERLY LINE BEING A CURVE CONCAVE
NORTHEASTERLY 'ND HAVING A RADIUS OF 2050.00 FEET: THENCE SOUTHEASTERLY
ALONG SAID SOUTI-M-TSTERLYLINE, THROUGH A CENTRAL ANGLE OF 3 DEGREES 59' 27",
142.79 FEETTO AT.AiNGENT LINE: THENCE SOUTH 74 DEGREES 21'30" FAST ALONG SAID
TANGENT LINE AND SAID SOUTH«ESTERLY LINE. 662.08 FEET TO THE TRUE POINT OF
BEGINNING; THENCE SOUTH 28 DEGREES 58'53" WEST 195,71 FEET; THENCE SOUTH 27
DEGREES 00'00" FAST 16.66 FEET: THENCE SOUTH 28 DEGREES 58' 53" WEST 480.00 FEET
TO A LINE PARALLEL WITH AND SOUTHW'ESTERLl 350.00 FEET FRO-1-1 SAID BULKHEAD
LINE, THENCE SOUTH 61 DEGREES 01'07" LAST 235.68 FEET ALONG SAID PARALLEL LINZ
THENCE NORTH 29 DEGREES 30' 13" EAST 697.99 FEET; THENCE NORTH 11 DEGREES 45,
40" EAST 49.32 FEET TO SAID SOUTHWESTERLY LINE OF THE STATE HIGHWAY, SAID
SO[JTVHWESTER_LY LINE BEING A CURVE CONCAVE NORTHEASTERLY, HAVING A RADIUS OF
2550.00 FEET; THENCE NORTHIVESTERLY 118.56 FEET ALONG SAID CURVE, THROUGHA
CENTRAL ANGLE OF 2 DEGREES 39'50" TO THE .NORTHt',:ESTERr.�'TER-N-11--.NUS THEREOF;
THENCE NORTH 74 DEGREES 21' 30" WEST 130.08 FEET TO THE TRUE POINT OF
BEGINNING.
A-4
19
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS, GRANT AND TERM
1.1 Definitions ........................................................ ...............................
ARTICLE II
GRANT OF LEASE A ND TERM
Page
............................ 2
2.1
Lease ...................................................................................................
............................... 8
2.2
Term .....................................................................................................
..............................9
2.3
Quiet Possession .................................................................................
............................... 9
2.4
Ownership of Improvements .............................................................
............................... 10
ARTICLE III
�i7 i; 6� 0 31 L� [ �I `s �T ►` ! � t Ti � � 3 i3 �i - � ATi t � T `k f 1 � i 7 � ti x � 1(.� a I.
3.1
Improvements to be Erected by Tenant ............................................
............................... 10
3.2
Coastal Approval and Entitlements ..................................................
............................... 11
3.3
Compliance With Laws .....................................................................
............................... 11
3.4
Lien Free Completion .......................................................................
............................... 1 I
3.5
As-Built Drawings ..............................................................................
.............................12
3.6
Tenant's Architects and Contractors .................................................
............................... 12
3.7
Costs of Construction ........................................................................
............................... 12
3.8
Renovation and Maintenance of Hotel .............................................
............................... 12
3.9
Renovation and Maintenance of Apartments ....................................
............................... 13
3.10
Maintenance of Marina Operations ..................................................
............................... 13
3.11
Landlord's Cooperation ....................................................................
............................... 13
ARTICLE IV
I7 ' • i1I+ y�I \I�IQIYC410109112'"04=�U1I.
4.1 Landlord's Representations and Warranties ..................................... ............................... 14
4.2 Tenant's Representations and Warranties ......................................... ............................... 15
ARTICLE V
RENT
7.1 Rent ..................................................................................................... .............................15
5.2 Percentage Rent ................................................................................ ............................... 15
I
TABLE OF CONTENTS
(continued)
Page
5.3
Base Rent Dunn; Construction ........................................................
............................... 16
5.4
Periodic Adjustments of Base Rent ..................................................
............................... 16
5.5
Fair Market Adjustment of Base Rent ..............................................
............................... 16
5.6
Payment of Rent ................................................................................
............................... 17
5.7
Charges for Goods and Services .......................................................
............................... 17
5.8
Reconciliation of Annual Rent ..........................................................
..............................: 17
5.9
Place for Payment of Rentals ............................................................
............................... 18
5.10
Records and Reports of Sales ...........................................................
............................... 18
5.11
Additional Rent .................................................................................
............................... 19
5.12
No Abatement or Reduction in Rent .................................................
............................... 19
5.13
No Partnership Created .....................................................................
............................... 19
5.14
Net Lease ..........................................................................................
............................... 19
ARTICLE VI
TENANT'S OBLIGATION WITH RESPECT TO MAINTAINING PREMISES
6.1 Repairs and Maintenance... ..... I .............................................................. ......................... 19
6.2 Taxes and Assessments ..................................................................... ............................... 20
6.3 Capital Repairs and Replacements .................................................... ............................... 21
ARTICLE VII
USE OF PREMISES
7.1 Use of Premises ................................................................................. ............................... 21
7.2 Pump -Out Station ............................................................................. ............................... 22
7.3 Environmental Requirements ............................................................ ............................... 22
ARTICLE VIII
CONDUCT OF BUSINESS BY TENANT
8.1 Standards of Operation ..................................................................... ............................... 23
8.2 Management ........................................................................................ .............................23
8.3 Competition by Tenant ..................................................................... ............................... 23
8.4 Use of Name ....................................................................................... .............................24
-ii-
r)
a
TABLE OF CONTENTS
(continued)
Page
ARTICLE LX
ALTERATIONS, FIXTURES AND SIGNS
9.1
Tenant's Right to Make Alterations .................................................. ...............................
24
9.2
Prohibition Against Liens ................................................................. ...............................
24
9.3
Signs .................................................................................................... .............................24
ARTICLE X
INSURANCE, INDEMNITY AND CASUALTY
10.1
Insurance ........................................................................................... ...............................
24
10.2
Indemnification ................................................................................. ...............................
27
10.3
Settlement of Insurance Claims ........................................................ ...............................
28
10.4
Casualty ............................................................................................... .............................29
10.5
Casualty Late in Term ....................................................................... ...............................
29
10.6
No Abatement of Rent ...................................................................... ...............................
29
ARTICLE XI
UTILITIES
11.1
Utilities ................................................................................................ .............................30
ARTICLE XII
ESTOPPEL CERTIFICATES
12.1
Estoppel Certificates ........................................................................... .............................30
ARTICLE XIII
ASSIGNMENT AND SUBLEASING
13.1
Limitation on Right to Assign .......................................................... ...............................
.
13.2
Grant or Denial o= Consent ............................................................... ...............................
.
13.3
Non - Application to Guest Rooms and Facilities .............................. ...............................
32
13.4
Assignment to Affiliate ..................................................................... ...............................
32
13.5
Limitation on Transfer of Interest in Tenant ..................................... ...............................
32
13.6
Participation in Sale Proceeds ........................................................... ...............................
33
-iii-
al
TABLE OF CONTENTS
(continued)
Page
ARTICLE XIV
HYPOTHECATION
14.1 Tenant's Right to Hypothecate ......................................................... ............................... 34
14.2 Notice to and Rights of Mortgagees ........................... ...............................
14.3 Nonsubordination of Fee ................................................................... ............................... 38
14.4 Equipment Financing ........................................................................ ............................... 38
14.5 Cross Collateralization of Premises .................................................. ............................... 39
ARTICLE XV
WASTE AND GOVERNMENTAL REGULATIONS
15.1 Waste or Nuisance ............................................................................ ............................... 39
15.2 Governmental Regulations ................................................................ ............................... 39
153 Tenant's Right to Contest Governmental Regulations ..................... ............................... 39
ARTICLE XVI
EMINENT DOMAIN
16.1
Lease Governs ...................................................................................
............................... 40
16.2
Termination of Lease ........................................................................
............................... 40
16.3
Partial Taking; Rental Abatement .....................................................
............................... 40
16.4
Partial Taking; Restoration .................................................................
.............................40
16.5
Distribution of Award.. ....................................................................................................
40
16.6
Allocation of Award; Partial Taking .................................................
............................... 41
16.7
Allocation of Award; Temporary Taking .........................................
............................... 41
16.8
Allocation of Award; Total Taking ........................................ . ....................................
I.... 41
16.9
Conduct of Proceedings ....................................................................
............................... 42
16.10
Notices ..............................................................................................
............................... 42
ARTICLE XVII
LIi�1alLIIMi a ryW1619M
17.1 Events of Default .............................................................................. ............................... 42
17.2 Remedies Upon Default .................................................................... ............................... 43
17.3 Landlord Acting for Tenant's Account ............................................. ............................... 44
17.4 Limited Liability; Non - Recourse Ground Lease .............................. ............................... 44
-iv-
C�
GROUND LEASE
by and between
CITY OF NEWPORT BEACH,
a municipal corporation
"Landlord"
MM
BALBOA BAY CLUB, INC.,
a California Corporation
"Tenant"
Dated as of October 25 .2000
Na 1:2 15136._,
�3
TABLE OF CONTENTS
(continued)
Page
ARTICLE XVIII
LANDLORD'S ACCESS
18.1 Landlord's Right of Access .............................................................. ............................... 45
ARTICLE XIX
MISCELLANTOUS
19.1
Waiver .................................................................................................
.............................45
19.2
Accord and Satisfaction ......................................................................
.............................46
19.3
Entire Lease ...................................................................................... ...............................
46
19.4
Termination of Existing Lease .......................................................... ...............................
46
19.5
Force Majeure .....................................................................................
.............................46
19.6
Notices .............................................................................................. ...............................
46
19.7
Captions and Section Numbers ......................................................... ...............................
47
19.8
Construction of Language ................................................................. ...............................
47
19.9
Broker's Commission .........................................................................
.............................48
19.10
Limitation of Landlord's Obligations ............................................... ...............................
48
19.11
Landlord's or Tenant's Discretion .................................................... ...............................
48
19.12
Interest ............................................................................................... ...............................
48
19.13
Successors ...........................................................................................
.............................48
19.14
Applicable Law ................................................................................. ...............................
48
19.15
Landlord's and Tenant's Rights are Cumulative .............................. ...............................
48
19.16
Saving Clause .................................................................................... ...............................
48
19.17
Attorneys' Fees and Expenses .......................................................... ...............................
49
19.18
Injunctive Relief ................................................................................ ...............................
49
19.19
Appraisal .............................................................................................
.............................49
19.20
Recording ............................................................................................
.............................49
19.21
Incorporation of Preamble, Recitals and Exhibits ............................ ...............................
49
_V_
C!' II � 17 1►11 i t 1 � � T_ �.�
THIS GROUND LEASE (this `Lease ") is made as of October 15, 2000, by and between
THE CITY OF NEWPORT BEACH, a charter city and municipal corporation (`Landlord "),
and B ALBOA BAY CLUB, INC., a California Corporation ("Tenant ").
RECITALS
A. Landlord is the grantee of that certain parcel of real property located in the City of
Newport Beach, County of Orange, State of California, as more particularly described
on Ezhihit A attached hereto (the "Premises "), pursuant to the provisions of the
Beacon Bay Bill (Chapter 74 of the Statutes of 1978).
B. Tenant is currently occupying and in possession of the Premises pursuant to that
certain Lease between Landlord, as lessor, and Tenant, as lessee, dated May 13, 1986
(the "Existing Lease "). The Premises are operated as a multi-use hotel and club
facility by International Bay Clubs, Inc., an Affiliate of Tenant, operating under the
name -Balboa Bay Club."
C. On November 3, 1992, a majority of the electors of the City of Newport Beach
approved Measure M which authorized the City Council of the City of Newport Beach
to lease tidelands and waterfront property consistent with the provisions of State law.
D. The California State Lands Commission has determined that this Lease conforms with
the provisions of relevant statutes, rules and regulations and has approved this Lease.
E. The City Council_ of the City of Newport Beach has determined that this Lease is
consistent with the Charter of the City of Newport Beach, and its General Plan and
Zoning Ordinances applicable thereto, and of all other applicable State and local laws.
F. The City Council of the City of Newport Beach has determined that it is in the best
interests of the citizens of the City of Newport Beach to maintain the use and character
of the Premises for the general uses permitted thereon by the current General Plan and
Zoning Ordinances of the City applicable thereto, and to enter into this Lease under
the terms and conditions set forth herein.
G. Landlord and Tenant entered into that certain Option Agreement for the Lease of Real
Property dated as of June 30, 1996 (the "Option Agreement ") granting Tenant the
right to enter into a new lease for the Premises on the terms and conditions set forth
herein. Tenant has duly exercised such option, all conditions precedent to such
exercise have been satisfied, and there exists no event of default under the Existing
Lease or the Option Agreement as of the date of the exercise of the option by Tenant
or the date hereof.
H. Landlord and Tenant each desires to terminate the Existing Lease and concurrently
therewith enter into this Lease.
NB I:', I i 136.23 1
I. Landlord and Tenant agree that the Option Agreement and this Lease fully comply
with and completely satisfy the obligations of Landlord and Tenant under all prior
agreements and understandings, including all prior Memoranda of Understanding and
the Existing Lease.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS, GRANT AND TERM
1.1 Definitions. For purposes of this Lease, the following definitions shall
apply:
"Accounting Period" means a calendar quarter
"Affiliate" means any individual, corporation, partner, partnership, limited liability company,
trust or other entity which directly or indirectly Controls, is directly or indirectly Controlled by,
or is under common Control, whether it be direct or indirect, with the specified entity.
"Apartment Revenues" means Gross Revenues derived by the Tenant Parties from the rental of
apartments within the Project, whether for transient or long -term occupants, plus any portion of
any Award made on account of a temporary Taking allocated to "Apartment Revenues" pursuant
to Section 16.7 of this Lease.
"Charter Commission Revenues" means Gross Revenues derived by the Tenant Parties from
commissions received for arranging boat charters of bay or ocean going vessels for guests trips
and special purpose occasions, including Newport Harbor cruises, whether or not such charters
depart from or arrive at the Premises, plus any portion of any Award made on account of a
temporary Taking allocated to "Charter Commission Revenues" pursuant to Section 16.7 of this
Lease.
"Charter Revenues" means Gross Revenues derived by the Tenant Parties from operating or
managing the boat charters of bay or ocean going vessels for guests trips and special purpose
occasions, including Newport Harbor cruises, whether or not such charters depart from or arrive
at the Premises, plus any portion of any Award made on account of a temporary Taking allocated
to "Charter Revenues" pursuant to Section 16.7 of this Lease.
"City" means the City of Newport Beach, located in the County of Orange, State of California, a
charter city formed pursuant to the laws of the State of California. References in this Lease to
the City (as distinguished from Landlord) are intended to distinguish actions, rights and powers
of the,City in the exercise of its municipal and legislative powers and authority and the discharge
of its legislative and municipal responsibilities from the actions of Landlord pursuant to this
Lease. This Lease shall not limit, preclude or infringe upon the municipal and legislative powers
and authority of the City, or the discharge of its legislative and municipal responsibilities,
NB 1:215136.23
whether or not any of such actions, authority, powers or responsibilities are discretionary,
administrative or mandatory under law.
"Commencement Date" means the date set forth in the introductory paragraph of this Lease.
"Control ", "Controlled by" or "Controlling" means the possession, director indirect, of the
power to direct or cause the direction of the management and policies of an entity whether
through ownership of an interest therein, through ownership of voting securities, by contract or
otherwise.
"Constituent Member" means any constituent partner, joint venturer, holder of a beneficial
interest or shareholder in Tenant, or in any partnership, joint venture, trust or corporation holding
a direct or indirect interest in Tenant.
"County" means the County of Orange, State of California
"Default Rate" means the then Prime Rate plus five percent (5 %) per annum. The Default Rate
shall change as and when the Prime Rate shall change.
"Dry Storage Revenues" means Gross Revenues derived by the Tenant Parties from the dry
storage of small boats on the Premises on behalf of guests, members and other persons, plus any
portion of any Award made on account of a temporary Taking allocated to "Dry Storage
Revenues" pursuant to Section 16.7 of this Lease.
"Dues Revenues" means Gross Revenues derived by the Tenant Parties from membership dues
and fees for membership in or use of the club, spa, recreational facilities or beach at the Project
(exclusive of security deposits), and Bay Window Magazine subscriptions and sales, plus any
portion of any Award made on account of a temporary Taking allocated to "Dues Revenues"
pursuant to Section 16.7 of this Lease; provided, however, that charges for or income derived
from any service or facility included in any other category of Percentage Rent, such as, by way
of example and not limitation, food and beverage revenues or rental of guest rooms, shall not be
included in Dues Revenues.
"Event of Default" means the occurrence of any of the events listed in Section 17.1 and the
expiration of any applicable notice and cure period provided in said Section.
"Final Plans" means the final plans approved by Landlord as provided in the Option
Agreement.
"Fiscal Year" means the period of October 1 through September 30 of each year of the Term.
"Food and Beverage Revenues" means Gross Revenues derived by the Tenant Parties from the
sale of food and beverages (including food and beverages from all facilities, off- premises food
and beverage sales, cover charges, service charges and miscellaneous banquet revenue), plus any
portion of any Award made on account of a temporary Taking allocated to "Food and Beverage
Revenues" pursuant to Section 16.7 of this Lease, but shall not include (i) the value of gratis
meals furnished to Tenant's employees as an incident of their employment, (ii) gratuities paid to
491:215130 23
I
employees, and (iii) the value of meals provided in connection with charitable events when no
Tenant Party receives payment therefor other than by reason of a charitable contribution.
"Force Majeure" means, without limitation, such events as: strikes; lockouts; acts of God;
inability to obtain labor, materials, equipment or supplies; breaches of contract by contractors,
subcontractors or material suppliers which materially effect the critical path of construction of
the improvements contemplated by this Lease; breaches of contract by any lender with a lien on
the Project which materially effect the critical path of construction of the improvements
contemplated by this Lease (but in no event shall such event of Force Majeure result in any
permitted delay in performance by Tenant of any obligation under this Lease by a period in
excess of six (6) months); governmental restrictions; moratoriums, initiatives, referenda imposed
by or occurring within the County or other governmental agency which now or hereafter has
jurisdiction over the Premises; war or enemy action or invasion; civil commotion; insurrection;
riot; mob violence; malicious mischief or sabotage; unusual failure of transportation; fire or any
other casualty; flood; earthquake; unusually adverse weather conditions; a Taking; any litigation
or other judicial or administrative proceeding or the passage, promulgation or application of any
law, order or regulation of any governmental, quasi - governmental, judicial or military authority;
either party's delay in responding to the other party's request for approval or consent which the
requesting party is required to obtain hereunder beyond the period of time the responding party is
given under this Lease to respond; or other similar causes beyond the control of the delayed
party; any of which has the effect of delaying, hindering or preventing such party's performance
of its obligations hereunder. If the event of Force - Majeure arises out of a party's delay in
responding to the other's request for consent or approval, then the delayed party shall notify the
other party of such event of Force Majeure promptly after the delayed party has knowledge that
such delay will or may occur as a result thereof, and the delayed party shall use reasonable
efforts to minimize the effects thereof With respect to the occurrence or threat of any event of
Force iVajeure, the delayed party agrees to notify the other party promptly after the delayed
party has knowledge that such event of Force !i'lojeure may or will occur.
"Furnishings" means all furniture, furnishings, fixtures and equipment used in the operation of
the Project, including: all wall coverings, draperies, blinds, shades, shutters and other window
coverings, curtain rods, valances and other window treatments; tapestries, paintings, art and
sculpture; carpets, rugs and other floor coverings; bar, saloon, lounge, dining, banquet, meeting
and guest room furniture and furnishings; laundry, valet and dry cleaning equipment; office and
material handling equipment and machinery; maintenance, janitorial, cleaning and engineering.
equipment; all kitchen equipment and facilities (whether or not permanently attached), and
machinery, equipment and furnishings used in food and beverage storage, preparation, heating
and refrigeration; and all trade fixtures.
"Gross Revenues" means all gross receipts of every kind and nature, whether for cash, credit or
barter, from any business, use or occupation, or any combination thereof, transacted, arranged or
performed, in whole or in part, on, from or for services from the Premises, whether operated by
the Tenant or by a sublessee, licensee or concessionaire if such sublessee, licensee or
concessionaire is an Affiliate of Tenant for Room Revenues, Food and Beverage Revenues,
Apartment Revenues, Marina Revenues, Dry Storage Revenues, Charter Revenues, Charter
Commission Revenues, Dues Revenues, Retail Revenues and Miscellaneous Revenues. In the
NB 1:215136.23 4
computation of Gross Revenues for any of the above mentioned categories thereof, there shall be
excluded therefrom the following amounts: (i) rebates, refunds and discounts (exclusive of credit
card discounts or commissions paid to a credit card system) to customers given in the ordinary
course of obtaining such revenues; (ii) excise, sales and use tares collected directly from patrons
or guests or as a part of the sales price of any goods or services, such as gross receipts,
admission, cabaret or similar taxes, which are accounted for by Tenant to any governmental
agency; (iii) income or interest derived from cash, securities and other property acquired and
held for investment by Tenant (including income or interest earned on any amounts held in
operating or replacement reserves for the Project); (iv) proceeds of insurance other than business
interruption or rental loss insurance, (v) advertising, promotional or charitable billings not
actually charged or paid; and (vi) bad or uncollectible debts. Sales upon credit shall be
considered cash sales and shall be included in the gross receipts for the period during which the
goods or services are delivered or performed. All Gross Revenues shall be computed without
deduction or allowance for costs, charges or expenses for the purchase, sale, transportation or
delivery of merchandise or services, or for labor and materials in connection with the rendering
of services or the sale of goods.
"Hazardous Material" means any flammable explosives, asbestos, asbestos containing
materials, radioactive materials, hazardous wastes, petroleum polychlorinated biphenyls, toxic
substances or related injurious materials, whether injurious by themselves or in combination with
other materials, "hazardous waste," "extremely hazardous waste" or "restricted hazardous waste"
as defined in Chapter 6.5 of Division 20 (Section 25100 et seq.) of the California Health and
Safety Code, as amended, or any successor statute, (b) "hazardous substance" as defined in the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section
9601 et seq.), as amended, or any successor statute, (c) "hazardous material' as defined in the
Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), as amended, or any
successor statute, (d) "hazardous waste," "solid waste," "sludge," `used oil," "recycled oil," and
"re- refined oil" as defined in the Resource Conservation and Recovery Act of 1976 (42 U.S.C.
Section 6901 et seq.), as amended, or any successor statute, (e)'`hazardous substance" as defined
in the Carpenter- Presley - Tanner Hazardous Substance Account Act, Chapter 6.8 of Division 20
(Section 25300 et seq.) of the California Health and Safety Code, as amended, or any successor
statute, (f) "hazardous substance" as defined in Chapter 6.7 of Division 20 (Section 25280 et
seq.) of the California Health and Safety Code, as amended, or any successor statute,
(g) "hazardous material," "hazardous substance" or "hazardous waste" as defined in Chapter 6.9
of Division 20 (Section 25501 et seq.) of the California Health and Safety Code, as amended, or
any successor statute, (h) "hazardous substance" as defined in the Clean Water Act (33 U.S.C.
Section 1251 et seq.), as amended, or any successor statute, or (i) any substance, materials or
wastes now or in the future listed in (1) the United States Department of Transportation
Hazardous Materials Table (49 C.F.R. Section 172.101), as amended or any successor; (2) the
Environmental Protection Agency list (40 C.F.R. Part 302), as amended or any successor; (3) the
list published in Title 26 of the California Administrative Code, as amended or any successor; or
(4) any other list published by any federal or state governmental entity now or in the future.
"Hazardous Material Activity" means any storage, holding, release, emission, discharge,
generation, abatement, disposition, handling or transportation of any Hazardous Material from,
.481:215136.23
CI
a
on or otherwise relating to the Premises exclusive of use of minor quantities of Hazardous
Materials in the ordinary course of business in compliance with applicable law.
"Inventories and Supplies" means inventory and supply items, including chinaware, glassware,
linens, silverware, utensils, uniforms, office supplies, paper supplies, guest room supplies,
cleaning supplies and other consumable supplies, food and beverage inventories and goods held
for resale or used or intended for use in connection with the conduct of Tenant's business on the
Premises.
"Lease Interest Rate" means the then Prime Rate plus two percent (2 %) per annum. The Lease
Interest Rate shall change as and when the Prime Rate shall change.
"Leasehold" means the leasehold estate created by the terms and subject to the conditions of this
Lease.
"Marina Revenues" means Gross Revenues derived by the Tenant Parties from the rental of
boat slips and temporary dock or slip fees and charges (exclusive of utility reimbursements paid
by slip renters) plus any portion of any Award made on account of a temporary Taking allocated
to "Marina Revenues" pursuant to Section 16.7 of this Lease.
"Miscellaneous Revenues" means all Gross Revenues derived by the Tenant Parties from the
Project excepting those receipts previously categorized under Apartment Revenues, Charter
Revenues, Charter Commission Revenues, Dry Storage Revenues, Dues Revenues, Food and
Beverage Revenues, Marina Revenues, Retail Revenues and Room Revenues derived from the
Project, including but not limited to sales from girt and other shops, rentals or agreements for
other guest services, vending machines revenues, any revenue or income related to telephone and
telecommunication operations, any revenue or income related to cable or video television
operations, parking charges or fees, proceeds of business interruption or rental loss insurance
(net of Tenant's reasonable costs of settling the claim giving rise to such proceeds with the
insurance carrier), plus any portion of any Award made on account of a temporary Taking
allocated to "Miscellaneous Revenues" pursuant to Section 16.7 of this Lease, plus all rentals or
other payments from sublessees, licensees or concessionaires who are not Affiliates of Tenant,
and any other Gross Revenues which may be received from time to time which are not
specifically provided for in the categories described in Apartment Revenues, Charter Revenues,
Charter Commission Revenues, Dry Storage Revenues, Dues Revenues, Food and Beverage
Revenues, Manna Revenues, Retail Revenues and Room Revenues.
"Mortgage" means any deed of trust, mortgage or similar security instrument entered into by
Tenant encumbering the leasehold estate created by this Lease, as permitted by this Lease,
including an assignment of this Lease as security therefor.
"Mortgagee" means the holder of or beneficiary under a Mortgage.
"Partial Taking" means a Taking which does not constitute a Total Taking or a Temporary
Taking:,
"Percentage Rent" means the rental calculated in accordance with Section 5.2 of this Lease
NB 1:215136.23
30
"Premises" means the parcel of land located in the City of Newport Beach, County of Orange,
State of California, as more fully described in Exhihit A attached hereto and by this reference
incorporated herein.
"Prime Rate" means the prime or base rate of interest, or equivalent rate of interest, however
termed, as announced from time to time and as so identified by Bank of America. "Prime Rate"
means the prime or base rate of interest, or equivalent rate of interest, however termed, as
announced from time to time and as so identified by The Wall Street Journal if at any time Bank
of America shall fail or cease to publish and announce a prime or base rate of interest.
"Project" means all improvements, elements and features constructed or to be constructed on
the Premises, including a private membership club, hotel, rental apartments, boat slips, spa and
health club, food and beverage facilities, recreational facilities, parking facilities, and all other
amenities and services customarily found in projects in Southern California of the type, size and
quality described herein, all in accordance with the Final Plans approved by Landlord pursuant to
the Option Agreement.
"Qualified Manager" means, as to the hotel portion of the Project, during any time the hotel
portion of the Project is being managed by Tenant or an Affiliate, an individual employed by
Tenant or such Affiliate who is an experienced hotel operator with a good reputation for honesty
and integrity and who has not less than ten (10) years experience in the operation and
management of first class hotel facilities, and who does not own, lease, manage or have an
interest in any other hotel prohibited by Section 83 (except for ownership of less than a
Controlling interest in a corporation whose capital stock is publicly traded); and during any time
the hotel portion of the Project is being managed on behalf of Tenant by an independent operator
under a management contract, a regionally recognized hotel operator of first -class resort hotels of
the type, size and quality of the hotel portion of the Project, who has the financial ability to
perform its obligations under a conventional management agreement for the management and
operation of the hotel portion of the Project, who enjoys a reputation for honesty and integrity,
who is experienced in the management and operation of hotels meeting the first -class standards
of the Project, and who does not own, lease, manage or have an interest in any other hotel
prohibited by Section 83 (except for ownership of less than a Controlling interest in a
corporation whose capital stock is publicly traded). As to the restaurant portions of the Project, a
"Qualified Manager" means, a Qualified Manager of the hotel portion of the Project, or during
any time the restaurant portion of the Project is being managed by Tenant or an Affiliate, an
individual employed by Tenant or such Affiliate who is an experienced restaurant operator with a
good reputation for honesty and integrity and who has not less than ten (10) years experience in
the operation and management of first class restaurant facilities; and during any time the
restaurant portions of the Project is being managed on behalf of Tenant by an independent
operator under a management contract, a regionally recognized restaurant operator of first -class
restaurants of the type, size and quality of the restaurant portions of the Project, who has the
financial ability to perform its obligations under a conventional management agreement for the
management and operation of the restaurant portions of the Project, who enjoys a reputation for
honesty. and integrity, and who is experienced in the management and operation of restaurants
meeting the first -class standards of the Project.
NB 1:2 15136 23
"Reserve Account" shall have the meaning ascribed to it in Section 6.'
Revenues" means Gross Revenues derived by the Tenant Parties from the sale of goods
and services from retail shops, including clothing and other soft goods, hair and beauty salons,
gift and sundries shops , plus any portion of any Award made on account of a temporary Taking
allocated to "Retail Revenues" pursuant to Section 16.7 of this Lease.
"Room Revenues" means Gross Revenues derived by the Tenant Parties from the rental, or any
other fee or charge in connection therewith, of hotel rooms intended for overnight
accommodations upon the Premises, meeting rooms and similar facilities, including revenues
derived from telephone, telex, facsimile and other such equipment and facilities , plu& any
portion of any Award made on account of a temporary Taking allocated to "Room Revenues"
pursuant to Section 16.7 of this Lease.
"Taking" means any acquisition of or damage to all or any portion of the Premises, or any
interest therein or right accruing thereto, pursuant to or in anticipation of the exercise of the
power of condemnation or eminent domain, or by reason of the temporary requisition of the use
or occupancy of the Premises, or any part thereof, by any governmental or quasi - governmental
authority, civil or military, or any other agency empowered by law to take property in the State
of California under the power of eminent domain.
"Tenant" means the person or entity owning the Leasehold estate created by this Lease.
"Tenant's Investment" has the meaning ascribed to it in Section 2.4.
`-Tenant Parties" means Tenant and any and all of its Affiliates.
"Temporary Taking" means a Taking for a temporary period or use of the Premises or the
Project or any portion thereof.
"Term" has the meaning ascribed to it in Section 2.2.
"Total Taking" means a Taking of all of the Premises and the Project other than for a temporary
purpose; or a Taking of so much of the Premises or the Project as to render the balance of the
Premises unsuitable for the construction or operation of a Project of the type and in the manner
set forth in this Lease.
ARTICLE II
GRANT OF LEASE AND TERM
2.1 Lease. In consideration of the covenants to be observed and performed
by the parties hereunder, Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the Premises. Landlord reserves all oil, oil rights, gas, minerals, mineral rights, natural
gas rights and other hydrocarbon substances in and under the Premises and the right to grant and
transfer.,the same, together with all necessary and convenient rights to explore for, develop,
produce and extract and take the same, subject to the express limitation that any and all
operations for the exploration, development, production, extraction and taking of any such
1B 1:215136.23
3�
substance shall be carried on at levels below the depth of five hundred feet (500') from the
surface of the land by means of wells, derricks and other equipment from surface locations on
adjoining or neighboring land so long as such activities do not interfere with or impair the
operation, business or aesthetics of the Project, and subject further to all restrictions and
regulations concerning the drilling for, and production of, oil, gas, minerals, petroleum and other
hydrocarbon substances specified in the Newport Beach City Charter or the Newport Beach
Municipal Code.
2.2 Term. The term ("Term ") of this Lease shall commence on the
Commencement Date and shall expire upon the fiftieth (50th) anniversary thereof (the
"Expiration Date"), unless sooner terminated as herein provided.
2.3 Quiet Possession.
(a) Tenant shall be entitled to peaceably and quietly use and enjoy the
Premises for the Term, without hindrance or interruption by Landlord (other than in
exercise of Landlord's rights should Tenant be in breach or default hereunder) or any
other person or persons claiming by, through or under Landlord. Landlord shall in no
event be liable in damages or otherwise, because of the interruption or termination of anv
service provided by the City (such as, water or sewer service), or a termination,
interruption or disturbance of any service attributable to any act or neglect of Tenant or
its servants, agents, employees, licensees, business invitees, or any person claiming by,
through or under Tenant; provided, however, Tenant's obligations hereunder, other than
its obligation to pay Rent in accordance with Article V, shall be excused to the extent
such interruption or termination interferes with the performance by Tenant of its
obligations hereunder.
(b) Tenant has satisfied itself, by its own investigation and research, regarding
all physical conditions affecting Tenant's use and enjoyment of the Premises and
constriction of the Project on the Premises (including soil conditions and on -site and off -
site improvements which may be needed). By execution of this Lease, Tenant shall be
deemed to have accepted the Premises in an "AS IS" condition. Tenant acknowledges
that it has had the advice of such independent professional consultants and experts as it
deems necessary in connection with its investigation of the Premises, has (to the extent it
deems necessary) independently investigated the condition of the Premises, including the
soils, hydrology and seismology thereof, and the laws and regulations relating to the
construction and operation of the Project on the Premises, including environmental,
zoning and land use entitlement requirements and procedures, height restrictions, floor
area coverage limitations, and similar matters, and has not relied upon any statement,
representation or warranty of Landlord of any kind or nature in connection with its
decision to execute and deliver this Lease and its agreement to perform the obligations of
Tenant hereunder. In connection with the matters set forth in this Section 2.3(b), Tenant
acknowledges that it (or its affiliated predecessors in interest) has been in possession and
occupancy of the Premises under the Existing Lease and predecessor leases since 1948,
and Tenant is fully familiar with the condition of the Premises. As between Landlord and
NBI:2 15136.23
Tenant, Tenant shall be solely responsible for any condition on the Premises which may
interfere with the construction, operation or maintenance of the Project.
2.4 Ownership of Improvements. Except as hereinafter provided, Tenant
shall be the owner of all improvements presently existing or hereafter constructed by Tenant
upon the Premises (as the same may be altered, expanded and/or improved from time to time),
and all Furnishings, Inventories and Supplies and all other personal property located on the
Premises or in the Project (hereinafter referred to collectively as the "Tenant's Investment"):
Tenant shall retain all rights to depreciation deductions and tax credits arising from its ownership
of the Tenant's Investment. At any time during the Term, upon Tenant's request therefor, and
within a reasonable period of time following said request, Landlord agrees to confirm, in writing,
that Landlord has no present possessory interest in any part of the Tenant's Investment.
Following the expiration or earlier termination of this Lease, all improvements constituting
fixtures to the Premises that cannot be removed without causing damage to the Project shall
automatically revert to and become the property of Landlord without compensation or payment
to, or requirement of consent or act of, Tenant, and Tenant shall thereafter have no further rights
thereto or interest therein, including any rights to depreciation deductions or tax credits with
respect thereto. Following the expiration or any earlier termination of this Lease, Tenant shall
retain its ownership in all items of personal property comprising a portion of Tenant's
Investment which may be removed without causing damage to the Project; provided, however, if
Tenant fails to remove the same within thirty (30) days following the expiration or earlier
termination of this Lease, any part of Tenant's Investment remaining on the Premises after said
3)0 -day period had expired shall become the sole property of Landlord without compensation or
payment to, or requirement of consent or act of, Tenant, and Tenant shall thereafter have no
further rights thereto or interest therein. Upon the expiration or earlier termination of this Lease
for any reason, Tenant shall surrender the Premises and the Project to Landlord in good condition
and repair, reasonable wear and tear and acts of God excepted. Furthermore, at such time,
Tenant shall surrender all keys to any and all parts of the Project to Landlord and shall inform
Landlord of all combinations of locks, safes and vaults, if any, in the Project or elsewhere on the
Premises. Tenant agrees to execute, acknowledge and deliver to Landlord any instruments
reasonably requested by Landlord to carry out the intention of this Section 2.4. Tenant's
obligations and Landlord's rights under this Section 2.4 shall survive the expiration or earlier
termination of this Lease. V
ARTICLE III
CONSTRUCTION AND INTROVEMENT OF PREMISES
3.1 Improvements to be Erected by Tenant. Tenant shall, at its sole cost
and expense, use its best efforts to design, construct, famish and equip the Project (including
parking facilities adequate to fully comply with all applicable ordinances, resolutions and
conditions of approval of the Project) upon the Premises as herein provided. Construction of the
improvements, consisting of issuance of one or more building permits for construction of the
Project (including demolition of existing improvements), shall commence on or before ninety
(90) days following commencement of the Term (as said date is extended by events of Force
Majeure). Tenant shall, at its sole cost and expense, use its best efforts to construct and complete
the Project, which shall include all improvements and amenities as are contemplated in the Final
N81:215136.23 10
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Plans approved by Landlord under the Option Agreement and as otherwise required by the terms
of this Lease or by applicable law so that completion is achieved on or before three (3) years
following the date of commencement of the Term (as said date is extended by events of Force
Llajeure).
3.2 Coastal Approval and Entitlements. Tenant represents that it has
obtained a Coastal Development Permit (as such term is used in the certified land use plan
encompassing the Premises and approved by the California Coastal Commission) for the Project,
and to the extent not already obtained, Tenant shall, at its sole cost and expense, apply for,
process and use its best efforts to obtain all other approvals (including environmental approvals)
and use permits or variances required under applicable law for the construction and/or operation
of the Project.
3.3 Compliance With Laws. Subject to its right to contest as contained in
Section 15.3 below, Tenant shall cause the construction of the Project, and any subsequent
improvements on the Premises, to be completed in substantial accordance with all applicable
laws, ordinances, resolutions, plans, permits, conditions, rules, regulations and orders of all
governmental authorities having jurisdiction over the Premises, construction of improvements
thereon, or the conduct of Tenant's business thereat. Upon request of Landlord, Tenant shall
furnish Landlord with copies of any or all certificates and approvals relating to any work or
installation done by Tenant that may be required by any governmental authority or by all
applicable underwriters and insurers.
3.4 Lien Free Completion. Tenant agrees that the Project shall be
constructed free of liens for labor and materials, using quality materials and workmanship, and
substantially in accordance with the Final Plans and all applicable underwriters and insurance
requirements, zoning regulations, building codes and requirements of any governmental
authority having jurisdiction over the Premises. Tenant shall promptly discharge any such lien
or claim of lien made or filed against the Premises; provided, however, that Tenant shall have the
right to contest in good faith and with reasonable diligence the amount or validity of any such
lien or claim of lien so long as Tenant shall provide Landlord, at Tenant's sole cost and expense,
with such bond or other security as Landlord may reasonably require to insure payment thereof
and prevent any sale, foreclosure or forfeiture of all or any part of the Premises. Tenant shall
notify Landlord in writing of any and all liens and claims of lien made or filed against the
Premises within fifteen (15) days after Tenant becomes aware of the filing thereof. Tenant shall
immediately satisfy any final judgment or decree and cause the lien to be discharged. Any
judgment shall be deemed final for the purposes of this provision unless enforcement thereof is
stayed pending appeal. If Tenant fails promptly to discharge liens or claims of lien, or to contest
such liens or claims of lien and in connection therewith provide the security required under this
Section 3.4 or, after having complied with the provisions of this Section 3.4, there is an adverse
order, judgment, decree or award with respect to Tenant or Landlord and Tenant fails to satisfy
the final judgment, order, decree or award and cause the lien to be discharged, Landlord,
following reasonable written notice to Tenant, may, in its sole discretion, procure the release and
discharge of any such lien and an y judgment or decree thereon and, in furtherance thereof, may
in its reasonable discretion, effect any settlement or compromise. All amounts reasonably
expended by Landlord in connection with the provisions of this Section 3.4 (including attorneys'
NB121513623 11
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fees, charges and expenses), together with interest thereon at the Default Rate from the date of
expenditures to the date of reimbursement, shall be payable by Tenant immediately following
demand therefor.
3.5 As -Built Drawings. Upon completion of the work, Tenant shall furnish
Landlord with a set of drawings and specifications for all completed construction hereafter
occurring on the Premises which accurately reflect the nature and extent of all work done on or
to the Premises after the date hereof, and, where such drawings and specifications are prepared in
connection with any work or improvement contemplated in this Lease, any existing
improvements on the Premises all marked to show such construction "as built."
3.6 Tenant's Architects and Contractors. All improvements and
landscaping (other than minor seasonal plantings) on the Premises and any subsequent repairs,
alterations, additions or improvements to any of the foregoing shall be designed, selected or
constructed, as applicable, by qualified and licensed (where required) architectural, design,
engineering and construction firms selected by Tenant.
3.7 Costs of Construction. Tenant shall bear all costs and expenses
associated with the design, construction, punishing, equipping and supplying of the Project,
which costs and expenses include without limitation: (i) utility hook -up and connection fees and
all distribution facilities, conduits, pipelines and cables required in connection with the
development of the Project, (ii) all design, engineering, financing and construction costs, and
(iii) all necessary use permits or variances, and all grading, building and like permits required to
construct and operate the Project, including the Coastal Development Permit and any fees
assessed on the Premises by any governmental or quasi - governmental agency or authority in
connection with any regional transportation or other public improvements, and school district
taxes, development fees and assessments.
3.8 Renovation and Maintenance of Hotel. Subject to Sections 10.4 and
10.5 hereof, Tenant shall maintain the hotel component of the Project, and each part thereof, and
the furniture, fixtures, appliances and personal property used in connection therewith, in a
condition of repair and maintenance at least comparable to other first class hotels in the Newport
Beach area (such as, on the date hereof, the Marriott Fashion Island); provided, however, that
Tenant shall not be required by this Section 3.8 to make any material capital investment in the
hotel component of the Project to upgrade facilities, systems and equipment which are included
in comparable quality hotels designed and constructed after the date of Landlord's approval of
the Final Plans as provided in the Option Agreement, but which were not customary in such
other quality hotels at the time of such design approval. From time to time, but no more
frequently than once in any consecutive six (6) month period, upon request of Tenant, Landlord
shall provide an estoppel certificate to Tenant certifying whether, in the opinion of Landlord, the
Project, and each part thereof, and the furniture, fixtures, appliances and personal property used
in connection therewith, has or has not been maintained in a condition of repair and maintenance
at least comparable to other first class hotels in the Newport Beach area as of the date of such
certificate. Tenant shall maintain the hotel with not less than one hundred forty (140) guest
rooms and all related facilities necessary or desirable to achieve the standard contemplated in this
Lease, including food and beverage services, banquet, conference and meeting facilities,
NB 1:215 136.23 12
j10
restaurants, sundries and gift shops, and spa and health club; provided, however, if during the
Term, Tenant reasonably determines that maintenance of such number of guest rooms or related
facilities is not as economically advantageous as some other permitted use, Tenant shall be
entitled to reduce the number of required guest rooms or related facilities to allow for such other
permitted uses so long as there is no material reduction in economic benefits accruing to
Landlord or the City from the Project by reason of such change in use; provided, however, in no
event may the number of hotel rooms be reduced below one hundred twenty -five (125) without
the prior written consent of Landlord, which consent shall not be unreasonably withheld or
delayed.
3.9 Renovation and Maintenance of Apartments. Tenant shall maintain
the apartment component of the Project, and each rental unit therein, and the furniture, fixtures,
appliances and personal property used in connection therewith, in a condition of repair and
maintenance comparable to other quality apartment rentals in the Newport Beach area; provided,
however, that Tenant shall not be required by this Section 3.9 to make any material capital
investment in the apartment component of the Project to upgrade facilities, systems and
equipment which are not included in the apartment component of the Project as of the date of
Landlord's approval of the Final Plans as provided in the Option Agreement. Tenant shall, from
time to time as each apartment unit is leased, but not less frequently than once every five (5)
years during the Term hereof, renovate each apartment unit to maintain such quality by cleaning
and/or replacing the carpeting, floor coverings and/or window coverings as reasonably required
and painting the unit interior walls. Subject to Sections 10.4 and 10.5, Tenant shall maintain and
operate the Terrace Apartment Building as apartment units available for rental at all times during
the Term in a manner consistent with the provisions of Chapter 74, Statutes of 1978, as amended,
including but not limited to Sec. 4.5(b) as added by Chapter 728, Statutes of 1994.
3.10 Maintenance of Marina Operations. Tenant shall maintain the
marina facilities, and the fixtures, appliances and personal property used in connection therewith;
in a condition of repair and maintenance at least comparable to comparable quality of marina
operations in the Newport harbor throughout the Term; provided, however, that Tenant shall not
be required by this Section 3.10 to make any material capital investment in the marina
component of the Project to upgrade facilities, systems and equipment which are included in the
existing marina as of the date of Landlord's approval of the Final Plans as provided in the Option
Agreement. Tenant shall maintain and operate not less than one hundred forty (140) slips with a
reasonable number suitable for boats of up to one hundred (100) feet in length for rental
throughout the Term to the general public who are members of the Balboa Bay Club, and shall
make such slips available for rental at comparable rental rates for comparably sized and
maintained marina facilities in the Newport Harbor from time to time during the Term. Tenant
shall not enter into rental or leasing agreements for boat slips (i) for a term of longer than one (1)
year unless such agreements have provision for adjustment of rent to full fair market rental value
not less often than each year, or (ii) with any person for a discounted or reduced rental below
comparable rental rates of the slip based upon membership in any club, facility or business
arrangement between Tenant, or any affiliated entity, and a renter of a slip.
3.11 Landlord's Cooperation. Landlord shall cooperate with Tenant in all
of Tenant's efforts to construct, operate and maintain the Project as set forth in this Article III,
NB 1:115136.23 13
J 1
and shall execute such applications and other undertakings as shall be reasonably required in its
capacity as the owner of the Premises to enable Tenant to file for and obtain all building permits,
licenses, variances, permissions and consents necessary to construct, operate and maintain the
Project and otherwise to perform its activities under this Article III; provided, however, that
nothing herein shall imply any obligation inconsistent with or result in any diminution of
Landlord's legislative, quasi-judicial or administrative rights, obligations and prerogatives as a
municipal public agency, including Landlord's rights, obligations and prerogatives in connection
with reviewing and approving any license, permit or entitlement for the development,
construction or use of the Premises.
ARTICLE IV
REPRESENTATIONS A \'D WARRANTIES
4.1 Landlord's Representations and Warranties. As a material
inducement to Tenant to enter into this Lease, Landlord represents and warrants, the following as
of the date hereof:
(a) Power and Authority. That it is a municipal corporation duly
organized, validly existing and in good standing under the laws of the State of California;
that it has all necessary power and authority to enter into this Lease and to carry out the
transactions contemplated herein; and that the execution and delivery hereof and the
performance by Landlord of Landlord's obligations hereunder will not violate or
constitute an event of default under the terms and provisions of any agreement,
ordinance, regulation, lease, law or court order to which Landlord is a party or by which
Landlord is bound the remedy for which default would have a material adverse effect on
Landlord's ability to perform its obligations hereunder.
(b) Authorization; Valid Obligation. That all actions required to be
taken by or on behalf of Landlord to authorize it to execute, deliver and perform its
obligations under this Lease have been taken, and that this Lease is a valid and binding
obligation of Landlord enforceable in accordance with its terms, except as the same may
be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or
equitable principles relating to or limiting the rights of contracting parties generally.
(c) Executing Parties. That the persons executing this Lease on behalf of
Landlord have full power and authority to bind Landlord to the terms hereof.
(d) Possessory Rights. Landlord has no knowledge that anyone has any
right to occupy, possess or use the Premises, or any part thereof, other than Tenant under
the Existing Lease, rights imposed as a condition of approval of the construction or
operation of the Project by governmental authorities having jurisdiction over the
Premises, rights derived as a matter of law by virtue of the Premises being tidelands, and
any person deriving such rights by agreement or conduct of Tenant.
(e) Actions, Suits or Proceedings. Landlord has no knowledge of any
actions, suits or proceedings pending or threatened before any commission, board,
Na 1:215176.27
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�2
bureau, agency instrumentality, arbitrator(s), court or tribunal that would affect the
Premises or the right of Tenant to occupy or utilize same.
4.2 Tenant's Representations and Warranties. As a material
inducement to Landlord to enter into this Lease, Tenant represents and warrants the following as
of the date hereof:
(a) Power and Authority. That it is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York; that it is qualified
to conduct business in the State of California; that it has all necessary power and
authority to enter into this Lease and to carry out the transactions contemplated herein;
and that the execution and delivery of this Lease and the performance by Tenant of its
obligations hereunder will not violate or constitute an event of default under the terms
and provisions of any agreement, ordinance, regulation, law or court order to which
Tenant is a parry or by which Tenant is bound.
(b) Authorization; Valid Obligations. That all actions required to be
taken by or on behalf of Tenant to authorize it to execute, deliver and perform its
obligations under this Lease have been taken, and that this Lease is a valid and binding
obligation of Tenant enforceable in accordance with its terms, except as the same may be
affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable
principles relating to or limiting the rights of contracting parties generally.
(c) Executing Parties. That the persons executing this Lease on behalf of
Tenant have full power and authority to bind Tenant to the terms hereof.
ARTICLE V
RENT
5.1 Rent. Subject to the limitations of Section 5.3 below, commencing upon
the Commencement Date, Tenant shall pay to Landlord the greater of (i) annual rent in the sum
of One Million One Hundred Twenty -Five Thousand Dollars ($ 1,125,000) (the `'Base Rent ") as
adjusted pursuant to Section 5.4 below, or (ii) the percentage rent set forth in Section 5.2 (the
"Percentage Rent "). Base Rent and Percentage Rent are hereinafter referred to as "Rent."
5.2 Percentage Rent. Percentage Rent shall- equal the total of the
percentages set forth below of the corresponding categories of Gross Revenues on an annual
basis from each transaction, sale or activity of Tenant on or from the Premises:
L�ItxK9i•1
Dues Revenues
Apartment Revenues
Marina Revenues
Storage Revenues
Charter Commission Revenues
NB 1:21513623
15
PERCENTAGE RENT
6%
16.5%
31%
20%
204%
3.1
Charter Revenues
6%
Room Revenues
5%
Beverage Revenues
5%
Food Revenues
3%
Retail Revenues
5%
Miscellaneous Revenues
10%
To the extent that Gross Revenues include proceeds of business interruption or rental loss
insurance which are based upon or in compensation for Percentage Rent payable under this
Lease, the Percentage Rent owed for any of the foregoing activities for which such proceeds of
business interruption or rental loss insurance were received during the period affected by such
insurance claim shall be the greater of (i) the amount of such proceeds of business interruption or
rental loss insurance relating to Percentage Rent payable to Landlord hereunder, or (ii) the
amount of Percentage Rent calculated as set forth above after deduction from Gross Revenues of
the amount of such proceeds of business interruption or rental loss insurance relating to
Percentage Rent.
5.3 Base Rent During Construction. 'Notwithstanding Section 5.1 above,
from and after the Commencement Date until the earlier of (i) thirty (3 )0) months following the
Commencement Date, or (ii) such time as certificates of occupancy have been issued with
respect to the renovation of the hotel portion of the Project as contemplated in this Lease, the
Base Rent payable hereunder shall be limited to Forty-Six Thousand Eight Hundred Thirty-Three
and 34 /100 Dollars ($46,833.34) per month; provided, however, Tenant shall remain obligated to
pay Percentage Rent to the extent it exceeds such Base Rent during such period.
5.4 Periodic Adjustments of Base Rent. Upon the first day of the ninery-
seventh (97`x') month following the Commencement Date, and the first day of every sixty -one
months thereafter (respectively, an "Adjustment Date "), Base Rent shall be increased or
decreased, as the case may be, to a sum equal to seventy-five percent (75 %) of the average
annual total of Rent payable during the immediately preceding five (5) years. Following receipt
of the report of Gross Revenues and Percentage Rent for the year immediately preceding an
Adjustment Date, Landlord shall calculate the adjustment in Base Rent, if any, and shall notify
Tenant in writing of such adjustment. Subject to Tenant's right to contest, in good faith,
Landlord's calculation of the adjustment to Base Rent, any such adjustment shall be effective as
of the relevant Adjustment Date, and Tenant shall pay any accrued and unpaid Base Rent from
the Adjustment Date to the date of receipt of Landlord's notice of adjustment in Base Rent no
later than fifteen (15) days following receipt of Landlord's notice of adjustment in Base Rent.
251 Lxo
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5.5 Fair Market Adjustment of Base Rent. Upon the twenty -sixth (26th)
anniversary of the Commencement Date (the "Market Adjustment Date "), the Base Rent shall be Ou Z5, 200
increased or decreased, as the case may be, based upon the determination of the fair market
rental value of the Premises in the manner set forth in Section 19.19. For purposes of appraising
the fair market rental value of the Premises, the appraisers shall determine such value including
payment of minimum rent and percentage rent in excess thereof in the categories set forth in
Section 5.2 above. The Base Rent shall be adjusted to equal sevenry-five percent (75 %) of the
full fair market rental value of the Premises as so determined. In the event the adjusted Base
NB 1:215136.27 16
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Rent determined pursuant to this Section 5.5 is one hundred twenty percent (120 %) or more of
the average annual Base Rent payable during the five (5) Fiscal Years preceding the Market
Adjustment Date, the amount by which the new Base Rent exceeds one hundred twenty percent
(120 %) or more of the average annual Base Rent payable during the five (5) Fiscal Years
preceding the Market Adjustment Date shall be added to Base Rent at the rate of twenty -five
percent (25 %) thereof per year in the ensuing four (4) Fiscal Years. For example, if the amount
by which the new Base Rent exceeds one hundred twenty percent (120 %) or more of the average
annual Base Rent payable during the preceding five (5) Fiscal Years is $4,000, then Base Rent
shall be increased by $1,000 in each of the ensuing four (4) Fiscal Years. Landlord and Tenant
agree to use the appraisal methodology utilized by Landlord's appraisal conducted by William
Hansen & Associates, dated November 4, 1994, in the computation of the market rent upon the
commencement of this Lease.
5.6 Payment of Rent. Base Rent shall be payable on the first (1st) day of
each Accounting Period during the Term; provided, however, to the extent that Percentage Rent
for such Accounting Period exceeds the Base Rent paid during such Accounting Period, the
differential shall be payable in arrears concurrent with the next installment of Base Rent. Any
installment of Rent payable during any Accounting Period shall equal the greater of
(i) Percentage Rent computed from the commencement of that particular Fiscal Year to the end
of the Accounting Period for which such Rent is due, or (ii) the Base Rent due from the
commencement of that particular Fiscal Year to the end of the Accounting Period for which such
Rent is due, in each instance less the aggregate amount of any Rent previously paid to Landlord
during such Fiscal Year.
5.7 Charges for Goods and Services. Tenant agrees to charge prices for
all goods, services and facilities (including boat slip rentals) offered at or provided on or from
the Premises comparable with prices for such goods and services charged at other private clubs
in Southern California; provided, however, (i) that for purposes hereof, the rent charged for slips
in the manna shall be adjusted, where necessary, to eliminate any discounts or reduced fees and
charges at such clubs based upon payment of membership fees or other comparable
arrangements, and (ii) nothing herein shall limit or impair Tenant's ability to charge less than
such amounts if, in the exercise of Tenant's reasonable business judgment, such lesser amounts
will stimulate revenue increases or in connection with advertising, promotions, discounts to
employees, guests or charitable functions.
5.8 Reconciliation of Annual Rent. Within thirty (30) days following
receipt by Landlord of the annual statement set forth in Section 5.10(b), the Percentage Rent due
for such Fiscal Year shall be determined, subject to audit as set forth in Section 5.10(e), and the
amount of Rent paid or payable for such Fiscal Year shall be adjusted accordingly. Landlord
shall credit the amount of any Rent received from Tenant pursuant to Section 5.6 which is in
excess of the amount of Rent determined to have been due and payable for such Fiscal Year,
such excess to the installments of Rent next following. Tenant shall pay, within five (5) days
following such determination, but in no event later than one hundred and sixty (160) days
following the end of such Fiscal Year, the full amount of Rent determined to have been due and
payable for such Fiscal Year.
NB 1:2 14136.23 17
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5.9 Place for Payment of Rentals. All payments of Rent shall be made in
lawful money of the United States of America and shall be paid to Landlord at Landlord's
address as set forth in Section 19.6 or to such other parties and/or to such other address as
Landlord.may from time to time designate in writing to Tenant.
5.10 , Records and Reports of Sales.
(a) Quarterly Statement. Tenant shall provide to Landlord a statement
setting forth in reasonable detail the amount of Tenant's Gross Revenues (including a
breakdown among the categories set forth in Section 5.2 above) for the immediately
preceding Accounting Period within twenty (20) days following the end of each
Accounting Period.
(b) Annual Statement. Tenant shall provide to Landlord a statement
setting forth in reasonable detail the amount of Tenant's Gross Revenues for the
preceding Fiscal Year within one hundred twenty (120) days following the end of each
Fiscal Year.
(c) Payment of Percentage Rent. Tenant shall accompany the statement
of Gross Revenues for each Accounting Period and the Fiscal Year with a payment of the
amount by which Percentage Rent exceeds the Base Rent paid during such Accounting
Period calculated in accordance with Section 5.2 of this Lease.
(d) Books and Records. Tenant shall prepare and keep full, complete,
accurate and proper books, records and accounts of all business conducted by Tenant or
its Affiliates from the Premises, in accordance with generally accepted accounting
principles consistently applied, which shall include equipment to record all sales at the
time of the transaction. Tenant shall keep at the Premises records of Tenant's Gross
Revenues for a period of not less than three (3) years after the expiration of the Fiscal
Year to which such records relate and upon request shall furnish Landlord true and
accurate statements thereof. Within one hundred twenty (120) days following the close
of each Fiscal Year, Tenant shall deliver to Landlord an audited statement prepared by a
nationally recognized independent firm of certified public accountants showing in
reasonable detail, on a Fiscal Year basis, the amount of Tenant's Gross Revenues
(including a breakdown among the categories set forth in Section 5.2 above) for the
immediately preceding Fiscal Year.
(e) Audit Rights. Landlord shall have the right .upon two (2) days prior
notice to Tenant and during normal business hours, but not more often than one (1) time
during each Fiscal Year of the Term, to audit the Tenant's statements of Gross Revenues,
and supporting records and data. Within ten (10) days of receipt of such audit, Tenant
shall pay Landlord the additional Rent found to be due plus interest thereon at the Lease
Interest Rate if the audit discloses an understatement of annual Gross Revenues.
However, if the audit discloses Rent has been overpaid by Tenant, the excess shall be
applied to any amounts then due from Tenant to Landlord, and the balance, if any, shall
be credited against Base Rent thereafter due from Tenant. Tenant shall pay for the
NB 1:215136.23
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reasonable cost of Landlord's audit if Landlord's audit discloses a total underpayment of
Rent for any Fiscal Year which is in excess of five percent (5 %). Landlord shall have the
right to receive a copy of the results of any audit conducted at the request of Tenant of
Tenant's statements of Gross Revenues during the Term. Promptly following the
completion of any such audit, Tenant shall deliver, or cause to be delivered, to Landlord a
copy of the result of such audit regardless of whether Landlord shall have made a demand
therefor.
(f) Annual Forecast of Operations. On or before May 1 of each year
during the Term, Tenant shall provide Landlord, for informational purposes, with a
forecast for the ensuing Fiscal Year of the amount of (i) Gross Revenues expected to be
received by Tenant, and (ii) Percentage Rental expected to be payable hereunder (by
categories of Percentage Rental). On or before September 30 of each year during the
Term, Tenant shall provide Landlord with a forecast for the ensuing twelve (12) month
period of budgeted capital improvements, replacements, repairs and maintenance that
Tenant anticipates expending during such twelve (12) month period to maintain the
Project in a manner consistent with the original quality of the Project upon completion of
construction in accordance with the Final Plans as required by Section 6.3.
.5.11 Additional Rent. Tenant agrees to pay, as rental for the Leased
Premises, within ten (10) days of Landlord's demand therefor, unless a different time for
payment is expressly provided herein, all other amounts Tenant is obligated to pay Landlord
under the provisions of this Lease in addition to Rent ( "Additional Rent ").
5.12 No Abatement or Reduction in Rent. Except as expressly provided
to the contrary elsewhere in this Lease, Tenant shall not be entitled to any abatement, set -off or
reduction in Rent or Additional Rent hereunder.
5.13 No Partnership Created. Landlord and Tenant shall in no event be
construed or held to be partners, co- owners, joint venturers or associates of one another in the
conduct of Tenant's business on the Premises, or in its ownership of the Project. The
relationship between Landlord and Tenant is and at all times shall remain that of lessor and
lessee for all purposes.
5.14 Net Lease. The Rent set forth in this Article V herein is based upon the
assumption that Landlord will not have to pay any expenses or incur any liabilities of any kind in
any way relating to, or in connection with, the Premises during the Term except for refunds,
interest, credits or other payments herein specifically set forth. Accordingly, Tenant will
promptly pay all costs of every kind and description relating to or arising out of the Premises
during the Term.
ARTICLE VI
TENANT'S OBLIGATION WITH RESPECT TO MAINTAINING PREMISES
6.1 Repairs and Maintenance. Tenant shall at all times during the Term
keep in good order, condition and repair the entire Premises and all improvements and buildings
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located thereon, including the structural and non - structural portions of the Project, the entrances,
the windows, partitions, doors, lighting and plumbing fixtures, heating, ventilation and air
conditioning systems, the grounds and all landscaping, the paving and other hardscape surfaces,
and all fixtures, equipment and appurtenances relating to the Premises and/or the Project, subject
to reasonable wear and tear, fire and other casualty, consistent with the continued operation of a
project of the type, size and quality of the Project.
6.2 Taxes and Assessments.
(a) Except as otherwise expressly permitted elsewhere in this Lease, during
the Term, Tenant shall pay prior to delinquency the amount of all taxes and assessments
levied against, or on account of, the Premises; provided, however, that, if by law any such
tax or assessment is payable or may at the option of taxpayer be paid in installments,
Tenant may pay the same, together with any accrued interest payable on the unpaid
balance of such tax or assessment, in installments as the same become due and before any
fine, penalty, interest or cost may be added thereto for the nonpayment of any such
installment and interest. Taxes and assessments shall be prorated for the final year of the
Term (or earlier termination) based upon the number of days during such final year that
this Lease is in effect. Notwithstanding the foregoing, in no event shall Tenant be liable
for increases in taxes or assessment, if any, attributable to a "change in ownership" of
Landlord's interest in the Premises.
(b) Tenant shall pay, before delinquency, all taxes and assessments levied
against, or on account of, all fixtures, equipment and personal property located in or upon
the Premises and/or the Project.
(c) Landlord and Tenant agree to consult with each other and to keep each
other advised concerning any controversy or contest pertaining to the amount or validity
of any tax or assessment referred to in this Section 6.2, which tax or assessment Tenant is
required to pay or reimburse to Landlord under the terms of this Lease. Tenant shall have
the right, at Tenant's sole cost and expense, to contest the amount or validity of any tax
or assessment levied upon, imposed, assessed, or proposed to be assessed, against the
Premises and/or the Project or any of the personal property therein to the extent permitted
by applicable law; provided, however, Tenant shall do the following: (i) comply with all
laws, orders, rules and regulations respecting such contest; (ii) give Landlord prior
written notice of Tenant's intent to so contest said amount or validity; and, (iii) at
Landlord's sole option, either (A) demonstrate to Landlord's reasonable satisfaction that
the proceedings to be initiated by Tenant shall conclusively operate to prevent the sale of
the Premises, the Project and all personal property thereat, or any part thereof, to satisfy
such tax or assessment prior to final determination of such proceedings, or (B) furnish a
good and sufficient bond or surety or other assurance as requested by and reasonably
satisfactory to Landlord, or (C) provide a good and sufficient undertaking as may be
required or permitted by law to accomplish a stay of any such sale. Nothing in this
subsection 6.2(c) shall be deemed or construed as relieving, modifying or extending
Tenant's covenant to pay any such tax or assessment at the time and in the manner
provided in this Section 6.2.
Na 1:215136.23
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6.3 Capital Repairs and Replacements. If during each rolling three (3)
year increment of the Term, commencing upon the third (3rd) anniversary of the completion of
construction of the hotel portion of the Project, Tenant fails to expend a sum equal to at least four
percent (4 %) of Gross Revenues per annum during such period on repairs, replacements and
renewals of Furnishing, for routine repairs and maintenance and non - structural refurbishments of
the Project (including capital improvements, but excluding substantially complete replacement of
long term capital improvements, such as replacement of the roof, mechanical, electrical or
similar building systems, or major portions thereof), Tenant shall deposit in a separate account
(the "Reserve Account ") with a commercial bank or savings and loan association approved by
Landlord, or with or under the control of Tenant's Mortgagee if such Mortgagee shall so require,
an amount equal to the difference between the sum actually expended by Tenant for the
foregoing purposes during such period and four percent (4 %) of Gross Revenues per annum
during such period which Reserve Account shall be used by Tenant for the specific purpose of
accumulation therein and disbursing therefrom funds to be used solely for the foregoing
purposes. Tenant shall not withdraw funds from the Reserve Account in any ensuing Fiscal Year
until Tenant has expended for the foregoing purposes in such Fiscal Year a sum of not less than
four percent (4 %) of Gross Revenues during such Fiscal Year. Nothing herein contained shall be
construed as a limitation on Tenant's obligations under other provisions of this Lease to repair,
maintain and replace the Furnishings or the Premises, and each portion thereof. At all times after
the Reserve Account has been established, Tenant shall include in each annual forecast to be
submitted to Landlord pursuant to Section 5.10(f) above a reconciliation of funds expended for
the foregoing purposes, and evidence of all amounts contained in and all deposits and
withdrawals from the Reserve Account during the preceding Fiscal Year. Notwithstanding
anything to the contrary contained herein, Tenant shall not be obligated to make other than
ordinary repairs and replacements of Furnishings during the final five (5) years of the Term and
during such five (5) year period the amount that Tenant shall be required to expend or reserve
under this Section 6.3 shall be reduced to two percent (2 %) per armum. Upon expiration or
earlier termination of this Lease, all funds required to be maintained in the Reserve Account shall
be allocated first to any repairs, maintenance, replacements and renewals necessary to place the
Project and Furnishings in a first class condition and any excess shall be the sole property of
Tenant.
ARTICLE VII
USE OF PREMISES
7.1 Use of Premises. The Premises may be used solely for construction,
renovation, maintenance and operation of the Project, which shall include the right to (i) operate
or enter into businesses or grant licenses, concessions or subleases covering less than ten
thousand (10,000) square feet of space in the Project in the aggregate to third parties provided
that the same shall be done in arm's length transactions to persons unrelated to Tenant on
commercially reasonable terms, and (ii) leases or subleases of apartment units in the Project.
Tenant shall be permitted to grant licenses, concessions or subleases to Affiliates on customary
terms for fair market value so long as all gross revenues derived by any such Affiliate in
connection with any such license, concession or sublease shall be included within the appropriate
category of Gross Revenues hereunder. The licenses, concessions and/or subleases granted by
Tenant in connection with its operation of the Project shall only be for businesses that provide
NB 1:215136.2.3 21
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goods and/or services principally for the purpose of catering to the needs and desires of hotel
guests and club members, and the businesses conducted by such licensees, concessionaires or
sublessees shall be conducted in a manner consistent with the quality of services required to be
offered at the Project by the terms of this Lease. In no event shall Tenant engage in any activity
for the exploration, production, extraction, taking or transport of any oil, oil rights, gas, minerals,
mineral rights, natural gas rights and other hydrocarbon substances or minerals in and under the
Premises.
7.2 Pump -Out Station. At all times during the Term, Tenant covenants and
agrees to install and maintain a vessel holding tank pump -out facility in the marina area of the
Premises convenient and available for use by the public, which facility shall at all times be
maintained and operated in accordance with all applicable Federal, State or local laws,
regulations and ordinances.
7.3 Environmental Requirements.
(a) Tenant shall not use, nor permit the use of, any Hazardous Material in the
construction, reconstruction or renovations of, or additions to the Project in violation of
any applicable law, regulation, code or ordinance. Tenant shall, at its expense, comply,
and require each of its subtenants, licensees and/or concessionaires of space in the Project
or elsewhere on the Premises to comply, with all applicable laws, regulations, codes and
ordinances relating to any Hazardous Material or to any Hazardous Material Activities,
including obtaining and filing all applicable notices, permits, licenses and similar
authorizations.
(b) Tenant shall indemnify, defend, protect and hold Landlord, its City
Council, boards, commissions, agents, servants and employees, harmless from and
against any and all liability, claims, actions and out -of- pocket costs or expenses of any
kind or nature, including damage to any property and injury (including death) to any
person (collectively, "Claims "), arising directly or indirectly from any Hazardous
Material Activity of, Tenant or any of Tenant's agents, employees, independent
contractors, invitees, licensees, guests, subcontractors, and Affiliates during the Term;
provided, however, that Tenant shall have no liability under this Section 7.3(b) for any
portion of any Claim which arises out of the negligence or willful misconduct of any
party indemnified under this Section 73(b). The foregoing indemnity shall include all
costs and expenses of removal, remediation of any kind and disposal of any such
Hazardous Material, and all reasonable consultants' fees, attorneys' fees and
investigation costs and all other reasonable costs, expenses and liabilities incurred by any
indemnified party or their counsel from the first notice that any Claim is to be made or
may be made. The obligation of Tenant under this Section 7.3(b) shall survive the
expiration or earlier termination of the Term.
NB 1:215136.23
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ARTICLE VIII
CONDUCT OF BUSINESS BY TENANT
8.1 Standards of Operation. Tenant shall continuously (except for
reasonable interruption during repairs, maintenance or renovations and during any delay caused
by an event of Force Majeure) during the Term, diligently operate, or cause to be operated, the
Project in a first -class manner and as otherwise required by this Lease. Tenant shall stock and
maintain adequate working capital and adequate inventories of food, beverages, operating
equipment and supplies.
8.2 Management. Tenant agrees that at all times during the Term, the hotel
and restaurant portions of the Project shall be managed and operated by Tenant, an Affiliate of
Tenant or a Qualified Manager. It shall not be deemed a default by Tenant under the Lease if at
any time during the Term it shall be determined that the then manager of the hotel and/or
restaurant portions of the Project is not a Qualified Manager so ion-, as the applicable
management agreement or employment contract shall give Tenant the right to terminate said
agreement and Tenant shall promptly take all reasonable steps to terminate said agreement and
remove said manager from the Premises.
8.3 Competition by Tenant. Beginning on the Commencement Date and
continuing for a period of five (5) years following substantial completion of the construction and
renovation of the Project, as contemplated in the Final Plans approved by Landlord under the
Option Agreement, Tenant agrees for itself and its Affiliates that Tenant and its Affiliates shall
not own, lease, manage or operate, or participate in the ownership, lease, operation or
management of, including any ownership interest in any partnership, joint venture or other equity
participation, any business venture or operation similar to the Project, or any component or
business conducted within or as part of the Project, located on Newport Harbor (that is, its
nearest boundary is within fifteen hundred (1,500) feet of the waterfront). It is expressly
acknowledged and agreed that Landlord is entering into this Lease in reliance upon this
covenant, and the rental payable to Landlord hereunder would be adversely affected by a
violation of this covenant by Tenant, and Landlord would not enter into this Lease in the absence
of such a covenant. The foregoing restriction shall not apply to (i) any Mortgagee who shall
have acquired Tenant's leasehold estate hereunder pursuant to ajudicial or non judicial
foreclosure of its Mortgage or a deed or other conveyance in lieu of such foreclosure, or (ii) any
entity which shall be an institutional investor with a diversified investment portfolio containing
projects operated under three (3) or more trade names and under management agreements with
three (3) or more unaffiliated national chain management companies. The foregoing prohibitions
on ownership shall not be deemed to apply to ownership of less than a Controlling interest in any
publicly traded corporation, or ownership of hotels in a diversified investment portfolio of
insurance companies, pension funds or similar institutional investors containing hotels operated
under three (3) or more trade names with management contracts with three (3) or more unrelated
national hotel chain management companies. The restrictions set forth in this Section 8.3 shall
not be. deemed to apply to any operations of Tenant or its Affiliates (or any successor thereto)
substaritially similar to the Project that are owned, leased or operated by Tenant or its Affiliates
(or any successor thereto) as of the date of this Lease or in which Tenant or any Affiliate (or any
,161:2Ii 136.23 23
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successor thereto) participates in the ownership, lease or operation as of the Commencement
Date.
8.4 Use of Name. At all times during the Term, the Project shall be operated
utilizing the words `Balboa Bay" in its name; provided however, any Qualified Manager may
operate the Project under its trade name in conjunction with the foregoing words.
ARTICLE IX
ALTERATIONS, FIXTURES AND SIGNS
9.1 Tenant's Right to Make Alterations. Tenant shall have the right, at
any time and from time to time, to make any repair, alteration or addition which Tenant deems
advisable to the improvements constructed upon the Premises by Tenant; provided, however, that
all such repairs, alterations or additions to the Project shall be consistent with the Premises being
used for the purposes permitted by this Lease and be of the type and quality required by this
Lease, shall be at least equal to the quality of the design and construction of the Project
contemplated in the Final Plans.
9.2 Prohibition Against Liens. Tenant shall not create nor permit to be
created or to remain, any lien, encumbrance or charge (whether levied on account of any
mechanic's, laborer's or materialmen's lien or any conditional sale, title retention Lease or
chattel mortgage) against the Premises or the Project, or any part thereof or interest therein,
except for equipment leases, title retention agreements and similar instruments in connection
with financing of the purchase or lease of Furnishings. Subject to Tenant's right to contest such
liens as set forth in this Lease, if any mechanic's, laborer's or materialmen's lien shall at any
time be filed against the Premises and/or the Project, or any part thereof or interest therein,
Tenant shall with all due diligence cause the same to be discharged of record by payment,
bonding in accordance with applicable law, or transfer of such lien to other security pursuant to
applicable law.
9.3 Signs. Tenant will not place or suffer to be placed or maintained on the
exterior of any improvements or on the Premises any signs, logos or advertising unless such
siens, logos or advertising are consistent with the signage program outlined on Exhibit C
attached hereto and otherwise conform to the signage regulations of the City and the Coastal
Commission, as applicable.
ARTICLE X
INSURANCE, INDEMNITY AND CASUALTY
10.1 Insurance. Tenant shall maintain at its sole cost and expense during the
Term, unless otherwise specified, the following types of insurance under conditions and in at
least the amounts and forms specified below:
(a) Insurance Carriers; Forms of Policies. All primary insurance (as
compared to excess insurance) described under this Article X shall be maintained by
Tenant with insurance carriers licensed and approved to do business in California, having
NB 1:215136.23
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a general policyholders rating of not less than "A" and financial rating of not less than
"VII" (or; if any Leasehold Mortgagee shall require a higher rating; such higher rating) in
the most current Best's Key Rating Guide. In no event will such insurance be terminated
or otherwise allowed to lapse without replacement prior to expiration or earlier
termination of this Lease. Tenant may provide the insurance described in this Article X
in whole or in part through a policy or policies covering other liabilities and properties of
Tenant or its Affiliates; provided, however, that any such policy or policies shall: (a)
allocate to the Project the full amount of insurance required hereunder, and (b) contain,
permit or otherwise unconditionally authorize the waiver contained in Section 10.1(i)
below.
(b) Evidence of Insurance. As evidence of specified insurance coverage,
Landlord shall receive certificates issued by Tenant's insurance carriers or authorized
representatives acceptable to Landlord showing such policies in force for the specified
period. Such evidence shall be delivered to Landlord prior to the Commencement Date.
Each such policy shall not be subject to material alteration or cancellation without thirty
(30) days' prior written notice to be delivered to Landlord. Should any policy expire or
be canceled before expiration of the Lease and Tenant fails immediately to procure other
insurance as specified, Landlord reserves the right to procure such insurance and to
receive payment from Tenant for the cost thereof. Tenant shall also allow Landlord to
inspect such evidence of insurance Tenant obtains from its contractors.
(c) Damages. Nothing contained in these insurance requirements is to be
construed as limiting the type, quality or quantity of insurance Tenant may maintain or
the extent of Tenant's responsibility for payment of damages resulting from its operations
under this Lease.
(d) Workers' Compensation Insurance. Tenant shall maintain full
Workers' Compensation insurance for all persons whom it employs in accordance with
the requirements of the most current and applicable State Workers' Compensation
Insurance Laws in effect.
(e) Comprehensive General Liability Insurance. Tenant shall maintain
Comprehensive General Liability Insurance with a combined single limit for bodily
injury and property damage of Ten Million Dollars ($10,000,000)(which amount shall be
subject to periodic adjustment in accordance with subsection (1) below) covering
Operations, Independent Contractors, Products and Completed Operations, Contractual
Liability specifically covering the indemnifications of Landlord contained in this Lease,
Broad Form Property Damage, Severability of Interest or Cross Liability clauses,
Personal Injury, Liquor Law Liability, and Explosion, Collapse and Underground
Hazards (X,C,U). In the event Liquor Law Liability insurance shall become
commercially unavailable at reasonable rates and terms in the amounts required above,
Tenant shall be permitted to obtain such lower limit as then may be commercially
available at reasonable rates and terms in the commercial insurance marketplace,
provided that; in no event, may Tenant be permitted to obtain or maintain Liquor Law
Liability insurance with a limit of coverage Lower than Five Million Dollars
V61:215136.'_?
25
($5,000,000)(which amount shall be subject to periodic adjustment in accordance with
subsection (1) below). The limits of liability of the insurance coverage specified in this
paragraph may be provided by any combination of primary and excess liability insurance
policies.
(f) Automobile Liability Insurance. Tenant shall maintain owned, hired
and non -owned automobile liability insurance covering all use of all automobiles, trucks
and other motor vehicles utilized by Tenant in connection with the Premises with a
combined single limit for bodily injury and property damage of Five Million Dollars
(55,000,000)(which amount shall be subject to periodic adjustment in accordance with
subsection (1) below).
(g) Property Insurance - Construction. During construction of any
improvements on the Premises, Tenant shall maintain builder's risk insurance against "all
risk" of physical loss, including the perils of flood, collapse and transit, with
commercially reasonable deductibles, covering the total cost of work performed,
equipment, supplies and materials furnished on a replacement cost basis. Tenant shall be
permitted to obtain and maintain the flood insurance required hereunder in such amounts
and forms as are available, from time to time, under the National Flood Insurance
Proeram.
(h) Property Insurance - Operations. Upon completion of construction of
the Project but in no event prior to the time that the insurance required under Section
10.1( .-) above ceases, Tenant shall obtain insurance on the Project and shall maintain
insurance continuously during the Term, against "all risk" perils of physical loss and
"Boiler and Machinery" perils, including fire, lightning, riot and civil commotion,
vandalism and malicious mischief, and insurance against loss or damage from explosion
of boilers, generators, transformers, heating apparatus and air conditioning systems and
against such other risks or hazards as may customarily be insured against for projects in
Southern California of the type, size and quality of the Project. Such insurance shall be
in amounts not less than ninety percent (90 %) of the then full replacement cost of the
Project without deduction for depreciation, and otherwise sufficient to satisfy the
requirements of any Mortgagee. Such policies of insurance shall contain the
"Replacement Cost Endorsement." Such full replacement cost shall pertain to the Project
and Furnishings and be determined not less often than each two (2) years during the
Term.
(i) Waiver of Subrogation. Each policy of insurance procured pursuant to
this Article X shall contain a waiver by the insurer of the right of subrogation against
either party hereto for negligence of such party. To the extent such insurance is not
impaired thereby, Landlord and Tenant each hereby waives any and all rights of recovery
against the other, and against its shareholders, officers, directors, employees, subsidiaries,
partners, servants, agents and representatives, for loss or damage arising from any cause
insured against under the form of insurance policies required to be carried pursuant to this
Article X or under any other policy of insurance carried by either Landlord or Tenant.
NB 1:215136.23
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from the first notice that any Claim is to be made or may be made. To the fullest extent
permitted by law, Landlord, in its capacity of Landlord hereunder but not in its municipal
capacity, hereby agrees to defend, indemnify, protect and hold Tenant harmless from and
against any and all Claims to the extent such Claims arise out of the negligence or willful
misconduct of Landlord, in its capacity of Landlord hereunder but not in its municipal
capacity, or any other person or entity indemnified by Tenant under the first sentence of
this Section 10.2(a). This obligation to indemnify shall also include reasonable attorneys
fees and investigation costs and all other reasonable costs, expenses and liabilities
incurred by Tenant or its counsel from the first notice that any such Claim is to be made
or may be made.
(b) Any sums paid by an indemnified parry, with interest at the Lease Interest
Rate, costs and damages, shall be due from and paid by the indemnifying party within
thirty (30) days of demand therefor. Upon receiving knowledge of any Claim that an
indemnified party believes is covered by this indemnity, such indemnified party shall
give the indemnifying party notice of the matter and an opportunity to defend it, at the
indemnifying party's sole cost and expense, with legal counsel reasonably satisfactory to
such indemnified party. The indemnified party may also require the indemnifying party
to so defend the matter. So long as the indemnifying party shall be defending any such
Claim, the indemnified party shall not settle such claim without the consent of the
indemnifying parry.
(c) Effective upon the Commencement Date, Tenant shall obtain and maintain
during the Term, combined rental income and/or business interruption and extra expense
insurance against loss of Tenant's income from the Project for a period of twelve (12)
months due to the perils covered by the insurance referred to in Section 10.1(h) above, L-t
an amount sufficient to cover the Rent payable under the terms of this Lease. If the
improvements located on the Premises shall be destroyed or damaged resulting in any
reduction in income received by Tenant from the Project, the proceeds of such rental
income and/or business interruption insurance shall be utilized by Tenant, subject to the
rights of a Mortgagee, in payment of such Rent and other charges hereunder until such
time as the improvements so damaged or destroyed have been fully restored and placed in
full operation.
(d) Notwithstanding Section 10.2(b), Tenant shall accept any tender of
defense by Landlord pursuant to the terms of Section 10.2(b) (unless the complaining
party alleges facts that reasonably indicate active negligence or willful misconduct by the
City or its employees) and Tenant shall protect and hold Landlord harmless from and
against the subject Claim and defend Landlord as required under Section 10.2(b);
provided, however, that Tenant shall not be liable for any such Claim to the extent and in
proportion that such Claim is finally determined by a court of competent jurisdiction (or
in a negotiated settlement agreed to by Landlord) to be attributable to the negligence or
willful misconduct of Landlord.
10.3 Settlement of Insurance Claims. Subject to the rights of Tenant's
Mortgagees, if all or any part of the Project shall be damaged or destroyed by an insured peril or
N3 L215136.13 23
51
Tenant and Landlord each agrees to use reasonable efforts to obtain. its liability insurance
carriers' permission as to such waiver of subrogation.
(j) Compliance. Tenant shall at all times use diligent efforts to observe and
comply with the requirements of all policies of insurance in force with respect to the
Premises or the Project, or any part thereof, and Tenant shall so perform and satisfy the
requirements of the companies writing such policies if it is commercially reasonable to
do so. Tenant shall, if any subtenant, licensee, concessionaire or other user of any
portion of the Premises or Project engages in any activity in violation of the requirements
of all policies of insurance in force with respect to the Premises or the Project, or any part
thereof, take steps, immediately upon becoming aware of such activity, to remedy or
prevent the same, as the case may be.
(k) Additional Insured. Landlord shall be included as an additional named
insured under the coverage specified in Sections 10.1(e) and (f) above. The insurance
required under Sections 10.1(e) and (f) shall be primary and any other insurance
maintained by any such additional insured shall be non - contributing with said insurance
required hereunder. Landlord shall be included as additional named insured as its interest
appears in regard to insurance described in Sections 10.1(8) and (h).
(1) Index. Each sum which, by the terms of this Article X, is subject to
periodic adjustment in accordance with this subsection (1) shall be increased on each
seven (7) year anniversary of the Commencement Date during the Term by the
percentage of any increase for the preceding year in the Consumer Price Index for All
Urban Consumers, Los Angeles- Anaheim - Riverside, All Items (1982 -84 Base),
published by the Bureau of Labor Statistics, Department of Labor. The successor or most
nearly comparable index published by some other branch or department of the United
States Government shall be used if said Bureau shall cease to publish the Consumer Price
Index.
10.2 Indemnification.
(a) To the fullest extent permitted by law, Tenant hereby agrees to defend,
indemnify, protect and hold Landlord harmless from and against any and all liability,
claims, damage, penalties, actions, demands or expenses of any kind or nature, including
damage to any property and injury (including death) to any person (collectively,
"Claims "), arising from Tenant's use or occupation of the Premises or the Project, or
from any activity, work or things done, permitted or suffered by Tenant or any omission
of Tenant on or about the Premises or the Project, or from any litigation concerning any
of the foregoing in which Landlord is made a parry defendant. Tenant shall not be
required hereunder to defend, indemnify or hold Landlord or any other person or entity
indemnified under this Section 10.2(a) harmless from or against any of the
aforementioned Claims to the extent such Claims arise out of the negligence or willful
misconduct of Landlord or any other person or entity indemnified hereunder. This
obligation to indemnify shall include reasonable attorneys' fees and investigation costs
and all other reasonable costs, expenses and liabilities incurred by Landlord or its counsel
NB 1:215136.23 27
9-
otherwise, Tenant shall have the exclusive right to negotiate and accept any proposed settlement,
adjustment or compromise of any claim; provided, however, subject to the rights of Tenant's
Mortgagees, Landlord is hereby authorized and empowered by Tenant, at Landlord's option and
in its sole discretion, to settle, adjust or comprise any and all claims if Tenant elects to terminate
under Sections 10.4 or 10.5 below.
10.4 Casualty. Except as provided in Section 10.5 below, Tenant shall
promptly cause the Project or the Premises, or any part thereof, which is damaged or destroyed,
whether or not required to be insured against under this Article X, to be repaired and restored to
its original condition (subject to changes necessary to comply with then existing laws applicable
thereto and any changes in design approved by Landlord), at Tenant's sole cost and expense. To
the extent the insurance proceeds are insufficient to cover the cost of such repair and restoration;
Tenant shall make up the deficiency out of Tenant's own funds. Subject to events of Force
Majeure, such repair and restoration shall be commenced in good faith and with reasonable
diligence within a reasonable period of time following the casualty and shall be completed with
due diligence. Notwithstanding the foregoing, in the event the cost of such repair and restoration
exceeds the sum of (i) the amount of insurance proceeds available to Tenant plus (ii) the amount
of the deductible by an amount which Tenant reasonably determines renders reconstruction of
the Project economically not feasible, Tenant shall have the option to terminate this Lease and
surrender possession of the Premises to Landlord. Subject to the rights of Mortgagees, in the
event of such a termination, Tenant shall pay to Landlord the amount of the deductible and
assign to Landlord any and all rights Tenant may have in and to the insurance proceeds on
account of such damage or destruction.
10.5 Casualty Late in Term. If the Project or any part thereof is damaged or
destroyed at any time following the fortieth (40th) year of the Term and the costs of restoration
and repair are estimated to exceed thirty percent (30 %) of the then full replacement cost of the
Project and Tenant elects not to repair or restore said damage or destruction, then either party
shall have the right to terminate upon the other party's receipt of written notice of 'termination
given not later than ninety (90) days following the occurrence of such damage or destruction.
Subject to the rights of any Mortgagee, Landlord shall have the right to receive and retain all
insurance proceeds paid or payable to Tenant on account of any damage or destruction to the
Project if this Lease is terminated by Landlord or Tenant under this Section 10.5; provided,
however, that Tenant shall receive out of any such insurance proceeds the amount of actual out -
of- pocket expenses incurred by Tenant in obtaining any settlement of insurance claims and the
costs of restoring the Premises to a good and orderly condition and even grade, if any.
10.6 No Abatement of Rent. Except as provided in Sections 10.4 and 10.5
above, throughout the Term, no direct or indirect destruction of or damage to the Project by fire
or other casualty whatsoever, whether such damage or destruction be partial or total, shall (i)
permit Tenant to surrender or terminate the Lease, or (ii) except to the extent of rent abatement
insurance paid to Landlord, relieve Tenant from its obligation to pay in full the Rent and other
sums and charges payable by Tenant hereunder or from any other obligation under the Lease,
except as otherwise expressly set forth herein; provided, however, that if any such direct damage
is caused by the negligence or willful misconduct of Landlord, Rent shall be suitably abated until
NB 1:215136.23 29
J,, S
such damage or destruction is repaired or restored; provided, further, however, nothing herein
shall limit or restrict Landlord's right to retain rental abatement insurance proceeds.
ARTICLE XI
UTILITIES
11.1 Utilities. Tenant shall be solely responsible for obtaining and promptly
paying all hook -up or connection fees and other charges for heat, gas, water, air conditioning,
electricity, sewerage, cable television or any other utility used or consumed in or upon the
Premises. Upon written request of Tenant, Landlord agrees to join in the grant of such
easements and licenses upon the Premises to any supplier of utilities to the Project as necessary
to construct, install, operate and maintain any facilities, conduits, transmission lines and
pipelines for the provision of utility services to the Project; provided, however, that all such
conduits, transmission lines and pipelines, and all facilities and improvements associated with
utility services and located upon the Premises, shall be located below grade in subterranean
easements.
ARTICLE XII
ESTOPPEL CERTIFICATES
12.1 Estoppel Certificates. Within fifteen (15) days after each request
therefor by either party, the other parry agrees to deliver a certificate to any person designated by
the requesting party (including a proposed Mortgagee or purchaser), or to the requesting party,
certifying (if such be the case) that this Lease is in full force and effect, that, to the best of such
party's knowledge at that time, there are no Events of Default by Tenant hereunder or any
defaults by Landlord hereunder and that no events have occurred which, with the giving of notice
or the passage of time or both, would constitute an Event or Default with respect to Tenant or a
default with respect to Landlord hereunder, or stating those claimed by the responding party, and
that, to the best of such party's knowledge, there are no defenses or off -sets in favor of either
party hereto, or stating those claimed by the responding party, and/or certifying whether any
consent or approval required under this Lease has been denied or granted by the responding party
and whether any specified rights have been waived or deemed waived or expired. Any such
certificate shall also contain a warranty that the person signing has the authority to execute the
certificate on behalf of such parry. Each such estoppel certificate shall identify the Lease and all
amendments, shall specify the date to which Rent has been paid, and shall specify the then
applicable Base Rent payable hereunder. If the responding party fails to execute and deliver any
such certificate within the aforementioned time period, insofar as the requesting party and any
person designated by the requesting parry is concerned, the other party shall be conclusively
deemed to have acknowledged that the certificate as submitted by the requesting party is correct.
The requesting party or the person designated by the requesting parry as the recipient of said
certificate (including, but not limited to, a proposed Mortgagee or purchaser) may rely on the
certifications made by the responding party or the certifications deemed made thereby (if such
certificate is not delivered within such fifteen (15) day period). Nothing in this Section 12.1
shall be. construed as reducing the period of time that any party has under the terms of this Lease
to respond to a request by the other party for a consent or an approval.
NB 1:215136.23 30
5LI
ARTICLE XIII
ASSIGNMENT AND SUBLEASING
13.1 Limitation on Right to Assign. Except as hereinafter set forth in this
Article )III and in Article )IV of this Lease, Tenant will not transfer, assign or hypothecate this
Lease, or its interest therein, in whole or in part, nor sublease (which term shall be deemed to
include allowing anyone else to occupy) all or any part of the Premises and/or the Project,
without the prior written consent of Landlord in each instance having first been obtained, which
consent shall not be unreasonably withheld or delayed. The consent by Landlord to any transfer,
hypothecation, assignment or subleasing shall not constitute a waiver of the necessity for such
consent to any subsequent assignment, transfer, hypothecation or subleasing. This prohibition
against assigning or subleasing shall be construed to include a prohibition against any sale,
hypothecation, transfer of possession, or any assignment or subleasing by operation of law or
otherwise. Landlord shall be deemed to be reasonable in not granting its consent if the proposed
purchaser, transferee, assignee or sublessee fails to meet all of the following criteria:
(a) the proposed purchaser, transferee, assignee or sublessee, or, if the
proposed purchaser, transferee, assignee or sublessee is a wholly owned subsidiary, its
parent, or the constituent general partners of the proposed purchaser, transferee, assignee
or sublessee shall have a net worth at least equal to the greater of (i) Four Million Dollars
($4,000,000) (increased each five (5) years from the date of the Option Agreement by the
percentage of any increase over such period in the Consumer Price Index for All Urban
Consumers, Los Angeles- Anaheim - Riverside, All Items (1982 -84 Base), published by the
Bureau of Labor Statistics, Department of Labor), or (ii) ten percent (10 %) of the fair
market value of the leasehold estate created by this Lease. The successor or most nearly
comparable index published by some other branch or department of the United States
Government shall be used if said Bureau shall cease to publish the Consumer Price Index.
For purposes of determining the fair market value of the leasehold estate created by this
Lease, such value shall be conclusively determined by the purchase price to be paid by
the proposed purchaser, transferee, assignee or sublessee for the interest to be acquired,
as evidenced by information reasonably required by Landlord (for purposes of calculating
such net worth, it shall be permissible to include as an asset of said proposed purchaser,
transferee, assignee or sublessee its anticipated equity in the Project and the leasehold
estate created hereby);
(b) the proposed purchaser, transferee, assienee or sublessee shall either be a
Qualified Manager or, if the proposed purchaser, transferee, assignee or sublessee is not a
Qualified Manager, shall have entered into a binding agreement with a Qualified
Manager to manage the Project, it being acknowledged herein that continued
management of the Project by a Qualified Manager is an affirmative obligation of Tenant
hereunder; and
(c) the proposed purchaser, transferee, assignee or sublessee (or, with respect
to a transfer of a Controlling interest under Section 13.5, the person or entity acquiring
such Controlling interest) shall have a reputation for honesty, integrity and sound
business practices.
Na 1:215136.23
31
55
13.2 Grant or Denial of Consent. Landlord shall grant or deny its approval
of, or request additional reasonable information and/or documentation with respect to, any
proposed transfer, hypothecation, assignment or sublease within thirty (30) days following
Landlord's receipt of notification from Tenant regarding the proposed transfer. Following a
request from Landlord for additional reasonable information and/or documentation as provided
herein, Landlord shall have ten (10) days from Landlord's receipt of such additional information
and/or documentation in which to grant or deny its approval of the proposed transfer and/or
transferee. Landlord shall be deemed to have granted its approval if Landlord shall not request
additional information and/or documentation within such thirty (30) day period and Landlord
shall not notify Tenant within the time periods herein specified of its decision either to grant or
deny its approval. From and after the effective date of an assignment by Tenant of its entire
Leasehold, the assignor shall thereafter be relieved from any further liabilities or obligations
under this Lease and Landlord shall look solely to the assignee Tenant for performance of such
obligations hereunder.
133 Non - Application to Guest Rooms and Facilities. This Article XIII
shall have no application to (i) rental of guest rooms or suites or other guest facilities within the
Project, (ii) rental of apartment units in the Project in the ordinary course of business for a term
of not more than one year or such longer term if the rent paid by the apartment tenant adjusts
annually to the fair rental value of the unit, (iii) rental of stores and shops contained within the
Project, (iv) rental of boat slips in the marina in the ordinary course of business for a term of not
more than one year, or (v) the granting of concessions, licenses or subleases in the normal course
of operations, provided that the term of any such concession, license, rental or sublease shall not
extend beyond the Term hereof.
13.4 Assignment to Affiliate. Tenant shall have the right, without
Landlord's consent, to assign this Lease:
(a) to a partnership or limited liability company Controlled by Tenant and in
which Tenant is a general partner or member thereof and owns a legal and beneficial
interest therein of not less than twenty-five percent (25 %), or to a corporation Controlled
by Tenant and in which Tenant owns and controls not less than twenty-five percent
(25 %) of all issued and outstanding stock of such corporation in every class with full and
unrestricted voting rights and privileges; or
(b) as security pursuant to a Mortgage;
provided, however, that any assignment by Tenant under this Section 13.4 shall not
relieve Tenant from liability hereunder.
13.5 Limitation on Transfer of Interest in Tenant. If Tenant is a
corporation, an unincorporated association, a partnership or a joint venture, the transfer,
assignment or hypothecation (except for a hypothecation in connection with a loan transaction of
the type contemplated by Article XIV hereof) of a Controlling ownership interest in such entity,
whether in a single transaction or multiple transactions and whether to a single person or
multiple persons, shall be deemed an assignment within the meaning of this Article XIII.
NB 1:215136.23 32
5C0
Furthermore, any transaction by which Tenant undergoes a merger or other reorganization,
including a sale of all or substantially all of its assets, wherein Tenant is not the surviving
corporation (or the stock holders of Tenant immediately before the merger or reorganization do
not retain Control of the surviving corporation) shall be deemed, for purposes of the foregoing, a
transfer of this Lease. If Tenant is or becomes a publicly traded entity, any sale or other transfer
of any outstanding stock of, or limited partnership interests in, Tenant shall not be deemed an
assignment within the meaning of this Article XIII unless said sale or other transfer is made by a
person or entity owning a Controlling interest in Tenant and results in a change in the person(s)
or entity(ies) having Control of Tenant.
13.6 Participation in Sale Proceeds.
(a) In the event Tenant (i) sells, conveys, transfers or assigns all or any
portion of its interest in this Lease and the leasehold estate created hereby (other than to a
Mortgagee as security and other than a transfer to a partnership, limited liability
company, joint venture or other entity pursuant to a transfer in which Tenant receives
only an interest in such entity in consideration of its contribution of this Lease and the
leasehold estate created hereby), (ii) subleases all or substantially all of the Premises,
whether in one or more transactions, or (iii) sells, transfers or conveys any interest in
Tenant or its constituent shareholders, including the stock of Tenant of any kind or class,
common or preferred, or the beneficial or equitable ownership interest in such stock or in
Tenant (collectively, a "Sale "), at any time prior to'twenty-four (24) months following
the issuance of the final certificate of occupancy for the Project, as constructed and
renovated in accordance with the Final Plans, as contemplated in the Option Agreement,
Tenant shall pay to Landlord an amount equal to twenty percent (20 %) of the fret
Proceeds (as hereinafter defined). For purposes of this Section 13.6:
uai:2i_rs?3
(i) "Net Proceeds" shall mean the entire consideration paid or
payable to or for the benefit of Tenant or its constituent shareholders in
connection with a Sale (whether in cash, note, in kind or other consideration, but
excluding a transfer to a partnership, limited liability company, joint venture or
other entity pursuant to a transfer in which Tenant receives only an interest in
such entity in consideration of its contribution of this Lease and the leasehold
estate created hereby) less (i) Project Costs (as hereinafter defined) and (ii)
reasonable and customary actual out -of- pocket costs and expenses of Tenant
incurred in connection with consummating such Sale (excluding any payment
made to any Mortgagee or lender to release any Mortgage or other security or
otherwise);
(ii) "Project Costs" shall mean and be limited to:
(A) Five Hundred Thousand Dollars ($500,000), in
reimbursement of all third party predevelopment costs
incurred and paid by Tenant prior to the date of the Option
Agreement;
33
57
(B) all third parry costs and expenses incurred and paid by
Tenant in connection with the design, development,
construction and renovation of the Project from and after
the date of the Option Agreement through the date of such
Sale (including, without limitation, any required offsite
improvements, demolition of existing improvements,
permit and license fees and charges, signage, furniture,
fixtures and equipment, architecture, design and
engineering fees, insurance bonds, construction
management fees, legal and other professional fees related
to construction of the Project, financing fees and payments
of principal on any new loan obtained by Tenant in
connection with the construction and renovation of the
Project, plus interest thereon at the rate of interest charged
on such loan (excluding any equity kicker, shared
appreciation or other similar payment);
(C) an amount equal to fifteen percent (15 %) of the sum of
subparagraphs (A) and (B) above; and
(D) Thirty Million Dollars ($30,000,000), representing the
appraised value of Tenant's interest in the Premises as of
May 15, 1996.
(iii) Project Costs shall exclude any operating cost or expense of the
operation of the business of Tenant on the Premises other than predevelopment
and development costs set forth above, any fees paid to Tenant or its Affiliates for
any purpose, Rent payable under this Lease, and any other costs or expenses not
specifically described in subparagraph (a)(ii)(A) through (D) above. From time to
time, but not less often than quarterly, Tenant shall provide Landlord with a
certified schedule of Project Costs with reasonable supporting documentation.
(iv) Net Proceeds shall not include any proceeds of a Sale which are
not distributed to or for the benefit of Tenant or its constituent shareholders, and
which are used by Tenant in the payment of costs and expenses incurred in the
construction and renovation of the Project.
(b) The rights of Landlord under this Section 13.6 shall be subject and
subordinate to the rights of any Mortgagee.
ARTICLE XIV
HYPOTHECATION
14.1 Tenant's Right to Hypothecate. Subject to any restrictions set forth in
this Article XIV, Tenant may, from time to time, without Landlord's consent or approval, assign,
hypothecate, mortgage, pledge or alienate Tenant's leasehold estate and rights hereunder
NB I :2I S 136.23
34
N
(including Tenant's interest in any subleases, licenses and concession agreements) to a lender or
lenders as security for payment of any indebtedness of Tenant incurred in connection with the
design, approval, construction, furnishing, renovation, remodeling, equipping and completion of
the Project or any portion thereof as contemplated in the Final Plans and any refinancing of the
existing debt secured by the Premises in connection therewith, and thereafter any refinancing of
the Project and/or Tenant's leasehold estate; provided, however, that any such lender shall be an
institutional lender, such as, without limitation, a bank, savings and loan or thrift institution,
- pension fund, real estate investment -fund, publicly traded limited partnership, or insurance
company. In no event shall Tenant, or iis'successors in interest, borrow any sum of money
secured by a Mortgage in excess, in the aggregate, of the greater of (i) ninety percent (90 %) of
the appraised value of the Project and Tenant's leasehold interest hereunder as reflected in an
appraisal thereof completed no earlier than one hundred eighty (180) days prior to the date such
loan is funded, which appraisal shall be subject to Landlord's reasonable approval if such
appraisal is not required and approved by such lender, or (ii) an amount which results in Tenant
having a net equity in the Project of not less than Four Million Dollars ($4,000,000) (increased
each five (5) years by the percentage of any increase over such period in the Consumer Price
Index for All Urban Consumers, Los Angeles- Anaheim - Riverside, All Items (1982 -84 Base),
published by the Bureau of Labor Statistics, Department of Labor). The successor or most
nearly comparable index published by some other branch or department of the United States
Government shall be used if said Bureau shall cease to publish the Consumer Price Index;
provided, however, that in connection with any refinancing of debt secured by the Premises, the
Mortgage may be in the amount of the debt being refinanced at the time of such refinancing. In
calculating whether the borrowed funds exceed ninety percent (90 %) of the appraised value of
the Project, any participation in net revenues from operations; or proceeds of sale or refinancing
granted to the Mortgagee which are fully contingent shall not be included. The limitation on
borrowing set forth in the immediately preceding sentence shall not apply to any Mortgagee who
acquires the Project and the leasehold interest hereunder through foreclosure or deed -in -lieu
thereof, or to a Tenant who shall have acquired the Project and the leasehold interest hereunder
from a Mortgagee (or the trustee under a Mortgage) following a foreclosure of its Mortgage or its
acceptance of a deed -in -lieu thereof. If requested by Tenant, Landlord agrees to execute its
written consent to any such assignment, hypothecation, mortgage, pledge or alienation, which
consent shall be in form and content reasonably satisfactory to Tenant and Landlord. In no event
shall Landlord have any obligation to subject its interest in the Premises or this Lease to the lien
of any mortgage given by Tenant. Any such lien whether evidenced by a mortgage, deed of trust
or otherwise shall be referred to herein as a "Mortgage," and the holder or holders of or
beneficiary under any Mortgage shall be referred to herein as the "Mortgagee." The Mortgagee
may enforce such Mortgage and acquire title to the leasehold estate in any lawful way and,
pending foreclosure of such Mortgage, the Mortgagee may elect to take possession of and
operate the Premises and the Project, or any portion thereof, subject to its Mortgage, perform all
obligations performable by the Mortgagee, and upon foreclosure of such Mortgage by power of
sale, judicial foreclosure or otherwise, or upon acquisition of the leasehold estate by a deed,
assignment or other conveyance in lieu of foreclosure, the Mortgagee may elect to sell and assign
the leasehold estate herebv created without restriction (other than the requirement that the
assignee of the leasehold estate satisfy the requirements of this Lease with respect to
management of the Premises by a Qualified Manager). Except for payment of any delinquent
VD1:21513623 35
Jq
rent or other payments due hereunder and obligations reasonably susceptible of cure by the
Mortgagee or any such assignee, the Mortgagee or any such assignee of the leasehold estate shall
not be liable to perform the obligations imposed upon Tenant by this Lease prior to the period
such person or entity has ownership of said leasehold estate or possession of the Project or the
Premises or any portion thereof subject to the Mortgage.
14.2 Notice to and Rights of Mortgagees.
(a) When giving notice to Tenant with respect to any default hereunder,
Landlord shall contemporaneously serve a copy of each such notice upon any Mortgagee
who shall have given Landlord a written notice specifying its name and address. When
giving any other notice to Tenant hereunder of a type which a Mortgagee has requested to
receive in writing, Landlord shall, at the same time, serve a copy thereof upon such
requesting Mortgagee provided it shall have also given Landlord written notice
specifying its name and address. Any Mortgagee shall have the right, but not the
obligation, to cure a default by Tenant under this Lease, and Landlord shall accept any
such performance by any Mortgagees as though the same had been done or performed by
Tenant. The Mortgagees shall have an additional reasonable period of time following the
expiration of the applicable cure period granted Tenant hereunder to effectuate such cure.
(b) In case of a monetary default by Tenant under this Lease, Landlord will
take no action to obtain possession of the Premises or the Project (including possession
by a receiver) or to effect a termination of this Lease by reason thereof unless Landlord
shall have served a copy of such notice upon any Mortgagee and the default has
continued for a period of thirty (30) days beyond the date the Mortgagee shall have
received said notice. In the case of any non - monetary default by Tenant under this Lease,
Landlord will take no action to obtain possession of the Premises or the Project
(including possession by a receiver) or to effect a termination of this Lease by reason
thereof unless Landlord has served a copy of a notice of such default upon any
Mortgagee and such non - monetary default continues for a period of sixty (60) days
beyond the date the Mortgagee received said notice and the Mortgagee shall not have
done any of the following:
Na 1:215136.23
(i) commence to cure such default, if such default is capable of cure
by the Mortgagee without the Mortgagee obtaining possession of the Premises,
within said sixty (60) day period, and, thereafter, diligently proceed to cure such
default; or
(ii) commence to obtain possession of the Project (including
possession by a receiver) within said sixty (60) day period, and, thereafter,
diligently proceed to obtain said possession, and, once said possession is
obtained, commence and diligently proceed to cure such default in the case of a
default which is capable of being cured only after the Mortgagee has obtained
said possession; or V
36
(iii) institute foreclosure proceedings within said sixty (60) day period,
and, thereafter, complete such foreclosure proceedings or otherwise acquire
Tenant's interest under this Lease with reasonable and continuous diligence in the
case of a default which cannot be cured in the manners set forth in (i) or (ii)
above.
With respect to (ii) or (iii) above, no Mortgagee shall be required to continue such
possession or continue such foreclosure proceedings if the default which
prompted the service of such a notice has been cured or, if for any other reason
such Mortgagee elects to discontinue the same. The Mortgagee's period for
taking any such action shall be extended by the period of any stay if the
Mortgagee is prohibited from taking any action described in (ii) or (iii) above by
order of any court having jurisdiction over any bankruptcy or similar proceedings
involving Tenant.
(c) If this Lease is terminated by Landlord on account of any Event of Default
or is terminated as a result of the rejection of this Lease by a trustee in a bankruptcy
proceeding involving Tenant and the Mortgagee shall have arranged to the reasonable
satisfaction of Landlord to cure all then- existing defaults of Tenant under this Lease
which are reasonably within the Mortgagee's ability to cure, then Landlord, within thirty
(30) days after receiving a written request therefor which request shall be given within
thirty (3 )0) days after such termination, and upon payment to it of all expenses (including
reasonable attorneys' fees and expenses) incident thereto, shall execute and deliver a new
lease of the Premises to the Mortgagee or its nominee or to a purchaser, assignee or
transferee, as the case may be, which new lease shall contain the same terms and
provisions of this Lease.
(d) The Mortgagee may exercise, with respect to the Premises and Project or
any portion thereof, any right, power or remedy under such Leasehold Mortgage which
does not materially conflict with the provisions of this Lease in the event of a default
under any Leasehold Mortgage.
(e) During the period that a Mortgagee shall be in possession of the Premises
and/or Project and/or during the pendency of any foreclosure proceedings instituted by a
Mortgagee, the Mortgagee shall pay or cause to be paid the Rent specified in this Lease
and all other charges of whatsoever nature payable by Tenant hereunder which have been
accrued and are unpaid and which will thereafter accrue during said period, to the extent
the amount of such charges are known or reasonably ascertainable by the Mortgagee. It
shall be an Event of Default if, following the acquisition of Tenant's leasehold estate by
the Mortgagee or its designee, the Mortgagee or party acquiring title to Tenant's
leasehold estate fails to commence the cure of all defaults hereunder to be cured and
thereafter diligently process such cure to completion, except (i) such defaults which
cannot in the exercise of reasonable diligence be cured or performed by the Mortgagee or
party acquiring title to Tenant's leasehold estate, and (ii) non - monetary defaults requiring
performance of some affirmative obligations susceptible of cure by Mortgagee upon
obtaining possession of the Premises and which the Mortgagee confirms in writing to
NB 1:215136. 23
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Landlord that the Mortgagee will require its successor to accomplish and which in all
events shall be accomplished by the Mortgagee or its successor within ninety (90) days
following the obtaining of possession of the Premises by Mortgagee or its designee. Any
default that cap -not reasonably be cured by the Mortgagee or party acquiring title to
Tenant's leasehold estate shall be, and shall be deemed to have been, waived by Landlord
(but only with respect to the Mortgagee or other party acquiring said title) upon
completion of the foreclosure proceedings or acquisition of Tenant's interest in this Lease
by any purchaser at the foreclosure sale or who otherwise acquires Tenant's interest in
the Premises. The parties agree that the foregoing provision shall not be deemed or
construed to preclude Landlord from exercising any of Landlord's rights or remedies
against Tenant personally if and to the extent otherwise permitted under the terms of this
Lease.
(i) Nothing herein shall preclude Landlord from exercising any of its rights or
remedies with respect to any other default by Tenant during any period of any such
forbearance, subject to the rights of any Mortgagee as herein provided.
(g) All notices by Landlord to a Mortgagee shall be given, in the manner
provided under Section 19.6, addressed to the Mortgagee at the address last specified to
Landlord by the Mortgagee, and any such notice shall be deemed to have been given and
served when received by the Mortgagee.
(h) The Mortgagee whose Leasehold Mortgage would be senior in priority if
there were a foreclosure shall prevail if two or more Mortgagees exercise their rights
hereunder, and there is a conflict which renders it impossible to comply with all such
requests. Any Mortgagee who pays any rent or other sums due hereunder which relate to
periods other than during its actual ownership of the leasehold estate shall be subrogated
to any and all rights which may be asserted against Tenant by Landlord with respect to
such period of time.
(i) Landlord shall have no obligation to nay any fees and expenses of any
kind or description incurred in connection with the procurement of any Leasehold
Mortgages pursuant to this Article XIV.
All amendments or modifications to, or any voluntary termination or cancellation of
(other than as expressly permitted hereunder), this Lease shall require the written
approval of any Mortgagee (if its respective Mortgage so requires).
14.3 Nonsubordination of Fee. In no event will Landlord be required to
subordinate or subject its fee interest in the Premises to the lien of any Mortgagee or any other
person or entity providing financing to Tenant for any purpose. All such financing shall be the
sole responsibility of Tenant.
N, 14.4 Equipment Financing. Landlord understands that Tenant may lease
and/or purchase with purchase money financing certain of the Furnishings which may be
installed in or used in connection with the Project from time to time during the Term. Landlord
NB 1:215136.23
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hereby agrees, upon written request of Tenant, to release, waive or subordinate its landlord's lien
to any such equipment leases, retained title contracts, security interest or other forms of purchase
money financing and to execute documents, in form and substance reasonably satisfactory to
Landlord, that permit the equipment lessors, title and lien holders, as applicable, the right to enter
the premises for the sole purpose of exercising their rights to the Furnishings subject to such
leases, retained title contracts, security interest or other forms of purchase money financing.
14.5 Cross Collateralization of Premises. Tenant shall not assign,
hypothecate, mortgage, pledge or alienate Tenant's leasehold estate and rights hereunder
(including Tenant's interest in any subleases, license agreements and concession agreements) to
a lender as security for the payment of indebtedness of Tenant which mortgage, pledge or other
security agreement does not provide for the full release and recor!veyance of such mortgage,
pledge or security interest upon payment of a sum equal to the maximum amount of financing
permitted by Section 14.1 (less any principal sums paid under the loan agreements and plus any
sum expended by the Mortgagee in the exercise of its rights under the loan agreements.
ARTICLE XV
WASTE AND GOVERNMENTAL REGULATIONS
15.1 Waste or Nuisance. Tenant shall not commit or suffer to be committed
any waste or nuisance in or upon the Project or the Premises. This provision shall in no way
preclude or restrict Tenant in the lawful performance of its rights to operate the Project pursuant
to the provisions of this Lease.
15.2 Governmental Regulations. Tenant, at its sole cost and expense, shall
comply with and observe, without exception, all of the laws, rules, ordinances, orders,
regulations and requirements of all county, municipal, state, federal and other applicable
governmental authorities, now in force, or which may hereafter be in force, having jurisdiction
over the Premises, the Project and/or the operations to be conducted by Tenant thereon or
thereat. Without limiting the generality of the foregoing, Tenant shall obtain all permits and
licenses (such as building permits and operating permits and licenses) as may be required by any
such governmental authorities and shall make such alterations, changes, additions or
improvements in the Premises, the Project and its operations thereat as may be required by any
such governmental authorities (and approved by Landlord), including structural changes.
Landlord shall cooperate to the extent reasonably necessary to permit Tenant to comply with the
provisions of this Section 15.2 within the time periods necessary for such compliance.
15.3 Tenant's Right to Contest Governmental Regulations. Tenant
shall have the right to contest by appropriate proceedings conducted in good faith and with
reasonable diligence, without cost or expense to Landlord, the validity or application of any law,
ordinance, order, rule, regulation or requirement of the nature referred to in Section 15.2. Tenant
may delay compliance with any law, ordinance, order, rule, regulation or requirement until the
final determination of such proceeding if compliance may legally be delayed pending the
prosecution of any such proceeding without the incurrence of any lien, charge or liability of any
kind against the Premises or Tenant's interest therein and without subjecting Tenant or Landlord
to any liability, civil or criminal, for failure so to comply therewith. Even if such lien, charge or
IB 1:215136.23 39
civil liability would be incurred by reason of any such delay, Tenant may, following reasonable
notice to Landlord, contest as aforesaid and delay as aforesaid, provided that such contest or
delay does not subject Landlord to criminal liability, damages or expense, and provided that
Tenant furnishes Landlord security, reasonably satisfactory to Landlord, against any loss or
injury by reason of such contest or delay. Landlord shall not be required to join_ in any
proceedings referred to in this Section 153 unless the provisions of any applicable law, rule or
regulation then in effect shall require that such proceedings be brought by and/or in the name of
Landlord or shall otherwise require that Landlord be a party thereto, in which event Landlord .
shall join in the proceeding or permit the same to be brought in its name, provided Tenant shall
pay all expenses in connection therewith. Tenant shall not contest the validity or application of
any land use permits or approvals affecting the Premises and in existence as of the date of this
Lease.
ARTICLE XVI
EMINENT DOMAIN
16.1 Lease Governs. Subject to the rights of any Mortgagee, the rights and
obligations of the parties with respect to any Award, as defined in Section 16.5, shall be as
provided in this Article XVI if there is any Taking during the Term of this Lease.
16.2 Termination of Lease. This Lease shall terminate effective on the date
of surrender of possession of the Premises, or so much thereof or interest therein as has been
taken, to the condemning authority in the event of a Total Taking. Tenant shall continue to pay
all Rental due hereunder and, in all respects, keep, observe and perform all of the terms,
covenants and conditions of this Lease to be kept, observed and performed by Tenant until the
date of such termination.
16.3 Partial Taking; Rental Abatement. If there is a Partial Taking, this
Lease shall remain in full force and effect with respect to that portion of the Premises not taken,
and a fair and equitable proportion of the Rental shall be abated according to the nature and
extent of the Partial Taking, and the duration and extent of the interruption of Tenant's
operations due to such taking and restoration of the Project.
16.4 Partial Taking; Restoration. If there is a Partial Taking, Tenant may,
at its sole cost and expense, whether or not the condemnation award on account of such Taking
shall be sufficient for the purpose, promptly commence and diligently proceed to effect
restoration of the Project on the remaining portion of the Premises as nearly as possible to their
value, condition and character immediately prior to such Taking.
16.5 Distribution of Award. All awards and damages received on account
of any Taking, whether partial or total (including all amounts in respect to both the Premises,
improvements constructed thereon, and personal property located thereon or thereat), including
interest received, if any, whether such award or damages are paid in respect to the Taking of the
fee or leasehold interest in the Premises (hereinafter collectively referred to as the "Award "),
shall be paid promptly by the person(s) receiving the same to an escrow agent mutually
acceptable to Landlord, Tenant, and any Mortgagee, to be released as hereinafter provided upon
NB 1:215136.23 40
Vii' I
appropriate instruction from the parties hereto. The Award may be paid to a Mortgagee who will
then act as the escrow agent if such Mortgagee agrees in writing for the express benefit of
Landlord and Tenant to be bound by the terms of Sections 16.6 and 16.8 below. The Mortgagee
whose lien shall have the highest priority shall be selected to act as escrow agent if there shall be
more than one Mortgagee who shall so agree in writing.
16.6 Allocation of Award; Partial Taking. Any Award in a Partial Taking
shall be distributed by the aforementioned escrow agent in the following order of priority:
(a) First, to Landlord, Tenant and all Mortgagees, as herein provided, as
reimbursement for all costs and expense incurred by each of them in the collection of the
Award, including fees and expenses incurred in the condemnation proceeding unless
Landlord is the condemning authority;
(b) Second, to Tenant, as reimbursement for the costs and expenses of
restoration of the Project, as such costs and expenses are incurred by Tenant;
(c) Third, to the Mortgagees, in the order of their respective priorities, such
sum as is necessary to reduce the aggregate principal amount of the liens thereof unless
and to the extent such liens are to remain against the Leasehold; and
(d) Fourth, if Landlord and Tenant are unable to agree upon the allocation of
the balance of the Award, if any, it shall be deposited by said escrow agent into a court of
competent jurisdiction to be equitably allocated between Landlord and Tenant based on
the respective interests of Landlord and Tenant in the balance of said Award as
'determined by said court after taking into account the interests of Landlord and Tenant
previously compensated in the distributions provided for in (b) and (c) of this Section
16.6.
16.7 Allocation of Award; Temporary Taking. In the event of a Taking
for temporary use or occupancy, this Lease shall continue in full force and effect without
reduction or abatement of any Rent payable hereunder, and Tenant shall be entitled to claim,
recover and retain any Award made on account of such temporary Taking remaining after paying
the reasonable costs and expenses of Tenant incurred in collecting such Award; provided,
however, that if the period of such temporary Taking extends beyond the Term of this Lease,
such Award shall be apportioned between Landlord and Tenant as of the date of expiration of the
Term of this Lease.
16.8 Allocation of Award; Total Taking. Any Award in a Total Taking
shall be distributed by the aforementioned escrow agent in the following priority:
(a) first, to Landlord, Tenant and all Mortgagees, as herein provided, as
reimbursement for all costs and expenses incurred by each of them in the collection of the
Award, including fees and expenses incurred in the condemnation proceeding;
NB 1:2 15!36.22
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(b) second, to the Mortgagees, in the order of their respective priorities, such
sum as is necessary to satisfy and discharge the liens thereof, and
(c) if Landlord and Tenant are unable to agree upon the allocation of the
balance of the Award, if any, it shall be deposited by said escrow agent into a court of
competent jurisdiction to be equitably allocated between Landlord and Tenant based on
the respective interests of Landlord and Tenant in the balance of said Award as
determined by said court after taking into account the interests of Landlord and Tenant
previously compensated in the distribution provided for in Section 16.8(a).
The determination of the value of Tenant's and Landlord's respective interests in the
Project and the Premises for the purposes of Section 16.8(c) shall be made as if the Lease
were to continue in full force and effect until the Expiration Date.
16.9 Conduct of Proceedings. Subject to the rights of any Mortgagee to
participate therein, Tenant and Landlord shall jointly commence, appear in and prosecute any
action or proceeding involving a Taking of the Premises, or any part thereof or interest therein,
by condemnation or under the power of eminent domain, or otherwise and shall jointly make any
compromise or settlement in connection therewith.
16.10 Notices. Upon any party receiving notice of or becoming aware of any
condemnation proceedings, or threat thereof, such party shall promptly give written notice to the
other party in the manner specified in Section 19.6 below.
ARTICLE YVII
DEFAULT PROVISIONS
17.1 Events of Default. The occurrence of any one or more of the following
shall constitute a default by Tenant under this Lease:
(a) failure of Tenant to pay any Rent or Additional Rent due hereunder within
three (3) days after written notice from Landlord; provided however, that any such notice
shall be in lieu of, and not in addition to, any notice required by the Code of Civil
Procedure of the State of California, as amended from time to time; or
(b) any failure by Tenant to perform any of the other terms, conditions or
covenants of this Lease to be observed or performed by Tenant other than a failure to pay
any Rent or Additional Rent due hereunder within thirty (30) days after written notice
from Landlord; provided, however, that any such notice shall be in lieu of, and not in
addition to, any notice required by the Code of Civil Procedure of the State of California,
as amended from time to time. A default by Tenant described in this Section 17.1(b)
which is not reasonably susceptible of cure within thirty (30) days after receipt of
Landlord's notice of default shall be deemed cured if Tenant commences to cure said
...default within thirty (30) days of receipt of Landlord's notice of default and Tenant, in
fact, diligently proceeds to cure said default and does cure said default within a
reasonable period of time thereafter; or
N81:215136.23
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(c) Tenant becoming insolvent or filing any debtor proceedings, or should anv
adjudications in bankruptcy be rendered against Tenant, or should Tenant take or have
taken against it, in any court pursuant to any statute either of the United States or of any
State, a petition in bankruptcy or insolvency or for reorganization or for the appointment
of a receiver or trustee of all or a portion of Tenant's property, and should the same not
be discharged within one hundred twenty (120) days thereafter; or
(d) Tenant making an assignment for the benefit of creditors, or petition for or
enter into an arrangement ; or
(e) The abandonment or vacation of the Project by Tenant for a period of
fifteen (15) consecutive days after written notice to Tenant (except for such abandonment
or vacation attributable to any event of Force Majeure or by the remodeling,
reconstruction, alteration or repair of the Project); or
(f) the appointment of a trustee or receiver to take possession of substantially
all of the assets of Tenant located at the Premises or Tenant's interest in this Lease or the
Premises, where possession is not restored within one hundred twenty (129) days; or
(g) Tenant permitting this Lease or any substantial portion of its property on
the Premises or any portion of its interest in the Premises or the Project to be taken under
any writ of attachment or execution, and should the same not be discharged within ninety
(90) days thereafter.
17.2 Remedies Upon Default.
(a) Except as provided in Section 17.4 and subject to the rights of
Mortgagees, should there be an Event of Default by Tenant under this Lease and should
Landlord, as a result thereof, elect to re- enter, as provided in this Article XVII, or should
it take possession pursuant to legal proceedings or pursuant to any notice provided for by
law, Landlord shall be entitled to proceed in accordance with and recover the amounts
specified in California Civil Code Sections 1951.2 and 1951.4. Landlord may either
terminate this Lease, or it may from time to time without terminating the Lease, make
such alterations and repairs as may be necessary in order to continue operation of
business at the Premises, and relet the Premises, or any part thereof, for such term or
terms (which may be for a term extending beyond the term of this Lease) and at such rent
and charges and upon such terms and conditions as Landlord in its sole discretion may
deem advisable; upon each such reletting all Rental received by Landlord shall be
applied, first, to the payment of any indebtedness other than Rental due hereunder from
Tenant to Landlord; second, to the payment of any costs and expenses of such reletting,
including brokerage fees and attorneys' fees and expenses and of costs of such alterations
and repairs; third, to the payment of Rental due and unpaid hereunder, and the residue, if
any, shall be held by Landlord and applied in payment of future Rental as the same may
become due and payable hereunder. Tenant shall pay any such deficiency to Landlord if
such Rental received from such reletting during any month is less than that which would
be due during that month from Tenant hereunder. Such deficiency shall be calculated
NS 1:215136.23
4;
6 "1
and paid in No such reentry or taking possession of the Premises by Landlord
shall be construed as.an election on its part to terminate this Lease unless a written notice
of such intention is given to Tenant or unless the termination thereof is decreed by a court
of competent jurisdiction. Notwithstanding any such reletting without termination,
Landlord may at any time elect to terminate this Lease for such Event of Default. Should
Landlord at any time terminate this Lease for any such Event of Default, in addition to
any other remedies it may have, it may recover from Tenant all damages it may
reasonably incur by reason of such Event of Default, including the cost of recovering the
Premises and its reasonable attorneys' fees and expenses.
(b) Following an Event of Default by Tenant hereunder, Tenant shall
promptly deliver to Landlord all plans and specifications and all working drawings
prepared in connection with the development of the Project not previously delivered to
Landlord. Tenant's obligations under this Section 17.2(b) shall survive the expiration or
earlier termination of this Lease.
17.3 Landlord Acting for Tenant's Account. If Tenant shall fail in the
performance of any provision, covenant or condition on its part to be performed under this
Lease, Landlord may, at is option, any time after the expiration of any applicable notice and cure
period granted to Tenant and Mortgagees under this Lease (unless Landlord reasonably believes
there to be an emergency threatening damage to Landlord's interest in the Premises or the
Project, in which event no notice is required and Landlord may act immediately), perform the
same for the account of, and at the expense of Tenant. The sums so paid or reasonably incurred
by Landlord, together with interest at the Default Rate, costs and damages shall be due from and
paid by Tenant, as Additional Rental, on demand.
17.4 Limited Liability; Non - Recourse Ground Lease.
(a) Notwithstanding anything to the contrary contained in this Lease,
including without limitation the remedies of Landlord contained in this Article XVII,
except as otherwise provided in Subsection (b) below, if at any time following
completion of the Project, as contemplated in the Final Plans, Tenant shall fail to perform
or pay any covenant or obligation on its part to be performed or paid hereunder, and as a
consequence thereof, Landlord or its successors and assigns shall obtain a money
judgment against Tenant, Landlord agrees to look solely to the interest of Tenant in the
Project for the satisfaction of such judgment, and if such interest is insufficient to satisfy
the judgment amount, Landlord shall have no right of action nor shall Tenant be liable for
any such insutnciency.
(b) Notwithstanding the foregoing provisions of Subsection (a) above, nothing,
herein is intended to relieve Tenant from the performance of any of its obligations
hereunder, but rather to limit Tenant's liabilities as aforesaid. Nothing in paragraph (a)
shall be deemed to prejudice the rights of Landlord against Tenant, and Tenant shall be
fully liable to Landlord for damages suffered by Landlord, to the extent provided by law:
NB 1:215136.23
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(i) as a result of fraud, misrepresentation or gross negligence by
Tenant;
(ii) as the result of the retention of any rental or other income arising
with respect to the Premises which is collected by Tenant after Landlord has
given notice to Tenant that it is in default under the Lease (to the full extent of
such rental or other income collected by Tenant after the giving of any such
notice);
(iii) for the fair market value as of the time of giving of any notice
referred to in (ii) hereinabove of any personal property or fixtures located,
attached and/or used in connection with the Project which are removed or
disposed of by Tenant; and
(iv) as the result of the misapplication of any proceeds under any
insurance policies, condemnation awards or settlements attributable to all or any
portion of the Premises or Project.
ARTICLE XVIII
LANDLORD'S ACCESS
18.1 Landlord's Right of Access. Upon reasonable prior notice to Tenant,
Landlord and Landlord's agents shall have the right to enter the Premises and/or the Project
during regular business hours for the purpose of determining Tenant's compliance with any
provision, covenant or condition on Tenant's part to be performed under this Lease; provided,
however, that Landlord shall not interfere with the normal conduct of Tenant's business on the
Premises. Landlord hereby agrees to indemnify, defend with counsel satisfactory to Tenant and
hold Tenant free and harmless from any and all losses, costs, damages or expenses suffered or
incurred, directly or indirectly, by activities conducted by Landlord or Landlord's agents under
this Section 18.1. Tenant agrees to have available to Landlord at reasonable times and upon
reasonable notice a representative who may accompany Landlord's representative in the exercise
by Landlord of its right of entry and access.
ARTICLE XIX
MISCELLANEOUS
19.1 Waiver. The waiver by either Landlord or Tenant of any breach of any
term, covenant or condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of any Rent hereunder by Landlord shall
not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease other than the failure of Tenant to pay the particular Rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of acceptance. No
covenant, term or condition of this Lease shall be deemed to have been waived by Landlord or
Tenant, unless such waiver is in writing signed by the party against whom such waiver is
asserted.
,N5 1:2115136.2.3 45
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19.2 Accord and Satisfaction. Except as otherwise expressly provided in
this Lease, no payment by Tenant or receipt by Landlord of a lesser amount than the Rent herein
stipulated shall be deemed to be other than on account of the earliest stipulated Rent, nor shall
any endorsement or statement on any check or any letter accompanying any 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 pursue any other remedy in
this Lease.
193 Entire Lease. This Lease and the Option Agreement set forth all the
covenants, promises, conditions and understandings between Landlord and Tenant, oral- or
written, relating to the subject matter hereof. No subsequent alterations, amendments, changes
or additions to this Lease shall be binding upon Landlord and Tenant unless reduced to a writing,
signed by them and approved by the Mortgagees, if and to the extent required under their
respective Mortgages.
19.4 Termination of Existing Lease. Concurrently with execution of this
Lease by the parties, the Existing Lease is hereby terminated; provided, however, that any
accrued and unpaid rental obligations of Tenant thereunder not included in the rental obligations
of this Lease shall be immediately due and payable and remain in full force and effect under this
Lease.
19.5 Force Majeure. The performance of any act required hereunder shall be
excused for the period of any delay, hindrance or prevention of such act due to an event of Force
Nlajeure and the period for the performance of any such act shall be extended for a period
equivalent to the period of such delay. The performance of such act shall be excused if either
party shall be indefinitely prevented from the performance of any act required hereunder by
reason of such event of Force Majeure. No event of Force Majeure shall excuse the timely
payment of money when due hereunder except as otherwise expressly provided in this Lease.
19.6 Notices. Any notice, request, demand, instruction or other
communication to be given to either party hereunder shall be in writing and shall be deemed to
have been duly given when personally delivered, twenty -four (24) hours after deposited with a
reliable overnight carrier, guaranteeing next day delivery, postage prepaid, addressed as set forth
below, or forty-eight (48) hours after mailed by United States Registered Mail, return receipt
requested, postage prepaid as follows:
NB 1:215136.23
If to Landlord: City of Newport Beach
3300 Newport Boulevard
P. 0. Box 1768
Newport Beach, California 92658 -8915
Attention: City Manager
M
ID
With copy to: City of Newport Beach
3300 Newport Boulevard
P. 0. Box 1768
Newport Beach, California 92658 -8915
Attention: City Attorney
O'Melveny & Myers
610 Newport Center Drive
Suite 1700
Newport Beach, California 92660 -6429
Attention: Lowell C. Martindale, Jr.
If to Tenant: c/o International Bay Clubs, Inc.
1221 West Coast Highway
Newport Beach, California 9266'
General Manager
With copy to: Pinto & Dubia
Two Park Plaza, Suite 300
Irvine, California 92614
Attention: Saul B. Pinto
And: Tenant's Mortgagee(s) provided Landlord has received
notice of and the address of such Mortgagee(s)
Any notice parry may change its address for purposes of receiving notice hereunder by
giving notice to the other parry pursuant to the provisions hereof. Refusal to accept
delivery of any notice, request, demand, instruction or other communication shall be
deemed to be delivery thereof. In the event of a partial assignment of either Landlord's
or Tenant's interest under this Lease, no notice or payment shall be given or made to any
such partial assignee, but only to one person, firm or corporation as shall have been duly
designated by an instrument executed and acknowledged by all such partial assignees and
a duplicate original shall have been served upon the other party hereto. Notice or
payment shall be given or made only to the last assignee of this Lease as a whole or the
one person, firm or corporation named in the most recent designation duly made and
served. Neither Tenant nor Landlord shall have any liability to see to the proper
distribution of any notice or payment so made to the other party.
19.7 Captions and Section Numbers. The captions, section numbers,
article numbers and index appearing in the Lease are inserted only as a matter of convenience,
and in no way define, limit, construe or describe the scope or intent of such section or article, nor
in any wav affect this Lease.
19.8 Construction of Language. The language in all parts of this Lease
shall be construed simply, according to its fair meaning, and not strictly for or against either
Landlord or Tenant. The term "permit" shall be interpreted to include "cause to be permitted or
1.4B 1:215136.23 47
suffered to be permitted ", and the term "include" shall be interpreted not to imply any limitation
on the more general preceding provision, unless in each instance otherwise expressly provided in
this Lease.
19.9 Broker's Commission. In connection with the transaction
contemplated by this Lease, Landlord and Tenant each represents to the other that it has not
entered into any agreement or incurred any obligation which might result in the obligation to pay
a brokerage commission or finder's fee with respect to this transaction. Landlord and Tenant
each agree to indemnify, defend, protect and hold the other harmless from and against any and
all losses, claims, damages, costs or expenses (including attorneys' fees) which the other may
incur as a result of any claim made by any person to a right to a brokerage commission or
finder's fee in connection with this transaction to the extent such claim is based, or purportedly
based, on the acts or omissions of Landlord or Tenant, as the case may be.
19.10 Limitation of Landlord's Obligations. Landlord shall not be called
upon or required at any time to make any improvements, alterations, changes, additions, repairs
or replacements of any nature whatsoever in or to the Premises.
19.11 Landlord's or Tenant's Discretion. Landlord or Tenant, as
applicable, shall not have a right to unreasonably withhold, condition or delay such consent or
approval if Landlord's or Tenant's consent or approval is required hereunder unless the provision
of the Lease states that such approval or consent is in the sole or absolute discretion of the
applicable party. Whenever Landlord's or Tenant's approval or consent is required under this
Lease, Landlord or Tenant, as applicable, shall be deemed to have granted such approval or
consent if Landlord or Tenant, as applicable, has failed to respond to such request within the
period of time expressly given such parry to respond under the applicable section hereof or, if no
deadline for a response is given under the applicable section, within thirty (30) days of its receipt
of such written request delivered in accordance with the terms of Section 19.6.
19.12 Interest. Interest shall accrue at the Lease Interest Rate on any sums
owed by Tenant to Landlord, or vice versa, starting from the first date of delinquency and
continuing until the full amount including interest is paid.
19.13 Successors. Except as herein otherwise provided, the terms hereof shall
be binding upon and shall inure to the benefit of the successors and assigns, respectively, of
Landlord and Tenant.
19.14 Applicable Law. This Lease and all provisions hereof, irrespective of
the place of execution or performance, shall be construed and enforced in accordance with the
laws of the State of California without giving effect to conflict of laws provisions.
19.15 Landlord's and Tenant's Rights are Cumulative. The rights and
remedies conferred upon both Landlord and Tenant in this Lease and by law are cumulative.
19.16 Saving Clause. If any provision of this Lease, the deletion of which
would not adversely affect the receipt of any material benefit by any party hereunder or
NB 1:215136.23
EF]
I '�r.
substantially increase the burden on any party hereto, shall be held to be invalid or unenforceable
to any extent, the same shall not affect in any respect whatsoever the validity or enforceability of
the remainder of this Lease.
19.17 Attorneys' Fees and Expenses. If either party incurs any expense,
including reasonable attorneys' fees and expenses, in connection with any action or proceeding
against the other, arising out of or in connection with this Lease, whether or not such action
proceeds to trial, the sums so paid by the prevailing party shall be due from and be paid by the
nonprevailin-g party on demand.
19.18 injunctive Relief. In addition to any remedies expressly mentioned in
this Lease, the other parry shall have the right of injunction and the right to invoke any remedy
allowed at law or in equity if there is any breach or threatened breach by either party of any of
the covenants or provisions of this Lease.
19.19 Appraisal. If an appraisal is required under the terms of this Lease for
the purposes of determining "fair market value ", urdess otherwise specified herein, such
appraisal shall be determined by the appraisal by three (3) disinterested real estate appraisers,
each with at least ten (10) years' experience in the appraisal of similar property interests, one -
being chosen by Landlord, one by Tenant, and the third by the other two appraisers. The average
of the two appraisals closest in value shall be deemed the "fair market value ". Landlord shall
pay the costs of the appraiser selected by Landlord, Tenant shall pay the costs of the appraiser
selected by Tenant, and Landlord and Tenant shall split the costs of the third appraiser.
19.20 Recording. Landlord and Tenant shall execute for purposes of
recordation in the Office of the County Recorder a memorandum or short form of this Lease in
the form attached hereto as Exhibit B. The cost and expenses of recording the memorandum or
short form of the Lease shall be bome by the party asking for the memorandum to be recorded.
Each party agrees that it will not record the Lease in its entirety.
19.21 incorporation of Preamble, Recitals and Exhibits. The preamble,
recitals and exhibits hereto are hereby incorporated into this Lease and made a part hereof.
?l61:215136.23
[Signatures Commence on Next Page]
al
IN WITNESS WHEREOF, Landlord and Tenant have duly executed and delivered this Lease
as of the day and year first above written.
Attest:
City Clerk
Approved as to Form:
City Attorney
LANDLORD:
CITY OF NEWPORT BEACH,
a municipal corporation
In
Mayor
TENANT:
BALBOA BAY CLUB, INC.,
a California Corporation
By: —�
It : Chairma . of t e and
By:
Its: Chief Executive Officer
NBk2i5136.23 50
(,I
IN WITNESS WHEREOF, Landlord and Tenant have duly executed and delivered this Lease
as of the day and year first above written.
LANDLORD:
CITY OF NEWPORT BEACH,
as to Form:
City Attorney
TENANT:
BALBOA BAY CLUB, INC
a California Corporation
By:
Its:
By:
Its:
NB1:2 15136.23 50
15
EXHIBIT B
MEMORANDUM OF GROUND LEASE
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
International Bay Clubs, Inc.
1221 W. Coast Highway
Newport Beach, California 92663
MEMORANDUM OF GROUND LEASE
This Memorandum of Ground Lease ( "Memorandum's is entered into effective as of
(the "Commencement Date "), by and between THE CITY OF
NEWPORT BEACH, a municipal corporation ( "Landlord "), and BALBOA BAY CLUB,
INC., a California Corporation ( "Tenant ").
RECITALS
A. Landlord and Tenant have entered into that certain Ground Lease (the "Lease ") dated
as of the Commencement Date relatine to certain real property located in the City of
Newport Beach, County of Orange. State of California described more particularly on
Exhibit A attached hereto and by this reference made a part hereof (the "Premises ").
Landlord and Tenant each desires to execute this Memorandum for recordation in the
real property records of the County of Orange in order to memorialize the existence of
the Lease.
NOW THEREFORE, with reference to the foregoing recital, the parties hereto agree as
follows:
Lease of Premises. Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the Premises, on the terms and conditions set forth in the Lease.
Term. The term of the Lease shall be for a period of nfty (50) years commencing
upon the Commencement Date, unless sooner terminated pursuant to the provisions of
the Lease.
Incorporation of Lease. This instrument is a memorandum of the Lease and is
subject to all of the terms and conditions of the Lease. The terms of the Lease shall
prevail if there is any inconsistency between the terms of this instrument and the terms
of the Lease.
-NB 1215136.23
B -1
713
IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum as of the
date first set forth above.
NB 1:215136.23
THE CITY OF NEWPORT BEACH,
a municipal corporation
BALBOA BAY CLUB, INC.,
a California Corporation
M
IEn
w
Its:
Its:
1
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On before me personally appeared
personally known to me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his signature on the instrument the person, or entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
(SEAL)
Notary Public
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANNGE )
On 7 , before me personally appeared ,
personally known to me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his signature on the instrument the person, or entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
(SEAL)
uB1:2!i13633
Notary Public
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On , before me personally appeared
personally known to me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his signature on the instrument the person, or entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official_ seal.
(SEAL)
NB 1:315136.23
Notary Public
71
N8 1:2151361:
EXHIBIT C
SIGNAGE REGULATIONS
[TO COME]
CSI
60
EXHIBIT A
LEGAL DESCRIPTION
ALL THAT CERTAIN LAND SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF ORANGE,
CITY OF NEWPORT BEACH, DESCRIBED AS FOLLOWS:
PARCEL 1:
THAT PORTION OF LOT 171, BLOCK 54 OF IRVINE'S SUBDIVISION, AS SHOWN ON A MAP
RECORDED IN BOOK 1, PAGE 88 OF MISCELLANEOUS RECORD MAPS, IN THE OFFICE OF
THE COUNTY RECORDER OF ORANGE COUNTY, CALIFORNIA, AND THAT PORTION OF THE
NAVIGABLE TIDE AND SUBMERGED LANDS, DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE U.S. BULKHEAD LINE EXTENDING FROM U.S. BULKHEAD
STATION NO. 129 TO U.S. BULKHEAD STATION NO. 130, AS SAID BULKHEAD LINE AND
BULKHEAD STATIONS ARE LAID OUT AND SHOWN ON A MAP OF NEWPORT BAY,
CALIFORNIA, SHOWING HARBOR LINES APPROVED BY THE WAR DEPARTMENT, JANUARY
18, 1917, SAID POINT BEING DISTANT SOUTH 61 DEGREES 01'07 EAST, MEASURED ALONG
SAID BULKHEAD LINE, 1498.00 FEET FROM THE IN'T'ERSECTION OF SAID BULKHEAD LINE
WITH THE SOUTHWESTERLY PROLONGATION OF THE CENTERLINE OF IRVINE AVENUE, AS
SHOWN ON A MAP OF FIRST ADDITION TO NEWPORT HEIGHTS, RECORDED IN BOOK 4,
PAGE 94 OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID
ORANGE COUNTY, SAID POINT ALSO BEING ON THE SOUTHEASTERLY BOUNDARY LINE OF
PARCEL 1, PER A DEED OF TRUST RECORDED MARCH 30, 1966 IN BOOK 7884, PAGE 298
OF OFFICIAL RECORDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID ORANGE
COUNTY; THENCE ALONG SAID SOUTHEASTERLY BOUNDARY LINE, THE FOLLOWING
COURSES: NORTH 28 DEGREES 58'53" EAST 130.00 FEET; THENCE NORTH 27 DEGREES 00'
00" WEST 16.66 FEET: THENCE NORTH 28 DEGREES 58'53" EAST 195.71 FEET TO A POINT
IN THE SOUTHWESTERLY LINE OF THE 100 -FOOT RIGHT -OF -WAY OF THE CALIFORNIA
STATE
HIGHWAY ORA -60 -B, THENCE LEAVING SAID SOUTHEASTERLY BOUNDARY, SOUTH 74
DEGREES 21' 30" EAST ALONG SAID SOUTH' WESTERLY LINE, 130.08 FEET TO THE
BEGINNING OF A TANGENT CURVE CONCAVE NORTHERLY, HAVING A RADIUS OF 2550.00
FEET; THENCE EASTERLY 715.57 FEET ALONG SAID CURVE THROUGH A CENTRAL ANGLE
OF 16 DEGREES 04'41" TO AN INTERSECTION WITH THE NORTHEASTERLY" PROLONGATION
OF THE NORTHUESTERLY LINE OF TRACT NO. 1140, AS SHOWN ON A bLAP THEREOF
RECORDED IN BOOK 36, PAGE 28 OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE
COUNTY RECORDER OF SAID ORANGE COUNTY: THENCE SOUTH 28 DEGREES 58'53" WEST
975.03 FEET TO A LINE PARALLEL WITH AND DISTANT SOUTHWESTERLY 350.00 FEET
FROM SAID BULKHEAD LINE; THENCE NORTH 61 DEGREES 01' 07" WEST 776.91 FEET
ALONG SAID PARALLEL LINE OF THE SOUTHWESTERLY PROLONGATION OF THE SOUTH-
EASTERLY LINE OF SAID PARCEL 1: THENCE :ALONG SAID PROLONGATION AND SAID
A -1 I
G
SOUTHEASTERLY LINE, NORTH 28 DEGREES 58' 53" EAST 350.00 FEET TO THE POINT OF
BEGINNING.
PARCEL 2:
THAT CERTAIN PARCEL OF LAND MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE U.S. BULKHEAD LINE, EXTENDING FROM U.S. BULKHEAD
STATION NO. 129 TO U.S. BULKHEAD STATION NO. 130, AS SAID BULKHEAD LINE AND
BULKHEAD STATIONS ARE LAID OUT AND SHOWN ON A MAP OF NEWPORT BAY,
CALIFORNIA, SHOWING HARBOR LINES APPROVED BY THE WAR DEPARTMENT, JANUARY
18, 1917, WHICH SAID POINT IS DISTANT SOUTH 61 DEGREES 01' 07" EAST, MEASURED
ALONG SAID BULKHEAD LINE, 700.00 FEET FROM THE INTERSECTION OF SAID BULKHEAD
LINE WITH THE SOUTHWESTERLY PROLONGATION OF THE CENTERLINE OF IRVINE
AVENUE, AS SHOWN ON A MAP OF FIRST ADDITION TO NEWPORT HEIGHTS RECORDED IN
BOOK 4, PAGE 94 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER
OF SAID COUNTY, SAID POINT OF INTERSECTION BEING THE MOST SOUTHERLY CORNER
OF LOT H OF TRACT N'0. 919 AS PER MAP RECORDED IN BOOK 29, PAGES 31 TO 34
INCLUSIVE OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY; THENCE NORTH 28 DEGREES 58' 53" EAST 154.19 FEET TO A POINT IN THE
SOUTHWESTERLY LINE OF THE 100 -FOOT RIGHT OF WAY OF THE CALIFORNIA STATE
HIGHWAY ORA -60 -B, SAID POINT BEING RADIAL TO ENGINEER'S STATION 6 +56.15 IN THE
CENTERLINE OF SAID HIGHWAY, SAID RADIAL BEARS NORTH 19 DEGREES 37' 57" EAST
FROM SAID POINT, SAID SOUTHWESTERLY LINE BEING A CURVE CONCAVE
NORTHEASTERLY AND HAVING A RADIUS OF 2050.00 FEET; THENCE SOU'T'HEASTERLY
ALONG SAID SOUTHWESTERLY LINE, THROUGH A CENTRAL ANGLE OF 3 DEGREES 59'27",
142.79 FEET TO A TANGENT LINE; THENCE SOUTH 74 DEGREES 21' 30" EAST ALONG SAID
TANGENT LINE AND SAID SOUTHWESTERLY LINE, 662.08 FEET; THENCE SOUTH 28
DEGREES 50' 53" WEST 195.71 FEET; THENCE SOUTH 27 DEGREES 00' 00" EAST 16.66
FEET; THENCE SOUTH 28 DEGREES 58' 53" WEST 480.00 FEET TO A LINE PARALLEL WITH
AND SOUTHWESTERLY 350.00 FEET FROM SAID BULKHEAD LINE; THENCE NORTH 61
DEGREES 01' 07" WEST ALONG SAID PARALLEL LINE, A DISTANCE OF 798.00 FEET TO A
POINT WHICH BEARS SOUTH 28 DEGREES 58' 53" WEST 350.00 FEET FROM THE POINT OF
BEGINNING; THENCE NORTH 28 DEGREES 58' 53" EAST 350.00 FEET TO THE POINT OF
BEGINNING.
EXCEPT THAT PORTION DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE SOUTHERLY LINE OF THE 100 -FOOT RIGHT OF WAY OF THE
CALIFORNIA STATE HIGHWAY ORA -60 -B, SAID POINT OF BEGINNING BEING AT RIGHT
ANGLES TO ENGINEER'S STATION 7 +95.46 IN THE CENTERLINE OF SAID HIGHWAY; THENCE
SOUTH 15 DEGREES 38'30" WEST 44.00 FEET; THENCE NORTH 74 DEGREES 21' 30" NVEST
34.00 FEET; THENCE NORTH 15 DEGREES 38'30" EAST TO AN INTERSECTION WITH THE
SAID SOUTHERLY LINE OF THE STATE HIGHWAY; THENCE SOUTHEASTERLY ALONG SAID
SOUTHERLY LINE TO THE POINT OF BEGINNING.
A-2 r
PARCEL 3:
A NON- EXCLUSIVE EASEMENT FOR INGRESS AND EGRESS OVER THAT CERTAIN PARCEL OF
LAND INCLUDED WITHIN A STRIP OF LAND 25.00 FEET IN WIDTH, THE NORTHEASTERLY
LINE OF WHICH IS DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE U.S. BULKHEAD LINE EXTENDING FROM U.S. BULKHEAD
STATION NO. 129 TO U.S. BULKHEAD STATION NO. 130, AS SAID BULKHEAD LINE AND
BULKHEAD STATIONS ARE LAID OUT AND SHOWN ON A MAP OF NEWPORT BAY,
CALIFORNIA, SHOWING HARBOR LINES APPROVED BY THE WAR DEPARTMENT, JANUARY
18, 1917, WHICH SAID POINT IS DISTANT SOUTH 61 DEGREES 01'07" EAST, MEASURED
ALONG SAID BULKHEAD LINE, 700.00 FEET FROM THE INTERSECTION OF SAID BULKHEAD
LINE WITH THE SOUTHWESTERLY PROLONGATION OF THE CENTERLINE OF IRVINE
AVENUE, AS SHOWN ON A MAP OF FIRST ADDITION TO NEWPORT HEIGHTS RECORDED IN
BOOK 4, PAGE 94 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER
OF SAID COUNTY, SAID POINT OF INTERSECTION BEING THE MOST SOUTHERLY CORNER
OF LOT H OF TRACT NO. 919, AS PER MAP RECORDED IN BOOK 29, PAGES 31 TO 34
INCLUSIVE OF ? MSCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY; THENCE NORTH 28 DEGREES 58' 53" EAST 154.19 FEET TO A POINT IN THE
SOUTHWESTERLY LINE OF THE 100 -FOOT RIGHT OF WAY OF THE CALIFORNIA STATE
HIGHWAY ORA -60 -13, SAID POINT BEING RADIAL TO ENGINEER'S STATION 6+56.15 IN THE
CENTERLINE OF SAID HIGHWAY, SAID RADIAL BEARS NORTH 19 DEGREES 37'57" EAST
FROM SAID POINT, SAID SOUTHWESTERLY LINE BEING A CURVE CONCAVE
NORTHEASTERLY AND HAVING A RADIUS OF 2050.00 FEET; THENCE SOUTHEASTERLY
ALONG SAID SOUTHWESTERLY LINE, THROUGH A CENTRAL ANGLE OF 3 DEGREES 591 27 ",
142.79 FEET TO A TANGENT LINE; THENCE SOUTH 74 DEGREES 21'30" EAST ALONG SAID
TANGENT LINE AND SAID SOUTHWESTERLY LINE, 662.08 FEET TO THE TRUE POINT OF
BEGINNING; THENCE SOUTH 74 DEGREES 21'30" EAST 130.08 FEET TO THE BEGINNING
OF A CURVE ON SAID SOUTHWESTERLY LINE, CONCAVE NORTHEASTERLY, HAVING A
RADIUS OF 2550.00 FEET; THENCE SOUTHEASTERLY 715.56 FEET ALONG SAID CURVE,
THROUGH A CENTRAL ANGLE OF 16 DEGREES 04' 40" TO THE NORTHEASTERLY
PROLONGATION OF THE NORTHWESTERLY LINE OF TRACT NO. 1140, AS PER MAP
RECORDED IN BOOK 36, PAGE 28 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE
COUNTY RECORDER OF SAID COUNTY.
THE SOUTHWESTERLY" LINE OF SAID 25.00 -FOOT STRIP IS TO BE SHORTENED SO AS TO
TERMINATE IN SAID NORTHWESTERLY PROLONGATION AND LENGTHENED SO AS TO
TERMINATE ON A LINE WHICH BEARS SOUTH 28 DEGREES 58' 53" WEST FROM THE TRUE
POINT OF BEGINNING.
PARCEL 4:
A NON- EXCLUSR-rE EASEMENT FOR AUTO PARKING PURPOSES OVER THE SOUTHWESTERLY
20.00 FEET OF THE NORTHEASTERLY 45.00 FEET OF THAT CERTAIN PARCEL MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
,A -3
G ��
BEGINNING AT A POINT ON THE U.S. BULKHEAD LINE EXTENDING FROM U.S. BULKHEAD
STATION NO. 129 TO U.S. BULKHEAD STATION NO. 130, AS SAID BULKHEAD LINE AND
BULKHEAD STATIONS ARE LAID OUT AND SHOWN ON A MAP OF NEWPORT BAY,
CALIFORNIA, SHOWING HARBOR LINES APPROVED BY THE WAR DEPARTMENT, JANUARY
18, 1917, WHICH SAID POINT IS DISTANT SOUTH 61 DEGREES 01'07" EAST, MEASURED
ALONG SAID BULKHEAD LINE, 700.00 FEET FROM THE INTERSECTION OF SAID BULKHEAD
LINE WITH THE SOUTHWESTERLY PROLONGATION OF THE CENTERLINE OF IRVINE
AVENUE, AS SHOWN ON A NIAP OF FIRST ADDITION TO NEWPORT HEIGHTS RECORDED IN
BOOK 4, PAGE 94 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER
OF SAID COUNTY, SAID POINT OF INTERSECTION BEING THE MOST SOUTHERLY CORNER
OF LOT H OF TRACT NO. 919, AS SHOWN ON A MAP RECORDED IN BOOK 29, PAGES 31 TO
34 INCLUSIVE OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY; THENCE NORTH 28 DEGREES 58'53" EAST 154.19 FEET TO A POINT IN THE
SOUTHWESTERLY LINE OF THE 100 -FOOT RIGHT OF WAY OF THE CALIFORNIA STATE
HIGHWAY ORA -60 -B, SAID POINT BEING RADIAL TO ENGINEER'S STATION 6 +56.15 IN THE
CENTERLINE OF SAID HIGHWAY, SAID RADIAL BEARS NORTH 19 DEGREES 37'57" EAST
FROM SAID POINT, SAID SOUTHWESTERLY LINE BEING A CURVE CONCAVE
NORTHEASTERLY AND HAVING A RADIUS OF 2050.00 FEET; THENCE SOUTHEASTERLY
ALONG SAID SOUTHWESTERLY LINE, THROUGH A CENTRAL ANGLE OF 3 DEGREES 59'27",
142.79 FEET TO A TANGENT LINE; THENCE SOUTH 74 DEGREES 21'30' EAST ALONG SAID
TANGENT LINE AND SAID SOUTHWESTERLY LINE, 662.08 FEET TO THE TRUE POINT OF
BEGINNING; THENCE SOUTH 28 DEGREES 58'53" WEST 195.71 FEET; THENCE SOUTH 27
DEGREES 00'00" EAST 16.66 FEET; THENCE SOUTH 28 DEGREES 58'53" WEST 480.00 FEET
TO A LINE PARALLEL WITH AND SOUTHWESTERLY 350.00 FEET FROM SAID BULKHEAD
LINE; THENCE SOUTH 61 DEGREES 01'07" EAST 235.68 FEET ALONG SAID PARALLEL LINE;
THENCE NORTH 29 DEGREES 30' 13" EAST 697.99 FEET; THENCE NORTH 11 DEGREES 45'
40" EAST 49.32 FEET TO SAID SOUTHWESTERLY LINE OF THE STATE HIGHWAY, SAID
SOUTHWESTERLY LINE BEING A CURVE CONCAVE NORTHEASTERLY, HAVING A RADIUS OF
2550.00 FEET; THENCE NORTHWESTERLY 118.56 FEET ALONG SAID CURVE, THROUGH A
CENTRAL ANGLE OF 2 DEGREES 39' 50" TO THE NORTHWESTERLY TERMINUS THEREOF;
THENCE NORTH 74 DEGREES 21' 30" WEST 130.08 FEET TO THE TRUE POINT OF
BEGINNING.
A -4
cal
Exhibit B
LANDLORD ESTOPPEL CERTIFICATE
EXHIBIT B — PERCENTAGE RENT
CATEGORY
PERCENTAGE RENT
Dues Revenues
6%
Apartment Revenues
16.5%
Marina Revenues
31%
Storage Revenues
20%
Charter Commission Revenues
20%
Charter Revenues
6%
Room Revenues
5%
Beverage Revenues
5%
Food Revenues
3%
Retail Revenues
5%
Miscellaneous Revenues
10%
L Lo
Attachment B
CONSENT AND WAIVER
Reference is made to that certain request for consent from Balboa Bay Club, Inc. to the
City of Newport Beach dated May 1, 2012 which is attached hereto as Exhibit A and
incorporated herein by this reference (the "Consent Request'). All capitalized terms used in this
Consent and Waiver shall have the meaning set forth in the Consent Request.
Subject to the terms and conditions of this Consent and Waiver and the Landlord
Estoppel Certificate, which is attached as Exhibit B to the Consent Request, and Agreement,
Landlord hereby grants its consent to the Sale and to the one -time transfer or assignment of the
Lease occurring as a direct result of the Sale. Landlord hereby waives any requirement that may
exist in the Lease with respect to any prior or advance notice of the Sale and deemed assignment
of the Lease. Landlord hereby consents to and approves the deemed assignment of the Lease to
Purchaser and acknowledges that in connection with the Sale, Purchaser has complied with all of
the requirements of Article 13 of the Lease. Landlord hereby further agrees and acknowledges,
that: (i) the Lease is and shall continue in full force and effect following the Sale upon all of the
same terms and conditions contained therein; (ii) there will be no change in the permitted use of
the Premises as specifically set forth in the Lease on account of the Sale; and
(iii) notwithstanding anything to the contrary contained in the Lease, the consummation of the
Sale will not result in any breach or violation of any provision of the Lease. Nothing in this
Consent and Waiver shall be deemed to be a release of any previous, current or future tenant
under the Lease from its obligations thereunder. Except as set forth herein with regard to the
Sale, nothing in this Consent and Waiver shall be deemed to be a consent to any further
assignment of the Lease or subletting of the Premises.
This Consent and Waiver is for purposes of the Sale only, and all of the terms, conditions
and provisions of the Lease will remain in effect following the Sale.
IN WITNESS WHEREOF, this Consent and Waiver has been executed as of
.2012.
LANDLORD:
CITY OF NEWPORT BEACH
Title:
,�
rr.
Attachment C
CITY OF NEWPORT BEACH
W ADMINISTRATIVE SERVICES
<1FORN�P Revenue Division
DATE: May 16, 2012
TO: INTERNATIONAL BAY CLUBS, INC.
CC: DAVE KIFF, CITY MANAGER
TRACY McCRANER, FINANCE DIRECTOR
MICHAEL TORRES, ASSISTANT CITY ATTORNEY
FROM: HORTENSIA MATO, REVENUE AUDITOR
RE: BALBOA BAY CLUB GROUND LEASE
1) COMPLIANCE WITH THE GROUND LEASE; AND
2) SECTION 12.1, ESTOPPEL CERTIFICATE
The Balboa Bay Club and the City of Newport Beach have a Ground Lease agreement
granting the Balboa Bay Club possession of a certain parcel of land located in the City of
Newport Beach. The parcel is operated as a multi -use hotel and club facility by the
Balboa Bay Club.
The Revenue Division conducted a contract review of the Ground Lease ( "Lease ") by and
between the City of Newport Beach ( "Landlord ") and Balboa Bay Club, Inc. ( "Tenant'),
dated October 25, 2000 in conjunction with a request to issue an estoppel certificate as
set forth in Section 12.1 of the Lease.
The purpose and requirements of the estoppel certificate are as follows:
"Within fifteen (15) days after each request therefore by either party, the other party
agrees to deliver a certificate to any person designated by the requesting party
(including a proposed Mortgagee or purchaser), or to the requesting party, certifying (if
such be the case) that this Lease is in full force and effect, that to the best of such
party's knowledge at this time, there are no Events of Default by Tenant hereunder or
any defaults by Landlord hereunder and that no events have occurred which, with giving
3300 Newport Boulevard - Post Office Box 1768 • Newport Beach, California 92658 -8915 j(1
Telephone: (949) 644 -3141 • Fax: (949) 644 -3073 • www.newportbeachca.gov I
of notice or the passage of time or both, would constitute an Event or Default with
respect to Tenant or a default with respect to Landlord hereunder, or stating those
claimed by the responding party, and that, to the best of such party's knowledge, there
are no defenses or off -sets in favor of either party hereto, or stating those claimed by
the responding party, and /or certifying whether any consent or approval required under
this Lease has been denied or granted by the responding party and whether any
specified rights have been waived or deemed waived or expired. Any such certificate
shall also contain a warranty that the person signing has the authority to execute the
certificate on behalf of such party. Each such estoppel certificate shall identify the Lease
and all amendments, shall specify to which the Rent has been paid, and shall specify the
then applicable Base Rent payable hereunder. If the responding party fails to execute
and deliver any such certificate within the aforementioned time period, insofar as the
requesting party and any person designated by the requesting party is concerned, the
other party shall be conclusively deemed to have acknowledged that the certificate as
submitted by the requesting party is correct. The requesting party or the person
designated by the requesting party as the recipient of said certificate (including, but not
limited to, a proposed Mortgagee or purchaser) may rely on the certifications made by
the responding party or the certifications deemed made thereby (if such certificate is
not delivered within such fifteen (15) day period). Nothing in this Section 12.1 shall be
construed as reducing the period of time that any party has under the terms of this
Lease to respond to a request by the other party for consent or an approval."
The limited test work procedures performed to generate this report do not constitute
an audit by professional accounting and auditing standards. The term "audit" has
certain industry expectations usually associated with an independent accounting firm
rendering a formal opinion or written report based on significantly greater scope than
the work described in this report.
Section 5.10(e) of the Lease spells out the Landlord's audit rights and obligations:
"Landlord shall have the right upon two (2) days prior notice to Tenant and during
normal business hours, but not more than one (1) time during each Fiscal Year of the
Term, to audit the Tenant's statements of Gross Revenues, and supporting records and
data. Within ten (10) days of receipt of such audit, Tenant shall pay Landlord the
additional Rent found to be due plus interest thereon at the Lease Interest Rate if the
audit discloses an understatement of annual Gross Revenues. However, if audit
discloses Rent has been overpaid by Tenant, the excess shall be applied to any amounts
then due from Tenant to Landlord, and the balance, if any, shall be credited against Base
Rent thereafter due from Tenant. Tenant shall pay for the reasonable cost of Landlord's
audit if Landlord's audit discloses a total underpayment of Rent for any Fiscal Year which
is in excess of five percent (5 %). Landlord shall have the right to receive a copy of the
results of any audit conducted at the request of Tenant of Tenant's statements of Gross
Revenues during the Term. Promptly following the completion of any such audit, Tenant
shall deliver, or cause to de delivered, to Landlord a copy of the result of such audit
regardless of whether Landlord shall have made a demand therefore."
2
i0
Scope
The compliance review covered the period from July 1, 2011 through April 30, 2012.
The purpose of the review was to (1) determine if the Tenant was in compliance with all
the requirements of the Lease; and (2) to identify the date to which rent has been paid
for the estoppel certificate.
The following documents were reviewed for the above referenced period:
General Ledger and Revenue Detail Ledgers
Monthly Schedules of All Revenues
Fixed Assets and Capital Expenditure Worksheets
Property Tax Records and Payment Detail
Insurance Certificates by Types of Insurance
A compliance review for the period January 1, 2008 through June 30, 2011 was
completed on September 1, 2011. The review did not result in any findings.
FINDINGS AND RECOMMENDATIONS
1. Revenues By Category
Per Article I, 1.1 Definitions, Gross Revenue of the agreement, "all gross
revenues shall be computed without deduction or allowance for costs, charges
or expenses for the purchase, sale, transportation or delivery of merchandise or
services, or for labor and materials in connection with the rendering of services
or the sale of goods."
Finding
All revenues by category for the audit period were accurately calculated and
reported to the City. The Tenant is in compliance with the percentage rent
percentages spelled out in the Lease.
2. Base Rent and Percentage Rent Payments (Sections 5.1 through 5.10(c)
The first adjustment of the base rent was calculated in December 2009. The
current base rent is the greater of annual rent of two million seventy two
thousand two hundred sixty six dollars ($2,072,266) or the percentage rent set
forth in Section 5.2 of the agreement. The base rent is paid quarterly in
(� I
installments of $518,067. Percentage rent is determined by the revenue
categories.
The Tenant is required to submit to the Landlord the base rent payment on the
first (1't) day of each calendar quarter. If percentage rent exceeds base rent, the
difference is paid in arrears, concurrent with the quarterly statement of gross
revenues.
Base rent is due on January 1, April 1, July 1 and October 1. Percentage rent is
due April 20th, July 20th, October 20th, and January 20th per Section 5.10 (c) of the
agreement.
The Tenant has paid base rent through June 30, 2012. The next base rent
payment will be due on July 1, 2012. Percentage rent has been paid through
March 31, 2012. The next percentage rent payment for second quarter 2012
will be due on July 20, 2012.
The Tenant has paid timely base and percentage base rents in the compliance
review period. Quarterly and annual rent reconciliations have been submitted
timely.
The Tenant is charging fair market values based on comparisons for such goods
and services charged by other private clubs in Southern California. The Tenant
maintains full and complete books in accordance with generally accepted
accounting principles.
Findin
The Tenant is in compliance with the rent calculations, payments and reporting
requirements of the Lease.
3. Marina Slips (Section 3.10 and 7.2)
The marina is required to maintain and operate a minimum of 140 slips for rental
to the general public who are members of the Tenant.
Rentals of the slips shall not be for more than one year unless such agreements
have provisions for yearly adjustments of rent to full fair market value. The
Auditor reviewed the Tenant's marina slips fair market comparisons. The
comparisons were timely and in keeping with the Lease. Slip pricing is effective
from April to March of the following year. As of May 9, 2012, the marina has
approximately 83% occupancy with an average slip rate of $1,400 per month.
11
j .�
The City Harbor Resources Manager was contacted for his input regarding the
Tenant's maintenance of the marina pump -out station as called out in Section
7.2 of the Lease. The City Harbor Resources Manager reported that the Tenant is
diligent in keeping the pump -out station in good repair and operated in
accordance with the Lease.
Findin
At some point in time, the Tenant reduced the number of slips in the marina
from 140 to 130 in order to accommodate larger vessels. The City Harbor
Resources and Revenue Departments were made aware of the changes during
the last two compliance reviews.
We recommended, in the two previous compliance reviews, that the Landlord
amend the agreement, pending the approval of Harbor Resources, to reflect the
reduced number of marina slips. No action has been taken by the Landlord to
amend the agreement.
Recommendations
No further action is recommended.
4. Other Reporting Requirements
The fiscal year end date per the agreement is October 25, based on the contract
execution date. All the reporting due dates in the agreement are based on the
October 25 date.
Finding
At some point in time, the Tenant changed the fiscal year end date to December
31 without protest from the Landlord. All reporting due dates have also
followed the December 31 year end date rather than October 25.
As an example, the annual statement for the prior year is due January 28, one
hundred twenty (120) days from the end of the contractual fiscal year. However,
the Tenant actually submits its annual statement of gross revenue mid or late
May.
The reporting requirement of submitting a forecast on May 1 for the upcoming
fiscal year of gross revenues expected has not been complied with. The forecast
of 12 months of budgeted capital improvements, repairs, replacements and
maintenance due September 30 has also not been provided to the Landlord.
n�
'J
The previous compliance reviews recommended amending the contract so the
due dates of annual statements of gross revenues and forecasts reflect the
December 31 year end followed by the Tenant. We recommended the forecasts
of projected gross revenue and projected capital improvements for the
upcoming year be submitted to the Landlord timely. No action has been taken
by the Landlord to amend the agreement or to request the forecast budgeted
capital improvements, repairs, replacements and maintenance.
Recommendation
No further action is recommended.
5. Insurance Requirements (Section 10)
The Tenant provided insurance certificates for the coverage specified in the
Lease. All certificates met the limit requirements of the Lease and listed the
Landlord as the certificate holder.
Finding
The Tenant is in compliance with the insurance requirements of the Lease.
The Tenant has a Writ of Mandate issued against it regarding the Clubhouse at
the Newport Beach Country Club. The Tenant is not a participant in the action.
The tenant is a party in a lawsuit brought by a former employee.
Auditor did not delve into the information; therefore, the Auditor was unable to
confirm if the Tenant has any reportable claims, lawsuits or judgments that could
have an adverse economic effect on the Tenant.
1. Capital Improvements, Repairs and Maintenance (Section 6.3)
During each rolling three (3) year period (2008 to 2011), the Lease requires a
minimum of four percent (4%) of gross revenues be expended on repairs,
replacements and renewals of furnishings and capital improvements to the
premises.
The Auditor calculated four percent of gross revenues from the reconciliation
revenues by category. The result was compared to the Tenant's fixed asset
qq
accounts and schedule of improvements to verify whether or not capital
improvements and maintenance met the 4% of gross revenue threshold.
Findin
The tenant is in compliance with maintenance requirements of the Lease.
2. Taxes and Assessments (Section 6.2)
Property tax assessments and the corresponding payments were reviewed for
compliance. The Tenant paid the first and second installments of the property
tax to the County Assessor.
Finding
The tenant is in compliance with the tax section of the Lease.
3. Environmental Requirements (Section 7.3)
The Lease does not permit the use of any hazardous material in construction,
reconstruction, renovations, or additions in violation of any applicable law,
regulation, code or ordinance.
Finding
It is beyond the Auditor's professional capacity to determine if all environmental
requirements have been met.
Conclusion
The Lease requires submission of an annual audited reconciliation of rents
performed by a Certified Public Accountant. We have reviewed all applicable
financial reports and documentation required by the contract including the 2011
annual audited reconciliation of rents, dated April 27, 2012.
Based on our review, the Tenant has complied with the terms of the Lease and is
current on base and percentage rents.
'95
�'I
Attachment
May 17, 2012
Rob Houston
Assistant to the City Manager
City of Newport Beach
3300 Newport Boulevard
Newport Beach, California 92663
Subject: Request for Consent to Deemed Assignment of the Balboa Bay
Club, Inc.; EPS #121070
Dear Mr, Houston:
Economic & Planning Systems, Inc. (EPS) has been retained by the City of
Newport Beach to conduct due diligence associated with the proposed
Balboa Bay Club, Inc. (BBC) Ground Lease (Ground Lease) assignment.
TL,• 7iSvalnmi „( /.u,d ! Our effort has focused on Article XIII of the Ground Lease (Assignment
and Subleasing). As a part of this effort, we have reviewed the letter
submitted by International Bay Clubs, Inc. (IBC), dated May 1, 2012,
requesting Consent to Deemed Assignment of the BBC and reviewed the
f terms of the Ground Lease which sets forth specific standards for its
/ \\ assignment. EPS has also corresponded with representatives of
representatives of the new owner of the Balboa Bay Club (Vintage Trust
II), Mr. Kory Kramer, requesting additional proprietary information; we
have reviewed the information received in response to our requests.
Representatives of IBC and the new owner have been highly professional
and responsive in our interactions. We also conducted research regarding
the proposed operator of the Balboa Bay Club, the Pacific Hospitality
Group.
Section 13.1(a) (Net Worth Calculation)
Section 13.1(a) of the Ground Lease provides that the proposed purchaser
have a net worth of: (i) $4 million plus cost of living from the date of the
commencement of the Ground Lease (the year 2000); or (ii) at least "ten
percent (10 %) of the fair market value of the leasehold estate created by
this Lease."
t7
Regarding the net worth standard, documents submitted by U.S. Trust on
behalf of the new owner, Vintage Trust II indicate bank assets that
Economic& Planning Sys:vns, Inc.
substantially exceed the $4 million required. Regarding the value of the
2501 Ninth Slweq sere 200
leasehold, while there is no current appraisal, a leasehold value can be
Bukeley, CA 94710-2257
imputed from lease revenue. In calendar year 2010, the BBC paid the
510841 9100 MY
City of Newport Beach $2.7 million in lease revenue. Applying that
510 8.4.1 920E fax
number to a typical conservative commercial capitalization rate of 6.0
..%rkerey
percent, the value would be in the range of $45 million. Under either
ocrn¢'r
measure, Vintage Trust II easily satisfies the financial requirement of the
(.os Anycler
Ground Lease.
sacramento
www.epsys.com
P:,12I0001II10708e1boa eay_crub�cm sponecnrc1121o7ole_OS- 17-II.d.c
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Rob Houston
May 17, 2012
Page 2
Thus, it appears that the Section 13.1(a) Ground Lease requirement is met as Vintage Trust's net
worth exceeds the requirement. Moreover, the acquisition of IBC is an "all cash" deal; no
leverage (bank lending) is involved. This being the case, any financing risks (e.g., lender
foreclosure) are non - existent.
Section 13.1(b) (Qualified Manager)
This Ground Lease section requires that the assignee is, or associates with, a "qualified
manager." A key part of this transaction is a management agreement between the Vintage Trust
II and Pacific Hospitality Group, LLC and Eagle Four Equities, LLC. These parties to this
management agreement provided a letter to me, dated May 11, 2012, confirming the
Management Agreement and citing the general terms of the Agreement, all of which reflect
typical industry standards for such agreements.
Pacific Hospitality Group (PHG) was founded in 1997 by Timothy Busch, a practicing attorney,
CPA and licensed California real estate broker. In addition to his role at PHG, he manages The
Busch Firm, a law firm that specializes in high -net worth estate planning, tax, and real estate
and business legal transactions. Irvine -based PHG develops, owns, and manages luxury hotels
and resorts properties. PHG currently operates seven hotels and resorts — including the Crowne
Plaza(R) Anaheim Resort near Disneyland, Doubletree(R) Hotels in Irvine and Santa Ana, and
Havasu Inn at Lake Havasu in Arizona— representing over 1,400 rooms and 90,000 square feet
of indoor meeting and event space. By using a cluster strategy, PHG is committed to growing its
market share and adding value to its portfolio through renovations, repositioning and expansion.
To further this goal, PHG enjoys excellent relationships with major lodging companies including
Hilton, Intercontinental Hotels Group and Preferred Hotel Group.'
Timothy Busch, Founder and Chief Executive Officer, received the Business Ethics Awards at the
7th Annual Orange Catholic Foundation Conference on Business and Ethics in 2009.2 He and his
wife are active in many Catholic organizations and charities as well as co- founded ]Serra Catholic
School and St. Anne School in Orange County. In December 2011, PHG acquired the 210 -room
Estancia La Jolla Hotel & Spa located at 9700 N. Torrey Pines Road in La Jolla, California across
from the University of California San Diego. The property was developed by Lowe Enterprises
and opened in 2004. In 2005 -2006, the Estancia was included on the Conde' Nast Traveler "Hot
List" of the best new hotels in the world and earned the prestigious Four Diamond rating from
AAA. The hotel boasts premier amenities including an 8,000- square -foot spa and San Diego's
only IACC- certified conference facility comprising 26,000 square feet. 3
PHG is currently undertaking a $40 million, 130,000 square foot expansion of their Napa Valley,
Meritage Hotel and Spa. With an opening scheduled for May 2012, the expansion will add 165
rooms and a 17,000 square foot convention center, which will be the largest in the Napa Valley
area. The Meritage first opened in July 2006 with 154 rooms and boasts a 20,000- square foot
1 httf)://www.pacifichosr)italitv.com
2 http: / /ian.ocregister.com/ 2009 /04/22/oc- executives- receive - business - ethics - award /12485/
3 http:// www.hospitalitybusinessnews.com /article/ 11635 /pacific- hospitality- orouo- acquires- estancia-
la- iolla- hotel -soa
P: 1121 OOOV2107OOelboe Say Clvblcotmsponbence11210701tC 05.17 -12. Joc
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Rob Houston
May 17, 2012
Page 3
cave which houses the hotel wine cellar, tasting room for the Trinitas Cellars and Spa Terra. In
2011, the spa was named by Spas of America, a luxury travel website, as the eighth -best spa in
California and the 39th -best in the United States.^ While the original Meritage was still being
built, PHG announced it would build a second Meritage Hotel in Healdsburg, 60 miles north in
California's Wine Country. The Healdsburg location was intended to provide similar amenities and
in particular, more meeting space in the Napa - Sonoma wine region. Construction on the new
hotel was scheduled to begin April of 2007 with the opening in May 2008.5 Since the crash of the
market, plans for this hotel have been delayed.
Section 13.1(c) (Honesty, Integrity, and Sound Business Practices)
This section requires that the assignee be noted for honesty, integrity, and sound business
practices. Our review indicates that each participant in this transaction is an established and
well- regarded business person with ties to the City of Newport Beach. The trustees of the
Purchaser are residents with strong, long time connections to the City. The Purchaser intends to
hold the Balboa Bay Cub for he long term in order to benefit future family generations. Kevin
Martin, an owner of Eagle Four Equities, LLC, is an investor specializing in hotel and golf course
investments and management and is also a City resident. Timothy Busch is Chief Executive
Officer of PHG and involved in a range of other successful business interests, including the Busch
Group, and a number of charitable activities in Orange County. Kory Kramer, the Vice President
of Acquisitions and Development of PHG, is responsible for all of their development and
expansion projects. Mr. Kramer is also a resident of the City and currently serves on the
Newport Beach Planning Commission. As noted about PHG, they are the developer and operator
of seven successful resort hotel properties.
Summary
The assignment standards included in the Ground Lease are intended to protect the City's (and
the public's) interest in the property and also to assure a continuing successful business
operation and related cash flow (i.e., participation lease payments) to the City. Based upon our
review of the transaction documents, the disclosure materials submitted by IBC and
representatives of the Purchaser and our independent research it appears that this transaction
will further these objectives.
Sincerely,
ECONOMIC & PLANNING SYSTEMS, INC.
W J�_
Walter F. Kieser
Managing Principal
4 http• / /www northbaybus!nessiournal com/ 50956 / proiect- profile - meritaoe- hotel -spa- addition -nai)a/
s htto•//hotelexecutive.com/ newswire / 25427 /pacific- hosoitaIity- orouo -to- build- second - meritaoe -in-
healdsburo -ca
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