-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IeVjgka1Mv2VImCIKo2J55YCUbe+E2sWgX0yUbKpr22lLdhMW5updoeWG5WhdCQc MtpRbtyKODZzCX/7pED9yg== 0000936392-97-000248.txt : 19970222 0000936392-97-000248.hdr.sgml : 19970222 ACCESSION NUMBER: 0000936392-97-000248 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINEMASTAR LUXURY THEATERS INC CENTRAL INDEX KEY: 0000931085 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE THEATERS [7830] IRS NUMBER: 330451054 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-25252 FILM NUMBER: 97535554 BUSINESS ADDRESS: STREET 1: 431 COLLEGE BLVD CITY: OCEANSIDE STATE: CA ZIP: 92057-5435 BUSINESS PHONE: 6196302011 MAIL ADDRESS: STREET 1: 431 COLLEGE BLVD CITY: OCEANSIDE STATE: CA ZIP: 92057-5435 FORMER COMPANY: FORMER CONFORMED NAME: NICKELODEON THEATER CO INC DATE OF NAME CHANGE: 19941128 10QSB 1 FORM 10-QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Quarterly period ended December 31, 1996 [ ] Transition report under section 13 or 15 (d) of the Securities Exchange Act of 1934 for the transition Commission File Number 0-25252 CinemaStar Luxury Theaters, Inc. (Exact Name of Registrant as specified in its charter) California 33-0451054 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 431 College Blvd., Oceanside, CA 92057-5435 (Address of principal executive offices) (Zip Code) (619) 630-2011 (Registrant's telephone number, including area code) (Former name, former address and formal fiscal year, if changed since last report) Check whether the issuer (1) has filed all reports required to be filed by section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] Common stock, no par value: 7,064,194 shares outstanding as of February 13, 1997. Transitional Small Business Disclosure Format. (check one): YES ________ NO X 2 CINEMASTAR LUXURY THEATERS, INC. TABLE OF CONTENTS
Page No. PART I. Financial Information: Item 1. Financial Statements Condensed Consolidated Balance Sheet as of December 31, 1996 3 Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 1996 and 1995 4 Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 1996 and 1995 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition 7-19 and Results of Operations. PART II. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21
2 3 PART I. Financial Information ITEM 1. Financial Statements CINEMASTAR LUXURY THEATERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
December 31, 1996 ----------------- ASSETS CURRENT ASSETS Cash $ 839,640 Commissions and other receivables 89,393 Prepaid expenses 326,651 Other current assets 235,124 ------------ Total current assets 1,490,808 Property and equipment, net 11,498,267 Preopening costs, net 245,289 Deposits and other assets 415,964 ------------ TOTAL ASSETS $ 13,650,328 ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt and capital lease obligations 783,747 Accounts payable 2,812,392 Accrued expenses 225,795 Deferred revenue 120,385 Advances from stockholders 21,000 ------------ Total current liabilities 3,963,319 Long-term debt and capital obligations, net of current portion 4,033,208 Convertible debentures 850,000 Deferred rent liability 2,079,285 ------------ TOTAL LIABILITIES 10,925,812 ============ STOCKHOLDERS' EQUITY Preferred stock, no par value; 100,000 shares authorized; Series A redeemable preferred stock, no par value, 25,000 shares designated; no shares issued or outstanding 0 Common stock, no par value; 15,000,000 shares authorized; 7,002,481 shares issued and outstanding 8,676,336 Additional paid-in capital 510,030 Accumulated deficit (6,461,850) ------------ TOTAL STOCKHOLDER'S EQUITY 2,724,516 ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 13,650,328 ============
See accompanying notes to condensed consolidated financial statements. 3 4 CINEMASTAR LUXURY THEATERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31, ------------------------------ ----------------------------- 1996 1995 1996 1995 -------------- ------------ ------------ ------------- REVENUES Admissions $ 3,272,867 $ 2,067,386 $ 9,729,781 $ 6,243,602 Concessions 1,404,929 857,373 4,060,912 2,485,669 Other operating revenues 107,767 68,131 302,221 162,453 ------------ ------------ ------------ ------------ TOTAL REVENUES 4,785,563 2,992,890 14,092,914 8,891,724 ------------ ------------ ------------ ------------ Costs and expenses: Film rental and booking costs 1,916,322 1,109,762 5,483,841 3,427,248 Cost of concession supplies 428,390 322,574 1,270,283 963,738 Theater operating 1,775,127 855,218 4,577,585 2,512,693 General and administrative 720,734 428,771 2,249,084 1,476,806 Depreciation and amortization 535,336 120,831 1,092,405 395,570 ------------ ------------ ------------ ------------ TOTAL COSTS AND EXPENSES 5,375,909 2,837,156 14,673,198 8,776,055 ------------ ------------ ------------ ------------ OPERATING INCOME (LOSS) (590,346) 155,734 (580,284) 115,669 ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE) Interest income 1,936 5,985 17,094 92,986 Interest expense (166,492) (96,905) (469,357) (302,630) ------------ ------------ ------------ ------------ TOTAL OTHER INCOME (EXPENSE) (164,556) (90,920) (452,263) (209,644) ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES (754,902) 64,814 (1,032,547) (93,975) PROVISION FOR INCOME TAXES (800) 0 (2,400) ------------ ------------ ------------ ------------ NET INCOME (LOSS) ($755,702) $ 64,814 ($1,034,947) ($93,975) ============ ============ ============ ============ Net income (loss) per common share (0.11) 0.01 (0.16) (0.02) ============ ============ ============ ============ Weighted average number of common shares and share equivalents outstanding 6,860,986 6,200,000 6,520,851 6,200,000
See accompanying notes to condensed consolidated financial statements. 4 5 CINEMASTAR LUXURY THEATERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended December 31, ----------------------------- 1996 1995 ------------- ------------ Cash flows from Operating Activities Net loss $(1,034,947) (95,575) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 1,092,405 395,570 Deferred rent liability 577,512 191,817 Increase (decrease) from changes in: Commission and other receivables (1,788) (219,678) Prepaid expenses and other current assets (302,267) 199,230 Accounts payable 1,974,250 239,232 Accrued expenses and other liabilities (96,625) (144,516) Deposits and other assets 29,444 - Preopening costs (206,874) - ----------- ----------- Cash provided by operating activities 2,031,110 566,080 ----------- ----------- Cash flows from investing activities: Refund of construction deposit 600,000 - Purchases of property and equipment (5,529,627) (3,757,661) Deposits and other assets - 1,500 ----------- Cash used in investing activities (4,929,627) (3,756,161) Cash flows from financing activities: Principal payments on long term debt and capital (489,146) (343,027) lease obligations Proceeds from issuance of long term debt 1,000,000 - Proceeds from issuance of convertible debentures 3,000,000 - Advances from stockholder 60,000 - Amounts due from officer - (17,500) Net proceeds from warrant redemptions 572,112 - Repayment of advances from stockholder (359,000) - Cost of issuing convertible debentures (504,359) - ----------- ----------- Cash provided by (used in) financing activities 3,279,607 (360,527) Net increase (decrease) in cash 381,090 (3,550,608) Cash, beginning of period 458,550 4,091,885 Cash, end of period $ 839,640 $ 541,277 =========== ===========
See accompanying notes to condensed consolidated financial statements. 5 6 CINEMASTAR LUXURY THEATERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (UNAUDITED) NOTE 1 The interim accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the audited financial statements for the year ended March 31, 1996, and footnotes thereto, included in the Company's Annual Report on Form 10-KSB which was filed with the Securities and Exchange Commission. Operating results for the three and nine month periods ended December 31, 1996 are not necessarily indicative of the results of operations that may be expected for the year ending March 31, 1997. NOTE 2 On April 11, 1996 and May 21, 1996, the Company issued Convertible Debentures in the principal amount of $500,000, aggregating $1,000,000. The debentures bear interest at 4% per annum and are due three years after issuance. The debentures are convertible after 40 days into shares of common stock at a conversion price of $3.95 and $4.25 per share, respectively. On May 22, 1996, the April 1996 debenture and accrued interest was converted into 127,152 shares of common stock. On July 3, 1996, the May 1996 debenture and accrued interest was converted into 118,215 shares of common stock. NOTE 3 On August 6, 1996, the Company issued two Convertible Debentures in the principal amount of $1,000,000 (aggregating $2,000,000) in separate transactions pursuant to Regulation S as promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended. Each Convertible Debenture is convertible into shares of Common Stock of the Company at a conversion price per share equal to the lesser of (x) $3.50, or (y) 85% of the average closing bid price of the Common Stock for the three consecutive trading days immediately preceding the date of conversion. The purchasers have agreed that from the date of issuance until after the forty-fifth day after such date (the "Restricted Period"), any offer, sale or transfer of the Convertible Debentures or the shares of Common Stock issuable upon conversion of the Convertible Debentures (including any interests therein), shall be subject to various restrictions in accordance with Regulation S. The Convertible Debentures bear interest at the rate of four percent (4%) per annum, payable quarterly. If not sooner converted, the principal amount of the Convertible Debentures is due and payable on the second anniversary of issuance. On October 1, 1996 $900,000 worth of debentures were converted to 257,143 shares of common stock, on October 16, 1996 $200,000 worth of debentures were converted to 57,143 shares of stock and 291 shares of stock were issued for the payment of interest, on December 2, 1996 $50,000 worth of debentures and interest were converted to 16,099 shares of common stock, on January 8, 1997 $50,000 worth of debentures and interest were converted to 20,194 shares of common stock, and on January 21, 1997 $100,000 worth of debentures and interest were converted to 41,519 shares of common stock. In connection with the issuance of the Convertible Debentures, the Company issued five year warrants to purchase 34,284 shares of common stock of the Company at an exercise price of $7.00 per share. 6 7 MANAGEMENT'S DISCUSSION AND ANALYSIS GENERAL RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-QSB. Except for the historical information contained herein, the discussion in this Form 10-QSB contains certain forward looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-QSB should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-QSB. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include those discussed in "Risk Factors," as well as those discussed elsewhere herein. Three months ended December 31, 1996 compared to three months ended December 31, 1995. At December 31 1995 the Company operated four theater locations with a total of 30 screens. During the nine months ended December 31, 1996, the Company added three locations with an additional 34 screens. At December 31, 1996 the Company operated 7 locations and 64 screens. The addition of the three theaters resulted in an increase in revenues and expenses for the nine months ended December 31, 1996 compared to December 31, 1995. Of the three new theater locations, one of these locations has not met the Company's expectations regarding attendance and revenue. The Company is continually evaluating the situation and attempting to develop means with which to increase attendance and revenue at that location. Total revenues for the three months ended December 31, 1996 increased 59.9% to $4,785,563 from $2,992,890 for the three months ended December 31 1995. The increase consisted of a $1,205,481 or 58.3%, increase in admission revenues and a $587,192 or 63.4%, increase in concession revenues and other operating revenues. The admission revenue and concession and other operating revenue increase for the comparative quarter was due to the increase in the number of theaters and screens. Total revenues for the existing theaters operated by the Company for the full quarter ended December 31 1996 compared to December 31, 1995 declined from $2,992,890 to $2,896,289 a reduction of $96,601 or 3.2%. This reduction in revenues can be attributed to reduced paid admissions during the quarter. Film rental and booking costs for the three months ended December 31, 1996 increased 72.7% to $1,916,322 from $1,109,762 for the three months ended December 31, 1995. The increase is primarily due to the addition of new theaters. Cost of concession supplies for the three months ended December 31, 1996 increased 32.8% to $428,390 from $322,574 for the three months ended December 31, 1995. The dollar increase was primarily due to increased concession costs associated with increased concession revenues. As a percentage of concession revenues, costs of concession supplies for the three months ended December 31, 1996 and December 31, 1995 decreased to 30.5% from 37.6%. The decrease is due to lower concession costs experienced at the new theaters. A concession contract for the Company's first three theaters requires concession supplies be purchased in exchange for 40% of concession revenues. The Company provides its own concession supplies at the other theaters. Theater operating expenses for the three months ended December 31, 1996 increased 107.5% to $1,775,127 from $855,218 for the three months ended December 31, 1995. The dollar increase in theater operating costs is primarily due to the increased costs attributable to the start up and operation of new theaters. As a percentage of total revenues, theater operating expenses increased to 7 8 37.1% from 28.6% during the applicable periods. General and administrative expenses for the three months ended December 31, 1996 increased 68.1% to $720,734 from $428,771 for the three months ended December 31, 1995. The increase is primarily due to expenses of opening new theaters, and the continuing costs associated with corporate growth. As a percentage of total revenues, general and administrative expenses increased to 15.1% from 14.3% during the three months ended December 31, 1995. Depreciation and amortization for the three months ended December 31, 1996 increased 343.0% to $535,336 from $120,831 for the three months ended December 31, 1995. The increase is primarily the result of depreciation on additional equipment associated with the opening of the new theaters and the amortization of preopening costs during the three months ended December 31,1996. Interest expense for the three months ended December 31, 1996 increased to $166,492 from $96,905 for the three months ended December 31, 1995. This increase is primarily attributable to the increased debt incurred by the Company in its expansion. Interest income for the three months ended December 31, 1996 decreased to $1,936 from $5,985 for the three months ended December 31, 1995. This decrease is attributable to lower interest earning balances as the Company used its funds for expansion. As a result of the factors discussed above, the net loss for the three months ended December 31, 1996 was $755,702 or $0.11 per common share, compared to a net profit of $64,814, or $.01 per common share, for the three months ended December 31, 1995. Nine months ended December 31, 1996 compared to nine months ended December 31, 1995. At December 31, 1995 the Company operated four theater locations with a total of 30 screens. During the twelve months ended December 31, 1996, the company added three locations with an additional 34 screens. At December 31, 1996 the Company operated 7 locations with 64 screens. The addition of the three theaters resulted in an increase in revenues and expenses for the nine months ended December 31, 1996 compared to December 31, 1995. Total revenues for the nine months ended December 31, 1996 increased 58.5% to $14,092,914 from $8,891,724 for the nine months ended December 31, 1995. The increase consisted of a $3,486,179 or 55.8%, increase in admission revenues and a $1,715,011, or 64.8%, increase in concession and other operating revenues. The increase in total revenues was primarily due to the opening of new theaters. Total revenues from existing theaters for the nine months ended December 31, 1996 increased by $242,280 ,or 2.7%, compared to revenues in the 1995 period. Film rental and booking costs for the nine months ended December 31, 1996 increased 60.0% to $5,483,841 from $3,427,248 for the nine months ended December 31, 1995. The increase was due to higher film rental and booking costs paid on increased admission revenues, resulting from the addition of new theaters. Cost of concession supplies for the nine months ended December 31, 1996 increased 31.8% to $1,270,283 from $963,738 for the nine months ended December 31, 1995. The dollar increase is due to increased concession costs associated with higher concession revenues. As a percentage of concession revenues, concession costs for the nine months ended December 31, 1996 and December 31, 1995 decreased to 31.3% from 38.8%. The decrease is due to lower concession costs experienced at the new theaters. A concession contract for the Company's first three theaters requires concession supplies be purchased in exchange for 40% of concession revenues. The Company provides its own concession supplies at the other theaters. 8 9 Theater operating expenses for the nine months ended December 31, 1996 increased 82.2% to $4,577,056 from $2,512,693 for the nine months ended December 31, 1995. As a percentage of total revenues, theater operating expenses increased to 32.5% from 28.3% during the applicable periods. The dollar increase is primarily attributable to the costs associated with the new theaters. General and administrative expenses for the nine months ended December 31, 1996 increased 52.3% to $2,249,084 from $1,476,806 for the nine months ended December 31, 1995. The increase is primarily due to additional costs associated with the opening of new theaters, bonuses and consulting fees and other costs associated with the expansion of corporate operations. As a percentage of total revenues, general and administrative costs decreased to 16.0% from 16.6% during the applicable periods. Depreciation and amortization for the nine months ended December 31 1996 increased 166.8% to $1,092,405 from $395,570 for the nine months ended December 31, 1995. The increase is primarily the result of depreciation on additional equipment and amortization of preopening costs associated with the opening of the new theaters. Interest expense for the nine months ended December 31, 1996 increased to $469,357 from $302,630 for the nine months ended December 31, 1995. This increase is primarily attributable to the increased debt incurred by the Company in its expansion. Interest income for the nine months ended December 31, 1996 decreased to $17,094 from $92,986 for the nine months ended December 31, 1995. This decrease is attributable to lower interest earning balances as the Company used funds for expansion. In the prior year, the Company had more interest earning funds remaining from its initial public offering. As a result of the factors discussed above, the net loss for the nine months ended December 31, 1996 increased to $1,034,947, or $0.16 per common share, from $93,975, or $.02 per common share, for the nine months ended December 31, 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's revenues are collected in cash, principally through box office admissions and concession sales. Because its revenues are received in cash prior to the payment of related expenses, the Company has an operating "float" which partially finances its operations. The Company's capital requirements arise principally in connection with new theater openings and acquisitions of existing theaters. New theater openings typically are financed with internally generated cash flow and long-term debt financing arrangements for facilities and equipment. The Company plans to construct additional theater complexes; however, no assurances can be given that any additional theaters will be constructed, or, if constructed, that they will be operated profitably. The Company continues actively to seek debt or equity capital for future expansion. No binding commitment for such funding has been obtained and there can be no assurance it will be obtained. In the event additional capital for future expansion is not obtained, the Company will not have sufficient cash for it's expansion plans, and this could have a material adverse effect on the Company. The Company leases six theater properties and various equipment under noncancelable operating lease agreements which expire through 2021 and require various minimum annual rentals. At December 31, 1996, the aggregate future minimum lease payments due under noncancelable operating leases was approximately $53,190,000. As of December 31, 1996 the Company had also signed lease agreements for five additional theater locations. The new leases will require expected minimum rental payments aggregating approximately $109,200,000 over the life of the leases. Accordingly, existing minimum lease commitments as of December 31, 1996 plus those expected minimum commitments for the proposed theater locations would aggregate minimum lease commitments of approximately $162,390,000. 9 10 During the nine months ended December 31, 1996, the Company generated cash of $2,031,110 from operating activities, as compared to generating $566,080 in cash from operating activities for the nine months ended December 31, 1995. During the nine months ended December 31, 1996, the Company used cash in investing activities of $4,929,627 as compared to $3,756,161 for the nine months ended December 31, 1995. Purchase of equipment for new theaters, net of construction deposit refunds, accounts for the use of cash in investing activities. During the nine months ended December 31, 1996, the Company provided net cash of $ 3,279,607 from financing activities, as compared to using $360,527 for the nine months ended December 31, 1995. The cash generated for the nine months ended December 31, 1996 came primarily from four convertible debentures totaling $3,000,000 and bank loans for $1,000,000, partially offset by debt repayments and costs for the acquisition of the capital. As of December 31, 1996, the Company was in compliance with, or had obtained waivers for, all bank loan covenants. The Company, at December 31, 1996, had a working capital deficit of $2,475,211. On April 11, 1996 and May 21, 1996, the Company issued Convertible Debentures in the principal amount of $500,000, aggregating $1,000,000. The Reg S debentures bear interest at 4% per annum and are due three years after issuance. The debentures are convertible after 40 days into shares of common stock at a conversion price of $3.95 and $4.25 per share, respectively. On May 22, 1996, the April 1996 debenture and accrued interest was converted into 127,152 shares of common stock. On July 3, 1996, the May 1996 debenture and accrued interest was converted into 118,215 shares of common stock. On August 6, 1996, the Company issued Convertible Debentures in the principal amount of $1,000,000 (aggregating $2,000,000) in separate transactions pursuant to Regulation S as promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended. Each Convertible Debenture is convertible into shares of Common Stock of the Company at a conversion price per share equal to the lesser of (x) $3.50, or (y) 85% of the average closing bid price of the Common Stock for the three consecutive trading days immediately preceding the date of conversion. The purchasers have agreed that from the date of issuance until after the forty-fifth day after such date (the "Restricted Period"), any offer, sale or transfer of the Convertible Debentures or the shares of Common Stock issuable upon conversion of the Convertible Debentures (including any interests therein), shall be subject to various restrictions in accordance with Regulation S.The Convertible Debentures bear interest at the rate of four percent (4%) per annum, payable quarterly. If not sooner converted, the principal amount of the Convertible Debentures is due and payable on the second anniversary of issuance. On October 1, 1996 $900,000 worth of debentures were converted to 257,143 shares of common stock, on October 16, 1996 $200,000 worth of debentures were converted to 57,143 shares of stock and 291 shares of stock were issued for the payment of interest, on December 2, 1996 $50,000 worth of debentures and interest were converted to 16,099 shares of common stock, on January 8, 1997 $50,000 worth of debentures and interest were converted to 20,194 shares of common stock, and on January 21, 1997 $100,000 worth of debentures and interest were converted to 41,519 shares of common stock. In connection with the issuance of the Convertible Debentures, the Company issued a five year warrant to purchase 34,284 shares of common stock of the Company at an exercise price of $7.00 per share. Future events, including the problems, delays, expenses and difficulties frequently encountered by similarly situated companies, as well as changes in economic, regulatory or competitive conditions, may 10 11 lead to cost increases that could make the funds anticipated to be generated from the Company's operations together with anticipated additional debt and/or equity, insufficient to fund the Company's expansion for the next 12 months. Management may also determine that it is in the best interest of the Company to expand more rapidly than currently intended, in which case additional financing will be required. Additional financing is required, and there can be no assurances that the Company will be able to obtain such additional financing on terms acceptable to the Company and at the times required by the Company, or at all. During the quarter ended December 31, 1996 the Company opened a 10 screen theater in Riverside, California and the Company has plans for significant expansion. In this regard, the Company has entered into leases with respect to the development of 65 additional screens at six locations. The capital requirements necessary for the development of these locations is estimated to be at least $12,400,000. The Company does not presently have assets or cash flow sufficient to fund such future commitments. Accordingly, such developments will require the Company to raise substantial amounts of new financing, in the form of additional equity or loan financing during the next six months. The Company believes it can obtain adequate capital and/or financing resources to sustain operations through the year ending March 31, 1997. However, the Company has not obtained any commitments for such financing and there can be no assurance that the Company will be able to obtain additional financing on terms that are acceptable to the Company and at the time required by the Company, or at all. If the Company is unable to obtain such additional equity or loan financing, the Company's financial condition, results of operations and liquidity will be materially adversely affected. Moreover, the Company's estimates of its cash requirements to develop and operate such theaters and service any debts incurred in connection with the development of such theaters are based upon certain assumptions, including certain assumptions as to the Company's revenues, earnings and other factors, and there can be no assurance that such assumptions will prove to be accurate or that unbudgeted costs will not be incurred. Future events, including the problems, delays, expenses and difficulties frequently encountered by similarly situated companies, as well as changes in economic, regulatory or competitive conditions, may lead to cost increases that could have a material adverse effect on the Company and its expansion and development plans. If the Company is not successful in obtaining loans or equity financing for future developments, it is unlikely that the Company will have sufficient cash to open additional theaters, or to perform its obligations under certain existing leases for theaters under development. The Company recently has financed certain expansion activities through the private placement of debt instruments convertible into shares of its common stock. In order to induce parties to purchase such securities, the instruments are convertible into common stock of the Company at a conversion price that is significantly lower than the price at which the Company's common stock is trading. Because of its history of operating losses, limited equity, and rapid growth plans, the Company has limited options in acquiring the additional debt and/or equity, and may issue debt and/or equity securities, or securities convertible into its equity securities, on terms that could result in substantial dilution to its existing shareholders. The Company believes that in order to raise needed capital, it may be required to issue debt or equity securities convertible into common stock at conversion prices that are significantly lower than the current market price of the Company's common stock. In addition, certain potential investors have indicated that they will require that the conversion price adjust based on the current market price of the Company's common stock. In the event of a significant decline in the market price for the Company's common stock, such a conversion feature could result in significant dilution to the Company's existing shareholders. In addition, the Company has issued securities in offshore transactions pursuant to Regulation S, promulgated by the Securities and Exchange Commission, and may do so in the future. Because the purchasers of such securities are free to sell the securities after holding them for a minimum of 40 days pursuant to Regulation S, sales of securities by such holders may adversely impact the market price of the Company's common stock. The Company has had significant net losses in each fiscal year of its operations. There can be no assurance as to when the Company will be profitable, if at all. Continuing losses would have a material detrimental effect on the liquidity and operations of the Company. 11 12 The Company has net operating loss ("NOL") carryforwards of approximately $ 3,500,000 and $1,700,000 for Federal and California income tax purposes, respectively. The Federal NOLs are available to offset future years taxable income and expire in 2006 through 2011, while the California NOLs are available to offset future years taxable income and expire in 1998 through 2001. The utilization of these NOLs could be limited due to restrictions imposed under the Federal and state laws upon a change in ownership. At December 31, 1996, the Company's total net deferred income tax assets, a significant portion of which relates to NOLs discussed above, have been subjected to a 100% valuation allowance since it has been determined that realization of such assets is not more likely than not in light of the Company's recurring losses from operations. RISK FACTORS Except for the historical information contained herein, the discussion in this Form 10-QSB contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in the Form 10-QSB should be read as being applicable in all related forward looking statements wherever they appear in this Form 10-QSB. The company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere herein, and in the Company's most recently filed Annual Report on Form 10-KSB. History of Losses. The Company was founded in April 1989. Operations began with the completion of construction of the Company's first theater in November 1991. The Company has had significant net losses in each fiscal year of its operations, including net losses of $2,086,418 and $638,585 in the fiscal years ended March 31, 1995 and 1996, respectively. Need for Additional Financing; Use of Cash. The Company has aggressive expansion plans. In this regard, the Company has entered into lease and other binding commitments with respect to the development of 65 additional screens at six locations. The capital requirements necessary for the Company to complete its development plans is estimated to be at least $12,400,000. Such developments will require the Company to raise substantial amounts of new financing, in the form of additional equity investments or loan financing. There can be no assurance that the Company will be able to obtain such additional financing on terms that are acceptable to the Company and at the time required by the Company, or at all. If the Company is unable to obtain such additional equity or loan financing, the Company's financial condition and results of operations and liquidity will be materially adversely affected, and it is likely the company would be in default under various leases and other obligations to which it is a party. Potential Dilution. The Company recently has financed certain expansion activities through the private placement of debt instruments convertible into shares of its common stock. In order to induce parties to purchase such securities, the instruments are convertible into common stock of the Company at a conversion price that is significantly lower than the price at which the Company's common stock is trading. The Company believes that because of its history of operating losses, limited equity, and rapid growth plans, it has limited options in acquiring the additional debt and/or equity the Company may issue debt and/or equity securities, or securities convertible into its equity securities, on terms that could result in substantial dilution to its existing shareholders. The Company believes that in order to raise needed capital, it may be required to issue debt or equity securities convertible into common stock at conversion prices that are significantly lower than the current market price of the Company's common stock. In addition, certain potential investors have indicated that they will require that the conversion price adjust based on the current market price of the Company's common stock. In the event of a significant decline in the market price for the Company's common stock, such a conversion feature could result in significant dilution to the Company's existing shareholders. In addition, the Company has issued securities in 12 13 offshore transactions pursuant to Regulation S, promulgated by the Securities and Exchange Commission, and may do so in the future. Because the purchasers of such securities are free to sell the securities after holding them for a minimum of 40 days pursuant to Regulation S, sales of securities by such holders may adversely impact the market price of the Company's common stock. Dependence on Films. The ability of the Company to operate successfully depends upon a number of factors, the most important of which is the availability of marketable motion pictures. Poor relationships with film distributors, a disruption in the production of motion pictures or poor commercial success of motion pictures would have a material adverse effect upon the Company's business and results of operations. Long-Term Lease Obligations; Periodic Rent Increases. The Company operates most of its current theaters pursuant to long-term leases which provide for large monthly minimum rental payments which increase periodically over the terms of the leases. The Chula Vista 6 is owned by the Company and not subject to such lease payments. The Company will be dependent upon increases in box office and other revenues to meet these long-term lease obligations. In the event that box office and other revenues decrease or do not significantly increase, the Company will likely not have sufficient revenues to meet its lease obligations, which would have a material adverse effect on the Company and its results of operations. Possible Delay in Theater Development and Other Construction Risks. In connection with the development of its theaters, the Company typically receives a construction allowance from the property owner and oversees the design, construction and completion of the theater site. The Company is generally responsible for construction costs in excess of the negotiated construction allowance . As a result, the Company is subject to many of the risks inherent in the development of real estate, many of which are beyond its control. Such risks include governmental restrictions or changes in Federal, state or local laws or regulations, strikes, adverse weather, material shortages and increases in the costs of labor and materials. There can be no assurance that the Company will be able to successfully complete any theater development in a timely manner or within its proposed allowance. The Company has experienced cost overruns and delays in connection with the development of one of its existing theaters and no assurance can be given that such overruns and delays will not occur with respect to any future theater developments. The Company in the course of such development activities has also become involved in certain disputes with property owners, resulting in delays in reimbursement of construction expenses. Failure of the Company to develop its theaters within the construction allowance allocated to it will likely have a material adverse effect on the Company. In addition, the Company will be dependent upon unaffiliated contractors and project managers to complete the construction of its theaters. Although the Company believes that it will be able to secure commitments from contractors, project managers and other personnel needed to design and construct its theaters, the inability to consummate a contract for the development of a theater or any subsequent failure of any contractor or supplier to comply with the terms of its agreement with the Company might have a material adverse effect on the Company. Dependence on Ability to Secure Favorable Locations and Lease Terms. The success of the Company's operations is dependent on its ability to secure favorable locations and lease terms for each of its theaters. There can be no assurance that the Company will be able to locate suitable locations for its theaters or lease such locations on terms favorable to it. The failure of the Company to secure favorable locations for its theaters or to lease such locations on favorable terms would have a material adverse effect on the Company. Competition. The motion picture exhibition industry is highly competitive, particularly with respect to licensing films, attracting patrons and finding new theater sites. There are a number of well-established competitors with substantially greater financial and other resources than the Company that operate and are expanding in Southern California. Many of the Company's competitors, including United Artists Theaters, Pacific 13 14 Theaters, Mann Theaters, and Edwards Theatres each of which operates one or more theaters in the same geographic vicinity as the Company's current theaters, have been in existence significantly longer than the Company and are both better established in the markets where the Company's theaters are or may be located and better capitalized than the Company. Competition can also come from other sources such as television, cable television, pay television, direct satellite television and video tapes. Many of the Company's competitors have established, long-term relationships with the major motion picture distributors (Paramount, Disney/Touchstone, Warner Brothers, Columbia/Tri-Star, Universal and 20th Century Fox), who distribute a large percentage of successful films. Although the Company attempts to identify film licensing zones in which there is no substantial current competition, there can be no assurance that the Company's competitors will not develop theaters in the same film zone as the Company's theaters. To the extent that the Company directly competes with other theater operators for patrons or for the licensing of first-run films, the Company may be at a competitive disadvantage. Although the Company attempts to develop theaters in geographic areas that it believes have the potential to generate sufficient current and future box office attendance and revenues, adverse economic or demographic developments, over which the Company has no control, could have a material adverse effect on box office revenues and attendance at the Company's theaters. In addition, there can be no assurance that new theaters will not be developed near the Company's theaters, which development might alter existing film zones and might have a material adverse effect on the Company's revenues and earnings. In addition, future advancements in motion picture exhibition technology and equipment may result in the development of costly state-of-the-art theaters by the Company's competitors which may make the Company's current theaters obsolete. There can be no assurance that the Company will be financially able to pay for or able to incorporate such new technology or equipment, if any, into its existing or future theaters. In recent years, alternative motion picture exhibition delivery systems have been developed for the exhibition of filmed entertainment, including cable television, direct satellite delivery, video cassettes and pay-per-view. An expansion of such delivery systems could have a material adverse effect on motion picture attendance in general and upon the Company's business and results of operations. Geographic Concentration. Each of the Company's current theaters are located in San Diego or Riverside Counties, California and the proposed theaters are all in Southern California, Hawaii or Mexico. As a result, negative economic or demographic changes in Southern California will have a disproportionately large and adverse effect on the success of the Company's operations as compared to those of its competitors having a wider geographic distribution of theaters. Dependence on Concession Sales. Concession sales accounted for 29.4% and 27.9% of the Company's total revenues in the fiscal years ended March 31, 1995 and 1996, respectively. Therefore, the financial success of the Company depends, to a significant extent, on its ability to successfully generate concession sales in the future. The Company currently depends upon Pacific Concessions, Inc. ("Pacific Concessions"), a creditor of the Company, to operate and supply the concession stands located in certain of the Company's theaters. The Company's concession agreements with Pacific Concessions may be terminated by the Company prior to the expiration of their respective terms upon payment of a substantial early termination fee. Relationship with Pacific Concessions. The Company utilizes loans from Pacific Concessions to fund a portion of its operations. In the Company's loan agreements with Pacific Concessions, an event of default is defined to include, among other things, any failure by the Company to make timely payments on its loans from Pacific Concessions. In the event that an event of default occurs under such loan agreements, Pacific Concessions has certain remedies against the Company in addition to those afforded to it under applicable law, including, but not limited to, requiring the Company to immediately pay all loan amounts due to Pacific Concessions and requiring the Company to sell, liquidate or transfer any of its theaters and related property to third parties in order to make timely payments on its loans. If the Company were to 14 15 default under any of its agreements with Pacific Concessions, and if Pacific Concessions enforced its rights thereunder, the Company would be materially adversely affected. Control of the Company. As of December 31, 1996, the current officers and directors of the Company own approximately 49.4% of the Common Stock (27.0% assuming exercise in full of the Redeemable Warrants and conversion of debentures). As a result, these individuals are in a position to materially influence, if not control, the outcome of all matters requiring shareholder approval, including the election of directors. Dependence on Management. The Company is significantly dependent upon the continued availability of John Ellison, Jr., Alan Grossberg and Jerry Willits, its President and Chief Executive Officer, Senior Vice President and Chief Financial Officer, and Vice President, respectively. The loss or unavailability of any one of these officers to the Company for an extended period of time could have a material adverse effect on the Company's business operations and prospects. To the extent that the services of these officers are unavailable to the Company for any reason, the Company will be required to procure other personnel to manage and operate the Company and develop its theaters. There can be no assurance that the Company will be able to locate or employ such qualified personnel on acceptable terms. In December of 1996 the Company amended the five-year employment agreements with each of Messrs. Ellison, Grossberg and Willits. The amendments provide for each employment agreement to expire in December of 2001. The Company maintains "key man" life insurance in the amount of $1,250,000 on the lives of each of John Ellison, Jr., Alan Grossberg and Russell Seheult (the Chairman of the Company's Board of Directors), with respect to which the Company is the sole beneficiary. Expansion; Management of Growth. The Company's plan of operation calls for the rapid addition of new theaters and screens. The Company's ability to expand will depend on a number of factors, including the selection and availability of suitable locations, the hiring and training of sufficiently skilled management and personnel and other factors, such as general economic and demographic conditions, which are beyond the control of the Company. Such growth, if it occurs, could place a significant strain on the Company's management and operations. To manage such growth effectively, the Company will be required to increase the depth of its financial, administrative and theater management staffs. The Company has been able to identify and hire qualified personnel available to satisfy its growth requirements. There can be no assurance, however, that the Company will be able to identify and hire additional qualified personnel or take such other steps as are necessary to manage its growth, if any, effectively. In addition, there is no assurance that the Company will be able to open any new theaters or that, if opened, those theaters can be operated profitably. Risks of International Expansion. The Company has signed agreements to lease a 12 screen theater in Guadalajara, Mexico and a 10 screen theater in Tijuana, Mexico through CinemaStar Luxury Theaters, S.A. de C.V., a Mexican corporation in which the Company has a 75% ownership interest. These theaters are presently under construction and are expected to open in the Spring of 1997. To the extent that the Company elects to develop theaters in Mexico or any other country, the Company will be subject to the attendant risks of doing business abroad, including adverse fluctuations in currency exchange rates, increases in foreign taxes, changes in foreign regulations, political turmoil, deterioration in international economic conditions and deterioration in diplomatic relations between the United States and such foreign country. Fluctuations in Quarterly Results of Operations. The Company's revenues have been seasonal, coinciding with the timing of major releases of motion pictures by the major distributors. Generally, the most marketable motion pictures have been released during the summer and the Thanksgiving through year-end holiday season. The unexpected emergence of a hit film during other periods can alter the traditional trend. The timing of such releases can have a significant effect on the Company's results of operations, and the results of one quarter are not necessarily indicative of results for subsequent quarters. Potential Business Interruption Due to Earthquake. All of the Company's current and proposed 15 16 theaters are or will be located in seismically active areas of Southern California and Mexico. In the event of an earthquake of significant magnitude, damage to any of the Company's theaters or to surrounding areas could cause a significant interruption or even a cessation of the Company's business, which interruption or cessation would have a material adverse effect on the Company, its operations and any proposed theater development. Although the Company maintains business interruption insurance, such insurance does not protect against business interruptions due to earthquakes. Conflicts of Interest. Several possible conflicts of interest may exist between the Company and its officers and directors. In particular, certain officers and directors have directly or indirectly advanced funds or guaranteed loans or other obligations of the Company. As a result, a conflict of interest may exist between these officers and directors and the Company with respect to the determination of which obligations will be paid out of the Company's operating cash flow and when such payments will be made. Compensation of Executive Officers. Effective August 1994 and amended in December of 1996, the Company entered into five-year employment agreements with each of John Ellison, Jr., Alan Grossberg and Jerry Willits, pursuant to which their annual salaries are $197,106, $145,860 and $94,380, respectively, subject to annual increases of between 10% and 12%. Mr. Grossberg's employment agreement has been amended to increase his salary by $52,000, to reflect compensation previously paid to him for film booking services. In addition, Messrs. Ellison, Grossberg and Willits will be entitled to receive substantial bonuses based on a percentage of net income in the event that the Company's net income for a given year exceeds $2 million and additional bonuses in the event that the Company has net income in excess of $7 million in a given year. Each of Messrs. Ellison, Grossberg and Willits will also receive an automobile allowance of up to $650 per month and certain insurance and other benefits. Moreover, in the event that Mr. Ellison or Mr. Grossberg is terminated or is not reelected or appointed as a director or executive officer of the Company for any reason other than for an uncured breach of his obligations under his employment agreement or his conviction of a felony involving moral turpitude, he shall have the right to receive his annual salary and bonuses for the remainder of the original five-year term of the contract. The employment agreements described above require that the Company pay substantial salaries during each year of the five year terms thereof to each of Messrs. Ellison, Grossberg and Willits, regardless of the Company's financial condition or performance. As a result, the agreements could have a material adverse effect on the Company's financial performance and condition. No Assurance of Continued NASDAQ Inclusion; Risk of Low-Priced Securities. In order to qualify for continued listing on NASDAQ, a company, among other things, must have $2,000,000 in total assets, $1,000,000 in capital and surplus and a minimum bid price of $1.00 per share. If the Company is unable to satisfy the maintenance requirements for quotation on NASDAQ, of which there can be no assurance, it is anticipated that the Securities would be quoted in the over-the-counter market National Quotation Bureau ("NQB") "pink sheets" or on the NASD OTC Electronic Bulletin Board. As a result, an investor may find it more difficult to dispose of, or obtain accurate quotations as to the market price of, the Securities, which may materially adversely affect the liquidity of the market for the Securities. In addition, if the Securities are delisted from NASDAQ, they might be subject to the low-priced security or so-called "penny stock" rules that impose additional sales practice requirements on broker-dealers who sell such securities. For any transaction involving a penny stock the rules require, among other things, the delivery, prior to the transaction, of a disclosure schedule required by the Securities and Exchange Commission (the "Commission") relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker- dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in the customer's account. Although the Company believes that the Securities are not defined as a penny stock due to their continued listing on NASDAQ, in the event the Securities subsequently become characterized as a penny stock, the market liquidity for the Securities could be severely affected. In such an event, the regulations relating to penny stocks could limit the ability of broker-dealers to sell the Securities. 16 17 Risk of Limitation of Use of Net Operating Loss Carryforwards. As of March 31, 1996 the Company has net operating loss carryforwards of approximately $3,500,000 for federal income tax purposes, which may be utilized through 2006 to 2011, and approximately $1,700,000 for state income tax purposes, which may be utilized through 1998 to 200 (subject to certain limitations). The initial public offering and certain other equity transactions resulted or may have resulted in an "ownership change" as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). As a result, the Company's use of its net operating loss carryforwards to offset taxable income in any post-change period may be subject to certain specified annual limitations. If there has been an ownership change for purposes of the Code, there can be no assurance as to the specific amount of net operating loss carryforwards, if any, available in any post-change year since the calculation is based upon fact-dependent formula. Possible Volatility of Common Stock, Redeemable Warrant, and Class B Redeemable Warrant Prices. On or about October 25, 1996, a registration statement filed with the Securities and Exchange Commission became effective in connection with a temporary reduction in the exercise price of its Redeemable Warrants and the issuance of certain new warrants to holders of Redeemable Warrants who choose to exercise the Redeemable Warrants. On or about November 15, 1996, the Warrant Reduction Offer expired. Each of 226,438 Redeemable Warrants had been converted to one share of common stock and one Class B Redeemable warrant. Under the terms of the Warrant Reduction Offer, $3.50 was received by the Company for each warrant converted to common stock and a Class B Redeemable Warrant. Thus $792,533 of additional capital before expenses was acquired. The trading prices of the Securities may respond to quarterly variations in operating results and other events or factors, including, but not limited to, the sale or attempted sale of a large amount of the Securities into the market. In addition, the stock market has experienced extreme price and volume fluctuations in recent years, particularly in the securities of smaller companies. These fluctuations have had a substantial effect on the market prices of many companies, often unrelated to the operating performance of the specific companies, and similar events in the future may adversely affect the market prices of the Securities. Current Prospectus and State Registration Required To Exercise Redeemable Warrants, and Class B Redeemable Warrant. The Redeemable Warrants and Class B Redeemable Warrant are not exercisable unless, at the time of the exercise, the Company has a current prospectus covering the shares of Common Stock upon exercise of the Redeemable Warrants and Class B Redeemable Warrant and such shares have been registered, qualified or deemed to be exempt under the securities or "blue sky" laws of the state of residence of the exercising holder of the Redeemable Warrants and Class B Redeemable Warrants. Although the Company has undertaken to use its best efforts to have all of the shares of Common Stock issuable upon exercise of the Redeemable Warrants and Class B Redeemable Warrants registered or qualified on or before the exercise date and to maintain a current prospectus relating thereto until the expiration of the Redeemable Warrants and Class B Redeemable Warrants, there is no assurance that it will be able to do so. The value of the Redeemable Warrants and Class B Redeemable Warrants may be greatly reduced if a current prospectus covering the Common Stock issuable upon the exercise of the Redeemable Warrants or Class B Redeemable Warrants is not kept effective or if such Common Stock is not qualified or exempt from qualification in the states in which the holders of the Redeemable Warrants or Class B Redeemable Warrant then reside. Investors may purchase the Redeemable Warrants and Class B Redeemable Warrants in the secondary market or may move to jurisdictions in which the shares underlying the Redeemable Warrants or Class B Redeemable Warrants are not registered or qualified during the period that the Redeemable Warrants and Class B Redeemable Warrants are exercisable. In such event, the Company will be unable to issue shares to those persons desiring to exercise their Redeemable Warrants or Class B Redeemable Warrants unless and until the shares are qualified for sale in jurisdictions in which such purchasers reside, or an exemption from such qualification exists in such jurisdictions, and holders of the Redeemable Warrants and Class B Redeemable Warrants would have no choice but to attempt to sell the Redeemable Warrants 17 18 and Class B Redeemable Warrants in a jurisdiction where such sale is permissible or allow them to expire unexercised. Speculative Nature of Redeemable Warrants and Class B Redeemable Warrants; Adverse Effect of Possible Redemption of Redeemable Warrants or Class B Redeemable Warrants. The Redeemable Warrants and Class B Redeemable Warrants do not confer any rights of Common Stock ownership on the holders thereof, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of Common Stock at a fixed price for a limited period of time. Specifically, holders of the Redeemable Warrants may exercise their right to acquire Common Stock and pay an exercise price of $6.00 per share, subject to adjustment in the event of certain dilutive events, on or prior to February 6, 2000, after which date any unexercised Redeemable Warrants will expire and have no further value. Specifically, holders of the Class B Redeemable Warrants may exercise their right to acquire Common Stock and pay an exercise price of $6.50 per share, subject to adjustment in the event of certain dilutive events, on or prior to September 15, 2001, after which date any unexercised Redeemable Warrants will expire and have no further value. There can be no assurance that the market price of the Common Stock will ever equal or exceed the exercise prices of the Redeemable Warrants or Class B Redeemable Warrants, and consequently, whether it will ever be profitable for holders of the Redeemable Warrants or Class B Redeemable Warrants to exercise them. The Redeemable Warrants and Class B Redeemable Warrants are subject to redemption by the Company, at any time on 30 days prior written notice, at a price of $0.25 per Redeemable Warrant or Class B Redeemable Warrant if the average closing bid price for the Common Stock equals or exceeds $7.00 per share for any 20 trading days within a period of 30 consecutive trading days ending on the fifth trading day prior to the date of the notice of redemption. Redemption of the Redeemable Warrants or Class B Redeemable Warrants could force the holders thereof to exercise them and pay the exercise price at a time when it may be disadvantageous for such holders to do so, to sell the Redeemable Warrants and Class B Redeemable Warrants at the current market price when they might otherwise wish to hold them , or to accept the redemption price, which may be substantially less than the market value of the Redeemable Warrants and Class B Redeemable Warrants at the time of redemption. The holders of the Redeemable Warrants and Class B Redeemable Warrants will automatically forfeit their rights to purchase shares of Common Stock if they are redeemed before being exercised. No Dividends. The Company has not paid any dividends on its Common Stock and does not intend to pay any dividends in the foreseeable future. Earnings, if any, are expected to be retained for use in expanding the Company's business. Shares Eligible for Future Sale. Sales of substantial amounts of Securities in the public market or the perception that such sales could occur may adversely affect prevailing market prices of the Securities. The Redeemable Warrants being offered by the Company and the Redeemable Warrants being registered for the account of the Selling Security Holders entitle the holders of such Redeemable Warrants to purchase up to an aggregate of 4,500,000 shares of Common Stock at any time through February 7, 2000. Class B Redeemable Warrants entitle the holder to purchase up to an aggregate of 246,438 shares of common stock at any time through September 15, 2001. In connection with the initial public offering, the Company issued to A.S. Goldmen & Co., Inc. Underwriter's Warrants to purchase up to 150,000 shares of Common Stock and/or Redeemable Warrants to purchase up to an additional 150,000 shares of Common Stock. Sales of either the Redeemable Warrants or the underlying shares of Common Stock, or even the existence of the Redeemable Warrants, may depress the price of the Common Stock or the Redeemable Warrants in the market for such Securities. In addition, in the event that any holder of Redeemable Warrants or Class B Redeemable Warrants exercises his warrants, the percentage ownership of the Common Stock by current shareholders would be diluted. Finally, the Company has reserved 587,500 shares of Common Stock for issuance to key employees and officers pursuant to the Company's Stock Option Plan.Fully-vested options to purchase 385,302 shares of Common Stock have been granted pursuant to such Stock Option Plan. In the event that these or any other stock options granted pursuant to such Stock Option Plan 18 19 are exercised, dilution of the percentage ownership of Common Stock owned by the public investors will occur. Moreover, the mere existence of such options may depress the price of the Common Stock. 19 20 PART II- OTHER INFORMATION ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Amendment to Alan Grossberg Employment Agreement 10.2 Amendment to Russell Seheult Consulting Agreement 10.3 Amendment to John Ellison, Jr. Employment Agreement 10.4 Amendment to Jerry Willits Employment Agreement 10.5 Pacific Oceanside Holdings, L.P. Lease Agreement 10.6 MDA-San Bernardino Associates, L.L.C. Lease Agreement Item 27. Financial Data Schedule (b) Reports on Form 8-K No Reports on Form 8-K were filed in the reporting period for which this report is filed. 20 21 SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized Dated: February 14, 1997 CinemaStar Luxury Theaters, Inc. by: /s/ JOHN ELLISON, JR. -------------------------------- John Ellison, Jr. President, Chief Executive Officer (principal executive officer) by: /s/ ALAN GROSSBERG -------------------------------- Senior Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) 21 22 EXHIBIT INDEX EXHIBIT NUMBER Description -------------- ----------- 10.1 Amendment to Alan Grossberg Employment Agreement 10.2 Amendment to Russell Seheult Consulting Agreement 10.3 Amendment to John Ellison, Jr. Employment Agreement 10.4 Amendment to Jerry Willits Employment Agreement 10.5 Pacific Oceanside Holdings, L.P. Lease Agreement 10.6 MDA-San Bernardino Associates, L.L.C. Lease Agreement 27 Financial Data Schedule 22 EX-10.1 2 EXHIBIT 10.1 1 EXHIBIT 10.1 AMENDMENT NUMBER ONE TO EMPLOYMENT AGREEMENT The Employment Agreement entered into on August 25, 1994, by and between Alan Grossberg, (hereinafter the "Employee") and Nickelodeon Theater Co., Inc., is hereby amended as follows: WHEREAS, the name of Nickelodeon Theater Co., Inc. was changed by amendment to the Company's Article of Incorporation on August 25, 1995, to CinemaStar Luxury Theaters, Inc., (hereinafter the "Company"); and WHEREAS, the Company by and through its Board of Directors believes it to be in the best interests of the Company to extend the Employment Agreement of Employee; and WHEREAS, the Company is desirous of having Employee rescind his Film Booking Agreement with Company, also entered into on August 25, 1994, so that he can spend full time at his duties as the Company's Senior Vice President and Chief Operating Officer; NOW THEREFORE, in consideration of these premises and the promises herein made, the sufficiency of which is hereby acknowledged, the parties agree as follows: 1. As an inducement for Employee to remain in the employ of Company as its Senior Vice President and Chief Operating Officer, and for a period of time beyond the term specified in the Employment Agreement of August 25, 1994, Company hereby agrees to extend the term of that Agreement for a period of five (5) years commencing upon the execution hereof by the parties, unless sooner terminated in accordance with other provisions of the Employment Agreement that is amended hereby. 2. Paragraph 2. of the Employment Agreement of August 25, 1994 is therefore deleted in its entirety. 3. The first sentence of Paragraph 4. (a) entitled, "Base Salary" is deleted in its entirety and the following is substituted in lieu thereof: "Company shall pay Employee a base salary in the amount of $52,000 more per year than Employee's present base salary, the sum of which amounts shall be payable in periodic installments in accordance with Company's prevailing policy for compensating personnel, but not less often than semi-monthly." Page 1 of 2 2 4. Except for the modifications specified in this Amendment Number One, all of the remaining terms and conditions of the Employment Agreement shall remain in full force and effect for the newly stated term of this Amendment Number One. IN WITNESS WHEREOF, the parties have duly executed this Amendment Number One on this fifth day of December, 1996. "Company" "Employee" CinemaStar Luxury Theaters, Inc. a California corporation By: /s/ John Ellison, Jr. /s/ Alan Grossberg ----------------------------- ----------------------------- John Ellison, Jr. Alan Grossberg President & Chief Executive Officer Page 2 of 2 EX-10.2 3 EXHIBIT 10.2 1 EXHIBIT 10.2 AMENDMENT NUMBER ONE TO CONSULTING AGREEMENT The Consulting Agreement entered into on August 25, 1994, by and between Russell Seheult, (hereinafter the "Consultant") and Nickelodeon Theater Co., Inc., is hereby amended as follows: WHEREAS, the name of Nickelodeon Theater Co., Inc. was changed by amendment to that corporation's Articles of Incorporation on August 25, 1995, to CinemaStar Luxury Theaters, Inc., (hereinafter the "Company"); and WHEREAS, the compensation under the aforementioned Consulting Agreement was increased to $52,000 per year pursuant to a resolution of the board of directors at the Company's Annual Directors Meeting held on August 23, 1996; and WHEREAS, the Company by and through its Board of Directors believes it to be in the best interests of the Company to extend the Consulting Agreement of Consultant; NOW THEREFORE, in consideration of these premises and the promises herein made, the sufficiency of which is hereby acknowledged, the parties agree as follows: 1. As an inducement for Consultant to remain engaged by Company for a period of time beyond the term specified in the Consulting Agreement of August 25, 1994, Company hereby agrees to extend the term of that Agreement for a period of five (5) years commencing upon the execution hereof by the parties, unless sooner terminated in accordance with other provisions of the Consulting Agreement that is amended hereby. 2. Paragraph 2. of the Consulting Agreement of August 25, 1994 is hereby deleted in its entirety. 3. Except for the modifications specified in this Amendment Number One, all of the remaining terms and conditions of the Consulting Agreement shall remain in full force and effect for the newly stated term of this Amendment Number One. IN WITNESS WHEREOF, the parties have duly executed this Amendment Number One on this fifth day of December, 1996. "Company" "Consultant" CinemaStar Luxury Theaters, Inc. a California corporation By: /s/ Alan Grossberg, /s/ Russell Seheult ----------------------------- ------------------------------ Alan Grossberg, Russell Seheult Senior Vice President & Chief Operating Officer EX-10.3 4 EXHIBIT 10.3 1 EXHIBIT 10.3 AMENDMENT NUMBER ONE TO EMPLOYMENT AGREEMENT The Employment Agreement entered into on August 25, 1994, by and between John Ellison, Jr., (hereinafter the "Employee") and Nickelodeon Theater Co., Inc., is hereby amended as follows: WHEREAS, the name of Nickelodeon Theater Co., Inc. was changed by amendment to the Company's Article of Incorporation on August 25, 1995, to CinemaStar Luxury Theaters, Inc., (hereinafter the "Company"); and WHEREAS, the Company by and through its Board of Directors believes it to be in the best interests of the Company to extend the Employment Agreement of Employee; NOW THEREFORE, in consideration of these premises and the promises herein made, the sufficiency of which is hereby acknowledged, the parties agree as follows: 1. As an inducement for Employee to remain in the employ of Company for a period of time beyond the term specified in the Employment Agreement of August 25, 1994, Company hereby agrees to extend the term of that Agreement for a period of five (5) years commencing upon the execution hereof by the parties, unless sooner terminated in accordance with other provisions of the Employment Agreement that is amended hereby. 2. Paragraph 2. of the Employment Agreement of August 25, 1994 is hereby deleted in its entirety. 3. Except for the modifications specified in this Amendment Number One, all of the remaining terms and conditions of the Employment Agreement shall remain in full force and effect for the newly stated term of this Amendment Number One. IN WITNESS WHEREOF, the parties have duly executed this Amendment Number One on this fifth day of December, 1996. "Company" "Employee" CinemaStar Luxury Theaters, Inc. a California corporation By: /s/ Alan Grossberg /s/ John Ellison, Jr. ------------------ --------------------- Alan Grossberg John Ellison, Jr. Executive Vice President & Chief Financial Officer EX-10.4 5 EXHIBIT 10.4 1 EXHIBIT 10.4 AMENDMENT NUMBER ONE TO EMPLOYMENT AGREEMENT The Employment Agreement entered into on August 25, 1994, by and between Jerry Willits, (hereinafter the "Employee") and Nickelodeon Theater Co., Inc., is hereby amended as follows: WHEREAS, the name of Nickelodeon Theater Co., Inc. was changed by amendment to the Company's Article of Incorporation on August 25, 1995, to CinemaStar Luxury Theaters, Inc., (hereinafter the "Company"); and WHEREAS, the Company by and through its Board of Directors believes it to be in the best interests of the Company to extend the Employment Agreement of Employee; NOW THEREFORE, in consideration of these premises and the promises herein made, the sufficiency of which is hereby acknowledged, the parties agree as follows: 1. As an inducement for Employee to remain in the employ of Company for a period of time beyond the term specified in the Employment Agreement of August 25, 1994, Company hereby agrees to extend the term of that Agreement for a period of five (5) years commencing upon the execution hereof by the parties, unless sooner terminated in accordance with other provisions of the Employment Agreement that is amended hereby. 2. Paragraph 2. of the Employment Agreement of August 25, 1994 is hereby deleted in its entirety. 3. Except for the modifications specified in this Amendment Number One, all of the remaining terms and conditions of the Employment Agreement shall remain in full force and effect for the newly stated term of this Amendment Number One. IN WITNESS WHEREOF, the parties have duly executed this Amendment Number One on this fifth day of December, 1996. "Company" "Employee" CinemaStar Luxury Theaters, Inc. a California corporation By: /s/ John Ellison, Jr. /s/ Jerry Willits ------------------------- --------------------------- John Ellison, Jr., Jerry Willits President & Chief Executive Officer EX-10.5 6 EXHIBIT 10.5 1 EXHIBIT 10.5 LEASE AGREEMENT BETWEEN PACIFIC OCEANSIDE HOLDINGS, L.P. AS LANDLORD AND CINEMASTAR LUXURY THEATRE COMPANY, INC. AS TENANT LANDLORD'S ORIGINAL TENANT'S ORIGINAL BROKER'S ORIGINAL TENANT'S FILE COPY (DISCARD UPON FULL EXECUTION OF TENANT'S ORIGINAL) 2 LEASE This Lease ("Lease") is executed as of , 1997, between Pacific Oceanside Holdings, L.P., a California limited partnership ("Landlord"), and CinemaStar Luxury Theatre Company, Inc., a California corporation ("Tenant"), who agree as follows: 1. Agreement to Let. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, upon all the terms, provisions, and conditions contained in this Lease, those certain premises described in Paragraph 2.2, below (the "Premises"), consisting of a portion of that certain shopping center commonly known as Mission Marketplace, in Oceanside, California (the "Project"), along with the non-exclusive right to use, in common with Landlord, Landlord's invitees and licensees, and the other tenants and users of space within the Project, those portions of the Project intended for use by the tenants of the Project in common including, without limitation, the landscaped areas, parking areas, and driveways of the Project (the "Common Area"). 2. Principal Lease Provisions. The following are the Principal Lease Provisions of this Lease. Other portions of this Lease explain and define the Principal Lease Provisions in more detail and should be read in conjunction with this Paragraph. In the event of any conflict between the Principal Lease Provisions and the other portions of this Lease, the Principal Lease Provisions shall control. (Terms shown in quotations are defined terms used elsewhere in this Lease.) 2.1. "Project": The Mission Marketplace shopping center located in Oceanside, California (see attached Exhibit "A"). 2.2. "Premises": That portion of the Project depicted and described on attached Exhibit "B", including, without limitation, both the existing building, as well as the additional building to be constructed on the Premises by Tenant as part of Tenant's Work (as defined below) pursuant to the provisions of Paragraph 5, below (collectively, "Tenant's Building"). 2.3. Leasable Area of Tenant's Building: Approximately 43,149 square feet including 28,149 square feet in Tenant's existing building (the "Old Building"), and approximately 15,000 square feet in the additional building area being constructed as part of Tenant's Work (the "Expanded Premises"). Square footage measurements are calculated from the exterior surface of exterior walls. The actual square footage of the Expanded Premises will be field verified by Landlord's architect upon completion. 2.4. Initial Lease Term: 2.4.1. "Commencement Date": The date of this Lease, as set forth in the introductory Paragraph of this Lease. 2.4.2. "Initial Expiration Date": September 30, 2016. 2.4.3. Extension Rights: Yes X No ____ (See ---- Paragraph 3.2). 2.5. "Base Monthly Rent": $1.4375 per square foot of leasable area for a total of $40,464.19 per month until the Expanded Premises Completion Date (as defined in Paragraph 5.2.4, below) then increasing as of the Expanded Premises Completion Date to $53,936.25 per month, $1.25 per square foot of leasable area per month (subject to adjustment as provided in Paragraph 7.2, below). 2.6. Security Deposit: None. 1 3 2.7. "Percentage Rent": Yes X No __ (See Paragraph 7.3). 2.8. "Tenant's Pro Rata Share": 8.66% until the Expanded Premises Completion Date, then 12.54% (the foregoing percentage is based on 15,000 square feet of leasable area being added to the Premises as part of the Expanded Premises. Upon field verification of the actual square footage of the Tenant's Building -- as provided in Paragraph 2.3, above -- the foregoing percentage will be adjusted if the actual leasable area if different). Except as provided in the preceding sentence, in the event the square footage of the total Project changes due to the construction or destruction of improvements within the Project, Tenant's Pro Rata Share will not be adjusted until the first day of the next calendar year following completion of such construction or destruction. Upon the first day of the next calendar year, Tenant's Pro Rata Share will adjust based upon the total leasable area of the Premises (see Paragraph 2.3) compared to the total leasable area in the Project as a whole. 2.9. Guarantors: John Ellison, Jr., Alan M. Grossberg, Jerry Willits, and Russell Seheult. 2.10. Address for Landlord: c/o American Assets, Inc. Attn: John W. Chamberlain 11455 El Camino Real, Suite 200 San Diego, California 92130-2045 With a copy to: Gerald I. Solomon, Esq. Solomon Ward Seidenwurm & Smith 401 "B" Street, Suite 1200 San Diego, California 92101 2.11. Addresses for Tenant: 431 College Blvd. Oceanside, CA 92057 Attention: Alan M. Grossberg, Senior Vice President and Chief Operating Officer 2.12. Permitted Uses By Tenant: The Premises are to be used only for the operation of a first-rate multiplex indoor motion picture theater (but not for the exhibition/showing of Motion Picture Association of America "X" rated films nor for the exhibition/showing of films which Tenant determines, in its reasonable discretion, to be injurious to the reputation of Tenant or the Project or offensive to patrons) and related concessions and any other ancillary use directly related thereto and the incidental, limited (fewer than six machines) on-Premises use of vending and video game machines (the "Permitted Use"). 2.13. Participating Broker(s): None. 2 4 3. Term. 3.1. Initial Term. The term of this Lease (the "Term") will commence on the Commencement Date, as defined in Paragraph 2.4.1, above, and will expire on the Initial Expiration Date, as defined in Paragraph 2.4.2, above, subject to (i) exercise by Tenant of any of its extension rights described in Paragraph 3.2 of this Lease, and (ii) earlier termination, as provided in this Lease. The term "Expiration Date", as used in this Lease will mean the Initial Expiration Date, any earlier date upon which this Lease is terminated by Landlord, as provided below, or, if the Term is extended, then any extended Term expiration date. 3.2. Options to Extend. Tenant is hereby granted two separate options to extend the initial Term of this Lease (each, an "Option to Extend"). The first such Option to Extend shall be 60 months, with the last such Option to Extend being for 59 months (or such lesser period of time as will extend the total Term to that date which is 34 years and 11 months after the Commencement Date; it is the express intention and agreement of Landlord and Tenant that in no event will the total Term, including extensions, extend for a period in excess of 34 years and 11 months). If Tenant desires to exercise any such Option to Extend, it shall provide Landlord with written notice of its irrevocable election to exercise such Option to Extend (a "Notice of Election to Extend"). To be valid, such Notice of Election to Extend must be received by the Landlord at least 180 (but not more than 365) days prior to the then applicable Expiration Date. Once Tenant fails to timely exercise one Option to Extend, all unexercised Options to Extend will terminate and no longer be capable of exercise. The terms, provisions, and conditions of this Lease will continue in effect during any properly exercised extension term, except with respect to the Base Monthly Rent, which will be adjusted in accordance with Paragraph 7.2, below. Such Options to Extend will be subject to the following additional terms, provisions, and conditions: 3.2.1. Tenant shall not have the right to exercise any Option to Extend, notwithstanding anything set forth in this Lease to the contrary: 3.2.1.1. during any period of time commencing from the date Landlord gives to Tenant a written notice that Tenant is in default under any provision of this Lease, and continuing until the default alleged in such notice is cured; 3.2.1.2. during any period of time commencing on the day after a monetary obligation to Landlord is due from Tenant and unpaid (without any necessity for notice to Tenant) and continuing until the obligation (including any late charge and interest charge provided for below) is paid; 3.2.1.3. at any time after the occurrence of any default described in Paragraph 23 of the Lease other than those described in the preceding paragraphs (without any necessity of Landlord to give notice of such default to Tenant); or 3.2.1.4. in the event that Landlord has given to Tenant two or more notices of default or a late charge has become payable under the Lease during the twelve-month period immediately prior to the time that Tenant intends to exercise such Option to Extend. 3.2.2. The period of time within which an Option to Extend may be exercised will not be extended or enlarged by reason of Tenant's inability to exercise such Option to Extend because of the foregoing provisions of Paragraph 3.2.1, even if the effect thereof is to eliminate Tenant's right to exercise the Option(s) to Extend. 3 5 3.2.3. All rights with respect to the Option to Extend shall terminate and be of no further force or effect even after Tenant's due and timely exercise of the Option to Extend, if, after such exercise, but prior to the commencement of the applicable extension term, (i) Tenant fails to pay to Landlord a monetary obligation of Tenant for a period of ten days after such obligation become due (without any necessity of Landlord to give notice thereof to Tenant); (ii) Tenant fails to cure a non-monetary default within 30 days after the date the Landlord gives notice to Tenant of such default; or (iii) Landlord gives to Tenant two or more notices of default or a late charge becomes payable for any such default, whether or not such defaults are cured. 3.2.4. Time is of the essence in connection with Tenant's rights and obligations under this Paragraph including, particularly, the timing for exercise of Tenant's Options to Extend and delivery of the Notice(s) of Election to Extend. 4. Delivery of Possession. Landlord and Tenant acknowledge that as of the date of this Lease, Tenant is occupying the Old Building. Tenant further acknowledges that it has thoroughly investigated the area surrounding the Old Building comprising the balance of the Premises upon which Tenant will build the Expanded Premises. On the basis of such occupancy and inspections, Tenant hereby accepts the Premises in its current "as is" condition, and warrants and acknowledges that the Premises comply with all applicable laws and ordinances and that the Premises are in first class condition and repair. Such acceptance additionally constitutes Tenant's deemed waiver of any express or implied warranties regarding the condition of the Premises, including any implied warranties of fitness for a particular purpose or merchantability. 5. Expansion and Construction. As partial consideration for the mutual promises contained in this Lease, Landlord and Tenant agree to perform the following construction-related activities in connection with the Expanded Premises and the Project: 5.1. Landlord's Work. Landlord shall diligently pursue to completion Landlord's current construction of certain improvements on the upper level of the Project consisting of the upper level improvements to the Pedestrian Access Link being constructed by Landlord and Tenant between the upper and lower levels of the Project. Such work ("Landlord's Work") is depicted on attached Exhibit "C". All of Landlord's Work must be completed in a good and workmanlike manner, with due diligence, and in accordance with all applicable laws, codes, statutes, and regulations. Landlord shall cause its contractors to coordinate their work with the Tenant's Work being performed by Tenant's contractor in order to increase efficiencies and avoid problems associated with improper coordination of work. 5.2. Tenant's Work. Tenant shall diligently prosecute to completion all of the Tenant's Work in accordance with the plans and specifications identified on attached Exhibit "D" (the "Approved Plans"). All of Tenant's Work must be completed in a good, workmanlike, and lien free manner, with due diligence, and in accordance with all applicable laws, codes, statutes, and regulations. 5.2.1. Description of Tenant's Work. The term "Tenant's Work" will mean and refer to any and all work, construction, and things necessary to expand the Old Building by approximately 15,000 additional square feet, into a completed first class 13-screen movie theater building, as well as completing the Pedestrian Access Link from the upper level of the Project (which upper level work is being completed by Landlord) to the lower level of the Project by remodeling the existing stairwell, adding an elevator and elevator tower, adding a parking area, and constructing sidewalks leading to and from the elevators on the lower level of the Project, along with installation of associated sidewalk and landscape areas, all in accordance with the Approved Plans, and all of which is to be located within the "Tenant Construction Area" shown on attached Exhibit "D". The Tenant's Work includes, without limitation, all architecture and engineering work; obtaining and paying for all permits and fees; all 4 6 building structural costs and construction management, including all contingencies necessary for a completed first class 13-screen movie theater building with a second floor mezzanine structure; concrete sloped and flat floors; auditorium dividing walls; long span roof structure; complete fire sprinkler system; sidewalks adjacent to the theater building; stairways; drop ceilings; completed electrical; finished plumbing (to include full, finished, and fixturized restroom facilities); emergency exit-ways; all HVAC systems; storefront exit doors; all hardware; all utilities; and all items necessary to complete a first class motion picture theater building. Tenant's Work will also include all work necessary to complete interior finishing improvements for a first class motion picture exhibition theater with approximately 15,000 additional square feet of ground floor area (in addition to the Old Building), at Tenant's expense and in accordance with all applicable governmental regulations, which shall consist of, without limitation, state-of-the-art screens, speakers, carpeting, auditorium wall coverings, projection equipment, concession equipment, fixturization, installed seating, and furniture. 5.2.2. Conformity to Plans. Tenant's Work will be completed in conformance with the Approved Plans. In connection with the governmental approval process and subsequent construction, Tenant may, if required by any applicable governmental agency, make any minor, non-structural changes to the Approved Plans it may deem reasonably necessary to obtain approvals, and may, without Landlord's approval, make minor, non-structural changes during construction which are within the general scope of the Approved Plans. Otherwise, the Approved Plans may not be modified or amended without the prior written consent of Landlord; provided, however, that Landlord's consent will not be required for minor field changes to conform to governmental requirements or the recommendations of Tenant's contractor or architect; but Landlord must be promptly notified of all such changes, in writing. 5.2.3. Completion of Tenant's Work. Tenant shall diligently prosecute the Tenant's Work to completion as promptly as is reasonably possible. For purposes of this Lease, the term "Expanded Premises Completion Date" will mean and refer to the earlier of July 1, 1997, or that date upon which the Expanded Premises are substantially completed and can be utilized for their intended purpose. In the event the Expanded Premises Completion Date has not been achieved on or before September 1, 1997, subject to Force Majeure (as defined below), the Landlord will have the right, but not the obligation, to take over the completion of the Tenant's Work (without liability to Tenant), whereupon any amount in excess of the Construction Advance (as defined below) will be immediately due and payable from Tenant to Landlord as Additional Rent (as defined below). For purposes of this Lease, the term Force Majeure will mean and refer to acts of God that could not reasonably have been foreseen and provided for (excluding ordinary and customary periods of inclement weather), inability to obtain necessary materials due to governmental acts, restrictions, regulations, or by any civil disorders, labor disturbances, strikes, boycotts, lockouts, or similar obstructive actions by any person or persons beyond the reasonable control of Tenant and not resulting from any acts of Tenant. 5.2.4. Coordination of Construction. Tenant covenants and agrees that Tenant and "Tenant's Contractor" (which for purposes of this Paragraph shall include Tenant's general contractor and all subcontractors) shall not destroy or in any way damage any portion of the Project. Further, Tenant covenants and agrees that Tenant and Tenant's Contractor shall coordinate the Tenant's Work with any construction schedule for any work being performed by or on behalf of Landlord or any other tenant, and that the performance of the Tenant's Work shall not interfere with Landlord's or any other tenant's construction activities. If there be such interference or conflict, notice thereof shall be given to Tenant, and immediately after receipt of such notice the Tenant agrees to cease or cause to be terminated such interference or conflict. Further, should Tenant delay Landlord's Work, Tenant shall be responsible to Landlord for any cost associated therewith. Tenant further covenants and agrees that Tenant and Tenant's Contractor shall comply with all rules and regulations promulgated by Landlord, or its agent, governing construction or installation activities, including but not limited to, permissible hours for construction or installation activities, storage of equipment and responsibility for cleaning of work areas. 5 7 If Tenant or Tenant's Contractor shall fail to comply with the provisions of this Paragraph any costs incurred by Landlord as a result of such failure shall be at Tenant's sole and exclusive expense. Tenant shall also be responsible for any damage to the Project caused by Tenant or Tenant's Contractor, or anyone acting by or through them (including consequential damages) including, without limitation, damage to utility lines, landscaping, and irrigation systems, and for interruption of utility services. 5.2.5. No Landlord Liability. Landlord shall not be liable for any loss, cost, damage, or expense incurred or claimed by Tenant or any other person or party on account of the construction or installation of the Tenant's Work or any other person or party on account of the construction or installation of the Tenant's Work or any other improvements to the Premises made by Tenant. Tenant hereby acknowledges and agrees that the compliance of the Tenant's Work, or other Alterations made to the Premises by the Tenant and any plans therefore, with all applicable governmental laws, codes, and regulations shall be solely Tenant's responsibility. Landlord assumes no liability or responsibility resulting from the failure of the Tenant to comply with all applicable governmental laws, codes and regulations or for any defect in any of the Tenant's Work or other Alterations (as defined below) to the Premises made by Tenant. Tenant further agrees to indemnify, defend, and hold harmless Landlord from any loss, cost, damage or expense incurred, claimed, asserted, or arising in connection with the Tenant's Work or with any of the foregoing. 5.2.6. Construction of Tenant Improvement by Tenant's Contractor. After the Approved Plans for the Tenant's Work have been approved by the local governing agencies, Tenant shall cause Tenant's Contractor to complete the Tenant's Work in accordance with the following: 5.2.6.1. Tenant's Contractor shall perform the Tenant's Work in a manner and at times which do not impede or delay Landlord's contractor in the completion of the Landlord's Work as provided in this Lease. Any delays in the completion of the Landlord's Work and any damage to any of Landlord's Work caused by Tenant's Contractor shall be at the sole cost and expense of Tenant. 5.2.6.2. Tenant's Contractor shall be responsible for the repair, replacement, or clean-up of any damage caused by him or anyone acting by or through him, to the Project or to other contractors' work which specifically includes access ways to the Premises which may be concurrently used by others. 5.2.6.3. Tenant's Contractor shall accept the Premises prior to starting any trenching operations. Any rework of sub-base or compaction required after Tenant's Contractor's initial acceptance of the Premises shall be done by Tenant's Contractor, which shall include the removal from the Premises of any excess soil or debris. 5.2.6.4. Tenant's Contractor shall contain his storage of materials and his operations within the Expanded Premises and such other space as he may be assigned by Landlord. Should he be assigned space outside of the Expanded Premises, he shall move to such other space as Landlord shall direct from time to time to avoid interference or delays with other work. 5.2.6.5. All trash and surplus construction materials shall be stored within the Expanded Premises and shall be promptly removed from the Expanded Premises. 5.2.6.6. Tenant's Contractor shall provide temporary utilities, portable toilet facilities and portable drinking water as required for his work within the Expanded Premises. 5.2.6.7. Tenant's Contractor shall notify Landlord or Landlord's project 6 8 manager of any planned work to be done on weekends or other than normal job hours. 5.2.6.8. Tenant and Tenant's Contractor are responsible for compliance with all applicable codes and regulations of duly constituted authorities having jurisdiction as far as the performance of the Tenant's Work and completed improvements are concerned for all work performed by Tenant or Tenant's Contractor and all applicable safety regulations established by the Landlord for the Project, and Tenant further agrees to save and hold Landlord harmless for said work. Prior to commencement of construction, Tenant shall submit to Landlord evidence of insurance as required by this Lease and evidence of insurance of Tenant's Contractor satisfactory to Landlord. 5.2.6.9. Tenant's Contractor or subcontractors shall not post signs on any part of the Project or on the Premises. 5.2.6.10. Tenant shall be responsible for and shall obtain and record a Notice of Completion promptly following completion of Tenant's work. 5.2.6.11. Tenant shall provide to Landlord a copy of the fully executed construction contract, including all addenda and a line item breakdown by trade thereto, between Tenant and Tenant's Contractor for the Tenant's Work. 5.2.6.12. Permits must be obtained and all necessary calculations, including, but not limited to, those required under Title 24, must be submitted to the local governing agencies for all work to be performed by Tenant or Tenant's Contractor in the Premises. 5.2.6.13. Tenant's "staging area" will be limited to an area of the Common Area mutually agreed upon by Landlord and Tenant. 5.2.6.14. Tenant's construction activities must not materially interfere with the use or enjoyment of the Project by any other tenant or any invitee, and Tenant shall take all commercially reasonable steps to minimize the impact upon the Project and its occupants and invitees, including, without limitation, steps to minimize dust and noise, particularly during normal business hours. 5.3. Construction Allowance. Landlord shall pay to Tenant, as a Tenant improvement allowance (the "Construction Allowance") the sum of (i) $300,000.00, plus (ii) up to $80.00 per square foot of leasable area in the Expanded Premises (calculated and field verified in accordance with Paragraph 2.3, above, as the difference between the leasable area of Tenant's Building following completion of the Tenant's Work and the leasable area of the Old Building -- i.e., 28,149 square feet of leasable area approximately 15,000 square feet). The portion of the Construction Allowance referenced in clause (i) of the preceding sentence will be applicable only to the cost of the site work, parking lot work, and exterior stairway and sidewalk work relating to the Pedestrian Access Link. No portion of such $300,000.00 shall be payable for any costs relative to the construction of the Expanded Premises. The portion of the Construction Allowance identified in clause (ii) of the preceding sentence will be applicable only to the actual third party labor, material, design, and permit costs incurred by Tenant relative to the design and construction of the Expanded Premises and the site work immediately adjacent to the Expanded Premises, including landscaping. The Construction Allowance shall in no event be applied toward Tenant's furniture, fixtures, furnishings, personal property, signs, or any monetary obligations of Tenant under this Lease other than tenant improvements that shall become the property of Landlord and shall remain upon and be surrendered with the Premises, as a part thereof, at the end of the Term of this Lease. The Construction Allowance will be payable as work is performed, and upon applications for payment submitted by Tenant (no more frequently than two times per month), which 7 9 applications for payment must be satisfactory to Landlord in form and content, and be accompanied by such backup documentation, evidence regarding the status of the Tenant's Work, and lien releases as Landlord may require. Such payments shall be made by Landlord within 15 days of receipt of satisfactory applications. In addition, each progress payment made to Tenant will be subject to a 10% retention. Such retention amount will be paid directly to Tenant following completion of the Tenant's Work, and within 15 days following written request, subject to the prior satisfaction of the following conditions: 5.3.1. Tenant has completed the Tenant's Work in accordance with the Approved Plans. 5.3.2. A notice of completion has been recorded for Tenant's improvements and 35 days have elapsed since the date of such recording. 5.3.3. Tenant has submitted a complete set of "as built" plans and specifications to Landlord. 5.3.4. Tenant has provided to Landlord copies of all insurance certificates required under this Lease. 5.3.5. A final certificate of occupancy for the entire Premises has been issued by the appropriate governmental agency. 5.3.6. Tenant has provided Landlord with all material and labor lien releases from Tenant's Contractor, subcontractors, and material suppliers. Such lien releases must total at least the amount of Landlord's Construction Allowance to Tenant. 5.3.7. Tenant has provided (and assigned to Landlord to the extent applicable) Landlord all construction warranties and guarantees in connection with construction of Tenant's improvements. 5.3.8. Landlord has inspected and approved the Tenant's Work and is reasonably satisfied that the Tenant's Work has been performed in a good and workmanlike manner in accordance with the approved Plans. 5.3.9. Tenant has fully complied with all other terms and conditions of this Lease which are then applicable. 6. Use of Premises and Common Areas. 6.1. Permitted Use of Premises. Tenant may use the Premises for the Permitted Use specified in Paragraph 2.12 and for no other use. Any change in the Permitted Use will require Landlord's prior written consent, which consent will not unreasonably be withheld. 6.2. Compliance With Laws. Tenant must comply with all laws concerning the Premises and Tenant's use of the Premises including, without limitation, the obligation at Tenant's sole cost to alter, maintain, and restore the Premises (including Tenant's Building) in compliance with all applicable laws, even if such laws are enacted after the date of this Lease, even if compliance entails costs to Tenant of a substantial nature and even if compliance requires structural alterations. Such obligation to comply with laws shall include without limitation compliance with Title III of the Americans With Disabilities Act of 1990 (42 U.S.C. 12181 et seq.) (the "ADA"). If Tenant's use of the 8 10 Premises results in the need for modifications or alterations to any portion of the Common Area or the Project in order to comply with the ADA or any other law affecting the Project, then Tenant shall additionally be responsible for the cost of such modifications and alterations, as Additional Rent. 6.3. Continuous Use. From and after the Commencement Date and throughout the Term, Tenant shall continuously and uninterruptedly operate a first class multiplex movie theater (with all theaters operating) running first-run movies under the provisions of this Lease (provided, however, Tenant shall not be obligated to operate within the Expanded Premises until 30 days after the Expanded Premises Completion Date) and, at all times, shall keep and maintain within the Demised Premises adequate advertising, concessions, and trade fixtures to service and to supply its patrons in accordance with the usual and ordinary practices of first class motion picture theaters in the Southern California region. Such obligation includes, without limitation, Tenant's exercise of its best efforts to secure the best quality, first-run motion picture feature films for exhibition at the Demised Premises. However, no shortage of funds on Tenant's part, nor any other financial difficulties as may be encountered by Tenant, shall be considered conditions which are beyond Tenant's control. If Tenant fails to continuously and uninterruptedly operate as provided in this Paragraph 6.3 for a period in excess of 14 consecutive days (or for at least 15 days in each calendar month) other than due to a casualty or remodeling which prevents such operation, such failure shall constitute a default by Tenant under this Lease. 6.4. Hours of Business. From and after the Commencement Date, Tenant shall continuously operate in the Demised Premises for business during those days and hours of operation customarily observed by first class motion picture theaters in the Southern California region. 6.5. Lines of Theatergoers. Tenant shall use its best efforts, in a commercially reasonable manner, to maintain its lines of invitees within the interior of the Tenant's Building, but shall be entitled, when reasonably necessary, to permit such lines to form in the portions of the Project approved by Landlord which are immediately adjacent to the Tenant's Building so long as Tenant uses reasonable efforts to supervise such lines so as to minimize the resulting interference with the flow of pedestrians through the Project and access to other portions of the Project. Landlord and Tenant shall cooperate in good faith in establishing such mutually acceptable locations for such lines so as to minimize such interference. 6.6. Use of Common Area. Tenant's use of the Common Area shall at all times comply with the provisions of all rules and regulations regarding such use as Landlord may from time to time adopt. In no event will the rights granted to Tenant under this Lease to use the Common Area include the right to store any property in the Common Area, whether temporarily or permanently. Any property stored in the Common Area may be removed by Landlord and disposed of, and the cost of such removal and disposal will be payable by Tenant upon demand. Additionally, in no event may Tenant use any portion of the Common Area for loading, unloading, or parking, or for any other purpose other than ingress and egress except in those areas specifically designated by Landlord for such purposes or as provided in Paragraph 6.5, above. 6.7. General Covenants and Limitations on Use. Tenant may not do, bring, or keep anything in or about the Premises that will cause a cancellation of any insurance covering the Premises or the Project. If the rate of any insurance carried by Landlord is increased as a result of Tenant's use, Tenant shall pay to Landlord, within ten days after Landlord delivers to Tenant a notice of such increase, the amount of such increase. Furthermore, Tenant covenants and agrees that no noxious or offensive activity may be carried on, in or upon the Premises nor shall anything be done or kept in the Premises which may be or become a public nuisance or which may cause embarrassment, disturbance, or annoyance to others in the Project, or on adjacent or nearby property. To that end, Tenant additionally covenants and agrees that no light will be emitted from the Premises or Tenant's Building which is 9 11 unreasonably bright or causes unreasonable glare, including searchlights; no sounds will be emitted from Tenant's Building or the Premises which are loud or annoying; and no odor will be emitted from Tenant's Building or the Premises which is or might be noxious or offensive to others in the Project, or on adjacent or near-by property. In addition, Tenant covenants and agrees that no unsightliness will be permitted upon the Premises. Without limiting the generality of the foregoing, all unsightly equipment, objects, and conditions must be kept enclosed within the Tenant's Building and screened from view; no refuse, scraps, debris, garbage, trash, hazardous or toxic substances, bulk materials, or waste may be kept, stored, or allowed to accumulate except as may be properly enclosed within the Premises and which meets the other requirements of this Lease; the Premises may not be used for sleeping or washing clothes, nor may Tenant use the Premises for cooking (excluding popcorn, hot dogs, and similar concession items) or the preparation, manufacture, or mixing of anything that might emit any odor or objectionable noises or lights onto the Project or nearby properties; and all pipes, wires, poles, antennas, and other facilities for utilities or the transmission or reception of audio or visual signals must be kept and maintained enclosed within the Tenant's Building. Tenant will be solely responsible for the timely removal of all refuse, scraps, debris, garbage, trash, hazardous or toxic substances, bulk materials, or waste from the Premises and the deposit thereof in the trash containers or dumpsters to be maintained by Tenant on the Premises. Further, Tenant may not keep or permit to be kept any animal (excluding seeing-eye dogs), bird, reptile, or other exotic creature on the Premises. Neither Tenant nor Tenant's Invitees (as defined below) may do anything that will cause damage or waste to the Project. Neither the floor nor any other portion of the Tenant's Building may be overloaded. No machinery, apparatus, or other appliance may be used or operated in or on the Premises or Tenant's Building that will in any manner injure, vibrate, or shake all or any part of the Project. In the event of any breach of this Paragraph 6 by Tenant or Tenant's Invitees, Landlord, at its election, may pay the cost of correcting such breach and Tenant shall immediately, upon demand, pay the cost thereof, plus a supervisory fee in the amount of 15% of such cost, to Landlord as Additional Rent. 7. Rent. 7.1. Base Rent. Tenant shall pay to Landlord as minimum monthly rent, without deduction, setoff, abatement, prior notice, or demand, the Base Monthly Rent described in Paragraph 2.5, above (subject to adjustment as provided in Paragraph 7.2, below), in advance, on the first day of each calendar month throughout the Term. If the Commencement Date is other than the first day of a calendar month, then the Base Monthly Rent payable by Tenant for the first month of the Term (which shall be payable upon the Commencement Date) and the final month of the Term will be prorated on the basis of the actual number of days during the Term occurring during the relevant month. All "Rental" (which includes Base Monthly Rent and any other amounts payable by Tenant hereunder -- hereinafter "Additional Rent") must be paid to Landlord at the same address as notices are to be delivered to Landlord pursuant to Paragraph 2.10, above, or such other address as Landlord may designate in writing to Tenant. 7.2. Rent Adjustments. The Base Monthly Rent will adjust upon the Expanded Premises Completion Date to an amount equal to $1.25 per square foot of leasable area in the Tenant's Building (based on the estimated square footage of the Expanded Premises, such adjustment will result in Base Monthly Rent of $53,936.25). Thereafter, the Base Monthly Rent payable by Tenant will adjust every five years on the anniversary date of the Expanded Premises Completion Date, in accordance with the following schedule: Year Annual Monthly 10 12 6-10 $744,320.25/year $62,026.69/mo 11-15 $855,968.29/year $71,330.69/mo 16-20 $984,363.53/year $82,030.29/mo 21-9/30/2021 $1,132,018.06/year $94,334.84/mo First Option Period $1,301,820.77/year $108,485.06/mo Second Option Period $1,497,093.88/year $124,757.82/mo
7.3. Percentage Rent. In addition to the Base Monthly Rent payable by Tenant to Landlord, Tenant shall pay to Landlord percentage rent (the "Percentage Rent") in an amount equal to 10% of all Box Office Receipts, excluding "Ninety-Ten Films" (as defined below) less the amount of Base Monthly Rent actually paid by Tenant relative to the calendar year to which such Percentage Rent relates. Such Percentage Rent will be payable annually (with the Percentage Rent for the first and last years of the Term prorated). The Percentage Rent will be calculated on a calendar year basis and will be due and payable on or before January 31 of each calendar year for the Percentage Rent attributable to the preceding calendar year. Tenant shall pay Percentage Rent to Landlord without notice, demand, offset, deduction, or abatement in accordance with the following: 7.3.1. Box Office Receipts. For purposes of this Lease, the term "Box Office Receipts" will mean and refer to the gross selling price of all tickets of any nature or kind whatsoever sold in, on, from, upon, or through the Premises or any part thereof, by Tenant or any other person, firm, or corporation, whether for cash or upon credit and whether or not collections are made in the case of credit sales; provided, however, the term Box Office Receipts will specifically exclude "Ninety-Ten Films" (which for purposes of this Lease will mean and refer to a motion picture exhibited by Tenant under an arrangement with the film distributor by which Tenant is obligated to pay 90% or more of Tenant's adjusted gross box office receipts -- after Tenant has deducted an agreed upon amount for certain allowances, creditors, or reductions for overhead and operating expenses, i.e., the so-called "House Nut" -- as rent for such motion picture). The term Box Office Receipts will not include any of the following: (a) refunds actually made on theater ticket sales if the sales price thereof was previously included in Box Office Receipts; (b) any sales tax, admissions tax, use tax, consumer excise tax, occupational tax, or any similar tax or imposition now or hereafter levied by any federal, state, or municipal authority upon theater admissions; (c) agency commissions and commissions payable on credit card transactions actually paid to third parties for selling tickets for admission for films conducted at or within the Premises; (d) passes obtained through bona fide barter or "trade-out" transactions; (e) the gross sales proceeds realized in connection with the sale of gift certificates which can be used at any of Tenant's theaters, including those in the Premises, but which are not redeemed at the Premises, except that there shall be included in Box Office Receipts, the face amount of any gift certificates that are redeemed, or otherwise utilized as consideration for goods or services at the Premises, regardless of where the gift certificates may have been originally purchased; and (f) income from the sale of food and drink concessions. 7.3.2. Tenant Statements. Within 20 days after the end of each calendar month, Tenant shall furnish to Landlord a statement of Sales and Business Transacted, with a detailed accounting of Box Office Receipts, for the preceding calendar month certified by Tenant to be true and correct. In addition, within 30 days after the end of each calendar year, Tenant shall furnish to Landlord a true and correct statement of Sales and Business Transacted, with a detailed accounting of Box Office Receipts, for the entire preceding calendar year certified by an independent certified public accountant of Tenant's choice ("Tenant's Annual Statement"). Tenant's Annual Statement must be accompanied by a Percentage Rent Payment to Landlord equal to 10% of the Box Office Receipts for the preceding calendar year less the amount of Base Monthly Rent actually paid by Tenant relative to the calendar year to which such Percentage Rent relates. For the purpose of ascertaining the Percentage Rent and providing Landlord with Tenant's Annual Statement, Tenant shall keep proper books, records, and 11 13 accounts showing all daily sales and transactions made by Tenant or by any other person, firm, or corporation in, on, from, upon, or through the Premises ("Tenant's Records"). Tenant shall keep Tenant's Records for at least three years after the Lease Year to which such Tenant's Records pertain. Tenant also shall furnish to Landlord, upon request by Landlord, accurate and exact copies of all sales tax reports made to the State of California, to the County in which the Premises are located, or to any other governmental authority. In addition to all other rights and remedies available to Landlord by reason of a default by Tenant in timely providing any monthly statement of Sales and Business Transacted, Tenant shall pay to Landlord $100.00 concurrently with delivery of any monthly statement of Sales and Business Transacted which is not delivered within the time period specified above. 7.3.3. Landlord's Audit. At any time following receipt of Tenant's Annual Statement Landlord may conduct a Landlord's Audit. The term "Landlord's Audit" will mean and refer to a report of Tenant's Records audited by, at Landlord's choice, either (a) Landlord, its employees, or agents, or (b) a certified public accountant of Landlord's choice. Landlord's Audit, if conducted by a certified public accountant, will be binding and conclusive on Landlord and Tenant for purposes of calculating the Adjusted Percentage Rent (as defined below). Landlord shall pay the costs and expense of Landlord's Audit, except in the event that Landlord's Audit reveals that the amount of Sales and Business Transacted exceeds by 3% or more the amount set forth in the Tenant's Annual Statement, in which event Tenant shall pay all costs and expenses of Landlord's Audit as part of the Adjusted Percentage Rent. 7.3.4. Adjustment of Percentage Rent. If Landlord's Audit reveals that the actual amount of Sales and Business Transacted during a year is greater than that shown on Tenant's Annual Statement, the Percentage Rent payable by Tenant shall be adjusted upward accordingly ("Adjusted Percentage Rent") and Landlord, following the conclusion of Landlord's Audit, shall provide Tenant with written notice of the Adjusted Percentage Rent ("Audit Statement"). Tenant, within 15 days after the date of the Audit Statement, shall pay to Landlord the excess, if any, of the Adjusted Percentage Rent over the Percentage Rent paid by Tenant for such year including, when appropriate, as set forth above, the costs and expenses of the Landlord's Audit. If the Percentage Rent paid by Tenant during such year exceeds the Adjusted Percentage Rent, Landlord shall pay to Tenant the amount of such excess concurrently with Landlord's delivery of the Audit Statement or apply such overpayment to future obligations of Tenant. 8. Lease Expenses. 8.1. Definition of Lease Expenses. As used in this Lease, the term "Lease Expenses" shall mean and refer to all costs and expenses, of any kind or nature, which are paid or incurred by Landlord relative to the operation, repair, replacement, maintenance, and/or for management of the Project (excluding the interior of those portions of the Project leased to individual tenants) including, without limitation, all costs and expenses relating to: (i) all personnel involved in the operation, repair, replacement, maintenance, and management of the Project (other than Landlord's corporate officers) including wages, fringe benefits, and other labor payments (and including a prorata share of such expenses for employees of Landlord who do not work exclusively at the Project), (ii) water, sewage disposal, drainage, refuse collection and disposal, gas, electricity, and other utility services, (iii) general maintenance and repair of the Project, including, without limitation, the structural components of the improvements located within the Project, elevator maintenance and repair (including any service contract maintained by Landlord), repainting of improvements, and janitorial services, (iv) maintenance of landscaping and, where and when necessary, replanting, (v) keeping the parking area free from litter, dirt, debris, and other obstructions, (vi) any expenses payable by Landlord pursuant to the provisions of any recorded Covenants, Conditions, and Restrictions affecting the Project, (vii) all real property or real estate taxes, assessments, and other impositions, whether general, special, ordinary, or extraordinary, and 12 14 of every kind and nature, which may be levied, assessed, imposed upon or with respect to the Project, or any portion thereof (other than the Premises), by any local, state, or federal entity (viii) any personal property taxes, assessments, or other impositions levied, assessed, or imposed upon any personal property of Landlord used in connection with the Project, (ix) the cost of all casualty, liability, and other insurance obtained by Landlord relative to the Project, including all premiums therefore and any deductibles payable with respect to any loss insured thereby, (x) management fees (not to exceed an amount equal to 15% of total Lease Expenses, other than taxes and insurance premiums, if Landlord manages the Project itself) and legal, accounting, inspection, and consultation fees, (xi) license, permit, and inspection fees, (xii) legal, accounting, and consulting fees and expenses relating to the operation of the Project (but not attorney's fees incurred in enforcing the terms of any other tenant's lease), (xiii) depreciation on maintenance and operating machinery and equipment owned by Landlord and rental paid for such machinery and equipment rented by Landlord, (xiv) the cost of any security service or other security related expense, and (xv) capital improvements or structural modifications required by any change in laws, ordinances, rules, or regulations governing the Project, or other capital improvements or structural modifications deemed reasonably necessary or desirable by Landlord, including, without limitation, capital improvements or structural modifications which reduce Lease Expenses; provided, however, any costs of such capital improvements or structural modifications shall be amortized over the useful life of such capital improvements or structural modifications. Notwithstanding anything to the contrary contained in this Paragraph 8.1, the term Lease Expenses will not include (a) Landlord's debt service expenses, (b) the cost of Landlord's Work, (c) the cost of enforcing Landlord's rights under any tenant's lease, (d) the cost of any tenant improvement or reletting costs, including brokerage commissions, or (e) any other expenses for the sole benefit of an individual tenant in the Project. 8.2. Payment of Lease Expenses. Landlord intends to deliver to Tenant, prior to the Commencement Date and prior to the commencement of each calendar year during the Term, a written statement ("Estimated Statement") setting forth Landlord's estimate of the Lease Expenses allocable to the calendar year during which the Commencement Date occurs or such ensuing calendar year, whichever is applicable, and Tenant's Pro Rata Share of such Lease Expenses. For purposes of this Lease, the term "Tenant's Pro Rata Share" will mean and refer to the portion of the Lease Expenses payable by Tenant. Tenant's Pro Rata Share will be originally calculated as of the Commencement Date and will be re-calculated as of each January 1 during the Term as the fractional portion of the total Lease Expenses determined by multiplying such Lease Expenses by a fraction, the numerator of which is the leasable square footage of the Premises, and the denominator of which is the total aggregate leasable square footage of the Project. Landlord may, at its option, during any calendar year, deliver to Tenant a revised Estimated Statement, revising Landlord's estimate of the Lease Expenses, in accordance with Landlord's most current estimate. Tenant shall pay to Landlord, on the Commencement Date and on the first day of each month during the Term, as Additional Rent, an amount ("Tenant's Monthly Payment") equal to one-twelfth (or, during the first calendar year following the Commencement Date, a fraction, the numerator of which is one and the denominator of which is the number of calendar months during such calendar year following the Commencement Date) of Tenant's Pro Rata Share of the Lease Expenses, as estimated by Landlord in the most recently delivered Estimated Statement. No later than 90 days after the end of each calendar year during the Term, Landlord intends to deliver to Tenant a written statement ("Actual Statement") setting forth the actual Lease Expenses allocable to the preceding calendar year. Tenant's failure to object to Landlord regarding the contents of an Actual Statement, in writing, within 30 days after delivery to Tenant of such Actual Statement, will constitute Tenant's absolute and final acceptance and approval of the Actual Statement. If the sum of Tenant's Monthly Payments actually paid by Tenant during any calendar year exceeds Tenant's Pro Rata Share of the actual Lease Expenses allocable to such calendar year, then such excess will be credited against future Tenant's Monthly Payments, unless such calendar year was the calendar year during which the Expiration Date occurs (the "Last Calendar Year"), in which event either (i) such excess will be credited against any monetary default of Tenant under this Lease, or (ii) if Tenant is not in default under this Lease, then Landlord shall 13 15 pay to Tenant such excess. If the sum of Tenant's Monthly Payments actually paid by Tenant during any calendar year is less than Tenant's Pro Rata Share of the actual Lease Expenses allocable to such calendar year, then Tenant shall, within ten days of delivery of the Actual Statement, pay to Landlord the amount of such deficiency. Landlord's delay in delivering any Estimated Statement or Actual Statement will not release Tenant of its obligation to pay any Tenant's Monthly Payment or any such excess upon receipt of the Estimated Statement or the Actual Statement, as the case may be. The references in this Paragraph to the actual Lease Expenses allocable to a calendar year, include (i) if such calendar year is the calendar year during which the Commencement Date occurs, the actual Lease Expenses allocable to the portion of such calendar year following the Commencement Date, and (ii) if such calendar year is the Last Calendar Year, the actual Lease Expenses allocable to the portion of the Last Calendar Year prior to the Expiration Date. Notwithstanding anything to the contrary contained in this Lease, Tenant's Pro Rata Share and Tenant's Monthly Payment will adjust upon the Expanded Premises Completion Date (and Landlord and Tenant will pro rate Tenant's Monthly Payment for the month in which the Expanded Premises Completion Date occurs). 9. Utilities and Services. Tenant shall make all arrangements for and pay the cost of all utilities and services (including without limitation their connection charges and taxes thereon) furnished to the Premises or used by Tenant, including without limitation electricity, water, heating, ventilating, air-conditioning, oil, steam for heating, sewer, gas, telephone, communication services, trash collection and removal, janitorial, cleaning, and window washing. Tenant's obligations under the preceding sentence include the obligation to install separate meters for all utilities supplied to the Premises. Landlord may, at its election, furnish to the Premises any of the utilities and services set forth in the preceding sentence, in which event Tenant shall reimburse Landlord for Landlord's cost of furnishing such utilities and services. Landlord will not be liable for failure to furnish any utilities or services to the Premises when such failure results from causes beyond Landlord's reasonable control. If Landlord constructs new or additional utility facilities, including without limitation wiring, plumbing, conduits, and/or mains, resulting from Tenant's changed or increased utility requirements, Tenant shall on demand promptly pay to Landlord the total cost of such items. The discontinuance of any utilities or services, including without limitation Landlord's discontinuance or failure to provide any of the utilities or services furnished by Landlord to the Premises, shall neither be deemed an actual or constructive eviction, nor release Tenant from its obligations under this Lease including, without limitation, Tenant's obligation to pay Rental. If any governmental authority having jurisdiction over the Project imposes mandatory controls, or suggests voluntary guidelines applicable to the Project, relating to the use or conservation of water, gas, electricity, power, or the reduction of automobile emissions, Landlord, at its sole discretion, may comply with such mandatory controls or voluntary guidelines and, accordingly, require Tenant to so comply. Landlord will not be liable for damages to persons or property for any such reduction, nor will any such reduction in any way be construed as a partial eviction of Tenant, cause an abatement of rent, or operate to release Tenant from any of Tenant's obligations under this Lease. 14 16 10. Maintenance. 10.1. Tenant's Duties. Tenant shall at its sole cost and expense (i) repair, replace, repaint, and maintain all in first class condition, all portions of the Premises including, without limitation, Tenant's Building, (ii) arrange for the removal of trash from the Premises, (iii) furnish first class janitorial services within the Tenant's Building, (iv) maintain and repair any plate-glass windows within the Premises and all interior and exterior doors, (v) maintain, repair, and replace the heating, air-conditioning, and ventilation system in the Premises, including maintaining a service agreement relative to such systems satisfactory to Landlord, (vi) maintain a pest and termite control service agreement with respect to the Premises reasonably acceptable to Landlord (a copy of which Tenant shall furnish to Landlord promptly upon the execution of this Lease), and (vii) maintain and repair all plumbing lines and fixtures, all telephone lines and wiring, all wiring, fixtures, lamps, and tubes serving the Premises, and all other utility lines, pipes, conduits, circuits, and other elements providing utilities. Tenant is additionally liable for any damage to the Project resulting from the acts or omissions of Tenant or Tenant's Invitees. If Tenant fails to maintain, repair, replace, or repaint any portion of the Premises (or the area immediately surrounding the Premises), as provided above, or if Tenant or Tenant's Invitees damage any portion of the Project, then Landlord may, at its election, maintain, repair, replace, or repaint any such portion of the Premises or the Project and Tenant shall promptly reimburse Landlord for Landlord's actual cost thereof, plus a supervisory fee in the amount of 15% of such actual cost. 10.2. Landlord's Duties. Landlord shall only be obligated to maintain and repair the Common Area and the structural parts of the buildings within the Project, which are only the foundations, exterior walls (excluding glass and doors), elevator, and the structural portions of the roof, excluding skylights (but excluding the structural portions of the Tenant's Building and any other buildings for which the tenant's thereof have the responsibility to maintain such structural portions, relative to which Landlord will have no such maintenance or repair responsibility). Landlord's failure to perform its obligations set forth in the preceding sentence will not release Tenant of its obligations under this Lease, including without limitation Tenant's obligation to pay Rental. Landlord has no responsibility for providing any repair or maintenance on the Premises. Tenant waives the provisions of California Civil Code Section 1942 (or any successor statute), and any similar principals of law with respect to Landlord's obligations for tenantability of the Premises and Tenant's right to make repairs and deduct the expense of such repairs from rent. 11. Net Lease. This Lease is intended to be a so-called "triple net" or "absolutely net lease" and Tenant shall have the sole responsibility for the care, maintenance, and repair of the Premises as though Tenant were the owner of the Premises. Tenant is liable for and must bear all of the costs and expenses of the Premises, including the care, maintenance, and repair of the Premises, except as expressly provided to the contrary in this Lease. 12. Parking. Subject to the remaining provisions of this Paragraph, as long as Tenant is not in default under this Lease, Landlord grants to Tenant (for the benefit of Tenant and Tenant's Invitees) the right to the non-exclusive use of the shared usage parking areas within the boundaries of the Common Area and serving the Project (the "Parking Area"), as depicted on attached Exhibit "A". Tenant's rights to use the Parking Area are subject to such rules as Landlord may, in its sole discretion, adopt from time to time with respect to the Parking Area, including without limitation (i) rules limiting tenants of the Project (including, without limitation, Tenant) to the use of, or excluding the use of, certain parking spaces or certain portions of the Parking Area, in order to maintain the availability of accessible parking spaces for clients, guests, and invitees of tenants of the Project; except that no such rule will materially affect the amount of parking available to Tenant in the Protected Area (as defined below), depicted on attached Exhibit "A", and (ii) rules limiting tenants of the Project (including without limitation Tenant) to the use of a restricted number of parking spaces or a restricted area. Notwithstanding anything to the 15 17 contrary in this Paragraph, Landlord may, at its election, construct improvements upon or otherwise alter in any manner the Parking Area provided that Landlord makes reasonable amounts of parking available (or reasonable amounts of parking will remain available) to Tenant elsewhere on the Project, or within a reasonable distance from the Project, and provided that any such improvements or alterations within the Protected Area will require Tenant's prior written consent, which consent will not unreasonably be withheld, and Tenant's failure to respond to a written request for consent within ten days of receipt of such written request will constitute Tenant's deemed approval of such construction or alterations. Landlord reserves the right to grant certain tenants in the Project the exclusive right to park in specified areas of the Parking Area (other than the Protected Area), to the exclusion of all other tenants. Tenant acknowledges that the exercise of the rights reserved to Landlord under this Paragraph may result in a decrease in the number of parking spaces available to Tenant and Tenant's Invitees, and no such decrease will affect Tenant's obligations under this Paragraph or entitle Tenant to any abatement of Rental. 13. Signs. Tenant may not place, construct, or maintain any additional sign, advertisement, awning, banner, or other exterior decoration (collectively, "sign") on the Premises or on Tenant's Building without Landlord's prior written consent which consent will not unreasonably be withheld. Any sign that Tenant is permitted by Landlord to place, construct, or maintain on the Premises or on Tenant's Building must comply with Landlord's sign criteria applicable to the Project, including, without limitation, criteria relating to size, color, shape, graphics, and location (collectively, the "Sign Criteria"), and must comply with all applicable laws, ordinances, rules, or regulations, and Tenant must obtain any approval required by such laws, ordinances, rules, and regulations, at Tenant's sole expense. Landlord makes no representation with respect to Tenant's ability to obtain any such approval. Tenant shall, at Tenant's sole cost, make any changes to any such sign which may be required by any new or revised applicable laws, ordinances, rules, or regulations, or any changes in the Sign Criteria required by any governmental entity. Tenant shall, additionally, maintain, repair, and replace all of Tenant's signs in first class condition (excluding any multi-tenant sign within the Project maintained by the Landlord), at Tenant's sole expense. Such obligation shall include the obligation to immediately replace burned-out or defective lightbulbs or lighting fixtures and to replace all broken or cracked sign faces or lettering. Marquee-type signs with removable lettering will be used only to announce the names of films being exhibited (or to be exhibited) by Tenant. 14. Rules, Regulations, and Covenants. Tenant shall (and shall cause Tenant's Invitees to) observe faithfully and comply strictly with any reasonable rules and regulations which Landlord may from time to time adopt for the Project as well as any recorded covenants, conditions, or restrictions affecting the Premises or the Project, whether now existing or hereafter adopted or amended from time to time (all of the foregoing, collectively, "rules"); provided, however, no new recorded covenants, conditions, or restrictions (or amendments to existing ones) will be binding upon Tenant unless they do not materially and adversely affect Tenant's rights under this Lease. Landlord has no duty or obligation to enforce any rule against any other tenant, and Landlord will not be liable to Tenant for violation of any rule by any other tenant, or any other tenant's agents, employees, officers, independent contractors, customers, invitees, visitors, or licensees. Tenant acknowledges that Landlord reserves the right, from time to time, to enter into leases or other agreements by which Landlord agrees to restrict the use of all or any portion of the Project (including the Premises) from certain uses. All such leases and other agreements, whether now existing or entered into in the future, will be binding upon Tenant and in no event may Tenant utilize the Premises for any use so prohibited (so long as such prohibition does not affect Tenant's then current use of the Premises). Tenant further acknowledges that Tenant's use of the Premises is subject to any matters or documents now or hereafter of record, including the effect of any covenants, conditions, restrictions, easements, mortgages or deeds of trust, ground leases, rights-of-way, or any construction, operation, and reciprocal easement agreements. If the Project is now or hereafter governed or burdened by any easements, covenants, conditions and/or restrictions of record agreed to, granted, and/or imposed by Landlord and/or any other third party, then this Lease and all of Tenant's 16 18 rights and interest in the leasehold estate created by this Lease will be subject and subordinate thereto and to any and all amendments or modifications at any time thereafter made thereto. Tenant shall promptly upon request execute and deliver to Landlord any documents or instruments required to evidence the subordination of this Lease as provided by this Paragraph, but failure to do so will not affect the automatic subordination specified above. If Tenant fails or refuses to execute and deliver such documents or instruments as required by the preceding sentence within ten days after written request therefor from Landlord, such failure or refusal will constitute a default by Tenant, but such default will in no way affect the validity or enforceability of the automatic subordination specified above. 15. Construction Insurance. Throughout the period of time that Tenant and/or Tenant's Contractor is performing the Tenant's Work, Tenant shall maintain course of construction and workers' compensation insurance in forms, amounts, and coverages, and with insurance companies, acceptable to Landlord. 16. Insurance Coverages. Throughout the Term of this Lease Tenant will maintain the following insurance coverages: 16.1. Tenant shall obtain and maintain a policy of fire insurance with "special coverage" or "all risk endorsement" and insurance with respect to risks from time to time included under the standard extended coverage endorsement, including vandalism and malicious mischief endorsements, coverage with respect to increased costs due to building ordinances, demolition coverage, boiler and machinery insurance, and sprinkler leakage coverage, all in amounts not less than 100% of the full replacement cost of the Premises and Tenant's Building, as determined from time to time (but not less often than once every three years) by Landlord or the insurer(s). 16.2. Tenant shall obtain and maintain comprehensive general public liability insurance against claims for bodily injury, death or property damage arising out of the use or occupancy of the Demised Premises by Tenant with a combined single limit of $2,000,000.00. In addition, Tenant shall carry business interruption insurance for a period of not less than 12 months for an amount sufficient to compensate Landlord for the Base Monthly Rent, the Percentage Rent (based upon the prior year's Percentage Rent paid, as adjusted from time to time), and other additional payments required to be paid by Tenant hereunder (i.e., real property taxes and assessments, Lease Expenses, and insurance). For purposes of determining the amount of business interruption insurance to be carried by Tenant, Percentage Rent for the first year of the Term shall be assumed to be zero ($0.00). 16.3. Tenant shall not conduct any operation in the Premises which would cause suspension of the insurance carried by Tenant pursuant to the terms of this Lease. In no event shall any insurance policies required to be carried by Tenant under the terms of this Lease or the Declaration be written on a "claims made basis". 17. Insurance Generally. In addition to the insurance to be obtained and maintained by Tenant, as provided above, Landlord has the right, upon written demand, to require Tenant to obtain and maintain such other and additional insurance coverages as Landlord, in its sole reasonable discretion, deems appropriate; provided such coverages are of a type which are commonly required of tenants in similar projects. If Tenant fails during the Term to maintain any insurance required to be maintained by Tenant pursuant to this Lease, then Landlord may, at its election, arrange for any such insurance, and Tenant shall reimburse Landlord, as Additional Rent, for any premiums for any such insurance within five days after Tenant receives a copy of the premium notice. If any such premiums are allocable to a period, a portion of which occurs during the Term and the remainder of which occurs before or after the 17 19 Term, then such premiums will be apportioned between Landlord and Tenant based upon the number of days during such period that occur during the Term and the number of days that occur before or after the Term, such that Tenant pays for the premiums that are allocable to the period during the Term. Insurance required to be maintained by Tenant under this Lease (i) must be issued as a primary policy by insurance companies authorized to do business in the State of California with a Best's Rating of at least "A" and a Best's Financial Size Category rating of at least "X", as set forth in the most current edition of "Best's Insurance Reports" (unless otherwise approved by Landlord), or such higher rating as may be required by any Lender, (ii) must name Landlord and any Lender as additional insureds, (iii) must consist of "occurrence" based coverage, without provision for subsequent conversion to "claims" based coverage, (iv) may not be cancelable or subject to reduction of coverage or other modification except after 30 days' prior written notice to Landlord and any Lender, and (v) may not provide for a deductible or co-insurance provision in excess of $5,000.00. Tenant shall, at least 30 days prior to the expiration of each such policy, furnish Landlord with a renewal of or "binder" extending such policy. Tenant shall promptly upon request deliver to Landlord copies of such policy or policies or certificates evidencing the existence and amounts of such insurance together with evidence of payment of premiums. 18. Waiver of Subrogation. Landlord and Tenant release each other from all claims for damage, loss, or injury to the Project, to Tenant's Personal Property, and to Tenant's Building to the extent such damage, loss or injury is covered by any insurance policies carried by Landlord or Tenant and in force at the time of such damage. Landlord and Tenant shall each use their best efforts to cause all insurance policies obtained pursuant to this Lease to provide that the insurance company waives all right of recovery by way of subrogation against Landlord and Tenant in connection with any damage, loss, or injury covered by such policy. 19. Landlord's Insurance. Landlord shall maintain insurance with such coverage, in such amounts, and with such limits as Landlord may determine in its reasonable discretion, including any of the following: (i) Public liability and property damage insurance covering the Common Area; (ii) Fire and extended coverage insurance for the Common Area; (iii) fidelity insurance; (iv) rental interruption insurance; and (v) such other coverage as Landlord deems appropriate. The premiums, costs, expenses, and deductibles (or similar costs or charges) of and/or with respect to any such insurance (all of the preceding, collectively, "Insurance Expenses") shall be included as part of the Lease Expenses. 20. Taxes. 20.1. Personal Property Taxes. Tenant shall pay before delinquency all taxes, assessments, license fees, and other charges that are levied or assessed against, or based upon the value of, Tenant's personal property installed or located in or on the Premises including without limitation trade fixtures, furnishings, equipment ,and inventory (collectively, "Tenant's Personal Property"). On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of such payments. If any such taxes, assessments, license fees, and/or other charges are levied against Landlord or Landlord's property, or if the assessed value of the Premises is increased by the inclusion of a value placed on Tenant's Personal Property, and if Landlord pays such taxes, assessments, license fees, and/or other charges or any taxes based on the increased assessments caused by Tenant's Personal Property, then Tenant, on demand, shall immediately reimburse Landlord for the sum of such taxes, assessments, license fees, and/or other charges so levied against Landlord, or the proportion of taxes resulting from such increase in Landlord's assessment. Landlord may, at its election, pay such taxes, assessments, license fees, and/or other charges or such proportion, and receive such reimbursement, regardless of the validity of the levy. Tenant may contest the amount of any such tax assessed against Tenant's Personal Property provided Tenant first provides Landlord with adequate security that such contest will not result in the enforcement of any lien. 20.2. Real Property Taxes. Tenant shall pay, at least ten days before delinquency, all real property or real estate taxes, assessments, and other impositions, whether general, special, ordinary, 18 20 or extraordinary, and of every kind and nature, which may be separately levied, assessed, or imposed upon or with respect to the Premises, including the Tenant's Building. On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of such payments. If Landlord does not receive satisfactory evidence that such payments were made at least ten days before delinquency, Landlord may, at its election, pay such taxes, assessments, license fees, and/or other charges and Tenant will immediately reimburse Landlord for the amounts so paid, as Additional Rent, regardless of the validity of the levy. 21. Alterations. Tenant shall not make any alterations, improvements, additions, installations, or changes (other than the original Tenant's Work) of any nature in, on, or to the Premises (any of the preceding, "Alterations") unless (i) Tenant first obtains Landlord's written consent, (ii) Tenant complies with all conditions which may be imposed by Landlord, (iii) such Alterations will not, individually or in the aggregate, lessen the fair market value of the Premises or the Project, or materially affect the Premises' or Project's utility, and (iv) Tenant pays to Landlord Landlord's reasonable costs and expenses for architectural, engineering, or other consultants which reasonably may be incurred by Landlord in determining whether to approve any such Alterations. At least 30 days prior to making any Alterations, Tenant shall submit to Landlord, in written form, detailed plans of such proposed Alterations. Tenant shall, prior to the commencement of any Alterations, at Tenant's sole cost, (a) acquire (and deliver to Landlord a copy of) a permit(s) from appropriate governmental agencies to make such Alterations (any conditions of which permit Tenant shall comply with, at Tenant's sole cost, in a prompt and expeditious manner), (b) obtain and deliver to Landlord (unless this condition is waived in writing by Landlord) a lien and completion bond in an amount equal to 150 percent of the estimated cost of the proposed Alterations, to insure Landlord against any liability for mechanics' liens and to insure completion of the work, (c) provide Landlord with ten days' prior written notice of the date the installation of the Alterations (or the delivery of materials) is to commence, so that Landlord can post and record an appropriate notice of non-responsibility, and (d) obtain (and deliver to Landlord proof of) reasonably adequate course of construction insurance, as well as workers' compensation insurance with respect to any of Tenant's employees installing or involved with such Alterations (which insurance Tenant shall maintain in force until completion of the Alterations). All Alterations, including Tenant's Building, will upon installation become the property of Landlord and will remain on and be surrendered with the Premises on the Expiration Date, except that Landlord may, at its election, require Tenant to remove any or all of the Alterations on the Expiration Date, by so notifying Tenant in writing on or before the Expiration Date, in which event, Tenant shall, at its sole cost, on or before the Expiration Date, repair and restore the Premises to the condition of the Premises prior to the installation of the Alterations which are to be removed. Tenant shall pay all costs for Alterations and other construction done or caused to be done by Tenant and Tenant shall keep the Premises free and clear of all mechanics' and materialmen's lien's resulting from or relating to any Alterations. Tenant may, at its election, contest the correctness or validity of any such lien provided that (a) immediately on demand by Landlord, Tenant procures and records a lien release bond, issued by a company satisfactory to Landlord and authorized to issue surety bonds in the state in which the Premises are located, in an amount equal to 150 percent of the amount of the claim of lien, which bond meets the requirements of California Civil Code Section 3143 or any successor statute, and (b) Landlord may, at its election, require Tenant to pay Landlord's attorneys' fees and costs in participating in such an action. 22. Surrender of Premises and Holding Over. On the Expiration Date, (i) Tenant shall surrender to Landlord the Premises and all Alterations (except for Alterations that Tenant is obligated to remove as expressly set forth above), including the Tenant's Building, in a first class and clean condition, (ii) Tenant shall remove all of Tenant's Personal Property and perform all repairs and restoration required by the removal of any Alterations or Tenant's Personal Property, and (iii) Tenant shall surrender to Landlord all keys to the Premises (including, without limitation, keys to exterior and interior doors). Landlord may elect to retain or dispose of in any manner any of Tenant's Personal Property that Tenant 19 21 does not remove from the Premises on the Expiration Date as required by this Lease by giving written notice to Tenant. Any such Tenant's Personal Property that Landlord elects to retain or dispose of shall immediately upon notice to Tenant vest in Landlord. Tenant waives all claims against Landlord for any damage to Tenant resulting from Landlord's retention or disposition of any such fixtures or Tenant's Personal Property. Tenant shall be liable to Landlord for Landlord's costs for storing, removing, or disposing of any such fixtures or Tenant's Personal Property. If Tenant fails to surrender the Premises to Landlord on the Expiration Date, Tenant shall indemnify Landlord against all liabilities, damages, losses, costs, expenses, attorneys' fees, and claims resulting from such failure, including without limitation any claim for damages made by a succeeding tenant. If Tenant, with Landlord's consent, remains in possession of the Premises after the Expiration Date, such possession by Tenant shall be deemed to be a month-to-month tenancy terminable on 30 days' written notice given at any time by Landlord or Tenant. During any such holdover or month-to-month tenancy, Tenant shall pay, as Base Monthly Rent, 150% of the Base Monthly Rent in effect immediately prior to the Expiration Date, as the case may be. All other provisions of this Lease except for those pertaining to Term and Base Monthly Rent shall apply to such holdover or month-to-month tenancy. 23. Default. The occurrence of any of the following will constitute a material default and breach of this Lease by Tenant: 23.1. The vacating or abandoning of the Premises by Tenant. 23.2. Tenant's failure to make any payment of Rental within five days of written notice; provided, however, such notice shall be in lieu of, and not in addition to, any statutorily required notice prior to declaration of a default or enforcement of an action in unlawful detainer. No grace period prior to the imposition of a late charge pursuant to Paragraph 28 below, will extend the date when such Rental is due and payable, and Tenant will be in default under this Lease if such payment is not timely made. 23.3. Tenant's failure to observe or perform any of the provisions of this Lease to be observed or performed by Tenant, other than those described in the preceding two Paragraphs, where such failure continues for a period of 30 days after written notice of such failure from Landlord to Tenant; provided, however, that any such notice will be in lieu of, and not in addition to, any statutorily required notice prior to declaration of a default or enforcement of an action in unlawful detainer; and provided further, however, that if the nature of Tenant's default is such that more than 30 days are required for its cure, then Tenant will not be deemed to be in default if Tenant commenced such cure within such 30-day period and thereafter diligently prosecutes such cure to completion within no more than 90 days after Landlord's written notice. 23.4. Tenant's failure to pay its debts relating to the goods provided at the Premises (other than under this Lease) as they become due (other than due to a good faith dispute with the account payee). For purposes of this Paragraph, a debt will be deemed overdue when the earliest of the following occurs: (i) 30 days from the date a statement for such debt is rendered; (ii) the date on which any action or proceeding for such debt is commenced; or (iii) the date on which a formal notice of default or demand is sent. 23.5. Tenant's failure to timely deliver its monthly statement of Sales and Business Transacted two or more times in any calendar year. 23.6. Tenant's failure to deliver to Landlord, within ten days after Landlord's written request (but not more often than twice in any calendar year), any financial statement of Tenant (including without limitation a current annual balance sheet of Tenant) reasonably requested by Landlord. 20 22 23.7. The making by Tenant of any general arrangement or assignment for the benefit of creditors; Tenant's becoming bankrupt, insolvent, or a "debtor" as defined in 11 U.S.C. Section 101, or any successor statute (unless, in the case of a petition filed against Tenant, such petition is dismissed within 60 days after its original filing); the institution of proceedings under the bankruptcy or similar laws in which Tenant is the debtor or bankrupt; the appointing of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease (unless possession is restored to Tenant within 60 days after such taking); the attachment, execution, or judicial seizure of substantially all of Tenant's assets located at the Premises or Tenant's interest in this Lease (unless such attachment, execution, or judicial seizure is discharged within 60 days after such attachment, execution, or judicial seizure); or, if Tenant is a partnership or consists of more than one person or entity, any partners of the partnership or any such other person or entity becoming bankrupt or insolvent or making a general arrangement or assignment for the benefit of creditors. 24. Landlord's Remedies. Landlord will have the following remedies if Tenant commits a default or breach under this Lease (after expiration of any cure periods set forth in Paragraph 23, above); these remedies are not exclusive, but are cumulative and in addition to any remedies provided elsewhere in this Lease, or now or later allowed by law. 24.1. Continuation of Lease. No act by Landlord (including without limitation the acts set forth in the succeeding sentence) will terminate Tenant's right to possession unless Landlord notifies Tenant in writing that Landlord elects to terminate Tenant's right to possession. As long as Landlord does not terminate Tenant's right to possession, Landlord may (i) continue this Lease in effect, (ii) continue to collect Rental when due and enforce all the other provisions of this Lease (including bringing suit from time to time for amounts unpaid), (iii) enter the Premises and relet them, or any part of them, to third parties for Tenant's account, for a period shorter or longer than the remaining Term of this Lease, and/or (iv) have a receiver appointed to collect Rental and conduct Tenant's business. Tenant shall immediately pay to Landlord all costs Landlord incurs in such reletting, including, without limitation, brokers' commissions, attorneys' fees, advertising costs, and expenses of remodeling the Premises for such reletting. If Landlord elects to relet all or any portion of the Premises as permitted above, rent that Landlord receives from such reletting will be applied to the payment of, in the following order and priority, (i) any amount owed by Tenant to Landlord other than Base Monthly Rent, (ii) all costs incurred by Landlord in any reletting, and (iii) Base Monthly Rent due and unpaid under this Lease. After applying such payments, as referred to above, any sum remaining from the rent Landlord receives from such reletting will be held by Landlord and applied in payment of future Base Monthly Rent as it becomes due under this Lease. In no event will Tenant be entitled to any excess rent received by Landlord unless and until all obligations of Tenant under this Lease, including all future obligations, are satisfied in full. 24.2. Termination of Tenant's Right to Possession. Landlord may terminate this Lease and Tenant's right to possession of the Premises at any time, by notifying Tenant in writing that Landlord elects to terminate this Lease and Tenant's right to possession. On termination of this Lease, Landlord has the right to recover from Tenant (i) the worth at the time of the award of the unpaid Base Monthly Rent which had been earned at the time of such termination, (ii) the worth at the time of the award of the amount by which the unpaid Base Monthly Rent which would have been earned after such termination until the time of award exceeds the amount of such loss of Base Monthly Rent that Tenant proves could have been reasonably avoided, (iii) the worth at the time of the award of the amount by which the unpaid Base Monthly Rent for the balance of the Term after the time of award (had there been no such termination) exceeds the amount of such loss of Base Monthly Rent that Tenant proves could be reasonably avoided, and (iv) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease or in the ordinary course of things would be likely to result therefrom. The "worth at the time of the award" of the 21 23 amounts referred to in clauses (i) and (ii) above is to be computed by allowing interest at the Default Rate, as set forth below, or if no Default Rate is set forth, then at the maximum rate permitted by applicable law. The "worth at the time of the award" of the amount referred to in clause (iii) above is to be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent. 24.3. Landlord's Right to Cure Default. Landlord, at any time after Tenant commits a default under or breach of this Lease, may cure such default or breach at Tenant's sole cost. If Landlord at any time, by reason of Tenant's default or breach, pays any sum or does any act that requires the payment of any sum, such sum shall be due immediately from Tenant to Landlord at the time such sum is paid, and shall be deemed Additional Rent under this Lease. If Tenant fails to timely pay any amount due under this Paragraph, then (without curing such default) interest at the Default Rate will accrue (and be immediately payable) on such overdue amount until it is paid. 24.4. Enforcement Costs. All costs and expenses incurred by Landlord in connection with collecting any amounts and damages owing by Tenant pursuant to the provisions of this Lease, or to enforce any provision of this Lease, including reasonable attorneys' fees, whether or not any action is commenced by Landlord, shall be paid by Tenant to Landlord upon demand. If Tenant fails to timely pay any amount due under this Paragraph, then (without curing such default) interest at the Default Rate will accrue and be immediately payable on such overdue amounts until it is paid. 25. Interest and Late Charges. Late payment by Tenant to Landlord of Rental will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which would be impracticable or extremely difficult to fix. Such costs include, without limitation, processing, collection and accounting charges, and late charges that may be imposed on Landlord by the terms of any deed of trust covering the Project. Therefore, if any Rental is not received by Landlord within ten days of its due date, then, without any requirement for notice to Tenant, Tenant shall pay to Landlord an additional sum of 5% of such overdue amount as a late charge. Such late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of any late payment by Tenant, and therefore this Paragraph is reasonable under the circumstances existing at the time this Lease is made. Acceptance of such late charge by Landlord shall not constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord under this Lease. In addition to the late charge payable by Tenant, as provided above, if any such Rental is not paid within 30 days of the date such Rental was due, then Tenant shall pay to Landlord interest on such overdue Rental at the rate of 5% per annum above the "reference rate" announced from time to time by Bank of America, NT&SA (the "Default Rate"). Such interest shall additionally accrue and be payable by Tenant relative to any other amounts payable by Tenant to Landlord under the provisions of this Lease which are not paid when due (if such reference rate ceases to be announced, then a comparable "prime rate" shall be utilized, as selected by Landlord). 26. Destruction. If the Premises or the Tenant's Building is totally or partially destroyed during the Term, then, subject to the remainder of this Paragraph, (i) Tenant shall, at Tenant's sole cost and expense, immediately commence and thereafter promptly, diligently, and with all reasonable dispatch completely restore the Premises and the Tenant's Building to substantially the same condition as they were in immediately before such destruction, (ii) Tenant will additionally restore all of Tenant's Alterations and, if necessary to operate Tenant's business, replace Tenant's Personal Property, (iii) such destruction will not terminate this Lease, and (iv) all obligations of Tenant under this Lease will remain in effect, except that if such destruction was not caused by Tenant or Tenant's Invitees, the Base Monthly Rent shall be abated or reduced, between the date of such destruction and the date of completion of restoration, by the ratio of (a) the leasable area of the Premises rendered unusable or inaccessible by the destruction to (b) the leasable area of the Premises prior to such destruction. Notwithstanding anything 22 24 to the contrary in the preceding sentence, any such restoration must be undertaken in the same manner as any Alteration would be undertaken pursuant to this Lease, and in no event will the Base Monthly Rent abate or be reduced beyond that date which is the earlier of (i) the date upon which Tenant ceases to promptly, diligently, and with all reasonable dispatch pursue the restoration of the Premises and the Tenant's Building, (ii) the date Tenant substantially completes such restoration, or (iii) that date which is six months after the date of the destruction (unless Tenant is delayed due to unusual delays in the governmental permitting and approval process, in which case such delays will extend such six month period by the number of days that Tenant is so delayed beyond the time normally associated with such process). Tenant hereby waives the provisions of California Civil Code Sections 1932(2) and 1933(4) or any successor statute with respect to any destruction of the Premises. Upon restoring the Premises, Tenant shall immediately refixturize, re-equip, and restock the Premises and shall re-open the Premises for business as soon thereafter as is reasonably practicable. All insurance proceeds attributable to such destruction under any policy of insurance obtained and maintained by Tenant will be payable to Landlord for disbursement to Tenant in the same manner as the Construction Allowance is to be disbursed pursuant to Paragraph 5.3, above. 27. Condemnation. If during the Term there is any taking of all or any part of the Premises or any interest in this Lease by the exercise of any governmental power, whether by legal proceedings or otherwise, by any public or quasi-public authority, or private corporation or individual, having the power of condemnation (any of the preceding a "Condemnor"), or a voluntary sale or transfer by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending (any of the preceding, a "Condemnation"), the rights and obligations of Landlord and Tenant will be determined pursuant to this Paragraph. If such Condemnation is of the entire Premises or the entirety of Tenant's Building, then this Lease will terminate on the date the Condemnor takes possession of the Premises or Tenant's Building (the "Date of Condemnation"). A temporary Condemnation of the Premises, or any part of the Premises, for less than 180 days, will not constitute a Condemnation under this Paragraph; but in such event the Base Monthly Rent will abate as to the portion of the Premises affected during such temporary Condemnation. If such Condemnation is of any portion, but not all, of the Premises or Tenant's Building, then this Lease will remain in effect, except that, if the remaining portion of the Premises or Tenant's Building is rendered unsuitable for Tenant's continued use of the Premises, then Tenant may elect to terminate this Lease, by so notifying Landlord in writing (the "Termination Notice") within 30 days after the date that the nature and extent of the Condemnation have been determined. Such termination will be effective on the earlier of (i) that date which is 30 days after the giving of the Termination Notice, or (ii) the Date of Condemnation. If Tenant does not give the Termination Notice to Landlord within such 30-day period, then all obligations of Tenant under this Lease will remain in effect, except that (unless the Premises are restored as set forth below) Base Monthly Rent will be reduced by the ratio of (a) the area of the Premises taken to (b) the area of the Premises immediately prior to the Date of Condemnation. Notwithstanding anything to the contrary in this Paragraph if, within 20 days after Landlord's receipt of the Termination Notice, Landlord notifies Tenant that Landlord, at its cost, will add to the remaining Premises (or substitute for the Premises other comparable space in the Project) so that the area of the Premises will be substantially the same after the Condemnation as they were before the Condemnation, and Landlord commences the restoration promptly and completes it within 150 days after Landlord so notifies Tenant, then all obligations of Tenant under this Lease will remain in effect, except that Base Monthly Rent will be abated or reduced during the period from the Date of Condemnation until the completion of such restoration by the ratio of (A) the area of the Premises taken to (B) the area of the Premises immediately prior to the Date of Condemnation. Unless Landlord restores the Premises pursuant to the preceding sentence, or unless Tenant gives to Landlord the Termination Notice within the relevant 30-day period, Tenant at its sole cost will accomplish any restoration required by Tenant to use the Premises. All compensation, sums, or anything of value awarded, paid, or received on a total or partial Condemnation (the "Award") will belong to and be paid to Landlord. Tenant shall have no right to any part of the Award, and Tenant 23 25 hereby assigns to Landlord all of Tenant's right, title, and interest in and to any part of the Award, except that Tenant shall receive from the Award any sum paid expressly to Tenant from the Condemnor for Tenant's loss of goodwill. Landlord and Tenant waive the provisions of any statute (including without limitation California Code of Civil Procedure Section 1265.130 or any successor statute) that allows Landlord or Tenant to petition the superior court (or any other local court) to terminate this Lease in the event of a partial taking of the Premises. 28. Assignment and Other Transfers. Tenant's rights with respect to (i) any assignment, sublease, disposition, sale, concession, license, mortgage, encumbrance, hypothecation, pledge, collateral assignment, or other transfer, by Tenant of this Lease, any interest in this Lease, or all or any portion of the Premises; or (ii) any assignment, disposition, sale, transfer, acquisition, or issuance of equitable interests (whether stock, partnership or otherwise) in Tenant, to or by any person, entity, or group of related persons or affiliated entities, whether in a single transaction or in a series of related or unrelated transactions, which results in such person, entity, or group holding (or assigning, transferring, disposing of, or selling) 50% or more of the aggregate issued and outstanding equitable interests in Tenant (any of the foregoing, a "Transfer") will be subject to the following: 28.1. Without Landlord's prior written consent, which shall not be unreasonably withheld, Tenant will not enter into (nor permit to occur), voluntarily, involuntarily, by operation of law, or otherwise, any Transfer. 28.2. Landlord shall not be liable in damages to Tenant or to any proposed subtenant, assignee or other transferee (any of the preceding a "Proposed Transferee") if such consent is adjudicated to have been unreasonably withheld, and, in such event, Tenant's sole remedy shall be to have the proposed Transfer declared as valid as if Landlord's consent had been given, although Tenant shall be entitled to reasonable attorney's fees if Tenant is the prevailing party in such litigation. 28.3. At least 30 days prior to entering into any proposed Transfer, Tenant shall submit to Landlord the sum of $400.00 (as payment toward Landlord's and Landlord's attorneys' cost of reviewing, consenting to, rejecting, and/or consummating any proposed Transfer), and a written notice ("Tenant's Notice") which includes or sets forth in reasonable detail (a) the form of the proposed Transfer, including without limitation all related agreements, documents, instruments, exhibits, and escrow instructions, (b) the name and address of the proposed Transferee, (c) the terms and conditions of the proposed Transfer, including without limitation the commencement or effective date of the proposed Transfer, which shall be at least 30 days after Tenant's Notice is given, and (d) the nature, character, and current banking, financial, and other credit information and references with respect to the proposed Transferee and the business of the proposed Transferee (including without limitation tax returns for the three most-recent years, a business plan with cash-flow projections and financial projections with assumptions and competitive market analysis), in reasonably sufficient detail to enable Landlord to determine the proposed Transferee's financial responsibility. 28.4. Within 30 days after Landlord's receipt from Tenant of such $400.00 and Tenant's Notice, Landlord shall notify Tenant whether Landlord has consented to the proposed Transfer. Any consent by Landlord to any proposed Transfer shall not constitute a consent with respect to any other Transfer. If Landlord consents to any proposed Transfer, and Tenant fails to consummate such Transfer on or before the commencement or effective date of the proposed Transfer (as set forth in Tenant's Notice), then such consent will be deemed withdrawn and Tenant will be required again to comply with this Paragraph 28 before making a Transfer. 28.5. Landlord will not have unreasonably withheld its consent with respect to any Transfer if, among other reasons, Landlord shall not have received such sum or Tenant's Notice, if 24 26 Tenant is in default under this Lease, if the nature or character of the proposed Transferee, or the proposed use and occupancy of the Premises by the proposed Transferee, is not in keeping with the dignity and character of the Project and the surrounding area, if the proposed Transfer will result in the diminution of the value or marketability of the Premises or the Project, if Landlord is not satisfied that the proposed Transferee is creditworthy, or if the proposed Transfer will conflict with or result in a breach of any of the provisions of, or constitute a default under, any agreement, instrument, or document to which Landlord is a party or by which the Project may be bound. 28.6. No Transfer will release or discharge Tenant from any liability, whether past, present, or future, under this Lease and Tenant will continue to remain primarily liable under this Lease. Tenant irrevocably assigns to Landlord, as security for Tenant's obligations under this Lease, all rent and other amounts from any Transfer, and Landlord, as assignee and as special attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord's application, may collect such rent and other amounts and apply them toward Tenant's obligations under this Lease; except that, unless Tenant defaults under this Lease, Tenant will have the right to collect such rent and other amounts. 28.7. Any documents evidencing a Transfer must contain the following provisions, which provisions whether contained in such Transfer or not, will apply to such Transfer: (A) such Transfer will be subject and subordinate to all provisions of this Lease; (B) no proposed Transferee will be permitted to enter into any subsequent Transfer without Landlord's prior written consent; and (C) at Landlord's option, in the event of cancellation or termination of this Lease for any reason or the surrender of this Lease, whether voluntarily, involuntarily, by operation of law or otherwise, prior to the expiration of such Transfer, the proposed Transferee will make full and complete attornment to Landlord for the balance of the term of such Transfer. Such attornment will be evidenced by an agreement in form and substance satisfactory to Landlord which the proposed Transferee will execute and deliver to Landlord within five days after request by Landlord. 28.8. Tenant will promptly reimburse Landlord for Landlord's reasonable cost (less any payment made by Tenant to Landlord as set forth above in this Paragraph 28) of reviewing, consenting to, rejecting, and/or consummating any proposed Transfer, including without limitation reasonable attorneys' fees. 28.9. Tenant will promptly pay to Landlord 50% of all rents and other consideration, of whatever nature, payable by the proposed Transferee (or receivable by Tenant) pursuant to any Transfer, which exceed (i) if a sublease of a portion of the Premises, the portion of the Base Monthly Rent that is allocable to the portion of the Premises subleased (such allocation based on the area of the portion subleased), or (ii) if any other Transfer, the Base Monthly Rent. 28.10. Tenant acknowledges and agrees that each of the rights of Landlord set forth in this Paragraph 28 in the event of a proposed Transfer is a reasonable restriction on Transfer for purposes of California Civil Code Section 1951.4 29. Common Areas. Landlord hereby reserves the following rights with respect to the Common Area: 29.1. To install, use, maintain, repair, relocate, and replace pipes, ducts, conduits, wires, meters, and equipment for service to other parts of the Project (so long as any such action within the Protected Area will not materially and adversely affect Tenant's operation of its business); 29.2. To make or permit changes, additions, and deletions to the Common Area and the Project (so long as any such action within the Protected Area will not materially and adversely affect 25 27 Tenant's operation of its business); 29.3. To close temporarily any portion of the Common Area for maintenance, repair, improvement, and/or construction purposes so long as reasonable access to the Premises remains available; 29.4. To designate other land outside the boundaries of the Project to be a part of the Project; 29.5. To add or permit the addition of improvements to the Common Area; 29.6. To change the address and name of the Project; 29.7. To use the Common Area while engaged in making additional improvements, repairs, or alterations to the Project; 29.8. To construct additional buildings and improvements within the Project which may cause the relocation or closing of driveways and parking facilities on a temporary or permanent basis so long as reasonable access and parking for the Premises remain available; 29.9. To create and transfer separate legal parcels within the Project; 29.10. To close any of the Common Area to the extent required in the opinion of Landlord's legal counsel to prevent a dedication of any of the Common Area or the accrual of any rights to any person or to the public in and to any portion of the Common Area; 29.11. To make changes in the location of driveways, entrances, exits, vehicular parking spaces, or the direction of the flow of traffic in the Common Area (so long as any such action within the Protected Area will not materially and adversely affect Tenant's operation of its business); and 29.12. To do and perform such other acts and make such other changes, additions, and deletions in, to, or with respect to the Common Area or the Project as Landlord may, in the exercise of sound business judgment, deem to be appropriate. Notwithstanding anything to the contrary in this Paragraph 29, Landlord will not make any changes to that portion of the Common Area shown by cross-hatching on attached Exhibit "A" and designated as the "Protected Area" without Tenant's prior consent, which consent will not unreasonably be delayed or withheld. Any failure by Tenant to respond to any request for consent within ten days will constitute Tenant's consent to any proposed change. No change to the Common Area or the Project by Landlord will entitle Tenant to any abatement of Rental. 30. Access by Landlord. Landlord and Landlord's Invitees have the right to enter the Premises (including Tenant's Building) at all reasonable times, during normal business hours if feasible under the circumstances, and upon reasonable notice, if feasible under the circumstances, (i) to determine whether the Premises are in good condition and whether Tenant is complying with its obligations under this Lease, (ii) to do any necessary maintenance or make any restoration to the Premises that Landlord has the right to perform, and to perform any other repairs or maintenance which are required, in Landlord's opinion, to avoid damage to persons or property, (iii) to serve, post, or keep posted any notices required or allowed under this Lease, (v) to post "for sale" or "for rent" or "for lease" signs, (vi) to show the Premises to brokers, agents, prospective buyers, prospective tenants, or other persons interested in a listing of, financing, purchasing, or occupying the Project, the Premises or 26 28 any portion of the Project or the Premises, and (vii) to shore the foundations, footings, and walls of the Project or otherwise perform maintenance or construction activities upon the Project, and to erect scaffolding and protective barricades around and about the Premises, but not so as to prevent entry to the Premises, and to do any other act or thing necessary for the safety or preservation of the Project. Landlord's rights under this Paragraph extend, with Landlord's consent, to the owner of adjacent property on which excavation or construction is to take place and the adjacent property owner's agents, employees, officers, and contractors. Landlord will not be liable for any inconvenience, disturbance, loss of business, nuisance, or other damage arising out of any entry on the Premises as provided in this Paragraph except damage resulting solely and directly from the grossly negligent acts of Landlord or Landlord's agents, contractors, employees, licensees, and invitees (collectively, "Landlord's Invitees"). Tenant will not be entitled to any abatement or reduction of Rental because of the exercise by Landlord or Landlord's Invitees of any rights under this Paragraph. 31. Landlord's Reserved Rights. Landlord, as owner of the Project, reserves the right from time to time: (i) to change the name of the Project; (ii) to temporarily utilize portions of the Common Area for entertainment, outdoor shows, displays, automobile and other product shows, the leasing of kiosks, or such other uses which, in Landlord's judgment, tend to attract the public; and (iii) to utilize the lighting standards and other areas or improvements in the Common Area for advertising purposes or holiday decorations. 32. Indemnity and Exemption of Landlord from Liability. Tenant hereby indemnifies Landlord against all Claims (as defined below) and all costs, expenses, and attorneys' fees incurred in the defense or handling of any such Claims or any action or proceeding brought on any of such Claims. For purposes of this Lease, "Claims" will mean and refer to all liabilities, damages, demands, actions, causes of action, losses, costs, expenses, attorneys' fees, and claims (except to the extent they result solely from Landlord's grossly negligent acts or willful misconduct) arising from or which seek to impose liability under or because of (i) Tenant's or Tenant's Invitees' use of the Premises or the Project, (ii) the conduct of Tenant's business, (iii) any activity, work, or things done, permitted, or suffered by Tenant or any of Tenant's Invitees in or about the Premises or elsewhere, (iv) any breach or default in the performance of any obligation to be performed by Tenant under this Lease, and/or (v) any negligence, recklessness, or willful misconduct of Tenant or any of Tenant's Invitees. If any action or proceeding is brought against Landlord by reason of any such Claims, Tenant upon notice from Landlord shall defend Landlord from such action or proceeding at Tenant's sole cost by legal counsel satisfactory to Landlord. Except to the extent caused solely by Landlord's grossly negligent acts or willful misconduct, Tenant assumes all risk of, Tenant waives all claims against Landlord in respect of, and Landlord will not be liable for, any of the matters set forth above in this Paragraph or any of the following: injury to Tenant's business, loss of income from such business, or damage or injury to the goods, wares, merchandise, or other property or the person of Tenant, Tenant's Invitees, or any other persons in, upon, or about the Premises, whether such damage, loss, or injury is caused by or results from criminal acts, fire, steam, electricity, gas, water, rain, the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air-conditioning or lighting fixtures, or any other cause, conditions arising upon the Premises, or other sources or places, and regardless of whether the cause of such damage, loss, or injury or the means of repairing such damage, loss, or injury is inaccessible to Tenant. 33. Hazardous Substances. Tenant hereby agrees to indemnify Landlord against all actions, demands, liabilities, damages, losses, costs, expenses, attorneys' fees, and claims (except to the extent they arise solely as a result of Landlord's grossly negligent acts or willful misconduct), arising from or relating to: (i) any discharges, releases, or threatened releases of noise, pollutants, contaminants, herbicides, pesticides, insecticides, or hazardous or toxic wastes, substances, or materials (any of the preceding a "Hazardous Material") into ambient air, water, or land by Tenant or Tenant's Invitee's, or otherwise from, on, under, or above the Premises, (ii) the manufacture, processing, distribution, use, 27 29 treatment, storage, disposal, transport, or handling of pollutants, contaminants, or hazardous or toxic wastes, substances, or materials by Tenant or Tenant's Invitee's, or otherwise from, on, or under, the Premises, or (iii) a violation of any environmental law on, under, or above the Premises (for purposes hereof, "environmental laws" shall mean any federal, state, or local law, statute, regulation, ordinance, guideline, or common law principle relating to public health or safety or the use or control of the environment, including without limitation the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Carpenter-Presley-Tanner Hazardous Substance Account Act, the California Hazardous Waste Control Law, the Federal Clean Air Act, the California Air Resources Act, the Federal Clean Water Act, the California Porter-Cologne Water Quality Control Act, the Federal Resource Conservation and Recovery Act, the California Nejedly-Z'berg-Dills Solid Waste Management and Recovery Act, and California Health and Safety Code Section 25359.7). The foregoing obligation to indemnify Landlord against losses will include, without limitation, the obligation to indemnify Landlord against diminution in value of the Premises and the Project or any portion of the real property surrounding the Project (the "Adjacent Property"), damages for the loss or restriction on use of rentable space or of any amenity of the Premises or the Project, damages arising from any adverse impact on marketing of space in the Project or the Adjacent Property, and sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees, which arise during or after the Lease Term as a result of any contamination. This indemnification obligation also includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of Hazardous Materials present in the soil or ground water on or under the Project and arising out of a breach of Tenant's obligations pursuant to this Paragraph 38. If the Premises (or, due to the acts or omissions of Tenant or Tenant's Invitees, the Project) are contaminated by any Hazardous Material during the Term, then Tenant shall promptly (1) notify Landlord in writing of such contamination, and (2) perform all remediation required by Landlord (to Landlord's satisfaction and at Tenant's sole cost) necessary to return the Premises and the Project to at least as good a condition as the Premises and the Project are in as of the date of this Lease. If Tenant does not promptly commence and diligently pursue such remediation, then Landlord may, at Landlord's election, perform or cause to be performed such remediation and Tenant shall immediately, upon demand, pay the cost thereof, plus a supervisory fee in the amount of 15% of such cost. Tenant's obligations and liability under this Paragraph will survive the termination of Tenant's tenancy and the Term of this Lease, except that nothing contained in this Paragraph will be deemed to impose liability on Tenant for any problem arising after the Term of this Lease provided neither Tenant nor Tenant's Invitees contributed to such problem during the Term of this Lease. Landlord hereby notifies Tenant, and Tenant hereby acknowledges that, prior to the leasing of the Premises pursuant to this Lease, Tenant has been notified, pursuant to California Health and Safety Code Section 25359.7 (or any successor statute), that Landlord knows, or has reasonable cause to believe, that certain hazardous substances (as such term is used in such Section 25359.7), such as common cleaning supplies, office supplies, spillage of petroleum products from motor vehicles, and other consumer products, may have come to be located on or beneath the Premises and/or the Project. 34. Prohibition Against Asbestos-Containing Materials. Tenant may not allow or permit any materials which contain asbestos in any form or concentration ("Asbestos-Containing Materials") to be used or stored in the Premises (excluding the storage and sale of new brake pads in accordance with all applicable laws and in the ordinary course of Tenant's business) or used in the construction of the 28 30 Expanded Premises or any Alterations to the Premises, including, without limitation, building or construction materials and supplies. Such prohibition against Asbestos-Containing Materials applies regardless of whether the Asbestos-Containing Materials may be considered safe or approved for use by a manufacturer, supplier, or governmental authority, or by common use or practice. Landlord will have the right, upon reasonable notice, to enter upon and conduct inspections of the Premises, including Tenant's Building, to determine Tenant's compliance with this Paragraph. If Tenant allows or permits Asbestos-Containing Materials to be used or stored in the Premises or used in the construction of the Expanded Premises or any Alterations to the Premises, (i) Tenant shall, upon notice from Landlord, immediately remove such Asbestos-Containing Materials at Tenant's sole cost, (ii) such removal must comply with all applicable laws, regulations, and requirements concerning asbestos and the removal and disposal of Asbestos-Containing Materials, (iii) Tenant shall reimburse Landlord for all expenses incurred in connection with any inspection of the Premises conducted by Landlord, and (iv) unless Tenant completes such removal within 30 days after notice from Landlord, Landlord may, at its election, do either or both of the following: (a) declare Tenant in default under this Lease and exercise any of Landlord's rights and remedies following default provided for in this Lease, without the necessity of further notice to Tenant, and/or (b) remove and dispose of the Asbestos-Containing Materials and obtain immediate reimbursement from Tenant, as Additional Rent, for the cost of such removal and disposal, plus a supervisory fee in the amount of 15% of such cost. Tenant shall indemnify Landlord and Landlord's directors, officers, employees, and agents against all costs, liability, expenses, penalties, and claims for damages, including, without limitation, litigation costs and attorneys' fees, arising from (A) the presence of Asbestos-Containing Materials upon the Premises, (b) any lawsuit, settlement, governmental order, or decree relating to the presence, handling, removal, or disposal of Asbestos-Containing Materials upon or from the Premises, or (C) Tenant's failure to perform its obligations to remove such Asbestos-Containing Materials under this Paragraph. 35. Security Measures. Tenant acknowledges (i) that the Base Monthly Rent does not include the cost of any security measures for the Premises or any portion of the Project (ii) that Landlord has no obligation to provide any such security measures, (iii) that Landlord has made no representation to Tenant regarding the safety or security of the Project, and (iv) that Tenant will be solely responsible for providing any security it deems necessary to protect itself, its property, and Tenant's Invitees in, on, or about the Project, as well as for providing any security required by any recorded documents or applicable ordinance as a result of Tenant's use of the Premises. If Landlord provides any security measures at any time, then Landlord will not be obligated to continue providing such security measures and Landlord will not be obligated to provide such security measures with any particular standard of care. Tenant assumes all responsibility for the security and safety of Tenant, Tenant's property, and Tenant's Invitees. Tenant releases Landlord from all claims for damage, loss, or injury to Tenant, Tenant's Invitees, and/or to the personal property of Tenant and/or of Tenant's Invitees, even if such damage, loss, or injury is caused by or results from the criminal or negligent acts of third parties. Landlord has no duty to warn Tenant of any criminal acts or dangerous conduct that has occurred in or near the Project, regardless of Landlord's knowledge of such crimes or conduct, and Tenant is hereby advised to conduct such investigations and inquiry as Tenant deems necessary or appropriate to fully evaluate Tenant's security needs at the Premises. If Landlord reasonably determines that Tenant's use of the Premises results in an increase in security costs for the center, Tenant hereby agrees to pay for such additional costs. Landlord shall provide a cost breakdown and invoice for such additional costs. Tenant agrees to pay for such additional costs within thirty (30) days of written notice from Landlord. 36. Subordination and Attornment. This Lease and Tenant's rights under this Lease are subject and subordinate to any mortgage, deed of trust, ground lease, or underlying lease (and to all renewals, modifications, consolidations, replacements, or extensions thereof), now or hereafter affecting the Premises. The provisions of this Paragraph are self-operative, and no further instrument of subordination will be required. In confirmation of such subordination, however, Tenant will promptly execute and deliver any instruments that Landlord, any Lender, or the lessor under any ground or underlying lease, may request to evidence such subordination. Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's special attorney-in-fact to execute and deliver such instruments. Notwithstanding the preceding provisions of this Paragraph, if any ground lessor or Lender elects to have this Lease prior to the lien of its ground lease, deed of trust, or mortgage, and gives written notice thereof to Tenant that this Lease will be deemed prior to such ground lease, deed of trust, or mortgage, whether this Lease is dated prior or subsequent to the date of such ground lease, deed of trust, or mortgage, then this Lease will 29 31 be deemed to be prior to the lien of such ground lease or mortgage and such ground lease, deed of trust, or mortgage will be deemed to be subordinate to this Lease. If any Lender, or the lessor of any ground or underlying lease affecting the Premises, succeeds to the rights of Landlord under this Lease, whether by foreclosure, deed in lieu of foreclosure, or otherwise, then (i) such successor landlord will not be subject to any offsets or defenses which Tenant might have against Landlord, (ii) such successor landlord will not be bound by any prepayment by Tenant of more than one month's installment of Base Monthly Rent or any other Rental, (iii) such successor landlord will not be subject to any liability or obligation of Landlord except those arising after such succession, (iv) Tenant shall attorn to and recognize such successor landlord as Tenant's landlord under this Lease, (v) Tenant shall promptly execute and deliver any instruments that may be necessary to evidence such attornment, (vi) Tenant hereby irrevocably appoints Landlord (and such successor landlord) as Tenant's special attorney-in-fact to execute and deliver such instruments on behalf of Tenant, and (vii) upon such attornment, this Lease will continue in effect as a direct lease between such successor landlord and Tenant upon and subject to all of the provisions of this Lease. If any Lender requests amendments to this Lease which do not affect the size of the Premises or the amount of Rental payable by Tenant, at any time during the Term, then Tenant will not unreasonably withhold or delay its written consent to such amendments. 37. Estoppel Certificates. Within 15 days after notice from Landlord, Tenant shall execute and deliver to Landlord, in recordable form, a certificate stating (i) that this Lease is unmodified and in full force and effect, or in full force and effect as modified, and stating all modifications, (ii) the then-current Base Monthly Rent, (iii) the date to which the Base Monthly Rent has been paid in advance, (iv) the amount of any security deposit, prepaid rent, or other payment constituting Rental which has been paid, (iv) whether or not Tenant or Landlord is in default under this Lease and whether there currently exist any defenses or rights of offset under the Lease, and (v) such other matters as Landlord may reasonably request. Tenant's failure to deliver such certificate within such 15-day period will be conclusive evidence as against Tenant for the benefit of Landlord, and any successor in interest to Landlord, any lender or proposed lender, and any purchaser of the Project that, except as may be represented by Landlord, this Lease is unmodified and in full force and effect, no Rental has been paid more than 30 days in advance, and neither Tenant nor Landlord is in default under this Lease (except as may be represented by Landlord). Tenant irrevocably constitutes and appoints Landlord as its special attorney-in-fact to execute and deliver any such certificate to any third party if Tenant fails to deliver such certificate within such 15-day period. 38. Waiver. No delay or omission in the exercise of any right or remedy of Landlord in the event of any default by Tenant will impair such right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent Rental will not constitute a waiver of any default other than the particular Rental payment accepted. Landlord's receipt and acceptance from Tenant, on any date (the "Receipt Date"), of an amount less than the Rental due on such Receipt Date, or to become due at a later date but applicable to a period prior to such Receipt Date, will not release Tenant of its obligation (i) to pay the full amount of such Rental due on such Receipt Date or (ii) to pay when due the full amount of such Rental to become due at a later date but applicable to a period prior to such Receipt Date. No act or conduct of Landlord, including without limitation, the acceptance of the keys to the Premises, will constitute an acceptance by Landlord of the surrender of the Premises by Tenant before the Expiration Date. Only a written notice from Landlord to Tenant stating Landlord's election to terminate Tenant's right to possession of the Premises will constitute acceptance of the surrender of the Premises and accomplish a termination of this Lease. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval will not be deemed to waive or render unnecessary Landlord's consent to or approval of any other or subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and will not be a waiver of any other default concerning the same or any other provision of this Lease. Tenant hereby waives any rights granted to Tenant under California Code of Civil Procedure Section 1179, California Civil Code Section 3275, and/or any successor statute(s). Tenant represents and 30 32 warrants that if Tenant breaches this Lease and, as a result, this Lease is terminated, Tenant will not suffer any undue hardship as a result of such termination and, during the Term, will make such alternative or other contingency plans to provide for its vacation of the Premises and relocation in the event of such termination. Tenant acknowledges that Tenant's waivers set forth in this Paragraph are a material part of the consideration for Landlord's entering into this Lease and that Landlord would not have entered into this Lease in the absence of such waivers. 39. Memorandum of Lease. Concurrently with the execution of this Lease, Landlord and Tenant shall execute and record in the Official Records of San Diego County, California, a Memorandum of Lease and Termination Agreement, in form and content satisfactory to Landlord, by which (i) Landlord and Tenant will provide notice of the existence and term of this Lease, and (ii) the lease pursuant to which Tenant has been occupying the Old Building will be cancelled and terminated. 40. Brokers. Tenant represents that, except as to [None] , no real estate broker, agent, finder, or other person is responsible for bringing about or negotiating this Lease and Tenant has not dealt with any real estate broker, agent, finder, or other person, relative to this Lease in any manner. Tenant hereby indemnifies Landlord against all liabilities, damages, losses, costs, expenses, attorneys' fees and claims arising from any claims that may be made against Landlord by any real estate broker, agent, finder, or other person (other than as set forth above), alleging to have acted on behalf of or to have dealt with Tenant. 41. Easements. Landlord may, at its election, from time to time, grant such easements, rights and dedications, and cause the recordation of parcel maps and restrictions, provided such easements, rights, dedications, parcel maps and restrictions do not unreasonably interfere with the use of the Premises by Tenant. Tenant shall promptly sign any documents or instruments to accomplish the foregoing upon request by Landlord. Tenant irrevocably appoints Landlord as Tenant's special attorney-in-fact to execute and deliver such documents or instruments on behalf of Tenant if Tenant refuses or fails to do so. 42. Limitations on Landlord's Liability. In consideration of the benefits accruing to Tenant under this Lease, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach, of default under this Lease by Landlord or otherwise relating to Tenant's tenancy under this Lease, the following limitations will apply: 42.1. Tenant's sole and exclusive remedy against Landlord will be against Landlord's interest in the Project; 42.2. No officer, director, shareholder, agent, or partner of Landlord will be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the Landlord) and no service of process will be made against any officer, director, shareholder, agent, or partner of Landlord (except as may be necessary to secure jurisdiction of the Landlord); 42.3. No officer, director, shareholder, agent, or partner of Landlord will be required to answer or otherwise plead to any service of process; 42.4. No judgment may be taken against any officer, director, shareholder, or partner of Landlord and any judgment taken against any officer, director, shareholder, agent, or partner of Landlord may be vacated and set aside as any time retroactive to the date of entry of judgment; 42.5. No writ or execution will ever be levied against the assets of any officer, director, shareholder, agent, or partner of Landlord; 31 33 42.6. The obligations of Landlord under this Lease do not constitute personal obligations of the individual partners, directors, officers, agents, or shareholders of Landlord, and Tenant may not seek recourse against the individual partners, directors, officers, agents, or shareholders of Landlord or any of their personal assets for satisfaction of any liability in respect to this Lease; 42.7. These covenants and agreements are enforceable both by Landlord and also by any officer, director, shareholder, agent, or partner of Landlord. 43. Sale or Transfer of Premises. If Landlord sells or transfers any portion of the Premises, Landlord, on consummation of the sale or transfer, will be released from any liability thereafter accruing under this Lease. If any security deposit or prepaid rent has been paid by Tenant, Landlord may transfer the security deposit and/or prepaid rent to Landlord's successor-in-interest and on such transfer Landlord will be discharged from any further liability arising from the security deposit or prepaid rent. 44. Quitclaim Deed. Tenant shall execute and deliver to Landlord on the Expiration Date, promptly on Landlord's request, a quitclaim deed to the Premises, in recordable form, designating Landlord as transferee. 45. No Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation of this Lease, or a termination by Landlord, will not work a merger, and will, at the option of Landlord, terminate any existing subleases or may, at the option of Landlord, operate as an assignment to Landlord of any such subleases. 46. Confidentiality. Except as essential to the consummation of the transaction contemplated by this Lease (together with all amendments and addendums hereto), or as consented to in writing by Landlord: 46.1. Tenant shall keep and maintain the terms of this Lease and the transactions contemplated by this Lease or any aspect of this Lease in strict confidence; and 46.2. Tenant may not make or allow any notices, statements, disclosures, communication, or news releases concerning the terms of this Lease. Nothing provided in this Paragraph will, however, prevent Tenant from disclosing to its legal counsel and/or certified public accountants, prospective purchasers, or lenders the existence and terms of this Lease or any transaction under this Lease, or any aspect of this lease, or from complying with any governmental or court order or similar legal requirement which requires such party to disclose this Lease, the terms of this Lease, the transaction contemplated by this Lease and/or any aspect of this Lease; provided that such Tenant uses reasonable and diligent good faith efforts to disclose no more than is absolutely required to be disclosed by such legal requirement. If Tenant violates this confidentiality provision, in addition to all other remedies to which Landlord may be entitled under law or in equity, Landlord will be entitled to receive immediately the entire value of any rent relief, construction allowance, rent abatement, free rent, reimbursement, or other concession which Landlord has previously granted to Tenant. 47. Miscellaneous. 47.1. Tenant covenants and agrees not to protest or in any way oppose any application for a license to serve or sell liquor filed by tenants or other users of space within the Project. 32 34 47.2. Tenant acknowledges receipt of copies of the following documents, which were provided without warranty or representation: (i) Statement of Conditions, Maintenance, Restrictions and Reservation of Easements dated as of October 5, 1989, and recorded in the San Diego County Recorder's Office on October 26, 1989, as Documents No. 89-5833339 and (ii) Title Report issued by Chicago Title Company. Landlord will provide no other reports or studies relative to the Premises which Tenant will accept in its as-is, where-is condition. Tenant acknowledges that (a) Landlord's predecessor-in-interest acquired the Project pursuant to foreclosure proceedings, (b) Landlord did not develop or construct the Project or grade the Premises, and (c) Landlord does not make any warranty or representation concerning the Project or the Premises except as expressly stated in this Lease. 47.3. Upon Landlord's written request, Tenant shall promptly furnish to Landlord, from time to time, with financial statements certified by Tenant to be true and correct, reflecting Tenant's then current financial condition. Such financial statements will include a current balance sheet and a profit and loss statement covering the most recent 12-month period available. In addition, upon Landlord's written request, Tenant shall allow Landlord, or a certified public accountant of Landlord's choosing, to determine Tenant's current financial condition by reviewing Tenant's current financial books, records, and accounts at Tenant's corporate offices. 47.4. Notwithstanding any other provision in this Lease to the contrary, Tenant shall refrain from selling or otherwise distributing any alcoholic beverages unless such sale is specifically permitted by Landlord, in its sole discretion. 47.5. This Lease will be governed by and construed in accordance with the laws of the State of California. 47.6. For purposes of venue and jurisdiction, this Lease will be deemed made and to be performed in the City of San Diego, California (whether or not the Premises are located in San Diego, California) and Landlord and Tenant hereby consent to the jurisdiction of the Courts of the County of San Diego. 47.7. This Lease may be executed in counterparts, each of which will be deemed an original and all of which together will constitute one document. 47.8. Whenever the context so requires, all words used in the singular will be construed to have been used in the plural (and vice versa), each gender will be construed to include any other genders, and the word `person" will be construed to include a natural person, a corporation, a firm, a partnership, a joint venture, a trust, an estate or any other entity. 47.9. Each provision of this Lease will be valid and enforceable to the fullest extent permitted by law. If any provision of this Lease or the application of such provision to any person or circumstance will, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, will not be affected by such invalidity or unenforceability, unless such provision or such application of such provision is essential to this Lease. 47.10. In the event any litigation, arbitration, mediation, or other proceeding ("Proceeding") is initiated by any party against any other party to enforce, interpret or otherwise obtain judicial or quasi-judicial relief in connection with this Lease the prevailing party in such Proceeding will be entitled to recover from the unsuccessful party all costs, expenses, and actual attorney's fees and expert witness fees relating to or arising out of () such Proceeding (whether or not such Proceeding proceeds to judgment), and () any post-judgment or post-award proceeding including without limitation 33 35 one to enforce any judgment or award resulting from any such Proceeding. Any such judgment or award will contain a specific provision for the recovery of all such subsequently incurred costs, expenses, and actual attorney's fees and expert witness fees. 47.11. This Lease will become effective when it has been executed by each of Landlord and Tenant. 47.12. Subject to any restriction on transferability contained in this Lease, this Lease will be binding upon and will inure to the benefit of the successors-in-interest and assigns of each party to this Lease. Nothing in this Paragraph will create any rights enforceable by any person not a party to this Lease, except for the rights of the successors-in-interest and assigns of each party to this Lease, unless such rights are expressly granted in this Lease to other specifically identified persons. 47.13. The headings of the Paragraphs of this Lease have been included only for convenience, and will not be deemed in any manner to modify or limit any of the provisions of this Lease, or be used in any manner in the interpretation of this Lease. 47.14. Time and strict and punctual performance are of the essence with respect to each provision of this Lease. 47.15. This Lease contains the entire agreement between Landlord and Tenant with respect to the subject matter of this Lease, is a complete and exclusive statement of the terms of such agreement, and supersedes all prior understandings, agreements, representations and warranties, if any, with respect to such subject matter. 47.16. Each party to this Lease and its legal counsel have had an opportunity to review and revise this Lease. The rule of construction that any ambiguities are to be resolved against the drafting party will not be employed in the interpretation of this Lease or any Addendum or Exhibit to this Lease, and such rule of construction is hereby waived by Tenant. 47.17. All notices or other communications required or permitted to be given to Tenant or Landlord must be in writing and must be personally delivered, sent by certified mail, postage prepaid, return receipt requested, or sent by an overnight express courier service that provides written confirmation of delivery, to Tenant at the address set forth in Paragraph 2.11 of this Lease and to Landlord at the address set forth in Paragraph 2.10 of this Lease. Each such notice or other communication will be deemed given, delivered and received upon its actual receipt, except that if it is sent by mail in accordance with this Paragraph, then it will be deemed given, delivered and received three days after the date such notice or other communication is deposited with the United States Postal Service in accordance with this Paragraph. Landlord or Tenant may give a notice of a change of its address to the other. 47.18. All provisions, whether covenants or conditions, to be performed or observed by Tenant will be deemed to be both covenants and conditions. 47.19. All payments to be made by Tenant to Landlord under this Lease must be in United States currency. 47.20. The Exhibits and Addendum attached to this Lease are incorporated herein by this reference. LANDLORD: Pacific Oceanside Holdings, L.P., 34 36 a California limited partnership, BY: Pacific Oceanside Assets, Inc., a California corporation Its General Partner BY:_____________________________________ John W. Chamberlain, President TENANT: CinemaStar Luxury Theatre Company, Inc., a California corporation BY:________________________________________ Alan M. Grossberg ITS: Senior Vice President and Chief Operating Officer 35 37 TABLE OF CONTENTS 1. Agreement to Let .......................................................................... 1 2. Principal Lease Provisions ................................................................ 1 3. Term ...................................................................................... 3 3.1. Initial Term .................................................................. 3 3.2. Options to Extend ............................................................. 3 4. Delivery of Possession .................................................................... 4 5. Expansion and Construction ................................................................ 4 5.1. Landlord's Work ............................................................. 4 5.2. Tenant's Work ............................................................... 4 5.2.1. Description of Tenant's Work ........................................ 4 5.2.2. Conformity to Plans ................................................. 5 5.2.3. Completion of Tenant's Work ......................................... 5 5.2.4. Coordination of Construction ........................................ 6 5.2.5. No Landlord Liability ............................................... 6 5.2.6. Construction of Tenant Improvement by Tenant's Contractor ........... 6 5.3. Construction Allowance ...................................................... 7 6. Use of Premises and Common Areas .......................................................... 8 6.1. Permitted Use of Premises ................................................... 8 6.2 Compliance With Laws ........................................................ 8 6.3 Continuous Use .............................................................. 8 6.4. Hours of Business ........................................................... 9 6.5. Lines of Theatergoers ....................................................... 9 6.6. Use of Common Area .......................................................... 9 6.7 General Covenants and Limitations on Use .................................... 9 7. Rent ...................................................................................... 10
i 38 7.1. Base Rent.................................................................... 10 7.2. Rent Adjustments ............................................................ 10 7.3. Percentage Rent ............................................................. 10 7.3.1. Sales and Business Transacted ....................................... 11 7.3.2. Tenant Statements ................................................... 11 7.3.3. Landlord's Audit .................................................... 11 7.3.4. Adjustment of Percentage Rent ....................................... 12 8. Lease Expenses ............................................................................ 12 8.1. Definition of Lease Expenses ................................................ 12 8.2. Payment of Lease Expenses ................................................... 13 9. Utilities and Services .................................................................... 13 10. Maintenance .............................................................................. 14 10.1. Tenant's Duties ............................................................ 14 10.2. Landlord's Duties .......................................................... 14 11. Net Lease ................................................................................ 14 12. Parking .................................................................................. 15 13. Signs .................................................................................... 15 14. Rules, Regulations, and Covenants ........................................................ 15 15. Construction Insurance ................................................................... 16 16. Insurance Coverages ...................................................................... 16 17. Insurance Generally ...................................................................... 16 18. Waiver of Subrogation .................................................................... 17 19. Landlord's Insurance ..................................................................... 17 20. Taxes .................................................................................... 17 20.1. Personal Property Taxes .................................................... 17
ii 39 20.2. Real Property Taxes ........................................................ 18 21. Alterations .............................................................................. 18 22. Surrender of Premises and Holding Over ................................................... 18 23. Default .................................................................................. 19 24. Landlord's Remedies ...................................................................... 20 24.1. Continuation of Lease ...................................................... 20 24.2. Termination of Tenant's Right to Possession ................................ 20 24.3. Landlord's Right to Cure Default ........................................... 21 24.4. Enforcement Costs .......................................................... 21 25. Interest and Late Charges ................................................................ 21 26. Destruction .............................................................................. 21 27. Condemnation ............................................................................. 22 28. Assignment and Other Transfers ........................................................... 23 29. Common Areas ............................................................................. 24 30. Access by Landlord ....................................................................... 25 31. Landlord's Reserved Rights ............................................................... 26 32. Indemnity and Exemption of Landlord from Liability ....................................... 26 33. Hazardous Substances ..................................................................... 26 34. Prohibition Against Asbestos-Containing Materials ........................................ 27 35. Security Measures ........................................................................ 28 36. Subordination and Attornment ............................................................. 28 37. Estoppel Certificates .................................................................... 29 38. Waiver ................................................................................... 29 39. Memorandum of Lease ...................................................................... 29 40. Brokers .................................................................................. 29 41. Easements ................................................................................ 30
iii 40 42. Limitations on Landlord's Liability ...................................................... 30 43. Sale or Transfer of Premises ............................................................. 30 44. Quitclaim Deed ........................................................................... 30 45. No Merger ................................................................................ 30 46. Confidentiality .......................................................................... 31 47. Miscellaneous ............................................................................ 31
iv 41 EXHIBIT "A" TO LEASE SITE PLAN DISCLAIMER: This drawing is for general information purposes only. Any and all features, matters and other information depicted hereon or contained herein are for illustrative marketing purposes only, are subject to modification without notice, are not intended to be relied upon by any party and are not intended to constitute representations and warranties as to the size and nature of improvements to be constructed (or that any improvements will be constructed) or as to the identity or nature of any occupants thereof. 34 cinema star-exh Landlord __________ Tenant ___________ 42 EXHIBIT "A.1" TO LEASE SHARED USE PARKING DISCLAIMER: This drawing is for general information purposes only. Any and all features, matters and other information depicted hereon or contained herein are for illustrative marketing purposes only, are subject to modification without notice, are not intended to be relied upon by any party and are not intended to constitute representations and warranties as to the size and nature of improvements to be constructed 35 cinema star-exh Landlord __________ Tenant ___________ 43 (or that any improvements will be constructed) or as to the identity or nature of any occupants thereof. 44 EXHIBIT "B" TO LEASE DEMISED PREMISES PLAN Demised Premises Plan is to be the set of construction drawings as completed by the Landlord or the Landlord's approved representative and approved by the appropriate government agency. Actual area of Demised Premises Plan to be field verified upon occupancy of premises by Tenant. Rental rate (basic rent) to be adjusted (increased or decreased) to reflect the actual square footage. 36 cinema star-exh Landlord __________ Tenant ___________ 45 EXHIBIT "C" TO LEASE PEDESTRIAN ACCESS LINK LANDLORD'S WORK Per Plans and Specifications prepared by Linda Moreland & Associates dated October 24, 1996. (See attached) 38 cinema star-exh Landlord __________ Tenant ___________ 46 EXHIBIT "D" TO LEASE TENANT'S WORK Per Plans and Specifications prepared by Stuart Engineering dated November 21, 1996. (See attached) 39 cinema star-exh Landlord __________ Tenant ___________ EX-10.6 7 EXHIBIT 10.6 1 EXHIBIT 10.6 MULTI-PLEX THEATER LEASE dated December ___, 1996 by and between MDA-San Bernardino Associates, L.L.C. a Delaware limited liability company "Landlord" and CINEMASTAR LUXURY THEATERS, INC., a California corporation "Tenant" 2 GLOSSARY OF DEFINITIONS 90/10 Films . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Agency Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Annual Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Box Office Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Builder's All Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Coffee Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Common Area Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Common Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Concession Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Day Hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 DDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Delivery Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Developer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Development Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Development Parcels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Development Site . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Earthquake Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Extended Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Extensive Alteration . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 FF&E Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 FF&E Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Financing Evidence Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Fire and Extended Coverage . . . . . . . . . . . . . . . . . . . . . . 26, 28 First Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 First LC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 First Right of Refusal Period . . . . . . . . . . . . . . . . . . . . . . . 11 Flood Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 FRV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 FRV Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Hazardous Materials Laws . . . . . . . . . . . . . . . . . . . . . . . . . 67 HUD Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 HVAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Landlord's Accountant . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Landlord's Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Landlord's Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
i 3 Lease Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Mortgagee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Off Hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Ordinance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Parking Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Parking Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Parking Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Permitted Title Exceptions . . . . . . . . . . . . . . . . . . . . . . . . 12 Permittees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Project Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Proportionate Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Quarterly Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 REA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Real Property Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Redevelopment Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Second Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Second LC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Service Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 62 Tenant Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Tenant Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Tenant's "Proportionate Share" . . . . . . . . . . . . . . . . . . . . . . 45 Tenant's Accountant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Tenant's Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Tenant's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Tenant's Monthly Statement . . . . . . . . . . . . . . . . . . . . . . . . 15 Tenant's Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Tenant's Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Third Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Transferee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ii 4 TABLE OF CONTENTS
PAGE(S) ------- ARTICLE 1 FUNDAMENTAL LEASE PROVISIONS . . . . . . . . . . . . . . . 1 1.1 Definitions. . . . . . . . . . . . . . . . . . . . 1 1.2 Exhibits. . . . . . . . . . . . . . . . . . . . . . 3 1.3 Recitals. . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 2 DEMISED PREMISES . . . . . . . . . . . . . . . . . . . . . 4 2.1 Lease. . . . . . . . . . . . . . . . . . . . . . . 4 2.2 Building Construction and Measurement. . . . . . . 5 2.3 Assurances Regarding Tenant's Work . . . . . . . . 5 ARTICLE 3 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.1 Commencement of Initial Term. . . . . . . . . . . . 7 3.2 Construction Completion. . . . . . . . . . . . . . 7 3.3 Building Permits. . . . . . . . . . . . . . . . . . 8 3.4 Lease Year. . . . . . . . . . . . . . . . . . . . . 8 3.5 Tenant's Certificate. . . . . . . . . . . . . . . . 8 3.6 Tenant's Work. . . . . . . . . . . . . . . . . . . 9 3.7 Extended Term. . . . . . . . . . . . . . . . . . . 9 ARTICLE 4 FAILURE OF CONDITIONS . . . . . . . . . . . . . . . . . . . 12 4.1 Delivery of DDA. . . . . . . . . . . . . . . . . . 12 4.2 Governmental Approvals. . . . . . . . . . . . . . . 12 4.3 Environmental Studies . . . . . . . . . . . . . . . 13 4.4 Absence of Moratorium or Litigation. . . . . . . . 13 4.5 Parking. . . . . . . . . . . . . . . . . . . . . . 13 4.6 Financing Requirement. . . . . . . . . . . . . . . 13 4.7 REA. . . . . . . . . . . . . . . . . . . . . . . . 13 4.8 Final Plans . . . . . . . . . . . . . . . . . . . . 13 ARTICLE 5 RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.1 Minimum Annual Rent. . . . . . . . . . . . . . . . 14 5.2 Percentage Rents. . . . . . . . . . . . . . . . . . 14 5.3 Security Deposit. . . . . . . . . . . . . . . . . . 17 5.4 Real Property Taxes and Insurance Expenses. . . . . 17 5.5 Insurance Allocation. . . . . . . . . . . . . . . . 19 5.6 Tax and Insurance Fund. . . . . . . . . . . . . . . 19 5.7 Other Charges. . . . . . . . . . . . . . . . . . . 19 5.8 Place of Payment. . . . . . . . . . . . . . . . . . 20 5.9 Personal Property Taxes. . . . . . . . . . . . . . 20 ARTICLE 6 TERMS OF PARKING AGREEMENT . . . . . . . . . . . . . . . . 20 ARTICLE 7 PERMISSIBLE USE . . . . . . . . . . . . . . . . . . . . . . 20 7.1 Permitted Uses. . . . . . . . . . . . . . . . . . . 20 7.2 Exclusive Uses By Others. . . . . . . . . . . . . . 23 7.3 Tenant's Exclusive Use. . . . . . . . . . . . . . . 23 ARTICLE 8 UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 23 8.1 Utility Installation. . . . . . . . . . . . . . . . 23 8.2 Payment of Utility Cost. . . . . . . . . . . . . . 23 8.3 No Liability. . . . . . . . . . . . . . . . . . . . 24 ARTICLE 9 INDEMNITY AND INSURANCE . . . . . . . . . . . . . . . . . . 24 9.1 Indemnification and Waiver. . . . . . . . . . . . . 24 9.2 Waiver of Subrogation. . . . . . . . . . . . . . . 25 9.3 Tenant's Insurance Obligation. . . . . . . . . . . 25
i 5 TABLE OF CONTENTS (continued)
PAGE(S) ------- 9.4 Policy Requirements. . . . . . . . . . . . . . . . 26 9.5 Increase in Coverage. . . . . . . . . . . . . . . . 27 9.6 Blanket Coverage. . . . . . . . . . . . . . . . . . 27 9.7 Landlord's Insurance Obligations. . . . . . . . . . 27 9.8 Insurance Use Restrictions. . . . . . . . . . . . . 28 9.9 Tenant's Failure to Obtain Insurance. . . . . . . . 28 ARTICLE 10 TENANT'S ALTERATIONS . . . . . . . . . . . . . . . . . . . 28 10.1 Permitted Alterations. . . . . . . . . . . . . . . 28 10.2 Manner of Construction. . . . . . . . . . . . . . . 29 10.3 Construction Insurance. . . . . . . . . . . . . . . 30 ARTICLE 11 MECHANICS' LIENS . . . . . . . . . . . . . . . . . . . . . 30 11.1 Tenant's Lien Obligations. . . . . . . . . . . . . 30 11.2 Notice . . . . . . . . . . . . . . . . . . . . . . 31 11.3 Inspection; Notice of Non-Responsibility . . . . . 31 11.4 Common Areas . . . . . . . . . . . . . . . . . . . 31 ARTICLE 12 SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 12.1 In General. . . . . . . . . . . . . . . . . . . . . 31 12.2 Promotional Signs. . . . . . . . . . . . . . . . . 32 ARTICLE 13 TRADE FIXTURES AND PERSONAL PROPERTY . . . . . . . . . . . 32 13.1 Ownership. . . . . . . . . . . . . . . . . . . . . 32 13.2 Security Interest. . . . . . . . . . . . . . . . . 33 13.3 Removal. . . . . . . . . . . . . . . . . . . . . . 33 13.4 Personal Property Tax. . . . . . . . . . . . . . . 34 ARTICLE 14 ASSIGNMENT, SUBLEASE AND OTHER TRANSFERS . . . . . . . . . 34 14.1 Restrictions. . . . . . . . . . . . . . . . . . . . 34 14.2 Procedure for Transfer. . . . . . . . . . . . . . . 35 14.3 Transfer Rent Adjustment. . . . . . . . . . . . . . 36 14.4 Required Documents. . . . . . . . . . . . . . . . . 36 14.5 Merger and Consolidation. . . . . . . . . . . . . . 37 14.6 Bankruptcy. . . . . . . . . . . . . . . . . . . . . 37 14.7 Exception for Concessions. . . . . . . . . . . . . 37 ARTICLE 15 OPERATION OF TENANT'S BUSINESS . . . . . . . . . . . . . . 37 15.1 Continuous Operation. . . . . . . . . . . . . . . . 37 15.2 Operating Hours. . . . . . . . . . . . . . . . . . 38 15.3 Rules and Regulations. . . . . . . . . . . . . . . 38 15.4 Special Operating Covenants. . . . . . . . . . . . 38 ARTICLE 16 REPAIRS AND MAINTENANCE . . . . . . . . . . . . . . . . . . 39 16.1 Tenant's Maintenance Obligations. . . . . . . . . . 39 16.2 Tenant's Failure to Maintain. . . . . . . . . . . . 40 16.3 Right to Enter. . . . . . . . . . . . . . . . . . . 40 16.4 Grant of License. . . . . . . . . . . . . . . . . . 41 16.5 Heating and Air Conditioning Equipment. . . . . . . 41 ARTICLE 17 DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . 42 17.1 Premises Insured Casualty. . . . . . . . . . . . . 42 17.2 Premises Uninsured Casualty. . . . . . . . . . . . 42 17.3 Damage to Other Portions of the Development. . . . 43
ii 6 TABLE OF CONTENTS (continued)
PAGE(S) ------- 17.4 Damage to Common Areas. . . . . . . . . . . . . . . 43 17.5 Right to Proceeds. . . . . . . . . . . . . . . . . 43 17.6 Casualty to Parking Areas. . . . . . . . . . . . . . 43 17.7 Damage to Premises Near End of Term. . . . . . . . 44 17.8 Release of Liability. . . . . . . . . . . . . . . . 44 17.9 Abatement of Rent. . . . . . . . . . . . . . . . . 44 ARTICLE 18 COMMON AREAS, PARKING AREAS AND EXPENSES . . . . . . . . . 45 18.1 Use of Common Areas. . . . . . . . . . . . . . . . 45 18.2 Parking Areas. . . . . . . . . . . . . . . . . . . 45 18.3 Common Area Expense. . . . . . . . . . . . . . . . 45 18.4 Expenses Included. . . . . . . . . . . . . . . . . 46 18.5 Expenses Excluded. . . . . . . . . . . . . . . . . 47 18.6 Enlargement of Common Areas. . . . . . . . . . . . 49 18.7 Common Area Rules and Regulations. . . . . . . . . 49 18.8 Control of Common Area. . . . . . . . . . . . . . . 49 18.9 Employee Parking Restrictions. . . . . . . . . . . . 50 18.10 Index . . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE 19 TENANT'S DEFAULTS; REMEDIES . . . . . . . . . . . . . . . . 51 19.1 Events of Default. . . . . . . . . . . . . . . . . 51 19.2 Remedies. . . . . . . . . . . . . . . . . . . . . . 52 19.3 Computations. . . . . . . . . . . . . . . . . . . . 55 19.4 Definition of Worth at the Time of Award. . . . . . 56 19.5 Efforts to Relet. . . . . . . . . . . . . . . . . . 56 19.6 No Waiver. . . . . . . . . . . . . . . . . . . . . 56 ARTICLE 20 DEFAULT BY LANDLORD . . . . . . . . . . . . . . . . . . . . 56 ARTICLE 21 ATTORNEYS' FEES . . . . . . . . . . . . . . . . . . . . . . 57 21.1 Legal Actions between Landlord and Tenant. . . . . 57 ARTICLE 22 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . 57 22.1 Taking Resulting in Termination. . . . . . . . . . 57 22.2 Partial Taking. . . . . . . . . . . . . . . . . . . 57 22.3 Award. . . . . . . . . . . . . . . . . . . . . . . 58 22.4 Transfer Under Threat of Taking. . . . . . . . . . 58 22.5 Requisitioning. . . . . . . . . . . . . . . . . . . 58 ARTICLE 23 SUBORDINATION; ATTORNMENT . . . . . . . . . . . . . . . . . 58 23.1 Subordination. . . . . . . . . . . . . . . . . . . 58 23.2 Future Encumbrance. . . . . . . . . . . . . . . . . 59 23.3 Attornment. . . . . . . . . . . . . . . . . . . . . 60 23.4 Estoppel Certificate. . . . . . . . . . . . . . . . 60 ARTICLE 24 SALE OF PREMISES BY LANDLORD . . . . . . . . . . . . . . . 60 ARTICLE 25 HOLDOVER BY TENANT . . . . . . . . . . . . . . . . . . . . 60 25.1 Holdover Tenancy. . . . . . . . . . . . . . . . . . 60 25.2 Failure to Surrender. . . . . . . . . . . . . . . . 61 ARTICLE 26 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . 61 26.1 Notices. . . . . . . . . . . . . . . . . . . . . . 61 26.2 Default Notices. . . . . . . . . . . . . . . . . . 61
iii 7 TABLE OF CONTENTS (continued)
PAGE(S) ------- ARTICLE 27 CAPTIONS AND TERMS . . . . . . . . . . . . . . . . . . . . 62 27.1 Reference Only. . . . . . . . . . . . . . . . . . . 62 27.2 Parties. . . . . . . . . . . . . . . . . . . . . . 62 ARTICLE 28 OBLIGATIONS OF SUCCESSORS . . . . . . . . . . . . . . . . . 62 ARTICLE 29 MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . 62 29.1 Separability. . . . . . . . . . . . . . . . . . . . 62 29.2 Tenant Warranties. . . . . . . . . . . . . . . . . 62 29.3 Merger. . . . . . . . . . . . . . . . . . . . . . . 63 29.4 Right to Lease. . . . . . . . . . . . . . . . . . . 64 29.5 Governing Law. . . . . . . . . . . . . . . . . . . 64 29.6 Force Majeure. . . . . . . . . . . . . . . . . . . 64 29.7 Cumulative Rights. . . . . . . . . . . . . . . . . 64 29.8 Time. . . . . . . . . . . . . . . . . . . . . . . . 64 29.9 Relationship of Parties. . . . . . . . . . . . . . 64 29.10 Late Charges. . . . . . . . . . . . . . . . . . . . 65 29.11 Financial Statements. . . . . . . . . . . . . . . . 65 29.12 Real Estate Brokers. . . . . . . . . . . . . . . . . 65 29.13 Default Rate. . . . . . . . . . . . . . . . . . . . 66 29.14 No Offer to Lease. . . . . . . . . . . . . . . . . . 66 29.15 Exculpation. . . . . . . . . . . . . . . . . . . . . 66 29.16 Hazardous Materials. . . . . . . . . . . . . . . . . 66 29.17 Nondiscrimination. . . . . . . . . . . . . . . . . . 68 29.18 Title of Landlord. . . . . . . . . . . . . . . . . . 69 29.19 Restriction on Similar Businesses. . . . . . . . . . 69 29.20 Agency . . . . . . . . . . . . . . . . . . . . . . . 70 29.21 Time. . . . . . . . . . . . . . . . . . . . . . . . 70 29.22 Waiver. . . . . . . . . . . . . . . . . . . . . . . 70 29.23 Counterparts. . . . . . . . . . . . . . . . . . . . 70 29.24 Lease Not to be Recorded. . . . . . . . . . . . . . 70 29.25 Mortgagee Requirements. . . . . . . . . . . . . . . . 70 29.26 Tenant Acknowledgment. . . . . . . . . . . . . . . . 71
iv 8 SAN BERNARDINO, CALIFORNIA MULTI-PLEX THEATER LEASE THIS MULTI-PLEX THEATER LEASE ("Lease") is dated December ___, 1996 ("Effective Date"), and entered into by and between MDA-SAN BERNARDINO ASSOCIATES, L.L.C., a Delaware limited liability company ("Landlord"), and CINEMASTAR LUXURY THEATERS, INC., a California corporation ("Tenant"). ARTICLE 1 FUNDAMENTAL LEASE PROVISIONS 1.1 DEFINITIONS. For purposes of this Lease, the following terms shall have the following meanings: (a) LEASE TERM: (i) INITIAL LEASE TERM: Twenty-five (25) years. (ii) EXTENDED TERMS: Two (2) five (5) year extensions. (b) RENTAL COMMENCEMENT DATE: Earlier of (a) 240 days after the issuance by City of San Bernardino of the Tenant's permits for Tenant's Work; or (b) 330 days after Substantial Completion of Landlord's Work, except as otherwise provided in Section 3.3. (c) MINIMUM ANNUAL RENT: Lease Year 1-5: One Dollar thirty-nine Cents ($1.39) per square foot per month. (d) ESCALATION: Minimum Annual Rent increased by 10% every fifth year of the Initial Term beginning in Lease Year 6, and by the greater of Fair Rental Value or ten percent (10%) at the commencement of each Extended Term. 1 9 (e) PERCENTAGE RENT: 8% of Gross Sales from Box Office Sales (excluding 90/10 Films, as defined in Section 4.3) and 5% of Gross Sales from Concession Sales. (f) EFFECTIVE DATE: Date of Lease execution (g) ADDRESS FOR NOTICES: TO LANDLORD: MDA-San Bernardino Associates, L.L.C. c/o Metropolitan Development 300 North Continental Blvd. Suite 360 El Segundo, CA 90245 Attn: Rex Swanson TO TENANT: CinemaStar Luxury Theaters, Inc. 431 College Boulevard Oceanside, CA 92057 Attn: John Ellison, Jr., President (h) SECURITY DEPOSIT: None (i) BUILDING: The free standing Building to be constructed by Tenant having approximately Eighty Thousand (80,000) square feet of floor area, exclusive of any mezzanine, measured from the outside of exterior walls (i.e., the Building footprint). (j) THEATER PARCEL: The land on which the Building shall be constructed as more particularly described in Exhibit A-1. (k) PREMISES: The Theater Parcel and Building. (l) USE OF PREMISES: First class, state of the art, movie theater, using best efforts to-show first run films, and attendant food and beverage sales. movie/video memorabilia/novelties 2 10 concession stands, and video or similar interactive games and for no other purpose. (m) TRADE NAME: CinemaStar Luxury Theaters (n) MARKETING FUND CHARGE: None (o) DEVELOPMENT: That certain Development depicted as Exhibit A-2, known as "MDA-San Bernardino Entertainment Center," which Landlord intends to construct on the Theater Parcel and adjoining land ("Development Parcels") described in Exhibit A-3 in the City of San Bernardino ("City"), County of San Bernardino, State of California. 1.2 EXHIBITS. The following drawings, documents and provisions are attached hereto as Exhibits and incorporated herein by this reference: Exhibit "A-1" - Legal Description of Theater Parcel. Exhibit "A-2" - Preliminary Site Plan of the Development. Tenant acknowledges that Landlord may unilaterally change the shape, size, location, number and extent of the improvements in the Development without Tenant's consent; provided, however, no such unilateral changes shall unreasonably impair Tenant's ability to conduct its business, or unreasonably impair access to, or parking for, the Premises. Exhibit "A-3" - Legal Description of Development Parcels. Exhibit "B" - Elevation Drawings of the Premises. Exhibit "C" - A description of work to be performed by Landlord ("Landlord's Work") and by Tenant ("Tenant's Work") in or on the Premises. The Premises shall be constructed pursuant to and in accordance with the procedures outlined in Exhibit "C." Exhibit "D" - Form of Guaranty. Exhibit "E" - Form of Tenant's Certificate. Exhibit "F" - Sign Criteria. Exhibit "G" - Rules and Regulations. Exhibit "H" - Subordination Agreement. 3 11 Exhibit "I" - Parking Agreement. Exhibit "J" - Permitted Title Exceptions. Exhibit "K" - Memorandum of Lease. Exhibit "L" - Additional Covenants. Landlord and Tenant shall use good faith efforts to finalize all exhibits which are not attached hereto as of the Effective Date. 1.3 RECITALS. (a) The Redevelopment Agency of the City of San Bernardino ("Agency") has or shall convey to Landlord fee title to the Theater Parcel and Development Parcels (collectively, "Development Site") pursuant to the terms and conditions of a Disposition and Development Agreement to be entered into by the Agency and Landlord, on terms and conditions acceptable to Landlord ("DDA"). (b) The Development Site is part of a larger tract of land (the "Project Area") that is subject to the Redevelopment Plan for Project Area No. _____ of Agency (the "Redevelopment Plan"). The Redevelopment Plan was approved and adopted by the City pursuant to Ordinance No. ______ adopted ____________________ (the "Ordinance"). (c) Agency and Landlord, as "Developer," will be executing the DDA for the purposes of setting forth their agreement as to the development of the Development Site by Landlord. Landlord shall lease the Theater Parcel to Tenant pursuant to Landlord's rights under the DDA. (d) Certain third parties (collectively, the "Parking Owners") own certain real property in near proximity to the Theater Parcel on which at least 1,500 parking spaces shall be made available for the non-exclusive use by "Permittees" (as defined in Section 4.4) of the Premises during evenings, weekends and holidays ("Off Hours") and on which at least 1,100 parking spaces shall be made available for the non-exclusive use by Permittees of the Premises at all other times ("Day Hours") (collectively the Parking Areas), as shall be described in one or more agreements, between Parking Owners and Landlord and/or Agency ("Parking Agreement"), a copy of which shall be attached hereto as Exhibit "I." ARTICLE 2 DEMISED PREMISES 2.1 LEASE. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises, which will be a part of the Development as shown on Exhibit "A-2") hereof. This Lease is subject to the terms, covenants and conditions herein set forth, and Tenant 4 12 [covenants as a material part of the consideration of this Lease to keep and perform each and all of Tenant's terms, covenants and conditions. 2.2 BUILDING CONSTRUCTION AND MEASUREMENT. Tenant is responsible for the design and construction of the Building and agrees to construct an approximately 80,000 square foot building as set forth on Exhibit "C." Except for Landlord's Work and the Tenant Improvement Allowance (as defined in Exhibit "C"), all Tenant Work shall be at Tenant's sole cost and expense. Within thirty (30) days after completion of the construction of the Building, Landlord and/or Tenant shall have the right, but not the obligation, to cause its architect(s) to remeasure the Building. Landlord and Tenant shall enter into an amendment to this Lease to reflect the actual number of square feet of floor area. In the event the number of square feet of floor area in the Building (excluding mezzanines), measured from exterior walls to exterior walls (i.e., the Building footprint) as determined by such remeasurement is greater or less than one percent (1%) of 80,000 square feet (i.e., + 800 square feet), Landlord shall proportionately adjust all charges which are calculated based on the number of square feet of floor area hereunder (except as expressly provided below, no adjustment shall be made in Minimum Annual Rent). If the actual square footage of floor area is (a) greater than 80,000 square feet, Tenant nonetheless shall not be entitled to any Tenant Improvement Allowance for such excess square footage provided, however, if Landlord elects to contribute an additional Tenant Improvement Allowance (at $115 per square foot of floor area in excess of 80,000 square feet) for such excess space, then Tenant shall pay Minimum Annual Rent at the rate specified in Section 1.1(e) and (d) for such excess space; or (b) less than 80,000 square feet, Tenant nonetheless shall not be entitled to any portion of the Tenant Improvement Allowance per square foot in excess of the actual square footage of floor area constructed in the Building, and, if subsection (b) above applies, Tenant shall refund to Landlord any portion of the Tenant Improvement Allowance theretofore paid to Tenant in excess of the actual square footage of floor area of the Building multiplied by the per square foot amount of the Tenant Improvement Allowance (i.e. $115) within fifteen (15) days of billing. 2.3 ASSURANCES REGARDING TENANT'S WORK. Tenant covenants that it shall contribute not less than $1,000,000 in cash towards payment of Tenant's Work (provided, however, Tenant may encumber FF&E purchased with such cash funds as set forth in Section 2.3(a)). In order to provide Landlord with assurances that Tenant shall be financially able to commence and complete Tenant's obligations with respect to construction of the Building and installation of FF&E, in addition to the delivery of the Guaranty concurrently with the execution of this Lease, Tenant shall do each of the following as and when required below: (a) On or before sixty (60) days after execution of this Lease, Tenant shall deliver to Landlord, at Tenant's sole cost and 5 13 expense the firm written commitment of a bank, savings and loan or other institutional lender ("FF&E Lender") verifying that Tenant has been pre-approved by FF&E Lender and verifying the availability to Tenant (or, upon notice by Landlord to FF&E Lender that Tenant is in default hereunder, to Landlord) of loan funds in the principal amount of not less than $1,000,000 ("FF&E Commitment") to finance a portion of the cost of constructing and installing the FF&E in the Premises, which loan shall be secured by a security interest in at least $2,000,000 of FF&E at the Premises, superior in priority to Landlord's lien, and providing that such loan may be drawn upon by Landlord in the event of a default by Tenant under the Lease (at Landlord's election, prior to or after Landlord's draw down of funds under the "First LC and "Second LC" described below), and otherwise on terms and conditions satisfactory to Landlord and Landlord's Mortgagees in their sole discretion. Landlord shall give notice to Tenant of its approval or disapproval of the FF&E Commitment within thirty (30) days of receipt. If Landlord disapproves, Tenant shall use good faith and commercially reasonable efforts to obtain a revised loan commitment satisfying Landlord's requirements (which commitment when approved by Landlord shall be referred to as the "Approved FF&E Commitment"). (b) On or before the later of ("Financing Evidence Date") (1) February 15, 1997; or (2) ten (10) days after written notice to Tenant that Landlord is prepared to encumber (or has encumbered) the Development Site with the Development Loan and intends to commence Landlord's Work, Tenant shall deliver to Landlord, at Tenant's sole cost and expense: (i) an unconditional and irrevocable letter of credit (the "First LC") in the amount of $500,000, issued by a national banking association approved by Landlord, with an expiration date not sooner than one (1) year from issuance, automatically renewable for successive one-year periods unless notice is given by the issuer to Landlord at least sixty (60) days prior to expiration (with any nonrenewal entitling Landlord to draw down on the First LC upon certification that no substitute letter of credit has been delivered to Landlord on or before at least thirty (30) days prior to the expiration date), made payable to Landlord or Landlord's transferee upon delivery to the issuer of the original First LC together with an executed certification by the managing member of Landlord stating that (A) Tenant is in default of Tenant's obligations under the Lease; (B) Tenant has failed to cure such default within the applicable grace period provided under the Lease; and (C) the sums drawn under the First LC shall be used to pay or to reimburse Landlord for a portion of the costs incurred and to be incurred by Landlord with respect to construction and/or fixturization of the Premises or to pay or reimburse Landlord for any other cost or expense incurred or to be incurred by Landlord as a result of such breach; and 6 14 (ii) The final executed loan agreement and related security documents, evidencing the FF&E Loan on the terms and subject to the conditions of the Approved FF&E Commitment, and containing no additional terms or conditions which are, in Landlord's sole opinion, in conflict with or substantively differ from the Approved FF&E Commitment. (c) On or before sixty (60) days after the Financing Evidence Date, Tenant shall deliver to Landlord a second letter of credit ("Second LC"), also in the amount of $500,000, made payable to Landlord or Landlord's transferee, on the same terms and conditions as the First LC. (d) Provided that Tenant is not then in default hereunder, the First LC and Second LC shall be surrendered by Landlord to Tenant upon Landlord's receipt of reasonably satisfactory evidence from Tenant (including invoices and lien waivers) verifying that, (i) as to the First LC, at least $500,000 worth of FF&E has been installed in the Premises and paid for by Tenant from Tenant's funds (other than proceeds from the FF&E Loan) and (ii) as to the Second LC, an additional $500,000 worth of FF&E has been installed in the Premises and paid for by Tenant from Tenant's funds (other than proceeds from the FF&E Loan). ARTICLE 3 TERM 3.1 COMMENCEMENT OF INITIAL TERM. The Lease shall be effective as of the date hereof. The Initial Lease Term set forth in Section 1.1(a[i]) above shall be computed from the first day of the first full calendar month immediately following the Rental Commencement Date, unless sooner terminated as hereinafter provided. If the Initial Term does not commence for any reason on or before thirty-six (36) months after the Effective Date, this Lease shall terminate and be of no further force or effect. Landlord agrees to deliver to Tenant, and Tenant agrees to accept from Landlord, the Theater Parcel upon which the Building will be constructed upon "Substantial Completion" of that portion of "Landlord's Work" related to the delivery of a "Building Pad", in a condition such that Tenant shall be able to commence Tenant's Work thereon, all as more particularly described in Exhibit "C" (the "Delivery Date"). Notice from Landlord of Substantial Completion of such portion of Landlord's Work hereof shall be conclusive and binding upon the parties hereto as to the Delivery Date provided that such work has been performed in accordance with the plans and specifications approved by Landlord and Tenant under Exhibit "C" (except for "punch list" items as described in Exhibit "C"). If Landlord inadvertently fails to give Tenant such notice prior to Tenant taking possession of the Theater Parcel, such notice shall be deemed given as of the date Tenant actually takes possession of the Theater Parcel. 3.2 CONSTRUCTION COMPLETION. In the event that Tenant fails to complete construction of the Premises and open for business by the Rental Commencement Date (plus the amount of time, if any, attributable to acts of Landlord which prevented Tenant from completing construction of the Premises), Tenant shall not be deemed in default hereunder so long as Tenant commences payment of rent and other charges as of the Rental Commencement Date and diligently pursues completion of construction and opening for business by no later than six (6) months following the Rental Commencement Date. 7 15 3.3 BUILDING PERMITS. In the event after using best efforts and due diligence Tenant fails to obtain all required building permits for Tenant's Work within ninety (90) days after Landlord's approval of Tenant's Final Plans as provided in Exhibit "C" hereof, and provided that Landlord has cooperated with and used good faith and commercially reasonable efforts to assist Tenant in obtaining such permits (but without cost to Landlord), then Landlord, at Landlord's sole option, upon written notice to Tenant at any time after one hundred eighty (180) days from Landlord's approval of the Final Plans, but prior to issuance of the building permits, shall have the right to terminate this Lease. If Landlord so terminates this Lease, Tenant shall assign and deliver, to Landlord, all investigations, studies, tests, reports, surveys, drawings, plans, specifications, permits and other work product relating to the Premises prepared by or on behalf of Tenant or in Tenant's possession, provided that Landlord agrees to pay to Tenant the actual out-of-pocket costs Tenant has incurred with respect to any such item which Landlord desires to be delivered to it, and, except as provided in this Section 3.3 and Sections 9.1, 25, 29.2(d). 29.12, 29.15 and 29.16 below, Landlord and Tenant shall be relieved from any and all liability hereunder accruing from and after the termination date. Notwithstanding anything to the contrary herein, if Tenant is unable to obtain building permits within ninety (90) days from Landlord's approval of Final Plans and this Lease is not terminated as permitted above, the Rental Commencement Date shall occur on the earlier of three hundred thirty (330) days after Landlord's approval of the Final Plans or three hundred thirty (330) days after Substantial Completion of Landlord's Work. 3.4 LEASE YEAR. The term "Lease Year" shall mean a period of twelve (12) consecutive full calendar months (except for the first Lease Year, which may be longer). The first Lease Year shall commence on the Rental Commencement Date and expire at 11:59 p.m. on the day immediately preceding either (a) the first day of the first full calendar month immediately following the first anniversary of the Rental Commencement Date; or (b) the first anniversary of the Rental Commencement Date, if the Rental Commencement Date occurs on the first day of a calendar month. Succeeding Lease Years shall commence on the first day following the end of the preceding Lease Year. 3.5 TENANT'S CERTIFICATE. At any time after the Effective Date, within ten (10) days following request in writing by Landlord, Tenant will execute and deliver to Landlord a certificate substantially in the form attached hereto as Exhibit "E" ("Tenant's Certificate"). The failure of Tenant to execute and deliver such certificate on a timely basis shall constitute an automatic acceptance of the Premises and an express acknowledgment by Tenant that the statements included in Exhibit "E" are true and correct, without exception. 8 16 3.6 TENANT'S WORK. Except as set forth in Exhibit "C," Tenant shall commence Tenant's Work as soon as practicable, but in no event later than ninety (90) days following the Delivery Date. Tenant, at its sole cost and expense, shall diligently perform all of Tenant's Work as set forth in Exhibit "C" and shall equip the Premises with all trade fixtures and personal property suitable or appropriate for the regular and normal operation of a first-class, state of the art stadium seating "20-plex" (or more) motion picture theater, open to paying audiences, with approximately 4,500 patron seats, including, without limitation, state of the art screens, speakers, sound system, projection equipment, concession equipment, seating, furniture and all other fixturization. All materials, furnishings, trade fixtures, personal property, furniture and fixtures shall be new and in first class condition. Tenant further agrees to open for business as soon as possible after Substantial Completion of Landlord's Work as specified in Exhibit "C." In any event, but subject to Force Majeure, as defined in Section 29.6 below, Tenant agrees to open for business not later than the Rental Commencement Date. If Tenant fails to commence, diligently pursue, and complete Tenant's Work in accordance with the work schedule set forth in Exhibit "C," in addition to all other rights and remedies of Landlord hereunder, Landlord, after notice and opportunity to cure as set forth herein, shall have the right to enter the Premises to commence, perform, and/or complete Tenant's Work, and all costs and expenses incurred by Landlord shall be paid by Tenant to Landlord upon demand. 3.7 EXTENDED TERM. Tenant may extend the Initial Term for two (2) additional periods of five (5) years each (each, an "Extended Term") upon all the terms and conditions of the Lease, subject to the following terms, conditions and exceptions: (a) Tenant's option to extend shall automatically terminate upon any transfer, assignment, sublease, conveyance, hypothecation or encumbrance of the Lease without Landlord's consent, or if the use of the Premises is changed from that set forth in Section 1.1(1). (b) Tenant shall notify Landlord in writing of Tenant's desire to exercise an option to extend at least six (6) months but no more than twelve (12) months prior to the expiration of the then existing Lease Term. (c) If the Lease is not in effect on the date of giving notice to exercise an option to extend, such notice shall be null and void. If the Lease is not in effect on the date immediately preceding the date the Extended Term would otherwise begin, the Extended Term shall not commence and the Lease shall expire at the end of the original Lease Term. (d) If Tenant is in default under any of the terms and conditions of the Lease on the date of giving written notice to exercise an option to extend, or if Tenant has been in material default more than three times during the three (3) year period prior to the date of Tenant's notice that it wishes to exercise an option to extend, such notice shall be null and void and have no effect. If Tenant has been in material 9 17 default during the period from the date of exercising an option to extend until the date immediately preceding the commencement of an Extended Term, such Extended Term shall not commence and the Lease shall expire at the end of the then existing Lease Term. (e) Minimum Annual Rent shall increase on the first day of each Extended Term to the greater of one hundred ten percent (110%) of the Minimum Annual Rent payable for the immediately prior Lease Year or the fair rental value ("FRV") of the Premises. (i) The FRV of the Premises shall mean the rental rate that a ready and willing tenant and a ready and willing landlord would agree on for the rental of a first class movie theater showing first run movies in San Bernardino County, with such theater being in the condition in which the Premises should be in, at the end of the Term then ending, pursuant to the terms of this Lease, i.e., the condition the Premises would be in if Tenant has consistently undertaken and completed all of its maintenance and repair obligations hereunder. If Tenant has not so met its maintenance and repair obligations, then the FRV of the Premises shall mean the rental value of the Premises at its highest and best use, following conversion, if any, for same. (ii) Landlord shall give Tenant written notice of the FRV of the Premises on or before ninety (90) days prior to the commencement date of the next ensuing Extended Term (the "FRV Notice"). If Landlord fails to provide the FRV Notice, the Minimum Annual Rent for the applicable Extended Term shall be one hundred ten percent (110%) of the last paid Minimum Annual Rent. If Landlord delivers the FRV Notice and Tenant objects to Landlord's determination of the FRV of the Premises for the Extended Term, Tenant shall notify Landlord in writing, within fifteen (15) days after receipt of the FRV Notice, that Tenant disagrees with Landlord's determination ("Tenant's Notice"). In the event that Landlord and Tenant are unable to agree upon the FRV of the Premises within thirty (30) days after Tenant's Notice, then the FRV shall be determined by appraisal in the manner provided below. Until the FRV is determined by appraisal, upon commencement of the Extended Term, Tenant shall pay to Landlord one hundred ten percent (110%) of the Minimum Annual Rent which was payable for the Lease Term immediately preceding the commencement of the Extended Term, and, after determination of the FRV as provided below, Tenant shall pay to Landlord any underpayment of Minimum Annual Rent owing for prior months together with the next monthly installment of Minimum Annual Rent. (iii) If appraisal is required pursuant to the above, the FRV of the Premises shall be determined as follows: 10 18 A. Within sixty (60) days of Tenant's Notice, the FRV of the Premises shall be appraised by an independent MAI appraiser, with at least five (5) years experience appraising commercial property in the San Bernardino County area chosen and paid for by Tenant ("First Appraisal") and the appraisal report, including a copy of the appraiser's qualifications, shall be forwarded to Landlord. If Tenant fails to appoint its appraiser or fails to deliver the First Appraisal within such 30-day period, Minimum Annual Rent for the Extended Term shall be as set forth in Landlord's FRV Notice. If the First Appraisal is unacceptable to Landlord, then Landlord shall so advise Tenant in writing within ten (10) working days after receipt of the First Appraisal, and Landlord shall, within thirty (30) days thereafter, engage at Landlord's sole cost and expense, an independent MAI appraiser, with at least five (5) years experience appraising commercial property in the San Bernardino County area, to appraise the FRV of the Premises ("Second Appraisal") and the appraisal report shall be forwarded to Tenant within such 30-day period. B. If the Second Appraisal is unacceptable to Tenant, then Tenant shall advise Landlord within ten (10) working days after receipt of the Second Appraisal, and the first appraiser and second appraiser shall be directed by Tenant and Landlord, respectively, to jointly choose a third MAI appraiser, with at least five (5) years experience appraising commercial property in the San Bernardino County area. The cost of the third appraiser shall be split equally between Landlord and Tenant. The third appraiser shall be directed to appraise the FRV of the Premises ("Third Appraisal") and forward the appraisal report to Landlord and Tenant within thirty (30) days of his/her selection. In that event, the FRV for the Premises shall be the sum of the two closest of the First, Second and Third Appraisals, divided by two (2), and the appraisal which is furthest away in amount from the other two appraisals (whether high or low) shall be disregarded. In no event shall the Minimum Annual Rent determined by appraisal be less than one hundred ten percent (110%) of the Minimum Annual Rent for the immediately preceding Lease Year. (f) Notwithstanding the foregoing, if Tenant fails to exercise an extension option because the FRV of the Premises results in Minimum Annual Rent in an amount that Tenant has advised Landlord in writing during the Lease Term is more than Tenant is willing to pay for the Extended Term, then Landlord shall not enter into a lease of the Premises with any other party for the uses permitted in Section 1.1(l) within a six (6) month period (the "First Right of Refusal Period") following the expiration of the Initial Term or, if applicable, the first Extension Term, at a cumulative rental rate which is less than the amount Tenant would be required to pay under Section 3.7(e) above, considering all factors (such as tenant contributions and/or allowances, percentage rent, committed term, required Landlord's Work, brokerage commissions, legal fees and similar costs attributable to such new lease), without first offering 11 19 such rental and terms to Tenant. Tenant's failure to accept such offer within ten (10) days shall be conclusively deemed as rejection by Tenant, and Landlord thereafter shall not be restricted under this subsection (f) from leasing the Premises to any party on such terms (or such greater amount as Landlord may elect). This section shall be void and of no further force or effect from and after the end of the First Right of Refusal Period. ARTICLE 4 FAILURE OF CONDITIONS The following matters shall be deemed conditions to Landlord's and Tenant's respective continuing obligations under this Lease and, if such conditions have not been satisfied or waived by the appropriate party or parties on or before one year from the Effective Date (unless an extension is mutually agreed to in writing), this Lease and the parties' rights and obligations hereunder shall terminate, and neither party shall have any further liability under this Lease (except as provided in Sections 3.3, 9.1, 29.2(d), 29.12, and 29.16 below). Landlord and Tenant shall each act in good faith and with due diligence and exercise reasonable efforts to cause each of the conditions to be fulfilled. Promptly upon the satisfaction or waiver of the condition, the parties shall mutually execute a document acknowledging the date on which the condition has been satisfied (but the failure to do so shall not release and relieve either party from the obligations and liabilities of such party under this Lease). 4.1 DELIVERY OF DDA. Landlord and Agency shall have entered into the DDA in a form acceptable to Landlord whereby, among other things, the Agency has agreed to acquire and convey the Theater Parcel and Development Parcels to Landlord, on terms and conditions acceptable to Landlord, and escrow shall have closed conveying fee title to the Theater Parcel and Development Parcels to Landlord, subject only to the exceptions to title satisfactory to Landlord (which exceptions shall be set forth on Exhibit J attached hereto) ("Permitted Title Exceptions"). 4.2 GOVERNMENTAL APPROVALS. Landlord shall have obtained all required governmental approvals, permits, waivers, conditional use permits, zoning changes and other land use entitlements (collectively, "Governmental Approvals") which may be required in order for Landlord to perform Landlord's Work. The Governmental Approvals shall not be deemed to have been "obtained" until each of the same has become final and non-appealable and any periods for challenge to or appeal from the same (or other conditions to final effectiveness) shall have expired without any challenge or appeal, including without limitation any appeals to the Board of Zoning Appeals or the City Council and any administrative or judicial challenges to the adequacy of compliance with the California 12 20 Environmental Quality Act. If any of the foregoing have occurred, then the same shall have been resolved to the satisfaction of Landlord in its sole, absolute and unrestricted discretion. Any conditions, requirements for on-site and off-site improvements or services, in-lieu fees or payments, dedication or reservation requirements, water rights acquisition costs, local improvement district costs, connection charges, assessments, mitigation fees, impact fees or permit fees imposed on the Development by any governmental entity or utility service provider shall be acceptable to Landlord, in Landlord's sole discretion. 4.3 ENVIRONMENTAL STUDIES. Tenant shall have approved any soils, environmental, hazardous waste, other similar studies and reports which Tenant obtains in connection with the Theater Parcel. 4.4 ABSENCE OF MORATORIUM OR LITIGATION. No litigation, referendum, moratorium, statute, order, regulation, ordinance, legislation, judgment, ruling or decree has been enacted, adopted, issued or entered or shall be pending or in effect, that could adversely affect the Development, or any part thereof, or the Governmental Approvals, and if any of the foregoing have occurred, then the same shall have been resolved to the satisfaction of Landlord in its sole, absolute and unrestricted discretion. 4.5 PARKING. Landlord shall have entered into the Parking Agreement, whereby one or more of the adjoining property owners shall be obligated to provide at least the number of non-exclusive parking spaces specified in Section 1.3(d) above for use by the owners and occupants of the Development Site and their respective patrons, employees, agents contractors, subtenants, licensees, and concessionaires ("Permittees") in a form acceptable to Landlord, which provides for such parking at no charge to Permittees. 4.6 FINANCING REQUIREMENT. Landlord shall have obtained a loan or loans with respect to the Development in an aggregate amount of not less than $11,925,000, on terms and conditions acceptable to Landlord, including but not limited to, the "Development Loan," "HUD Loan" and "Agency Loan," each of which is described in Section 23.1 below. 4.7 REA. Landlord shall have recorded covenants, conditions and restriction and reciprocal easements ("REA") in a form acceptable to Landlord which memorializes reciprocal rights for ingress and egress and other specified purposes over the Common Area and balance of the Development Site. 4.8 FINAL PLANS. Landlord and Tenant shall have agreed to Final Plans for the Building in accordance with Exhibit "C". 13 21 ARTICLE 5 RENT 5.1 MINIMUM ANNUAL RENT. Commencing on the Rental Commencement Date, Tenant agrees to pay to Landlord, at the times and in the manner herein provided, the Minimum Annual Rent specified in Section 1.1(1) above. Minimum Annual Rent shall be payable, in advance, in twelve (12) equal monthly installments on the first day of each calendar month, without demand, deduction, abatement or offset. If the Rental Commencement Date falls on a day of the month other than the first day of such month, the rental for the first fractional month shall accrue on a daily basis for the period from the date of such commencement to the end of such fractional calendar month at a rate equal to 1/365th of the Minimum Annual Rent per day. Common Areas Expenses (as defined in Section 18.3), "Real Property Taxes" (as defined in Section 5.4[b]), Insurance (as defined in Section 9.3) and all other charges required to be paid by Tenant on a monthly basis shall be prorated on the same basis as Minimum Annual Rent (unless paid directly by Tenant as provided below). 5.2 PERCENTAGE RENTS. Tenant shall pay to Landlord in the manner, upon the conditions, and at the times hereinafter set forth, during the Lease Term, the greater of Minimum Annual Rent, or of "Percentage Rent" based upon the amount of the "Gross Sales" generated from the Premises, as provided below. So long as Tenant operates the Premises for the use specified in Section 1.1(l) above, Gross Sales shall mean the sum of "Box Office Sales" and "Concession Sales." "Box Office Sales" means the amount of all gross receipts from all box office and other ticket sales (whether transacted in person, telephonically or by computer (excluding Box Office Sales on "90/10 Films," as defined below). "Concession Sales" means the gross receipts (less any applicable sales tax if actually received) from all other sales and rental transactions, including but not limited to food, beverage, video and other interactive games, novelties and concessions, memorabilia sales and rentals and other sales and rentals of any type generated from the Premises. Percentage Rent shall equal five percent (5%) of Concession Sales and eight percent (8%) of Box Office Sales. If at any time the Premises, or any portion thereof, is used for any purpose other than the use specified in Section 1.1(l), Gross Sales shall mean all gross receipts derived from all sales, rentals or other commercial transactions at the Premises, and Tenant shall pay Percentage Rent in an amount equal to eight percent (8%) of such Gross Sales. Gross Sales shall include the Gross Sales of any subtenant, assignee or licensee of the Premises. (a) 90/10 FILMS. "90/10 Films" shall mean a motion picture exhibited by Tenant under an exhibition agreement with a "non- affiliated" film distributor (as defined below) wherein ninety percent (90%) or more of Tenant's adjusted gross box office receipts (after Tenant has first deducted therefrom an amount agreed upon by 14 22 the Tenant and a non-affiliated film distributors for certain allowances, credits or reductions from the Gross Box Office Sales for theater overhead and operating expenses and for certain other specific expenses, i.e., the so-called "house nut") must be paid to such a film distributor for film rental. (b) RECORDS OF SALES. Tenant shall record all sales or other transactions in the presence of the customer, either in a cash register or computer with sealed continuous tape, or by using any other method of recording sequentially numbered purchases and keeping a cumulative total. (c) REPORTS OF GROSS SALES. Tenant shall furnish to Landlord a statement of Gross Sales for each calendar month (or part thereof) on or before the twentieth (20th) day of the succeeding calendar month ("Tenant's Monthly Statement"), and an annual statement ("Annual Statement") on or before the twentieth (20th) day of each "fiscal year," for the immediately preceding fiscal year of Tenant (or part thereof in the case of the first and last Lease Year), including in each case a monthly breakdown of each component of Gross Sales. In addition, Tenant shall furnish a final statement of Gross Sales on before the sixtieth (60th) day following the expiration or other termination of the Lease Term. Each statement shall include the Gross Sales of subtenants, assignees, concessionaires and licensees, if any, separately calculated, and shall be in a form reasonably acceptable to Landlord. Each statement shall separately set forth the total amount of its deduction from Box Office Sales on account of 90/10 Films and be accompanied by evidence supporting such deduction. As used herein, "fiscal year" shall mean each July 1 - June 30. (d) QUARTERLY PERCENTAGE RENT PAYMENT. Commencing on the twentieth (20th) day of the third full calendar month after the Rental Commencement Date, and on the twentieth (20th) day of each third calendar month thereafter, such Monthly Statement shall, if applicable, be accompanied by a payment to Landlord of the Percentage Rent ("Quarterly Payment"), less the monthly payments of Minimum Annual Rent for the applicable three prior month period which has been paid to date and any adjustment for overpayments in prior Quarterly Payments. The Annual Statement shall include a reconciliation of all Minimum Annual Rent and Percentage Rent paid for the applicable fiscal year together with payment, if applicable, of any Percentage Rent due. In the case of the first and last Lease year, Gross Sales for any partial fiscal year shall be divided by the number of months in such partial year and Percentage Rent shall be calculated on such average Gross Sales (less Minimum Annual Rent paid for such period) In the event of an overpayment of Percentage Rent, Landlord shall refund such overpayment within thirty (30) days of receipt of the Annual Statement. Each statement and Annual Statement shall be certified by the chief financial officer of Tenant, in good faith, and based upon the best information and belief of same. 15 23 (e) BOOKS AND RECORDS. For a period of three (3) years following the close of each calendar year, Tenant shall keep at its home office in San Diego County, California, full, complete, and proper books, records and revenue from accounts of its daily Gross Sales, both for cash and on credit, of each separate department, subtenant, and concessionaire at any time operated in the Premises. Provided Landlord has given Tenant ten (10) days prior written notice, Landlord and its agents shall have the right, during Tenant's regular business hours, to conduct a confidential examination and inspection of all the books and records of Tenant's business in the Premises, including but not limited to any Internal Revenue, Franchise Tax Board, sales or other tax reports, 90/10 Film exhibition agreements, leases, subleases and licensee and concession agreements, and other information as Landlord may reasonably request (including similar information for any subtenant, assignee, concessionaire and licensee) pertaining to the businesses conducted in, upon or from the Premises, for the purpose of investigating and verifying the accuracy of any statement of Gross Sales. (f) LANDLORD'S AUDIT. Landlord may, once in any calendar year, cause an audit of Gross Sales (the "Landlord's Audit") to be made by an accountant or other auditing company of Landlord's selection (including non-accounting firms which specialize to percentage rents audits) (the "Landlord's Accountant") and if any statement of Gross Sales or payment of Percentage Rent previously made to Landlord shall be found to have been understated, there shall be an adjustment, and Tenant shall pay, within ten (10) days of receipt of the results of Landlord's Audit, the accurate amount of said Percentage Rent that should have been paid to Landlord for the period or periods covered by such inaccurate statement or statements, together with interest at the "Default Rate" (defined in Section 29.13) from the date such payment was due until paid in full. If such a review reveals that Tenant has overpaid its Percentage Rent, Tenant shall receive a refund in the amount of the overpayment less other sums due Landlord, if any, pursuant to the terms hereof. Tenant shall pay all costs for said audit, but if the margin of understatement in the amount of Percentage Rent is less than five percent (5%) Landlord will pay for its own audit. (i) If Tenant disagrees with the results of the Landlord's Audit, Tenant may give notice thereof to Landlord within five (5) days of receipt of Landlord's Audit results and commence a separate audit of Tenant's records by a certified public accountant selected by Tenant ("Tenant's Accountant") at Tenant's expense ("Tenant's Audit") (subject to reimbursement as provided below). (ii) Any discrepancy between the Tenant's Audit and the Landlord's Audit shall be settled between the Tenant's Accountant and Landlord's Accountant, which settlement shall be binding on both Tenant and Landlord. Should Landlord's Accountant and Tenant's Accountant be unable to agree within thirty days after completion of Landlord's and Tenant's Audits, either party may submit the matter to a third accounting firm which shall be a so-called "national" 16 24 accounting firm, agreed upon by Landlord's Accountant and Tenant's Accountant. (iii) Absent agreement by the two Accountants upon selection of such third accounting firm within forty (40) days after completion of Landlord's and Tenant's Audits, such third accounting firm shall be selected by the Presiding Judge of the San Bernardino County Superior Court pursuant to Code of Civil Procedure Section 39. Within thirty (30) days after the selection of the third accountant or accounting firm, such accountant or firm shall determine all unresolved discrepancies and shall reduce such resolution to writing. Such determination shall be binding upon Landlord and Tenant. If, as the result of such resolution, the amount of Percentage Rent due for the period in question is not in excess of five percent (5%) of the amount shown by Tenant's Statements, Landlord and Tenant shall each pay for one-half ( 1/2) of the cost of the third accounting firm and Landlord shall pay all costs of Tenant's Audit. If the underpayment is in excess of five percent (5%) of the amount shown by Tenant's Statements, Tenant shall pay all audit costs, including the costs of the third audit. 5.3 SECURITY DEPOSIT. INTENTIONALLY OMITTED. 5.4 REAL PROPERTY TAXES AND INSURANCE EXPENSES. It is the intention of Landlord and Tenant that Tenant pay all Real Property Taxes and Insurance expenses which relate directly to the Building and the Premises, as Tenant shall be the sole occupant of the Building and Premises. In addition, Tenant shall pay (i) its "Proportionate Share" of all Real Property Taxes, Insurance expenses, and maintenance and repair with respect to the "Common Areas" (as defined in Section 18.1) as provided in this Section and Article 18, and (ii) the Tenant Parking Allocation, if any, under Section 18.4. (a) PROPORTIONATE SHARE. Commencing upon the Rental Commencement Date and for the balance of the Lease Term (including Extension Terms), Tenant shall pay to Landlord its "Proportionate Share" of amounts designated herein as Real Property Taxes and insurance expenses allocable to the Common Areas, and one hundred percent (100%) of the Real Property Taxes and insurance expenses allocable to the Premises. As used in this Lease, "Proportionate Share" shall mean a fraction, the numerator of which shall be the square footage of floor area in the Building (excluding the mezzanine) and the denominator of which shall be the square footage of floor area in other buildings in the Development for which certificates of occupancy have been issued (both measured in accordance with the requirements of Section 2.2). If the Premises and the Building are not separately assessed, Tenant's obligation with respect to Real Property Taxes for the Premises shall be reasonably allocated by Landlord among the parcels and improvements subject to such assessment. The taxes and insurance described in this paragraph shall mean all taxes and assessments levied with respect to any tax fiscal year applicable to the Lease Term, and the 17 25 cost to Landlord concerning any policy or policies of insurance carried by Landlord which are allocable to the Common Areas, Building and Premises as provided herein. During any portion of the Lease Term which is less than a full taxable fiscal year or less than a full period for which Landlord has obtained such insurance, Tenant's obligation for such Real Property Taxes and insurance expenses shall be prorated on a daily basis. (b) DEFINITION OF REAL PROPERTY TAXES. As used herein, the term "Real Property Taxes" shall include general real property and improvement taxes, any form of assessment, reassessment, license fee, license tax, business license tax, commercial rental tax, in lieu tax, levy, charge, or similar imposition whatsoever or at all, imposed by any authority having the direct power to tax, including any city, county, state or federal government, or any school, agricultural, lighting, redevelopment, drainage or other improvement or special assessment district thereof, or any agency or public body, as against any legal or equitable interest of Landlord in the Premises and/or the Development including, but not limited to: (i) any tax on Landlord's rent, right to rent or other income from the Premises or Landlord's business of leasing the Premises; (ii) any assessment, tax, fee, levy or charge in addition to, or in partial or total substitution of any assessment, tax, fee, levy or charge previously included within the definition of Real Property Tax. Tenant and Landlord acknowledge that Proposition 13 was adopted by the people of the State of California in June 1978 and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants. It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies and charges and all similar assessments, taxes, fees, levies and charges be included within the definition of real property taxes for the purposes of this Lease; (iii) any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the rent payable hereunder including, but not limited to, any gross income tax with respect to the receipt of such rent, or upon or concerning the possession, leasing, operation, management, maintenance, alternation, repair, use or occupancy of the Premises, or any portion thereof, by Tenant; (iv) any assessment, tax, fee, levy, or charge upon this Lease transaction or resulting from any conveyance of Tenant's interest or an estate in the Premises; and 18 26 (v) any assessment or reassessment related to any change of ownership of Landlord's interest in the Development or portion thereof, or any addition or improvement to the Development or a portion thereof. (vi) Real Property Taxes shall not include Landlord's federal or state income, franchise, inheritance or estate taxes, or late charges or penalties (unless such charges or penalties are due to Tenant's late payment of its Proportionate Share of Real Property Taxes). With respect to any assessment which may be levied against or upon the Premises and which under the laws then in force may be evidenced by improvement or other bonds, or may be paid in annual installments, there shall be included within the definition of Real Property Taxes, with respect to any tax fiscal year, only the amount currently payable on such bonds, including interest, for such tax fiscal year, or the current annual installment or semi-annual installments for such tax fiscal year. 5.5 INSURANCE ALLOCATION. Tenant shall pay its Proportionate Share of all Insurance on the Common Areas and, in the event that the Premises are not separately insured, Tenant shall pay its Proportionate Share of the costs for all such insurance carried by Landlord. 5.6 TAX AND INSURANCE FUND. Tenant shall pay to Landlord on the first day of each calendar month such amounts as Landlord shall from time to time estimate and so notify Tenant as are required for Landlord to establish a fund with which to pay Real Property Taxes and Insurance expenses prior to delinquency. Landlord shall use commercially reasonable efforts to maintain such fund in an interest-bearing account. If interest is earned by Landlord on the sums so deposited by Tenant, such interest shall accrue to the benefit of Tenant. Tenant's Proportionate Share of Real Property Taxes payable pursuant to Article 18 hereof shall be included as Real Property Taxes pursuant to this Article. Landlord shall deliver to Tenant at least once annually a statement setting forth the actual Real Property Taxes and insurance expenses allocable to the Premises together with the basis used by Landlord for computing same. If such actual expenses exceed Tenant's payments hereunder, Tenant shall pay the deficiency to Landlord within thirty (30) days after receipt of such statement. If payments made by Tenant for such year exceed such actual expenses, Landlord shall pay such excess to Tenant upon Landlord's delivery of such statement. However, if Tenant is in default hereunder, Landlord shall be permitted to offset an amount equal to the excess against any payments due or damages caused by such default. 5.7 OTHER CHARGES. Tenant shall pay to Landlord when due all sums of money required to be paid pursuant to this Article, Article 2, Article 9, Article 15, Article 16, Article 18, and Article 18, and all other sums of money or charges required to be paid or reimbursed by Tenant under this Lease as "Additional Rent," whether 19 27 or not the same is designated as Additional Rent. If Tenant shall fail to pay, as and when due, any Minimum Annual Rent, Percentage Rent and/or Additional Rent (collectively, "Rent"), in addition to all other rights and remedies available to Landlord hereunder, such unpaid amount shall bear interest at the Default Rate from the date due through the date of payment. 5.8 PLACE OF PAYMENT. All Rent charges shall be paid by Tenant to Landlord at the address specified for service of notice upon Landlord in Section 1.1(g) of this Lease, or at such other place as may from time to time be designated by Landlord in writing at least ten (10) days prior to the next ensuing payment date. 5.9 PERSONAL PROPERTY TAXES. Tenant shall pay on or before delinquency all taxes assessed against Tenant's trade fixtures, furnishings, equipment or other personal property directly to the tax authority or, if such taxes are included in Real Property Tax bills, Tenant shall pay one hundred percent (100%) of such taxes with Tenant's tax payments under Section 5.6 above. ARTICLE 6 TERMS OF PARKING AGREEMENT [TO BE INSERTED] ARTICLE 7 PERMISSIBLE USE 7.1 PERMITTED USES. (a) THEATER USE. (i) Tenant shall use the Premises solely for the purpose specified in Section 1.1(l) and, except as otherwise provided herein, under the trade name specified in Section 1.1(m) hereof; (ii) Tenant shall not use or permit the Premises to be used for any other purpose or purposes or under any other trade name whatsoever without the prior written consent of Landlord, which consent may, except as provided herein, be withheld in Landlord's sole, absolute and arbitrary discretion; and (iii) in the event that Tenant sells its business pursuant to a transaction which results in a permitted transfer under the terms of this Lease (i.e., a transfer to which Landlord has consented, or for which no consent of Landlord is required under Article 13), Landlord's consent to a proposed change in the trade name shall not be unreasonably withheld or delayed. Tenant further covenants and agrees that it will not use, nor suffer or permit any person or persons to use the Premises or any part thereof for any use or purpose prohibited under the REA, as same may be amended by Landlord from time to time, or in violation of the laws of the United States of America, State of California, 20 28 or the ordinances, regulations or requirements of the local, municipal or county governing bodies or any other lawful governmental or quasi- governmental authorities having jurisdiction over the Development, or in violation of any regulations of any insurance carrier providing insurance for the Premises or Development, or in violation of the Parking Agreement or REA. (b) TENANT'S OPERATING COVENANT. Tenant acknowledges that material inducement to Landlord to enter into this Lease is the generation of Percentage Rent from Gross Sales at the Premises. Accordingly, Tenant covenants and agrees that Tenant shall open the Premises for business to paying audiences for the use described in Section 1.1(l), fully stocked and staffed, on or before the Rent Commencement Date and shall continuously operate for the use described in Section 1.1(l) throughout the Lease Term, during customary motion picture theater hours (but in no event less than the hours and days generally operated by Tenant in its other motion picture theaters in the Southern California area provided that Tenant shall not be required to open prior to 12:00 p.m.), operating at least seventy-five percent (75%) of Tenant's movie screens during such hours at the Premises and using best efforts to show first run films at all times. (c) NO NUISANCE. Tenant agrees not to conduct or operate its business in any manner which could jeopardize or increase the rate of any fire or other insurance on the Premises or Development or to engage in conduct which may constitute a nuisance to, or interfere with, the other property of Landlord or its business, or the property or business of other tenants of the Development. Tenant may not display or sell merchandise, or allow carts, portable signs, devices or any other objects to be stored or to remain outside the defined exterior walls or roof or permanent doorways of the Building. Any sign placed or erected by Tenant and permitted hereunder shall be kept by Tenant safe, secure and in conformance with the requirements of the local governing body having jurisdiction over the Development and each of the restrictions and requirements set forth in Exhibit "F" hereof. Tenant shall have the right to erect aerial, antenna, or satellite dishes on the roof or exterior walls of the Building, provided however that in each instance, the prior written consent of Landlord shall be obtained, which consent shall not be unreasonably withheld. Nothing set forth herein shall be deemed to permit Tenant to erect any such structures in the Common Areas. Any aerial, antenna, or satellite dish so installed in violation of this provision shall be subject to removal by Landlord, Landlord's agents, and Landlord's employees, without notice at any time. In addition, Tenant agrees that it will not solicit in any manner in any of the Parking Areas and/or Common Areas of the Development. (d) RULES AND REGULATIONS. Tenant shall use its best efforts to complete or cause to be completed all deliveries, loading, unloading and services to the Premises prior to 10:00 a.m. of each day, and to prevent delivery trucks or other vehicles servicing the 21 29 Premises from parking or standing in service areas for undue periods of time. Landlord reserves the right to further reasonably regulate the activities of Tenant in regard to deliveries and servicing of the Premises, and Tenant agrees to abide by such further reasonable rules and regulations which Landlord may impose from time to time. (e) VIOLATION. In the event Tenant violates Section 7.1(a) above and changes the use of the Premises from that specified in the "Use of Premises" clause in Section 1.1(l) hereof, without Landlord's prior written consent, then in addition to all other rights and remedies of Landlord in the event of a Tenant default, Landlord may, but is not obligated to, elect to terminate this Lease upon written notice of Landlord's intent to Tenant. If this Lease shall terminate, both Landlord and Tenant shall be relieved of all further liability to each other (except that occasioned by Tenant's breach of changing the use, or otherwise, and except for covenants which expressly survive the Lease termination), and Tenant shall vacate the Premises upon the date specified in Landlord's notice to Tenant. (f) LIMITED LICENSE. Subject to the limitations below, Tenant shall have a limited right to use pushcarts to sell light snacks, and beverages (including carbonated, soft drinks, non-alcoholic beverages, and coffee), to its patrons while said patrons are waiting in line on the Theater Parcel to purchase tickets or view attractions offered by Tenant in the Premises. Said pushcarts must at all times be attended by an employee of Tenant, and shall not offer any foods or drinks the sale of which is a material part (as determined by Landlord) of the business of any other tenant in any portion of the Development, except for beverages of the type typically sold in movie theaters, provided, however, that if Landlord is unable to lease any portion of the Development to a party which operates a food service establishment emphasizing the sale of coffee (a "Coffee Bar") due to such sales by Tenant, then Tenant shall either agree to lease such space from Landlord for such use in accordance with the terms and conditions set forth in any bona fide third party offer to lease for the Coffee Bar use or cease selling coffee from such pushcarts. Said pushcarts shall not be permitted in the Parking Areas or other Common Areas of the Development, and must remain on the walkways immediately adjacent to the Building. At no time shall the presence or use of the pushcarts create an impediment to pedestrian or vehicular traffic, and said carts and their use shall at all times comply with all health, safety, and other rules and regulations of all governmental bodies having jurisdiction over food service. Landlord reserves the right to restrict the hours and days of use of the pushcarts if Landlord determines that their presence or use creates vehicular or pedestrian congestion or otherwise disrupts the flow of traffic in the Development, or if their presence or use contributes to an unsightly appearance of the area adjacent to the Premises, by resulting in refuse of any type, including paper, other containers, or food or drink on the sidewalks, parking areas, or landscape areas. Tenant shall bear all costs 22 30 related to such refuse removal, including the use of extra porters to keep the area in a neat and clean condition. Tenant recognizes that this is a very limited use right, which may be terminated by Landlord for any violations of this subparagraph, or if Landlord determines, in its sole and absolute discretion, exercised in good faith, that the use or presence of the carts contributes to an unsightly condition, or unduly impacts the businesses of other tenants in the Development, including, without limitation, by diverting sales from such other tenants. Tenant shall be solely responsible for obtaining any governmental approvals that may be required in order to lawfully operate such pushcarts. All sales from pushcarts shall be included in Concession Sales. 7.2 EXCLUSIVE USES BY OTHERS. Tenant acknowledges the existence of or plan to grant other exclusive use rights within the Development, and agrees not to violate same, whether they are in existence at the time of execution hereof, or at any time subsequently during the Term. Landlord shall endeavor to provide notice to Tenant of exclusive uses which exist in the Development from time to time, and this Lease shall be deemed to be amended to include as exclusive uses enforceable against Tenant the uses specified in such notices. As of the date hereof, no exclusive uses have been granted. However, no future granting of an exclusive use right shall prevent Tenant from operating the business permitted hereunder in the same manner as Tenant initially undertook same. 7.3 TENANT'S EXCLUSIVE USE. So long as Tenant continuously operates the Premises for the use specified in Section 1.1(l), Landlord shall not lease space within the Development to anyone for the purpose of operating within the Development a movie theater, or conducting a business requiring the use of auditoriums exceeding 10,000 square feet for meetings and conventions at the Development, without Tenant's prior written approval. This restriction shall not apply to the operation of restaurant or banquet facilities. ARTICLE 8 UTILITIES 8.1 UTILITY INSTALLATION. Landlord agrees that it will cause to be made available to Tenant, stubbed to within five feet of the perimeter of the Building Pad, facilities for the delivery to the Premises of water, power, electricity, gas and telephone service, and for the removal of sewage from the Premises, in the capacities specified, and in accordance with the plans to be provided as specified in Exhibit "C." Such utilities shall be separately metered. Tenant agrees to use such utilities in connection with the use of the Premises. 8.2 PAYMENT OF UTILITY COST. Tenant agrees, at its own expense, to pay for all water, power, gas and electric current, 23 31 sewage, telephone and all other utilities used by Tenant on or from the Premises from and after the commencement of Tenant's Work pursuant to Exhibit "C" hereof, and Tenant agrees to provide, at Tenant's sole cost and expense, any check meters of the type required by Landlord. In the event that any utilities are furnished to the Premises by Landlord, whether sub-metered or otherwise, then and in that event, Tenant shall pay Landlord for such utilities within ten (10) days of invoice, but the rates charged to Tenant by Landlord shall not exceed those of the public utility company furnishing same to Landlord as if its services were being furnished directly to Tenant. 8.3 NO LIABILITY. Except for Landlord's gross negligence, Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility service being furnished to the Premises, and no such failure or interruption shall entitle Tenant to terminate this Lease or withhold any rent or any other sums due under the terms of this Lease. ARTICLE 9 INDEMNITY AND INSURANCE 9.1 INDEMNIFICATION AND WAIVER. Tenant agrees that Landlord shall not be liable for any damage or liability of any kind, or for any injury to or death of persons, or damage to property of Tenant or any other person during the Lease Term, from any cause whatsoever, resulting from the use, occupation or enjoyment of the Premises, Parking Area and Common Areas, or the operation of business therein or therefrom by Tenant or any person holding under Tenant. Tenant hereby further agrees to defend, indemnify and save harmless Landlord, and Landlord's mortgagees, property managers, officers, directors, partners and shareholders, from all expenses, costs, liability and fees arising out of or resulting from Tenant's use of the Premises, Parking Area and Common Areas, whatsoever including, without limitation, liability for any real or claimed damage or injury and from all liens, claims and demands arising out of the use of the Premises, Parking Area and Common Areas, any repairs or alterations which Tenant may make upon the Premises, the operation of Tenant's business thereon, any claims of any employee of Tenant against Landlord, any breach or default in the performance of Tenant's obligations under this Lease, and the negligence or wilful misconduct of Tenant, or its agents, contractors, employees, subtenants, and licensees. Tenant shall not be liable for damage or injury occasioned by the gross negligence of Landlord and its designated agents, servants or employees, unless the same is covered by insurance Tenant is required to provide. The foregoing obligation of Tenant to indemnify shall survive the expiration or earlier termination of the Lease Term and shall include all costs of legal counsel and investigation, together with other reasonable costs, 24 32 expenses and liabilities incurred in connection with any and all claims of damage. 9.2 WAIVER OF SUBROGATION. To the extent any such loss or damage is covered by insurance, Landlord and Tenant each hereby waive any rights it may have against the other, or the other's officers, employees, or agents, on account of any loss or damage occasioned to Landlord or Tenant, as the case may be, their respective properties, the Premises or their contents, or to other portions of the Development arising from any risk generally covered by fire and extended coverage insurance or from vandalism, malicious mischief or sprinkler leakage. The parties hereto, on behalf of their respective insurance companies insuring such losses, waive any right of subrogation that one may have against the other provided that no policy of insurance required herein is invalidated by the foregoing waivers of subrogation. Tenant shall give notice of this waiver to its insurance carrier at each policy commencement. 9.3 TENANT'S INSURANCE OBLIGATION. Tenant further covenants and agrees that it will carry and maintain during the entire Lease Term hereof, at Tenant's sole cost and expense, the following types of "Insurance" in the amounts and forms hereinafter specified: (a) PUBLIC LIABILITY AND PROPERTY DAMAGE. A policy or policies of comprehensive general bodily injury liability and property damage liability insurance with limits of not less than Five Million and 00/100 Dollars ($5,000,000.00) combined single limit per occurrence and in the aggregate, insuring against any and all liability of the insured with respect to the Premises or arising out of the maintenance, condition, use or occupancy thereof, and property damage liability. All such bodily injury liability insurance and property damage liability insurance shall specifically insure the performance by Tenant of the indemnity agreement as to liability for injury to or death of persons and injury or damage to property contained in Section 8.2 hereof. Such policies shall include, without limitation, coverage for fire, explosion and water damage and legal liability. (b) PLATE GLASS. Tenant shall be responsible for the maintenance of the plate glass on the Premises, but shall have the option either to insure the risk pursuant to Section 9.3(c) hereof or to self-insure same, which shall obligate Tenant to be personally liable for any claim, loss or damage related thereto, together with the cost of the repair of same. Tenant's responsibility for maintenance of the plate glass includes its replacement in the event repair of the glass would not restore the glass to its original condition at the time of installation. (c) TENANT IMPROVEMENTS. A policy or policies of casualty insurance covering the Building (excluding excavations, foundations and footings), including all of Tenant's Work and FF&E, both as described in Exhibit "C" hereof, Tenant's leasehold improvements, and 25 33 all alterations or additions thereto, Tenant's trade fixtures, merchandise and all personal property from time to time in, on or upon the Premises, in an amount not less than one hundred percent (100%) of their full replacement cost, without depreciation, providing protection against any peril included within the classification "Fire and Extended Coverage," together with insurance against sprinkler damage, vandalism and malicious mischief (and policies of earthquake and flood insurance and such other insurance as may be required by Landlord's lenders and available at commercial reasonably premiums). Any insurance policy proceeds shall be used for the repair or replacement of the property damaged or destroyed unless this Lease shall cease and terminate under the provisions of Article 17 hereof, whereupon any proceeds of insurance covering Tenant's leasehold improvements (excluding FF&E) and any alterations or additions permitted under Article 10 hereof shall be payable to Landlord. (d) WORKERS' COMPENSATION. Tenant shall carry Workers' Compensation and Employer's Liability Insurance as required by applicable law for all of Tenant's employees. (e) BUSINESS INTERRUPTION. Business interruption or loss of income insurance in amounts sufficient to cover Minimum Annual Rent and all other Additional Rent due under the Lease for a period of at least twelve (12) months. (f) CONSTRUCTION. Until completion of Tenant's Work, and at any time during the course of any construction at the Premises, the insurance required in Sections 2.4 and 4.2 of Exhibit "C," in an amount equal to one hundred percent (100%) of the cost of construction, including but not limited to explosion, collapse and underground hazards. 9.4 POLICY REQUIREMENTS. All policies of insurance provided for herein shall be issued by insurance companies with a general policy holder's rating of not less than "A" and a financial rating of not less than Class VIII, as rated in the most current available Best's Insurance Reports, and qualified to do business in the State of California. All such policies shall name Landlord and, if requested by Landlord, Landlord's property manager, Mortgagees and/or Landlord's lessor, if any as additional insureds and loss payees, as applicable, which policies shall be for the mutual and joint benefit and protection of Landlord and Tenant, and, if applicable, Landlord's property manager, Mortgagees, and/or Landlord's lessor. Executed copies of such policies of insurance or original certificates thereof shall be delivered to Landlord prior to Tenant's entry upon the Premises to commence Tenant's Work and thereafter at least thirty (30) days prior to the expiration of the term of each such policy. All public liability and property damage policies shall contain a provision that Landlord, although named as an additional insured, shall nevertheless be entitled to recovery under such policies for any loss occasioned to it, its servants, agents, or employees by 26 34 reason of any act or omission of Tenant or its servants, agents, employees or contractors. As often as any such policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant pursuant to the terms of this Article 9. All policies of insurance delivered to Landlord must contain a provision that the company writing such policy will give to Landlord and the other additional insureds and loss payees at least thirty (30) days' notice in writing in advance of any cancellation or lapse or the effective date of any reduction in the amount of or other material change of insurance. All public liability, property damage and other casualty policies maintained by Tenant shall be written as primary policies, and any insurance maintained by Landlord shall be excess insurance. All deductibles shall be subject to Landlord's reasonable consent depending on such factors as Tenant's then net worth, cost of premiums, customary insurance practices, Mortgagee requirements, and other reasonable factors. 9.5 INCREASE IN COVERAGE. In the event Landlord or Landlord's Mortgagees deem it necessary to increase the amounts, types, or limits of insurance required to be carried by Tenant hereunder, Landlord may request a commercially reasonable increase in such amounts, types or limits of insurance, and Tenant shall so increase the amounts, types or limits of the insurance required to be carried by Tenant hereunder and shall provide Landlord with policies or original certificates indicating the increased amounts, types or limits as provided in Section 9.4 hereof. 9.6 BLANKET COVERAGE. Tenant's obligations to carry Insurance provided for in this Article 9 may be brought within the coverage of a so-called blanket policy or policies of insurance carried and maintained by Tenant provided, however, that Landlord, Landlord's property manager, Mortgagee and Landlord's lessor, shall be named as an additional insureds and loss payees thereunder as their respective interests may appear, and that the coverage afforded Landlord and the other additional insureds and loss payees will not be reduced or diminished by reason of the use of such blanket policy of insurance, and provided further that the requirements set forth herein are otherwise satisfied. Any other casualty or commercial general liability policy carried by Tenant, with respect to the Premises which is not expressly required herein, shall be made available to Landlord at all reasonable times and shall nevertheless name Landlord, its property manager, Mortgagees, and lessor as an additional insured and/or loss payee, as applicable. 9.7 LANDLORD'S INSURANCE OBLIGATIONS. Landlord shall maintain in effect a policy or policies of casualty insurance covering "Landlord's Work" as described in Exhibit "C" (but not "Tenant's Work" as described in Exhibit "C" hereof, Tenant's leasehold improvements, alterations or additions, Tenant's trade fixtures, merchandise or other personal property), and the Common Areas in an amount of not less than eighty percent (80%) of its full replacement cost (including excavations, foundations and footings) during the 27 35 Lease Term, providing protection against any peril generally included within the classification "Fire and Extended Coverage" (and earthquake and flood if Landlord or its Mortgagee deems such insurance to be necessary or desirable), together with insurance against sprinkler damage, vandalism and malicious mischief and such further insurance as Landlord or Landlord's lenders deem necessary or desirable. Landlord shall also carry comprehensive general liability insurance in an amount deemed reasonable by Landlord insuring against any and all liability of the insured with respect to the Common Areas. Landlord's obligation to carry the insurance provided for herein may be brought within the coverage of a so-called blanket policy or policies of insurance carried and maintained by Landlord, provided that the coverage afforded will not be reduced or diminished by reason of the use of such blanket policy of insurance. Tenant shall pay to Landlord as set forth in Sections 5.1 and 5.4 above, Tenant's Proportionate Share of all Insurance maintained by Landlord hereunder. 9.8 INSURANCE USE RESTRICTIONS. Tenant agrees that it will not at any time during the Lease Term carry any stock of goods or do or permit anything to be done in or about the Premises which will tend to increase the insurance rates upon the building or the Development of which the Premises are a part. Tenant agrees to pay to Landlord forthwith upon demand the amount of any increase in premiums for insurance against loss by fire or any other peril normally covered by fire and extended coverage insurance resulting from Tenant doing any act in or about the Premises which does so increase the insurance rates, whether or not Landlord shall have consented to such act on the part of Tenant. If Tenant installs upon the Premises any electrical equipment which constitutes an overload on the electrical lines of the Premises, Tenant shall at its own expense make whatever changes or provide whatever equipment safeguards are necessary to comply with the requirement of the insurance underwriters and any governmental authority having jurisdiction thereover, but nothing herein contained shall be deemed to constitute Landlord's consent to such overloading. 9.9 TENANT'S FAILURE TO OBTAIN INSURANCE. If Tenant fails to obtain and maintain throughout the Lease Term any insurance required to be obtained by Tenant hereunder, or fails to provide Landlord with evidence of insurance as required herein, Landlord shall have the right, but not the obligation, to obtain such insurance, and Tenant shall pay to Landlord as Additional Rent, within ten (10) days of invoice, the premium attributable to such insurance. ARTICLE 10 TENANT'S ALTERATIONS 10.1 PERMITTED ALTERATIONS. Landlord agrees that Tenant may, from time to time during the Lease Term, at Tenant's sole cost and 28 36 expense and after giving Landlord at least thirty (30) days' prior written notice of its intention to do so, make such alterations, additions and changes in and to the interior of the Building (except those of a structural nature) as Tenant may find necessary or convenient, provided that the value of the Premises is not thereby diminished, and provided that no alterations, additions or changes costing in excess of One hundred Thousand 00/100 Dollars ($100,000.00), cumulatively, in any Lease Year ("Extensive Alteration") may be made without first procuring the prior written consent of Landlord. In no event shall Tenant make any alterations, additions or changes of a structural nature, or to the storefront or the exterior walls or roof of the Building, or penetration through the roof or demising walls of the Premises, erect any mezzanine or increase the size of same, if one be initially constructed, or construct an Extensive Alteration, unless and until the written consent of Landlord shall first have been obtained, which consent may not be unreasonably withheld (except as provided below); Tenant acknowledges that Landlord's consent to any increase in the size of the Premises, including to the mezzanine, may be conditioned upon an equitable adjustment in the Rent, and that Landlord's consent to any changes to the exterior of the Premises may be conditioned on the maintenance of architectural conformity with, and adequate pedestrian and vehicular ingress and egress to the balance of the Development. Notwithstanding anything else herein to the contrary, Landlord may withhold its consent, in its sole and absolute discretion, to any modification or alteration which affects the Building systems, roof, or structural integrity of the Building or the Premises. Tenant shall be directly responsible for any and all damages resulting from such construction and any violation of the provisions of this Article. 10.2 MANNER OF CONSTRUCTION. All alterations, additions, or changes to be made to the Premises shall be under the supervision of a competent licensed general contractor satisfactory to Landlord and shall be made in accordance with plans and specifications with respect thereto, approved in writing by Landlord before the commencement of work. Failure of Landlord to disapprove any such plans and specifications within thirty (30) days of submission shall be deemed its approval of same. All work with respect to any alterations, additions or changes must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the Premises shall at all times be a complete unit except during the period of work. Upon completion of any alterations, additions or changes, Tenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County in which the Premises is located in accordance with Section 3093 of the Civil Code of the State of California or any successor statute. Such alterations, additions or changes shall be considered as improvements and shall become an integral part of the Premises upon installation thereof and shall not be removed by Tenant unless Landlord requests their removal at or prior to the expiration or earlier termination of the Lease. All improvements to the Premises by Tenant including, but not limited 29 37 to, light fixtures, floor coverings and partitions, and other items comprising Tenant's Work pursuant to Exhibit "C," but excluding trade fixtures and signs, shall be deemed to be the property of Landlord upon installation thereof. All materials used in any alterations or changes to the Premises shall be new quality and condition. Any such alterations, additions or changes shall be performed and done at Tenant's sole cost and expense and strictly in accordance with the laws and ordinances relating thereto. In performing the work of any such alterations, additions or changes, Tenant shall have the work performed in such manner as not to obstruct the access to the premises of any other occupant to the Development. Tenant shall furnish Landlord with a copy of all applicable construction permits and plans so that Landlord may hold in its file a complete and accurate set of permits and plans for all alterations, additions and changes to the Premises and for all of Tenant's Work on the Premises. 10.3 CONSTRUCTION INSURANCE. During the course of construction of Tenant's Work and, in the event that Tenant shall make any alterations, additions or changes to the Premises during the Lease Term, Tenant agrees to carry "Builder's All Risk" insurance in one hundred percent (100%) of the value of the improvements, and such other insurance as Landlord may reasonably require; it being understood and agreed that all Tenant's Work and any such alterations, additions or changes shall be insured by Tenant pursuant to Section 9.2 immediately upon completion thereof. In addition, Landlord may, in its discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount equal to one hundred twenty-five percent (125%) of the estimated cost of Tenant's Work and any such alternations, additions or changes to assure lien-free completion. ARTICLE 11 MECHANICS' LIENS 11.1 TENANT'S LIEN OBLIGATIONS. Tenant agrees that it will pay, or cause to be paid, all costs for permits, plans, construction and other work done by it or caused to be done by it on or with respect to the Premises and that Tenant will keep the Premises and the Development free and clear of all mechanics' liens and other liens for or arising from work done by or for Tenant or for persons claiming under Tenant. Tenant agrees to, and shall indemnify and save Landlord and its property manager free and harmless from and against, liability, loss, damage, costs, attorneys' fees, and all other expenses on account of claims of contractors, subcontractors, laborers or materialmen or others for work performed or materials or supplies furnished for Tenant or persons claiming under it. If any laborer, person or firm supplying or providing labor, materials or equipment or services to Tenant, or to any of Tenant's contractors or subcontractors for Tenant's Work, shall make any claim or demand against Landlord, the Premises or the Development, or shall file any 30 38 claim, stop notice, lien, or otherwise, against Landlord, the Premises, the Development or any Mortgagee, and Tenant shall not cause such claim, stop notice or lien to be removed, rescinded or dismissed, including, without limitation, the posting of a bond pursuant to California Civil Code Section Section 3143 and/or 3171, as the case may be, and in the event Tenant shall fail to do so within five (5) days after written demand by Landlord, such failure shall constitute a default hereunder. In such event, in addition to such other remedies Landlord may have, Landlord shall have the right (but not the obligation) to use whatever means in its discretion Landlord may deem appropriate to cause said claim, stop notice, or lien to be rescinded, discharged, compromised, dismissed or removed including, without limitation, (a) posting a bond pursuant to California Civil Code Section Section 3143 and/or 3171; or (b) paying a sum sufficient to pay all claims, demands, or liens. Any such sums paid by Landlord, including attorneys' fees and bond premiums, shall be immediately due and payable to Landlord by Tenant. 11.2 NOTICE. Tenant shall immediately give Landlord notice of any claim, demand, stop notice or lien made or filed against the Premises or the Development or any action affecting the title to such Premises or Development. 11.3 INSPECTION; NOTICE OF NON-RESPONSIBILITY. Landlord or its representative shall have the right to go upon and inspect the Premises at all reasonable times, and shall have the right to post and keep posted thereon notices as permitted or provided by law or which Landlord may deem to be proper for the protection of Landlord's interest in the Premises. Tenant shall, before the commencement of any work which might result in any such lien, give to Landlord a written notice of its intention to do so in sufficient time but not less than fifteen (15) days in advance) to enable Landlord to file and record such notices. 11.4 COMMON AREAS. Nothing contained herein shall give Tenant the right to alter, change, improve or add to the Common Areas and Landlord shall have the right to approve or disapprove of any request by Tenant to do so, in Landlord's sole and absolute discretion. ARTICLE 12 SIGNS 12.1 IN GENERAL. Except as specifically provided in Section 12.2, below, Tenant shall not affix or maintain upon the glass panes or supports of the show windows, or upon any window or upon the doors, roof or exterior walls of the Premises, any signs, advertising placards, names, insignia, trademarks, descriptive material or any other similar item or items except those approved in writing in advance by Landlord as to the size, design, type, color, location, copy, nature and display qualities of such item. Failure of Landlord 31 39 to disapprove any such item within thirty (30) days of Tenant's submission of same to Landlord shall constitute disapproval of same. Tenant shall provide Landlord with drawings of its storefront sign which Landlord may approve or disapprove in its reasonable discretion. All signs erected by Tenant shall comply with the provisions of Exhibit "F" hereof and shall be installed and maintained at Tenant's sole cost. In addition, no advertising medium shall be utilized by Tenant the sound or effect of which extends beyond the Premises including, without limitation, flashing lights, searchlights, loudspeakers, phonographs, radios or televisions. Tenant shall not display, paint or place or cause to be displayed, painted or placed, any handbills, bumper stickers or other advertising devices on any vehicle parked in the Parking Area or structure of the Development, whether belonging to Tenant or to Tenant's agents or to any other person; nor shall Tenant distribute, or cause to be distributed, in the Development any handbill or other advertising devices. In the event Tenant shall violate any provision of this Article 12 or any provision of Exhibit "F" hereto, Tenant hereby grants to Landlord the right to enter the Premises and correct such violation at Tenant's sole cost and expense. If any such violation shall occur in the Common Areas, Landlord shall have the immediate right to cure such violation, which right shall include, without limitation, removal of any and all unapproved signage or other items, at Tenant's cost. 12.2 PROMOTIONAL SIGNS. Notwithstanding anything in Section 12.1 above, unless Landlord objects, in writing, within ten (10) business days of the placement of such sign or promotional material, Tenant shall have the right to place tasteful, professionally designed signs and promotional materials related to the movies being offered, or shortly to be offered, by Tenant at the Premises, on the storefront windows and doors, or in the Premises in a manner which would be visible from outside the Building, subject to compliance with all applicable laws. All such signs shall conform to standards of taste which are consistent with family entertainment and the family oriented environment of the Development. Tenant acknowledges that the standards for the display of such material which is visible to the general public may be more restrictive than the limitations provided for in this Lease related to the type of movies which Tenant may offer to restricted audiences. If Landlord objects to such material as provided above, Tenant shall remove the material which was objected to within twenty-four (24) hours of Tenant's receipt of said notice, and the failure to do so shall be a material breach of this Lease. ARTICLE 13 TRADE FIXTURES AND PERSONAL PROPERTY 13.1 OWNERSHIP. Any FF&E (as defined in Exhibit "C") not permanently affixed to the Premises or paid for by Landlord through 32 40 the Tenant Improvement Allowance or First LC or Second LC shall be the property of Tenant, and Landlord agrees that Tenant shall have the right, provided Tenant is not in default under the terms of the Lease, at any time, and from time to time, to remove any and all of its FF&E which it may have stored or installed in the Premises including, but not limited to, counters, shelving, showcases, mirrors and other movable personal property; provided, however, Tenant shall immediately replace any removed personal property with similar personal property of comparable or better quality, so as to continue to render the Premises suitable for conducting the type of business described in Section 1.1(l). Tenant, at its expense, agrees to immediately repair any damage occasioned to the Premises by reason of the removal of any such trade fixtures, signs, and other personal property and, upon expiration or earlier termination of this Lease, Tenant agrees to leave the Premises in a neat and broom-clean condition and free of trash and debris. 13.2 SECURITY INTEREST. As additional security for performance of Tenant's obligations under this Lease, Tenant hereby grants to Landlord a lien and security interest in all of Tenant's FF&E hereinafter placed in or upon the Premises, and such property shall be and remain subject to Landlord's lien and security interest for payment and performance of all obligations of Tenant under this Lease. Landlord's security interest in the FF&E shall be subject and subordinate only to a lien in the principal amount not to exceed $1,000,000, granted to the FF&E Lender as security for the FF&E Loan. This Section 13.2 shall constitute a Security Agreement under the Uniform Commercial Code of the State of California ("UCC") and shall be enforceable as a security interest against all of the FF&E in accordance with the UCC. Tenant agrees to execute, as debtor, such financing statements as Landlord may now or hereafter request from time to time in order to establish and/or perfect the security interest in the FF&E granted herein pursuant to the UCC. Landlord, as a secured party, shall be entitled to all rights and remedies afforded to secured party under the UCC in addition to and cumulative of Landlord's rights and remedies provided hereunder or at law or in equity. Concurrently with the execution of this Lease, and from time to time thereafter upon request, Tenant shall execute and deliver to Landlord a UCC-1 Financing Statement in a form reasonably acceptable to Landlord evidencing and perfecting such security interest. Notwithstanding the foregoing, provided Tenant is not then in default, Landlord agrees to execute, if required by the FF&E Lender (excluding any such items which Tenant is required to leave in the Premises at the end of the Lease Term), a UCC-2 Subordination of Landlord's security interest to the security interest of such lender with respect to the items financed, in a form reasonably acceptable to Landlord and such lender, at Tenant's sole cost and expense. 13.3 REMOVAL. If Tenant fails to remove any of its trade fixtures, furniture and other personal property on or before the expiration or the sooner termination of this Lease, Landlord may, at Landlord's option retain all or any of such property, and title 33 41 thereto shall thereupon automatically vest in Landlord, or Landlord may remove the same from the Premises and dispose of all or any portion of such property, in which latter event Tenant shall, upon demand, pay to Landlord the actual expense of such removal and disposition together with the cost of repair of any and all damage to the Premises resulting from or caused by such removal. Tenant waives any and all rights it may have under California Civil Code Section 1980 et seq. 13.4 PERSONAL PROPERTY TAX. Tenant shall pay before delinquency all taxes, assessments, license fees and public charges levied, assessed or imposed upon its business operation, as well as upon its trade fixtures, merchandise and other personal property in or upon the Premises. In the event any such items of property are assessed with property of Landlord, such assessment shall be divided between Landlord and Tenant to the end that Tenant shall pay only its equitable portion of such assessment as conclusive determined by Landlord. No taxes, assessments, fees or charges referred to in this paragraph shall be considered as Real Property Taxes under the provisions of Section 5.4(b) hereof. ARTICLE 14 ASSIGNMENT, SUBLEASE AND OTHER TRANSFERS 14.1 RESTRICTIONS. (a) PROHIBITION ON TRANSFERS. Landlord and Tenant agree that the development benefits of this Lease, both to Landlord and Tenant, are dependent upon Tenant's creating and maintaining a successful and profitable retail operation in the Premises. Accordingly, Tenant shall not transfer, assign, sublet, mortgage or otherwise hypothecate or encumber this Lease, or Tenant's interest in and to the Premises, nor enter into any license or concession agreements with respect to the Premises, without in each instance procuring the prior written consent of Landlord. Any such attempted or purported transfer, assignment, subletting, mortgage or hypothecation, or license or concession agreement (hereinafter collectively a "Transfer") without Landlord's prior written consent shall be void and of no force and effect, shall not confer any interest or estate in the purported transferee, and shall at Landlord's sole, exclusive, and absolute discretion, entitle Landlord to terminate this Lease upon written notice to Tenant. (b) LANDLORD'S CONSENT. The consent of Landlord required hereunder shall not be unreasonably withheld; provided, however, that Landlord and Tenant agree that it shall not be commercially unreasonable for Landlord to withhold its consent to any proposed Transfer for any commercially-reasonable reason including, but not limited to: 34 42 (i) A difference between the contemplated use of the Premises by the proposed transferee, assignee, or sublessee, concessionaire or licensee following the proposed Transfer (hereinafter referred to as the "Transferee") with the "Use of Premises" clause contained in Section 1.1(l) hereof; (ii) The financial worth and/or financial stability of the Transferee is less than that of the Tenant hereunder at the commencement of the Lease Term or at the time of the Transfer, or not reasonably suitable to Landlord, in Landlord's sole discretion, so as to insure the ability of the Transferee to perform Tenant's obligations under the Lease for the full Lease Term; (iii) A Transferee whose reputation or proposed use of the Premises would in the exercise of Landlord's reasonable discretion, have an adverse effect upon the reputation of the Development and/or the other business located therein; (iv) The Transfer would result in a breach of any covenant of, or affecting Landlord concerning, radius, location, use or exclusivity in any other lease, financing agreement, or other agreement relating to the Development; (v) The proposed Transfer would, in Landlord's sole and exclusive discretion, require an amendment to any material term of the Lease; (vi) The Transfer is prohibited without the consent of Mortgagees under their respective Mortgagees, and one or more Mortgagees fail or refuse to provide consent; (vii) The proposed Transfer likely would result in a decrease in the amount of average Percentage Rent payable from that payable by Tenant for the immediately preceding three (3) year period (or, if the Transfer is proposed within the first three Lease Years, from the Rent Commencement Date; (viii) The proposed Transfer, if consented to, would occur either (a) prior to completion of Tenant's Work in accordance with this Lease, or (b) prior to the expiration of Tenant's operating covenant under Section 15.1; or (ix) The Transferee proposes to or is likely to operate the Premises under a different trade name than the trade name in Section 1.1(m), and such trade name does not share at least a similar name recognition and reputation for quality as the trade name specified in Section 1.1(m). 14.2 PROCEDURE FOR TRANSFER. Should Tenant desire to make a Transfer hereunder, Tenant shall, in each instance, give written notice of its intention to do so to Landlord not less than sixty (60) days prior to the effective date of such proposed Transfer, 35 43 specifying in such notice whether Tenant proposes to assign or sublet, or enter into a license or concession agreement, the proposed date thereof, and specifically identifying the proposed Transferee. Such notice shall be accompanied by (a) financial statements of the proposed Transferee, certified by the chief financial officer or managing partner thereof if not an individual, and (b) in the case of a sublease, license or concession agreement, by a copy of the proposed sublease, license or concession agreement, or if same is not available, a letter of commitment or a letter of intent. Landlord shall have the right to reasonably request additional information in order to review the terms of the Transfer and financial condition, reputation, and experience of the proposed Transferee. Landlord shall, within twenty (20) days after its receipt of such notice from Tenant of a proposed Transfer accompanied by all information required pursuant hereto, by mailing written notice to Tenant of its intention to do so (i) withhold consent to the Transfer pursuant to Section 13.1(b); or (ii) consent to such Transfer. No Transfer of this Lease or agreement entered into with respect thereto, whether with or without Landlord's consent, shall relieve Tenant or any Guarantor of this Lease from liability under this Lease. Landlord hereby reserves the right to condition Landlord's consent to any assignment, sublease or other transfer of all or any portion of Tenant's interest in this Lease or the Premises upon Landlord's receipt from Tenant of a written agreement, in form and substance acceptable to Landlord, pursuant to which Tenant shall pay over to Landlord all rent or other consideration received by Tenant from any such Transferee either initially or over the term of the assignment, sublease or transfer, in excess of the Rent called for hereunder. 14.3 TRANSFER RENT ADJUSTMENT. In the event Tenant shall make a permitted Transfer hereunder (unless such Transfer results from the sale of Tenant or all or substantially all of its business, in which case this Section 14.3 shall not apply), the Minimum Annual Rent specified in Sections 1.1(c) and (d) shall be adjusted as of the date of such Transfer, to the highest of (a) the total rental payable by the Transferee pursuant to such Transfer; or (b) the amount specified in Sections 1.1(c) and (d) for the applicable period. 14.4 REQUIRED DOCUMENTS. Each Transfer to which Landlord has consented shall be evidenced by a written instrument, the form and content of which is satisfactory to Landlord, executed by Tenant and Transferee under which the Transferee shall agree in writing for the benefit of Landlord to perform and to abide by all of the terms, covenants and conditions of this Lease to be done, kept and performed by Tenant, including the payment of all amounts due or to become due under this Lease directly to Landlord and the obligation to use the Premises only for the purpose specified in Section 1.1(l) hereof. Tenant agrees to reimburse Landlord for Landlord's reasonable attorneys' and administrative fees incurred in conjunction with the processing of and documentation for each proposed Transfer, whether or not the Transfer is consummated. 36 44 14.5 MERGER AND CONSOLIDATION. If, in the aggregate more than twenty-five percent (25%) of the total outstanding stock or interest in Tenant is transferred, assigned or hypothecated in one or more transactions, each such event shall be deemed a Transfer within the meaning and provisions of this Article and shall require Landlord's prior written consent; provided, however, that sales or exchanges of shares of publicly traded stock on national markets, such as NASDAQ, shall not be deemed a Transfer. 14.6 BANKRUPTCY. (a) NO BANKRUPTCY ESTATE. If this Lease is assigned to any person or entity pursuant to the provisions of the United States Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"), any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord, and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any and all monies or other considerations constituting Landlord's property under this Section 14.6 not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and be promptly paid or delivered to Landlord. (b) ASSUMPTION. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on and after the date of such assignment, including the obligation to operate the business which Tenant is required to operate pursuant to Section 1.1(l) hereof. 14.7 EXCEPTION FOR CONCESSIONS. Subject to the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed, Tenant shall be permitted to operate its concessions in the Premises on a joint venture basis, so long as such an arrangement does not result in any decrease in the Rent, including, without limitation Percentage Rent, which would otherwise be due Landlord. Tenant shall at all times keep Landlord informed about the nature of any such joint venture or similar arrangement, including, without limitation, the identity of the other party or parties involved, all of whom shall be subject in all respect to the terms hereof. ARTICLE 15 OPERATION OF TENANT'S BUSINESS 15.1 CONTINUOUS OPERATION. Tenant covenants and agrees that it will operate and conduct within the Premises, continuously and uninterruptedly during the Lease Term, the business which it is required to operate and conduct under the provisions hereof, during the required operating hours under Section 15.2, except while the 37 45 Premises are untenantable by reason of fire or other unavoidable casualty, and that it will at all times keep and maintain within and upon the Premises an adequate stock of merchandise and trade fixtures and have sufficient personnel to service and supply the demands and requirements of its customers. In the event Tenant fails, without the prior written consent of Landlord and subject to Force Majeure, to continuously operate its business in the Premises as required by this Section 15.1 for a period of fifteen (15) or more consecutive days, or more than fifteen (15) days in any one calendar year period, then in addition to all remedies available to Landlord (including, without limitations injunction and/or damages), Landlord may, but is not obligated to, elect to terminate this Lease upon written notice of Landlord's intent to Tenant, whereupon this Lease shall terminate, and Tenant shall vacate the Premises upon the date specified in Landlord's notice to Tenant. Landlord's notice pursuant to this Section shall be in lieu of, and not in addition to, the notice and cure period set forth in Article 18 or any notice and cure period required under California Code of Civil Procedure Section 1161 (or any similar or succeeding statute). 15.2 OPERATING HOURS. Commencing with the opening for business by Tenant in the Premises, and for the remainder of the Lease Term, Tenant shall open for business at least seven (7) days per week for such hours each day as are specified in Section 7.1(b) above. Tenant further agrees to have its window displays, exterior signs and exterior advertising displays adequately illuminated continuously during those hours determined by Landlord in Landlord's reasonable business judgment. It is agreed, however, that the foregoing provision shall be subject to any governmental regulations to which Tenant may be subject concerning the hours of operation of Tenant's business. 15.3 RULES AND REGULATIONS. Tenant agrees that it will keep the Premises in a neat, clean and orderly condition and that all trash and rubbish generated by it shall be deposited within prescribed receptacles in designated service areas within the Development. Tenant further agrees to cause such receptacles to be emptied and trash removed at its own cost and expense so as, on its part, to keep such service areas in a clean and orderly condition. Tenant shall observe faithfully and comply with and shall cause its employees and invitees to observe faithfully and comply with reasonable rules and regulations governing the Development as may from time to time be promulgated and amended by Landlord, which rules and regulations shall include the provisions of Exhibit "G" hereof. 15.4 SPECIAL OPERATING COVENANTS. (a) Notwithstanding anything to the contrary herein, unless Landlord consents to the contrary, which consent may be withheld in its sole and absolute discretion, Tenant shall operate a state of the art motion picture theater on the Premises, which contains not less than forty-five hundred (4,500) seats and which 38 46 shows primarily current first run movies which are reasonably consistent with the moral values of Landlord and the residents of the Southern California area. Without limiting the foregoing, at no time will Tenant offer for viewing "X" rated films, or their equivalent (if the established rating system of the Motion Picture Association of America ceases to exist or is modified from its current standards). Tenant also reserves the right to refrain from showing films which it believes, in its reasonable discretion, to be injurious to Tenant's own reputation or offensive to patrons. (b) Tenant shall use its best efforts, through the design of the Building, Premises and its sound system, and the operation of said sound system, to confine within the Premises all sound, noise and vibration generated by Tenant's operation. (c) Tenant shall, subject to all applicable city or other governmental rules and regulations, be permitted to operate on the Premises up to twelve (12) video or other interactive game machines, provided that all times during the Term, as it may be extended, said games shall not be audible from outside the Premises. Said games shall be available for use only by theater patrons, and Tenant shall monitor the game area and keep its operation and condition consistent with a family-oriented environment. No such games shall be pornographic or sexually oriented. ARTICLE 16 REPAIRS AND MAINTENANCE 16.1 TENANT'S MAINTENANCE OBLIGATIONS. Tenant agrees at all times from and after the Delivery Date, and at its own cost and expense, to construct, repair and maintain the Premises and every part thereof in good and tenantable condition including, but not limited to, the roof structure, exterior walls, structural portions of the Premises and structural floor, demising walls, stairways and mezzanine, floor and wall coverings, utility lines and meters, fire and safety systems, pipes and conduits, plumbing, lights and other fixtures, heating and air conditioning equipment and ducting, and sidewalk and landscaping installed pursuant to Exhibit "C," and all other equipment therein, the storefront or storefronts, including plate glass, all Tenant's signs, locks and closing devices, and all window sash, casement or frames, doors and door frames, and all items of repair, maintenance and improvement or reconstruction as may at any time or from time to time be required with respect to the Premises by any governmental agency having jurisdiction. Tenant agrees to operate the air conditioning equipment serving the Premises during all hours so that inside temperatures of the Premises are maintained within a range in which a majority of adults will be comfortable in the Premises. All glass, both exterior and interior, shall be maintained at Tenant's sole cost and expense, and any glass broken shall be promptly replaced by Tenant with glass of the same 39 47 kind, size and quality. Tenant's failure to replace broken glass within seventy-two (72) hours following the occurrence of the breakage, or the failure by Tenant to replace same with glass of the same kind, size and quality, shall constitute a material breach. If Tenant has not replaced said glass within the required time, Landlord may, but shall not be obligated to, replace said glass at Tenant's sole cost and expense, which cost shall include a reasonable fee for Landlord's services with respect to same, which fee shall not exceed ten percent (10%) of the hard costs thereof. Tenant shall reimburse Landlord for such costs within fifteen (15) days of its receipt of Landlord's invoice for such costs, and Tenant's failure to pay same in a timely fashion (not to exceed thirty [30] days) shall be a material breach hereof which may, at Landlord's sole and absolute discretion, entitle Landlord to terminate this Lease upon written notice to Tenant. 16.2 TENANT'S FAILURE TO MAINTAIN. If Tenant refuses or neglects to make repairs and/or maintain the Premises, or any portion thereof, including Tenant's storefront(s), in a manner reasonably satisfactory to Landlord, Landlord shall have the right, upon giving Tenant written notice of its election to do so, to make such repairs or perform such maintenance on behalf of and for the account of Tenant. In such event, the cost of such work shall be paid by Tenant promptly upon receipt of bills therefor. Failure of Tenant to pay any of said charges within fifteen (15) days of receipt of bills therefore shall constitute a default hereunder. Upon any surrender of the Premises, Tenant shall deliver the Premises to Landlord, upon the expiration or earlier termination of this Lease, in good order, condition and state of repair, ordinary wear and tear excepted, and excepting such items of repair as may be Landlord's obligation hereunder. 16.3 RIGHT TO ENTER. Tenant agrees to permit Landlord and its authorized representatives to enter the Premises at all times for the purpose of making emergency repairs and during usual business hours for the purpose of inspecting the same. Tenant further agrees that Landlord may go upon the Premises and make any necessary repairs thereto and perform any work therein which may be necessary to comply with any laws, ordinances, rules or regulations of any public authority, any fire rating bureau, or of any similar body, or that Landlord may deem necessary to prevent waste or deterioration in connection with the Premises if Tenant does not make or cause such repairs to be made or performed or cause such work to be performed promptly after receipt of written demand from Landlord. Nothing herein contained shall imply any duty on the part of Landlord to do any such work which, under provisions of this Lease, Tenant may be required to do, nor shall Landlord's failure to elect to perform such work constitute a waiver of Tenant's default. No exercise by Landlord of any rights herein reserved shall entitle Tenant to any damage for any injury or inconvenience occasioned thereby, to any abatement of rent, or to terminate this Lease. 40 48 16.4 GRANT OF LICENSE. Tenant hereby grants to Landlord such licenses and/or easements in, over, and under the Premises or any portion thereof as shall be reasonably required for the installation or maintenance of mains, conduits, shafts, pipes or other facilities to serve any other portion of the Development including, but not by way of limitation, the premises of any other occupant of the Development; provided, however, that Landlord shall pay for any alteration required on or to the Premises as a result of any such exercise, occupancy under or enjoyment of any such lien or easement and, provided further, that no exercise, occupancy under or enjoyment of such license or easement shall result in any unreasonable permanent interference with Tenant's use, occupancy or enjoyment of the Premises as contemplated by this Lease. 16.5 HEATING AND AIR CONDITIONING EQUIPMENT. (a) MAINTENANCE. The installation of heating and air conditioning equipment serving the Premises is described in Exhibit "C." Tenant shall at all times during the Term hereof, as it may be extended, keep in good order and repair all heating and air conditioning equipment related to the Building and the Premises (the "HVAC"). Tenant agrees to enter into a regularly scheduled preventative maintenance/service contract (the "Service Contract") within thirty (30) days after the Rental Commencement Date with a maintenance contractor approved by Landlord, for the servicing of the HVAC. The Service Contract shall include all scheduled maintenance as recommended by the equipment manufacturer as set forth in the operation/maintenance manual. Tenant acknowledges that it has full and complete responsibility to maintain, repair and replace all components of the HVAC, and that while the entering into of the Service Contract is required, it is not dispositive of Tenant's obligations with respect to the HVAC. Notwithstanding the foregoing, Landlord may, (but shall not be obligated to), if it determines that Tenant is not adequately performing its obligations hereunder or that such a change is otherwise appropriate, elect to maintain the heating and air conditioning equipment serving the Premises, in which event, Tenant shall pay to Landlord all costs and expenses for the repair, maintenance and replacement of all HVAC equipment for the Premises. If Tenant fails to maintain the HVAC and Landlord elects to perform such work, Tenant shall pay to Landlord one-twelfth (1/12) of an amount estimated by Landlord to be such heating and air conditioning expenses for the ensuing calendar year or balance thereof (including reasonable reserves). Within sixty (60) days following the end of each calendar year, Landlord shall furnish Tenant a statement covering the preceding calendar year and the payments made by Tenant with respect to such calendar year as set forth above. If such HVAC expenses exceeds Tenant's payments so made, Tenant shall pay Landlord the deficiency within twenty (20) days after receipt of Landlord's statement. If Tenant's payments exceed such heating and air conditioning expenses, Landlord shall have the option of (i) paying such excess to Tenant upon Landlord's delivery of such statement; or (ii) allowing Tenant to credit the excess against payments next 41 49 thereafter to become due to Landlord for such expenses as set forth above. Failure of Tenant to pay any of the charges required by this Section 16.5 to be paid when due shall constitute a material default under the term of this Lease. (b) COMPONENTS. Expenses incurred in connection with the operation, maintenance, repair and replacement of HVAC equipment by the party performing same shall include, but not be limited to, all sums expended in connection with such HVAC equipment for and/or replacing filters, repairing and/or replacing worn out parts, repairing and/or replacing utilities, duct work and machinery maintenance and insurance contracts carried on the HVAC equipment, and all other items of expense incurred by such party in connection with the operation, maintenance, repair and replacement of the HVAC equipment. ARTICLE 17 DAMAGE OR DESTRUCTION 17.1 PREMISES INSURED CASUALTY. In the event that the Premises are partially or totally destroyed by fire or any other peril covered by insurance maintained by Tenant, or required to be maintained by Tenant under Section 9.3, and the uninsured damage (excluding deductibles) is less than twenty-five percent (25%) of the replacement cost of the Building, Tenant shall, within a period of thirty (30) days after the occurrence of such destruction, commence reconstruction and restoration of the Premises and prosecute the same diligently to completion, and use reasonable efforts to complete such work within one hundred eighty (180) days of the casualty. 17.2 PREMISES UNINSURED CASUALTY. In the event that the Premises are partially or totally destroyed as a result of any casualty or peril not covered or required to be covered by Tenant's insurance under Section 9.3 (or any other insurance maintained by Tenant whether or not required under Section 9.3), and the cost to repair exceeds twenty-five percent (25%) of the replacement cost of the Building, Tenant shall, within a period of thirty (30) days after the occurrence of such destruction (a) commence reconstruction and restoration of the Premises and prosecute the same diligently to completion in the manner provided in Section 17.1, in which event this Lease shall continue in full force and effect; or (b) notify Landlord, in writing, that it elects not to so reconstruct or restore the Premises, in which event this Lease shall cease and terminate as of the date of service of such notice, unless Landlord, within thirty (30) days of such notice, notifies Tenant that Landlord shall fund the uninsured amounts exceeding twenty-five percent (25%) of the replacement cost of the Building. If Landlord makes such an election, or if Tenant fails to timely give Landlord notice under subsection (b), Tenant shall thereafter proceed diligently to complete the reconstruction, and the Lease shall not be terminated. 42 50 The procedures for payment of the Tenant Allowance under Exhibit "C" shall apply to Landlord's reimbursement to Tenant of reconstruction costs to be paid by Landlord under this section. In the event of such reconstruction, Tenant shall be obligated for the restoration of the Premises in accordance with the approved Final Plans, with any material deviation therefrom subject to Landlord's consent, in accordance with the same procedures for Landlord's review under Exhibit "C," as well as Tenant's other leasehold improvements, trade fixtures and other personal property on the Premises. 17.3 DAMAGE TO OTHER PORTIONS OF THE DEVELOPMENT. If during the term hereof any of the buildings and improvements located on the Development are damaged or destroyed by fire or other casualty or any cause whatsoever, either in whole or in part, Landlord shall either (a) repair and rebuild the same promptly to its previous condition or better, or (b) promptly remove all debris, demolish such building and improvements and clear the site so that it has a neat and clean appearance. The election of Landlord to proceed pursuant to clause (b) shall not impair Landlord's right to construct new improvements on the Parcels then owned by Landlord. 17.4 DAMAGE TO COMMON AREAS. If the Common Areas are damaged or destroyed by a casualty, Landlord shall with due diligence, remove any resulting debris and repair from the Common Areas and/or rebuild the damaged Common Areas to substantially the same function and appearance as existing prior to the casualty. 17.5 RIGHT TO PROCEEDS. If this Lease is terminated pursuant to any of the provisions of this Article 17, Landlord shall be entitled to one hundred percent (100%) of the insurance proceeds from the Insurance required to be maintained by Tenant under Section 9.3 (and Tenant shall pay to Landlord the amount of any deductible on such policy applicable to such casualty), or from any other casualty/ property policy maintained by Tenant pertaining to Tenant's Building (other than for Tenant's personal property, the proceeds for which shall be solely payable to Tenant). 17.6 CASUALTY TO PARKING AREAS. (a) If all or a portion of the Parking Areas shall either be rendered unusable because of fire or other casualty in accordance with the terms so that less than the number of Parking Spaces specified in Section 1.3(d) remain useable and available for non- exclusive use by Tenant and its Permittees; and (b) Landlord has not provided Tenant with substitute Parking Spaces within one (1) year after such fire or other casualty, or unavailability of use, at a location reasonably approved by Tenant so that at least the number of Parking Spaces specified in Section 1.3(d) are useable and available for non-exclusive use by Tenant and its customers, invitees and employees (which approval Tenant will not unreasonably withhold or delay), then, if such unavailability of a 43 51 minimum of the number of Parking Spaces specified in Section 1.3(d) shall continue for more than one (1) year after the date of such fire or other casualty, or unavailability of use, Tenant shall have the right to terminate this Lease by notice to Landlord given within thirty (30) days after the expiration of such one-year period (but prior to restoration of at least the number of Parking Spaces). 17.7 DAMAGE TO PREMISES NEAR END OF TERM. Notwithstanding the foregoing, in the event that the Premises are partially or totally destroyed during the last three (3) years of the Initial Term, or the last three (3) years of any Extension Term, Landlord and Tenant each shall have the option to terminate this Lease by giving written notice to the other of the exercise of such option within thirty (30) days after such destruction, in which event this Lease shall cease and terminate as of the date of service of such notice. However, if Tenant with Landlord's consent, agrees to exercise a then existing option to extend the Term in advance of the period in which said option would otherwise be exercisable, thereby extending the Term an additional five (5) years, Landlord shall not have the option to terminate the Lease, but rather Tenant shall be obligated to reconstruct the Premises on the same basis as set forth in Section 17.1 above. Tenant's election to exercise said option shall also be deemed to be Tenant's irrevocable agreement to perform its repair and reconstruction obligations set forth in Section 17.1. For the purposes of this Section, partial destruction shall be deemed to be a destruction to an extent of at least one-third (1/3) of the full replacement cost of the Premises as of the date of destruction. 17.8 RELEASE OF LIABILITY. In the event of any termination of this Lease in accordance with this Article, the parties shall be released thereby without further obligation to the other party coincidental with the surrender of possession of the Premises to Landlord except for matters which have theretofore accrued and are then unpaid or unperformed and except for survival of the covenants and indemnifications provided in Sections 3, 9.1, 25, 29.2(d), 29.12, 29.15 and 29.16. 17.9 ABATEMENT OF RENT. In the event of reconstruction and restoration as herein provided, and provided Tenant has maintained the business interruption or loss of income insurance required pursuant to Section 9.3(e), to the extent that the proceeds of such business interruption or loss of income insurance may be exhausted during the period of reconstruction and restoration, Minimum Annual Rent and Common Area Expenses payable hereunder shall be thereafter abated proportionately with the degree to which Tenant's use of the Premises is impaired during the remainder of the period of reconstruction and restoration; provided, however, the amount of Minimum Annual Rent and Common Area Expenses abated pursuant to this Section 17.9 shall in no event exceed the amount of loss of rental insurance proceeds actually received by Landlord. Tenant shall continue the operation of its business on the Premises during any such period to the extent reasonably practicable from the standpoint of 44 52 prudent business management, and the obligation of Tenant to pay all charges, except the entire Minimum Annual Rent and all Common Area Expenses, shall remain in full force and effect. Tenant shall not be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises, Tenant's personal property or any inconvenience or annoyance occasioned by such destruction, reconstruction or restoration. Tenant hereby waives any statutory rights of termination which may arise by reason of any partial or total destruction of the Premises which Landlord is obligated to restore or may restore under any of the provisions of this Lease. ARTICLE 18 COMMON AREAS, PARKING AREAS AND EXPENSES 18.1 USE OF COMMON AREAS. Those certain areas and facilities of the Development which are intended to be used for the common use, convenience and benefit of the customers and patrons of Tenant and of the other tenants, owners and occupants of the Development such as plaza areas, walkways, driveways, landscaping and lighting, and all common utility lines, service facilities and equipment, are referred to herein as "Common Areas." Except as otherwise specifically provided in this Lease, Tenant and its employees and invitees are authorized, empowered and privileged to use the Common Areas in common with other authorized persons, as determined by Landlord, during the Lease Term. Landlord shall keep or cause to be kept said Common Areas in a neat, clean and orderly condition, properly lighted and landscaped, and shall repair any damage to the facilities thereof. 18.2 PARKING AREAS. [TO BE INSERTED] 18.3 COMMON AREA EXPENSE. (a) TENANT'S PRO RATA SHARE. The expenses incurred by Landlord in connection with the operation, maintenance, insurance, repair and replacement and/or usage of the Common Areas [AND PARKING AREAS] (collectively, the "Common Area Expenses") shall be apportioned among the various occupants and tenants of the Development, and Tenant hereby agrees to pay to Landlord, as Additional Rent, its Proportionate Share (as defined herein) of such Common Area Expenses. Tenant's "Proportionate Share" shall mean Tenant's share based upon a fraction, the numerator of which is the square footage of floor area of the Premises as determined in Section 2.2, and the denominator of which is the total square feet of floor area of all buildings in the Development for the period in question for which certificates of occupancy have been issued. Landlord shall use due diligence and commercially reasonable efforts to complete construction and obtain certificates of occupancy for all buildings Landlord elects to construct in the Development. 45 53 (b) PAYMENT OF COMMON AREA EXPENSES. Commencing on the Rental Commencement Date and thereafter on the first (1st) day of each calendar month of the Lease Term, Tenant shall pay to Landlord one-twelfth (1/12) of an amount estimated by Landlord to be Tenant's share of such total annual Common Area Expenses for the ensuing calendar year or balance thereof. Landlord may adjust the Common Area Expenses charged to Tenant at the end of any calendar year on the basis of Landlord's experience and reasonably anticipated costs and a reasonable reserve for unanticipated expenses. On or before April 1 of each calendar year, Landlord shall furnish Tenant a statement covering the calendar year just expired showing the total Common Area Expenses for the preceding calendar year, the amount of Tenant's share of such Common Area Expenses, and the payments made by Tenant with respect to such calendar year as set forth above. If Tenant's share of such Common Area Expenses exceeds Tenant's payments so made, Tenant shall pay Landlord the deficiency within twenty (20) days after receipt of Landlord's statement. If Tenant's payments exceed Tenant's share of such Common Area Expenses, Landlord shall pay such excess to Tenant within twenty (20) days of Landlord's delivery of such statement. Failure of Tenant to pay any of the charges required by this Article to be paid when due shall constitute a material default under the terms of this Lease. If Tenant fails to give Landlord written notice that Tenant objects to any Common Area Expenses, taxes or insurance within one (1) year after Tenant receives Landlord's annual statement of such expenses, Tenant shall be deemed to have conclusively accepted such statement as correct and to have waived any and all rights at law or in equity to object to the Common Area Expenses, including taxes or insurance, set forth in such statement. (c) AUDIT RIGHT. Tenant shall have the right to review, during Landlord's normal business hours, the books and records of Landlord relating to the Common Area Expenses, by providing Landlord with reasonable notice of its request to do so. Such review shall be limited to books and records covering the current and prior Lease Years only, and shall be exercisable no more than once during any Lease Year. All costs related to such review shall be borne by Tenant, unless such audit reveals, to Landlord's reasonable satisfaction, that Landlord has overcharged Tenant with respect to a Lease year of expenses which is considered by Landlord to be settled, by five percent (5%) or more of Common Area Expenses, in which case Landlord shall bear the cost of such audit. 18.4 EXPENSES INCLUDED. Expenses incurred pursuant to Section 18.3 shall include, but are not limited to, all sums expended in connection with the Common Areas and Parking Areas for all general maintenance, repairs, replacements and restoration, resurfacing, painting, cleaning, sweeping and janitorial services; maintenance and repair of sidewalks, gutters, and curbs; sprinkler systems, planting and landscaping including maintenance and replacement thereof; lighting and other utilities including, without limitation, gas, water, electricity, directional signs and other markers and bumpers; 46 54 lighting fixtures and systems (including replacement of tubes and bulbs as necessary), storm drainage systems, irrigation systems and any other utility systems; repair of signs; maintenance, repair and replacement of mechanical equipment including automatic door openers, if any, installation, repair and replacement of all security systems and trash compactors or other similar devices; personnel to implement such services including, if Landlord deems necessary, the cost of security guards or devices; Landlord's share of real and personal property taxes and governmental charges, fees or assessments of any land or nature on the facilities, improvements and land comprising the Common Areas; the cost of any capital improvements made to the Premises or the Common Areas by Landlord that reduce Common Area Expenses or that are required under any governmental law or regulation not applicable to the Development at the time it was constructed; premiums for public liability, property damage, fire and extended coverage insurance (including such other insurance Landlord's Mortgagee deems to be necessary or desirable) together with insurance against sprinkler damage, vandalism, malicious mischief, and any other occurrences on the Common Areas; and an amount equal to seventy-five cents (75c.) per square foot of floor area of the Demised Premises for the right to use the Parking Areas (the "Parking Cost"). The Parking Cost shall be adjusted annually by reference to the increase, if any, in the "Index" (as defined in Section 18.10) from the Rent Commencement Date to the first anniversary of the Rent Commencement Date, and each annual anniversary date thereafter during the term. Landlord shall also be entitled to receive an allowance for Landlord's supervision of said Common Areas and Common Area Expenses in an amount equal to ten percent (10%) of the total of the aforementioned expenses (excluding Real Property Taxes) for each Lease Year (which amount shall be inclusive of any management expenses paid to a third party property manager and charged herein as a Common Area Expense). In the event Landlord shall contest any tax or assessment affecting the Common Areas, the expenses involved in such contest shall be part of the Common Area Expenses, regardless of whether such contest also includes Real Property Taxes on the Building. The preceding list is for definitional purposes only, and shall not impose any obligation upon Landlord to incur such expenses or provide such services. 18.5 EXPENSES EXCLUDED. The following expenses shall not be included as Common Area Expenses: (a) Attorneys' fees and other costs relating to negotiations and disputes with existing tenants or prospective tenants; (b) Compensation to principals or affiliates of Landlord for maintenance or repairs to the Common Area in excess of compensation that would be payable to a third party for similar services under a bona fide contract negotiated at arm's length; 47 55 (c) Depreciation, equipment replacements, repairs and other items that constitute capital expenses under generally accepted accounting principles (except to the extent that reasonable amortization of any such item for any year does not exceed the resulting Common Area Expenses savings for such year); (d) Costs resulting from violations by Landlord and/or other tenants of laws, or breaches of leases and other contracts; (e) Interest, amortization, fees and charges relating to indebtedness of the Landlord, except as provided in subsection (g) below, or which results from the acquisition or leasing of equipment used in the Development; (f) Advertising and promotions cost, subject to Article 27 below; (g) Rent and other leasing costs for capital items (other than equipment that is used for maintenance, repair, janitorial or similar services in the Development); (h) Losses covered by insurance proceeds paid to Landlord; (i) Any expenses in connection with the original construction of the Common Areas, the original installation of equipment or fixtures in the Common Areas, or capital expenditures for improvements or additions to the Common Areas in excess of $10,000.00 per year, other than expenses for replacement of any portion of the Common Areas or any improvements therein; (j) Costs relating to artworks, other than reasonable costs incurred for cleaning and minor maintenance, and costs incurred under any governmentally mandated program requiring the placement of artworks in the Common Areas; (k) Costs relating to the correction of violations of law relating to the Common Areas, which violations existed prior to the execution of this Lease, and are not conditions which, but for the operations of Tenant, would not be a violation of law; (l) Any costs paid or required to be paid directly and exclusively by other tenants, and all costs not reasonably related to or reasonably allocable to the operation, maintenance, repair or usage of the Common Areas and which are not specifically described in Section 18.3 above; (m) Any costs related to casualty losses or to repairs on other buildings in the Development which are intended to be used for the exclusive benefit of individual tenants, rather than occupants of the Development as a whole. 48 56 18.6 ENLARGEMENT OF COMMON AREAS. Should Landlord acquire or make available additional land not shown as part of the Development Site on Exhibit "A-2" and make the same available as Common Areas, the expenses incurred by Landlord in connection with the operation, maintenance, repair and replacement of Common Areas also shall include all of the aforementioned expenses incurred and paid in connection with said additional land. 18.7 COMMON AREA RULES AND REGULATIONS. (a) Landlord shall at all times have the right and privilege of determining the nature and extent of the Common Areas, and of making such changes therein and thereto from time to time which in its opinion are deemed to be desirable and for the best interests of all persons using such Common Areas, including the location and relocation of driveways, entrances, exits, the direction and flow of traffic, designation of prohibited areas, landscaped areas and all other facilities thereof. (b) Nothing contained herein shall be deemed to create any liability upon Landlord for any damage to motor vehicles of customers or employees or for loss of property from within such motor vehicles, unless caused by the gross negligence or willful misconduct of Landlord, its agents, servants or employees. (c) Landlord shall have the right to establish reasonable rules and regulations and, from time to time, to change, alter and amend, and to enforce against Tenant and the other users of the Common Areas, such reasonable rules and regulations (including the exclusion of, or designation of area(s) for, employees' parking) as may be deemed necessary or advisable by Landlord for the proper and efficient operation and maintenance of the Common Areas. The rules and regulations herein provided for may include, without limitation, the hours during which the Common Areas shall be open for use. Tenant shall comply with a system or systems of validation or similar operation of the Parking Areas which may be imposed under the Parking Agreement, including a system of charges against non-validated parking checks of users, and Tenant agrees to conform to and abide by all such rules and regulations in its use and the use of its customers and patrons with respect to said Parking Areas; provided, however, that all such rules and regulations and such types of operation or validation of parking checks and other matters affecting the customers and patrons of Tenant shall apply equally and without discrimination to all persons entitled to the use of such Parking Areas, and provided, further, that validations for parking for Tenant's Permittees shall be made available to Tenant at no charge. 18.8 CONTROL OF COMMON AREA. Landlord shall at all times during the Lease Term have the sole and exclusive control of the driveways, entrances and exits and the sidewalks and pedestrian passageways and other Common Areas and may, at any time and from time to time during the Lease Term, exclude and restrain any person from use or occupancy 49 57 thereof excepting, however, bona fide customers, patrons and service suppliers of Tenant and other tenants of Landlord who make use of such areas in accordance with the rules and regulations established by Landlord from time to time with respect thereto. The rights of Tenant in and to the Common Areas shall at all times be subject to the rights of Landlord, and the other tenants of Landlord, if any, to use the same in common with Tenant, and it shall be the duty of Tenant to keep all of such areas free and clear of any obstructions created or permitted by Tenant or resulting from Tenant's operation and to permit the use of any of such areas only for ingress and egress by customers, patrons and service suppliers to and from the Building occupied by Tenant and the other tenants of Landlord. If in the opinion of Landlord unauthorized persons are using any of the Common Areas by reason of the presence of Tenant in the Premises, Tenant, upon demand of Landlord, shall enforce the covenants, rules and regulations provided for herein against and shall cause the removal of, all such unauthorized persons by appropriate proceedings. Nothing herein shall affect the rights of Landlord at any time to remove any such unauthorized persons from the Common Areas or to restrain the use of any of such areas by unauthorized persons. 18.9 EMPLOYEE PARKING RESTRICTIONS. It is acknowledged and agreed that the employees of Tenant and the other tenants within the Development and employees of other occupants of the Development shall not only be permitted to park their automobiles or other vehicles in the Parking Areas which may from time to time be designated for patrons of the Development. Landlord at all times shall have the right to designate the particular parking area to be used by any or all of such employees and any such designation may be changed by Landlord from time to time at Landlord's sole and absolute discretion. Tenant and its employees shall park their cars only in those portions of the parking area, if any, designated for that purpose by Landlord, and shall attach to their cars any identification stickers or passes required by Landlord. Tenant shall furnish Landlord with its and its employees' license numbers within five (5) days after requested by Landlord, and Tenant shall thereafter notify Landlord of any change within five (5) days after such change occurs. If Tenant or its employees fail to park their vehicles in designated parking areas, Landlord may charge Tenant Fifteen and 00/100 Dollars ($15.00) per day for each day or partial day per vehicle parked in any areas other than those designated; provided, however, Landlord agrees to give Tenant written notice of the first violation of this provision and Tenant shall have two (2) days thereafter within which to cause the violation to be discontinued and, if not discontinued within said 2-day period, then the Fifteen and 00/100 Dollar ($15.00) per day fine shall commence. After notice of such violation, no prior notice of any subsequent violation shall be required. All amounts due under the provisions of this paragraph shall be payable by Tenant within ten (10) days after demand therefor. Tenant hereby authorized Landlord to tow away from the Development any vehicle or vehicles belonging to Tenant or Tenant's employees which are parked in violation of the foregoing or 50 58 the rules and regulations issued by Landlord from time to time and/or to attach violations tickers or notices to such vehicles. Tenant shall be entitled to the exclusive use of at least two (2) parking spaces adjacent to the Theater Parcel as may be shown on the Final Plans. 18.10 INDEX. As used herein, the term "Index" shall mean the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index for all urban consumers for the Los Angeles-Anaheim-Riverside Statistical Area, on the basis of 1982-1984 = 100. In the event the Index is no longer published by the Bureau of Labor Statistics, Landlord shall substitute an index published by an agency of the United States government which is most nearly equivalent to the Index at such time. ARTICLE 19 TENANT'S DEFAULTS; REMEDIES 19.1 EVENTS OF DEFAULT. The occurrence of any of the following shall constitute a default and material breach of this Lease by Tenant: (a) Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, for a period of ten (10) days after written notice from Landlord to Tenant (provided, however, any notice shall be in lieu of, and not in addition to, any notice required under Section 1161 of the Code of Civil Procedure of California or any similar, superseding statute); or (b) The failure to timely commence, pursue and complete Tenant's Work in accordance with Exhibit "C," where such failure continues for a ten (10) day period after written notice thereof from Landlord to Tenant; or the failure to open for business or the cessation of Tenant's business from the Premises or closure of the Premises following the initial construction of Tenant's Work as provided in Section 7.1(b) and Section 15.4(b); or (c) Any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that, if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, Tenant shall not be deemed to be in default if it shall commence such cure within such thirty (30) day period and thereafter diligently pursue such cure to completion (provided, however, any notice shall be in lieu of, and not in addition to, any notice required under Section 1161 of the Code of Civil Procedure of California or any similar, superseding statute); or 51 59 (d) Abandonment or vacation of the Premises by Tenant; or (e) A general assignment by Tenant of this Lease for the benefit of creditors or the appointment of a receiver to take possession of all or substantially all of the assets of Tenant, unless possession is restored to Tenant within thirty (30) days, or any execution or other judicially authorized seizure of all or substantially all of Tenant's assets located upon the Premises or of Tenant's interest in this Lease, unless such seizure is discharged within thirty (30) days; or (f) A general assignment by any Guarantor of this Lease for the benefit of creditors, or the filing by or against any Guarantor of any proceeding under insolvency or bankruptcy law, unless in the case of a proceeding filed against any Guarantor the same is dismissed within ninety (90) days, or the appointment of a receiver or trustee to take possession of all or substantially all of the assets of any Guarantor, unless possession is restored to such Guarantor within thirty (30) days, provided, however, that no such event shall be an event of default hereunder if, at the time of such event and at all times thereafter, the other Guarantors who are not subject to such assignment, filing, or appointment maintain a combined net worth of $5,000,000 (measured in accordance with generally accepted accounting principles). 19.2 REMEDIES. In the event of an uncured default by Tenant, Landlord, in addition to any other remedies available to it at law or in equity, including injunction and/or draw down of the First LC and Second LC, at its option, and without further notice or demand of any kind to Tenant or any other person may: (a) TERMINATION. Terminate this Lease and declare the Lease Term ended and re-enter the Premises and take possession thereof and remove all persons and property therefrom, and Tenant shall have no further claim thereon or hereunder. (b) CONTINUE LEASE. Have the remedy described in California Civil Code Section 1951.4 (Landlord may continue the Lease in effect after Tenant's breach and recover Rent as it becomes due). (c) TERMINATION AFTER RE-ENTRY. Even though Landlord may have re-entered the Premises, thereafter elect to terminate this Lease and all of the rights of Tenant in or to the Premises. (d) BANKRUPTCY. In addition to any rights or remedies hereinbefore or hereafter conferred upon Landlord under the terms of this Lease, the following remedies and provisions shall specifically apply in the event a bankruptcy proceeding is filed by or against Tenant. (i) Any receiver or trustee in bankruptcy shall either expressly assume or reject this Lease within sixty (60) days 52 60 following the entry of an "Order for Relief" or within such earlier time as may be provided by applicable law; (ii) In the event of an assumption of this Lease by a debtor or by a trustee, such debtor or trustee shall, within fifteen (15) days after such assumption (A) cure any default or provide adequate assurance that defaults will be promptly cured; (B) compensate Landlord for actual pecuniary loss or provide adequate assurance that compensation will be made for actual pecuniary loss including, but not limited to, all attorneys' fees and costs incurred by Landlord resulting from any such proceedings; and (C) provide adequate assurance of future performance; (iii) Where a default exists in this Lease, the trustee or debtor assuming this Lease may not require Landlord to provide services or supplies incidental to this Lease before its assumption by such trustee or debtor, unless Landlord is compensated for such services and supplies provided and the default cured before the assumption of such Lease; (iv) The debtor or trustee may assign this Lease only if each of the following conditions is satisfied: (A) the Lease is assumed; (B) adequate assurance of future performance by the assignee is provided, whether or not the Lease is then under default; and (C) any consideration paid by any assignee in excess of the rental reserved in this Lease shall be the sole property of, and paid to, Landlord. (v) Landlord shall be entitled to the fair market value for occupancy of the Premises and the services provided by Landlord (but in no event less than the rental reserved in this Lease) subsequent to the commencement of a bankruptcy event; (vi) Any security deposit given by Tenant to Landlord to secure the future performance by Tenant of all or any of the terms and conditions of this Lease, shall be automatically transferred to Landlord upon the entry of an "Order of Relief;" (vii) The parties agree that Landlord is entitled to adequate assurance of further performance of the terms and provisions of this Lease in the event of any assumption and assignment of the Lease under the provisions of the Bankruptcy Code. For purposes of any such assumption or assignment, the parties agree that the term "adequate assurance" shall include, without rotation, the following: A. Any proposed assignee must have demonstrated to Landlord's satisfaction a net worth (as defined in accordance with generally accepted accounting principles consistently applied) of, an amount sufficient to assure that the proposed assignee will have the resources with which to conduct the business to be operated in the Premises, including the payment of all rent and other charges hereunder, for the balance of the Lease Term. The financial 53 61 condition and resources of Tenant are material inducements to Landlord entering into this Lease. B. Any proposed assignee must have engaged in the permitted use described in Section 1.1(l) hereof for at least five (5) consecutive years prior to the proposed assignment. C. Any proposed assignee must have had minimum sales at each location at which it operated such a business equal to at least seventy-five percent (75%) of Tenant's average monthly sales per screen at the Premises for the eighteen (18) month period preceding initiation of a proceeding under the Bankruptcy Code. D. In entering into this Lease, Landlord considered extensively Tenant's permitted use and determined that such permitted business would add substantially to the tenant mix in the Development, and were it not for the Tenant's agreement to operate only Tenant's permitted business on the Premises, Landlord would not have entered into this Lease. Landlord's operation of the Development will be materially impaired if a trustee in bankruptcy or any assignee of this Lease operates any business other than Tenant's permitted business. E. The provisions of Sections 7.1 and 29.19 of this Lease regarding permitted uses and competing locations, respectively, were a material inducement to Landlord to enter into this Lease. Any individual or entity proposed by a trustee in bankruptcy to be an assignee of this Lease shall comply with the provisions of such Sections of this Lease, and must assume and agree to be personally bound by each term, provision and covenant of this Lease. F. Any assumption of this Lease by a proposed assignee shall not adversely affect Landlord's relationship with any of the remaining tenants in the Development, taking into consideration any and all other "use" clauses and/or "exclusivity" clauses which may then exist under such tenants' leases with Landlord. (e) NO LEASE TERMINATION. Should Landlord have re-entered the Premises under the provisions of subparagraph (b) above, Landlord shall not be deemed to have terminated this Lease or the liability of Tenant to pay any rental or other charges thereafter accruing, or to have terminated Tenant's liability for damages under any of the provisions hereby by any action in unlawful detainer or otherwise to obtain possession of the Premises, unless Landlord shall have notified Tenant in writing that it has so elected to terminate this Lease, and Tenant further covenants that the service by Landlord of any notice pursuant to the unlawful detainer statutes of the State of California and the surrender of possession pursuant to such notice shall not (unless Landlord elects to the contrary at the time of or at any time subsequent to the serving of such notice and such 54 62 election is evidenced by a written notice to Tenant) be deemed to be termination of this Lease. In the event of any entry or taking possession of the Premises as aforesaid, Landlord shall have the right, but not the obligation, to remove therefrom all or any part of the personal property located therein and may place the same in storage at a public warehouse at the expense and risk of Tenant. (f) LEASE TERMINATION. Should Landlord elect to terminate this Lease pursuant to the provisions of subparagraphs (a) or (c) above, Landlord may recover from Tenant as damages the following: (i) The worth at the time of the award of any unpaid rent and other charges which had been earned at the time of termination; plus (ii) The worth at the time of the award of the amount by which the unpaid rent and other charges which would have been earned after termination until the time of the award exceeds the amount of the loss of such rental and other charges that Tenant proves could have been reasonably avoided; plus (iii) The worth at the time of the award of the amount by which the unpaid rent and other charges for the balance of the Lease Term after the time of the award exceeds the amount of the loss of such rental and other charges that Tenant proves could have been reasonably avoided; plus (iv) Any other amount necessary to compensate Landlord for all of the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom including, but not limited to, any costs or expenses incurred by Landlord in (A) retaking possession of the Premises, including reasonable attorneys' fees thereof; (B) maintaining or preserving the Premises after such default; (C) preparing the Premises for reletting to a new tenant, including repairs or alterations to the Premises for such reletting; (D) leasing commissions; and (E) any other costs necessary or appropriate to relet the Premises; plus (v) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable California law. 19.3 COMPUTATIONS. For the purposes of the preceding paragraph, all rental and charges other than Minimum Annual Rent including, but not limited to, Common Area Expenses shall be computed on the basis of the average monthly amount thereof accruing during the twelve (12) month period immediately preceding notice to Tenant of Tenant's default unless a twelve (12) month period of this Lease has not elapsed, in which case the average monthly amount shall be based upon the entire period of Tenant's occupancy of the Premises. In the event of default, all of Tenant's fixtures, furniture, equipment, 55 63 improvements, additions, alterations and other personal property shall remain on the Premises and, during the period of such default, Landlord shall have the right to require Tenant to remove the same forthwith. 19.4 DEFINITION OF WORTH AT THE TIME OF AWARD. As used in subsections (i) and (ii) of Section 19.2(f) above, the "worth at the time of the award" shall be computed by allowing interest at the rate of ten percent (10%) per annum or the maximum interest rate permitted by law, whichever is less. As used in subsection (iii) of Section 19.2(f) above, the "worth at the time of the award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus one percent (1%). 19.5 EFFORTS TO RELET. For the purposes of this Article, Tenant's right to possession shall not be deemed to have been terminated by efforts of Landlord to relet the Premises, by its acts of maintenance or preservation with respect to the Premises, or by appointment of a receiver to protect Landlord's interests hereunder. The foregoing enumeration is not exhaustive, but merely illustrative of acts which may be performed by Landlord without terminating Tenant's right to possession. 19.6 NO WAIVER. The waiver by Landlord 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 rent 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 of such rent. No covenant, term or condition of this Lease shall be deemed to have been waived by Landlord unless such waiver is in writing and executed by Landlord. ARTICLE 20 DEFAULT BY LANDLORD Landlord shall not be in default hereunder unless Landlord fails to perform the obligations required of Landlord within a reasonable time, but in no event later than thirty (30) days after written notice by Tenant to Landlord and, following Landlord's failure to act within such thirty (30) day notice period, to each Mortgagee whose name and address shall have theretofore been furnished to Tenant in writing specifying wherein Landlord has failed to perform such obligation; provided, however, if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences 56 64 performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. In the case of a default by Landlord, prior to Tenant's exercise of any remedy, the holder of any mortgage or deed of trust encumbering the Premises shall have the right, but not the obligation, to cure such a default. In no event shall Tenant have the right to terminate this Lease as a result of Landlord's default, and Tenant's remedies shall be limited to an action at law for monetary damages. Nothing herein contained shall be interpreted to mean that Tenant is excused from paying rent due hereunder as a result of any default by Landlord. ARTICLE 21 ATTORNEYS' FEES 21.1 LEGAL ACTIONS BETWEEN LANDLORD AND TENANT. In the event that either party shall institute any legal action or proceeding against the other relating to the provisions of this Lease, or any default hereunder, the unsuccessful party in such action or proceeding agrees to pay to the prevailing party the reasonable attorneys' fees and costs actually incurred by the prevailing party. ARTICLE 22 EMINENT DOMAIN 22.1 TAKING RESULTING IN TERMINATION. In the event that all or substantially all of the Premises shall be taken under the power of eminent domain, or that any portion of the Common Areas shall be so taken so as to render the Premises not reasonably suitable for continuation of business in Landlord's or Landlord's Mortgagees' absolute discretion, this Lease shall thereupon terminate as of the date possession shall be so taken. In the event that a portion of the floor area of the Premises shall be taken under the power of eminent domain and the portion not so taken will not be reasonably adequate for the operation of Tenant's business, notwithstanding Landlord's performance of restoration as hereinafter provided, this Lease shall terminate as of the date possession of such portion is taken. If this Lease is terminated, all Rent shall be paid up to the date that actual possession of the Premises, or a portion thereof, is taken by public authority, and Landlord shall make an equitable refund of any Rent paid by Tenant in advance and not yet earned. 22.2 PARTIAL TAKING. In the event of any taking under the power of eminent domain which does not terminate this Lease as aforesaid, any obligation of Tenant under this Lease to pay Rent and all of the provisions of this Lease shall remain in full force and effect, except that the Minimum Annual Rent only shall be reduced in the same proportion that the amount of floor area of the Premises taken bears to the floor area of the Premises immediately prior to such taking, 57 65 and Landlord shall, to the extent of the condemnation award made available to Landlord by Mortgagees, at Landlord's own cost and expense, restore such part of Landlord's Work in the Premises described in Exhibit "C" as is not taken to as near its former condition as the circumstances will permit, and Tenant shall do likewise with respect to such part of Tenant's Work as is not taken. 22.3 AWARD. All damages awarded for any such taking under the power of eminent domain, whether for the whole or a part of the Premises or Common Area, shall belong to and be the property of Landlord, whether such damages shall be awarded as compensation for diminution in value of the leasehold or for the fee of the Premises; provided, however, that nothing herein contained shall prevent Tenant from making claim for loss or damage to Tenant's trade fixtures and removable personal property. 22.4 TRANSFER UNDER THREAT OF TAKING. A voluntary sale by Landlord of all or any portion of the Premises or Common Area to a public or quasi-public body, agency or person, corporate or otherwise, having the power of eminent domain, either under threat of condemnation or while condemnation proceedings are pending, shall be deemed to be a taking by eminent domain covered by this Article 22. 22.5 REQUISITIONING. Notwithstanding anything to the contrary in the foregoing provisions, the requisitioning of the Premises or any part thereof by military or other public authority for purposes arising out of a temporary emergency or other temporary situation or circumstances shall constitute a taking of the Premises by eminent domain only when the use and occupancy by the requisitioning authority has continued for one hundred eighty (180) days. During such one hundred eighty (180) consecutive day period, and if this Lease is not terminated under the foregoing provisions, then for the duration of the use and occupancy of the Premises by the requisitioning authority, any obligation of Tenant under this Lease to pay rent and all of the other provisions of this Lease shall remain in full force and effect, except that Minimum Annual Rent shall be reduced in the same proportion that the amount of the floor area of the Premises requisitioned bears to the total floor area of the Premises, and Landlord shall be entitled to whatever compensation may be payable from the requisitioning authority for the use and occupation of the Premises for the period involved. ARTICLE 23 SUBORDINATION; ATTORNMENT 23.1 SUBORDINATION. This Lease is subject and subordinate to all ground and/or other underlying leases including sale and leaseback leases, and all Mortgages, together with all renewals, modifications, consolidations, replacements and extensions thereof; provided, however, if the lessor under any such lease or the Mortgage 58 66 of any such Mortgage, shall advise Landlord that it or they desire to require this Lease to be prior and superior hereto, upon written request of Landlord to Tenant, Tenant agrees to promptly execute, acknowledge and deliver any and all documents or instruments which Landlord or such lessor, or Mortgagee deems necessary or desirable for purposes therefor. As used herein, a "Mortgage" shall mean any mortgage or deed of trust or other instrument in the nature thereof evidencing a security interest in the Premises and/or Common Area, or any part thereof, or the Development Site, including but not limited to, the following: (a) That certain deed of trust encumbering the Theater Parcel and Common Area, securing a loan in the approximate amount of $3,600,000, the proceeds of which shall be used for the construction and/or permanent financing of the Development ("Development Loan"); (b) That certain deed of trust encumbering the Theater Parcel and the Common Area, securing a loan made to Landlord by Agency in an approximate amount of $7,000,000, which loan is funded by the proceeds of a HUD Section 108 loan to the Agency ("HUD Loan"); (c) That certain deed of trust encumbering the Theater Parcel and Common Area, securing a loan made by the Agency to Landlord in an approximate amount of $1,324,575 ("Agency Loan"). "Mortgagee" shall mean the mortgagee, beneficiary under a deed of trust, the secured party under any such instrument which secures its position by a deed of trust encumbering Landlord's interest in the Development Site or portion thereof. This Lease is further subject and subordinate to (i) the REA and all covenants, conditions, restrictions, easements and any other matters or documents of record, together with all renewals, modifications, consolidations, replacements and extensions thereof; and (ii) any zoning laws of the city, county and state where the Development is situated. Tenant hereby covenants that Tenant, and all persons in possession or holding under Tenant, will conform to and will not violate the terms of said matters of record. 23.2 FUTURE ENCUMBRANCE. Landlord shall have the right to cause this Lease to be and become and remain subject and subordinate to any and all ground and/or other underlying leases, including the sale and leaseback leases, to any and all Mortgages which may hereafter be executed covering the Development, the Premises, the real property thereunder or any portion thereof, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advance, together with interest thereon, and subject to all of the terms and provisions thereof, and Tenant agrees, within ten (10) days after Landlord's written request therefor, to execute, acknowledge and deliver upon request any and all documents or instruments requested by Landlord or necessary or proper to assure the subordination of this Lease to any such Mortgages, or leasehold estates. 59 67 23.3 ATTORNMENT. Notwithstanding anything to the contrary set forth in this Article, Tenant hereby attorns and agrees to attorn to any person, firm or corporation purchasing or otherwise acquiring Landlord's interest in the Development, the Premises, or the real property thereunder or any portion thereof, at any sale or other proceeding or pursuant to the exercise of any rights, powers, or remedies under such Mortgages or ground or underlying leases as if such person, firm or corporation had been named as Landlord herein, it being intended hereby that, if this Lease shall be terminated, cut off, or otherwise defeated by reason of any act or actions by the Mortgagee of any such Mortgage, or the lessor under any such leasehold estate, then at the option of any such person, firm or corporation so purchasing or otherwise acquiring Landlord's interest in the Development, the Premises, or the real property thereunder or any portion thereof, this Lease shall continue in full force and effect. Tenant hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to execute and deliver any documents provided herein for and in the name of Tenant, and such power, being coupled with any interest, is irrevocable. 23.4 ESTOPPEL CERTIFICATE. If, upon any sale, assignment or hypothecation of the Premises, the Development, or the land thereunder by Landlord, an estoppel statement shall be required from Tenant, Tenant agrees to deliver in recordable form within ten (10) days after written request therefor by Landlord, an estoppel statement substantially in the form attached hereto as Exhibit "E." Tenant's failure or refusal to timely execute such certificate, or such other certificate shall in addition to being a material breach of this Lease, constitute an acknowledgment by Tenant that the statements in such certificate are true and correct without exception. ARTICLE 24 SALE OF PREMISES BY LANDLORD In the event of any sale, exchange or other conveyance of Landlord's interest in the Development or any portion or portions thereof by Landlord and an assignment by Landlord of this Lease, Landlord shall be entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease arising out of any act, occurrence or omission relating to the Premises or this Lease occurring after the consummation of such sale, exchange or conveyance and assignment. ARTICLE 25 HOLDOVER BY TENANT 25.1 HOLDOVER TENANCY. In the event that Tenant shall hold the Premises after the expiration of the Lease Term hereof with the 60 68 consent of Landlord, express or implied, such holding over, in the absence of written agreement on the subject, shall be deemed to have created a tenancy from month-to-month, terminable on thirty (30) days' written notice by either party to the other, upon a monthly rental hereinafter stated, but otherwise subject to all of the terms and provisions of this Lease. Such monthly rental shall equal one hundred fifty percent (150%) of the monthly rental payable by Tenant to Landlord for the preceding twelve (12) month period including, but not limited to, Minimum Annual Rent and any other charges payable by Tenant under this Lease. 25.2 FAILURE TO SURRENDER. If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant hereby agrees to indemnify and hold Landlord harmless from loss or liability resulting from such failure including, but not limited to, damages for the loss of a reasonably ascertainable successor tenant, and any claims made by any succeeding tenant based upon Tenant's failure to surrender. ARTICLE 26 NOTICES 26.1 NOTICES. Wherever in this Lease it shall be required or permitted that notice, approval, advice, consent or demand be given or served by either party to this Lease to or on the other, such notice, approval, advice, consent or demand shall be given or served, and shall not be deemed to have been duly given or served unless in writing and forwarded by a recognized overnight courier (such as Federal Express) or by certified or registered U.S. mail, or by facsimile transmission (provided a copy thereof is sent within twenty-four (24) hours by any other permitted method for notices hereunder) addressed to the parties at the addresses listed in Section 1.1(g) hereof. Either party may change such address by written notice sent in accordance with the above procedures to the other. 26.2 DEFAULT NOTICES. Notwithstanding anything to the contrary contained herein, any notices Landlord is required or authorized to serve upon Tenant in order to advise Tenant of alleged violations of Tenant's covenants contained in Article 7 (improper advertising medium/sights), Article 16 (failure of Tenant to properly repair and/or maintain the Premises), or Article 18 (improper parking of automobiles), must be in writing but shall be deemed to have been duly given or served upon Tenant by delivery of a copy of such notice to one of Tenant's managing or responsible employees at the Premises or by mailing a copy of such notice to Tenant in the manner specified above. 61 69 ARTICLE 27 CAPTIONS AND TERMS 27.1 REFERENCE ONLY. The captions of Articles and Sections of this Lease are for convenience only and do not in any way limit or amplify the terms and provisions of this Lease. Except as otherwise specifically stated in this Lease, the "Lease Term" shall include the Initial Term and any Extension Term. 27.2 PARTIES. If more than one (1) person or corporation is named as Tenant in this Lease and executes the same as such, the word "Tenant," wherever used in this Lease, is intended to refer to all such persons or corporations, and the liability of such persons or corporations for compliance with the performance of all of the terms, covenants and provisions of this Lease shall be joint and several. The masculine pronoun used herein shall include the feminine or the neuter as the case may be, and the use of the singular shall include the plural, as the context may require. ARTICLE 28 OBLIGATIONS OF SUCCESSORS Each and all of the provisions of this Lease shall be binding upon and inure to the benefit of the parties hereto, and except as otherwise specifically provided in this Lease, their respective heirs, executors, administrators, successors and assigns, subject, however, to all agreements, covenants, and restrictions contained elsewhere in this Lease with respect to the assignment, transfer, encumbering or subletting of all or any part of Tenant's interest in this Lease or the Premises. ARTICLE 29 MISCELLANEOUS PROVISIONS 29.1 SEPARABILITY. It is agreed that, if any, provision of this Lease shall be determined to be void by a court of competent jurisdiction, then such determination shall not affect any other provision of this Lease, and all such other provisions shall remain in full force and effect. 29.2 TENANT WARRANTIES. (a) CORPORATE. The persons executing this Lease on behalf of Tenant hereby covenant and warrant that Tenant is a duly formed corporation and all steps have been taken prior to the date hereof to qualify Tenant to do business in the State of California; that all franchise and corporate taxes have been paid to date; and that all 62 70 forms, reports, fees and other documents necessary to comply with applicable laws will be filed when due, and that they are authorized and directed to execute this Lease, and to bind Tenant to it. Tenant shall supply Landlord with an original certificate of the duly elected Corporate Secretary of Tenant certifying to the matters set forth in this Section 29.2 and containing a copy of the resolution authorizing the entering into of this Lease, and the authority of the persons executing it. (b) DUE AUTHORIZATION; BINDING. This Lease and all documents executed by Tenant or its assignee which are to be delivered to Landlord are and will be duly authorized, executed, and delivered by Tenant, and are and will be legal, valid, and binding obligations of Tenant, and do not and will not violate any provisions of any agreement or judicial order to which Tenant is a party or to which it is subject. (c) CONSENTS; COMPLIANCE. Neither the execution nor delivery of this Lease, nor the consummation of the transactions covered hereby, nor the fulfillment of the terms hereof, nor compliance with the terms and provisions hereof, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any agreement or instrument to which Tenant is a party, or, to Tenant's knowledge, constitute a violation of any applicable statute, regulation, rule, judgment, decree or order. (d) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations, warranties, covenants and agreements of Tenant contained in this Section 29.2 or elsewhere in this Lease shall survive for the term of this Lease, and Tenant indemnifies Landlord for, and holds Landlord harmless from and against, any and all loss, cost, damage, liability or expense (including, without limitation, reasonable attorneys' fees) arising out of or in connection with the inaccuracy or breach of Tenant's representations or warranties. 29.3 MERGER. It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease, and this Lease entirely supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. This Lease contains all of the terms, covenants, conditions, warranties and agreements of the parties relating in any manner to the rental, use and occupancy of the Premises and shall be considered to be the only agreement between the parties hereto and their representatives and agents. None of the terms, covenants, conditions or provisions of this Lease may be modified, deleted or added to except by written Lease amendment signed by the parties hereto. All negotiations and oral agreements acceptable to both parties have been merged into and are included herein. There are no other representations or warranties between the 63 71 parties, and all reliance with respect to representations is totally upon the representations and agreements contained in this Lease. 29.4 RIGHT TO LEASE. Landlord reserves the absolute right to effect such other tenancies in the Development as Landlord in the exercise of its sole business judgment shall determined Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants fall, during the Lease Term, occupy any space in the Development. 29.5 GOVERNING LAW. The laws of the State of California shall govern the validity, construction, performance and enforcement of this Lease. Should either party institute legal action to enforce any obligation contained herein, it is agreed that the proper venue of such suit or action shall be the county and judicial district in which the Development is located. This Lease is a joint product of Landlord and Tenant and shall not be construed either for or against Landlord or Tenant but shall be interpreted in accordance with the general tenor of its language. 29.6 FORCE MAJEURE. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefor, governmental actions, civil commotion, fire or other casualty, and other non-financial causes beyond the reasonable control of the party obligated to perform (a "Force Majeure" event), shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage. This provision shall not apply to the obligations, once accrued, imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease or to any financial incapacity of Tenant. 29.7 CUMULATIVE RIGHTS. The various rights, options, elections, powers and remedies contained in this Lease shall be construed as cumulative, and no one remedy shall be exclusive of any other remedy, or of any other legal or equitable remedy which either party might otherwise have in the event of breach or default in the terms hereof, and the exercise of one right or remedy by such party shall not impair its right to any other right or remedy until all obligations imposed upon the other party have been fully performed. 29.8 TIME. Time is of the essence with respect to the performance of each of the covenants and agreements contained in this Lease. 29.9 RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third person to create the relationship of principal and agent or of partnership or of joint venture or of any association between Landlord and Tenant, and neither the method of computation of Rent nor any other provision contained in this Lease nor any acts of the parties hereto shall be deemed to create any relationship between 64 72 Landlord and Tenant other than the relationship of landlord and tenant. 29.10 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant to Landlord of rent or other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which is extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Landlord by the terms of any mortgage or deed of trust covering the Premises. Accordingly, if any installment of rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee when due, then Tenant shall pay to Landlord a late charge equal to One Hundred and 00/100 Dollars ($100.00) or two percent (2%) of the amount due, whichever is higher, and provided that such amount will not exceed the maximum rate permitted by law, plus any attorneys' fees incurred by Landlord by reason of Tenant's failure to pay rent and/or other charges when due hereunder. The parties hereby agree that such late charge represents a fair and reasonable estimate of the administrative costs that Landlord will incur by reason of the late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. Tenant hereby agrees that, if Tenant is subject to a late charge for three (3) consecutive months, Minimum Annual Rent for the following twelve (12) months shall automatically be adjusted to be payable quarterly, in advance, commencing upon the first day of the month following such consecutive late month and continuing for the next twelve (12) months on a quarterly basis in advance. 29.11 FINANCIAL STATEMENTS. At any time during the Lease Term, Tenant shall, upon ten (10) days' prior written notice from Landlord, provide Landlord or any Mortgagee which is negotiating with Landlord for interim, construction or permanent financing, with a confidential current financial statement (dated within ninety (90) days of the date Tenant receives Landlord's notice) and financial statements for each of the two (2) years prior to the then current fiscal statement year for Tenant and, if requested, for each Guarantor, and/or Tenant's assignees, subtenants and concessionaires. Such current statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, Guarantor, and/or Tenant's assignees, subtenants and concessionaires, shall be audited by an independent certified public accountant. Tenant represents and warrants to Landlord that each such financial statement shall be true and accurate as of the date of such statement and shall be certified by an officer of Tenant. 29.12 REAL ESTATE BROKERS. The parties acknowledge that George Medak of Affiliated Development Group, Inc. ("Broker") represents both Landlord and Tenant in this transaction. Landlord and Tenant each represent and warrant to the other that, except for Broker, it 65 73 has not dealt with any other broker or finder in connection with the Lease or the Premises and there are no claims (except for Broker) for brokerage commissions or finder's fees in connection with the execution of this Lease. Landlord and Tenant each agree to indemnify the other against, and hold the other harmless from, all liability, costs, expenses and fees arising from any such claim, including, without limitation, the cost of attorneys' fees in connection therewith arising out of or resulting from the acts and omissions of the indemnifying party. The fees and commissions to Broker shall be governed by a separate commission agreement between Landlord and Broker. 29.13 DEFAULT RATE. Tenant shall pay to Landlord when due all sums of money required to be paid pursuant to this Lease. If such amounts or charges are not paid at the time provided in this Lease, such unpaid amounts shall bear interest at the lesser of ten percent (10%) or the maximum lawful rate ("Default Rate") from the date due to the date of payment. 29.14 NO OFFER TO LEASE. The submission of this document for examination and negotiation does not constitute an offer to lease, or a reservation of, or option for, occupancy of the Premises; and this document shall become effective and binding only upon execution and delivery hereof by Tenant and by Landlord (or, when duly authorized, by Landlord's agent or employee). No act or omission of any agent of Landlord or Landlord's broker, if any, shall alter, change or modify any of the provisions hereof. 29.15 EXCULPATION. Notwithstanding any other provision hereof, Landlord shall not have any personal liability hereunder. If Landlord shall fail to perform any covenant, term or condition of this Lease upon Landlord's part to be performed, and if as a consequence of such default Tenant shall recover a money judgment against Landlord, such judgment shall be satisfied only out of the proceeds of sale received upon execution of such judgment and levied thereon against the then right, title and interest of Landlord in the Premises and out of rents or other income from the Premises, or out of the consideration receivable by Landlord from the sale or other disposition of all or any part of Landlord's right, title and interest in the Premises, subject to the rights of Landlord's Mortgagee, and neither Landlord nor any of its constituent partners or members, or their employees, officers, directors, shareholders or affiliates, shall be liable for any deficiency. 29.16 HAZARDOUS MATERIALS. Tenant covenants as follows: (a) Except for usual and customary quantities of ordinary and general office supplies typically used in the ordinary course of business, such as copier toner, liquid paper, glue and ink and common household cleaning materials (some or all of which may constitute "Hazardous Materials" as herein defined), Tenant agrees not to cause or permit any Hazardous Materials to be brought, incorporated, 66 74 stored, used, handled, generated, released or disposed of, on, in, under or about the Building, the Premises, the Common Areas or any portion of the Development by Tenant, its agents, employees, subtenants, assignees, contractors or invitees (collectively, "Tenant Parties"), without the prior written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion. At all times and in all respects, Tenant and the other Tenant Parties shall comply with all federal, state and local laws, statutes, ordinances and regulations including, but not limited to, the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), Resource Conservation & Recovery Act (42 U.S.C. Section 16901 et seq.), Safe Drinking Water Act [42 U.S.C. Section 3000(f) et seq.], Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), Comprehensive Environmental Response of Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), California Health & Safety Code (Section 25100 et seq. and 39000 et seq.), California Water Code (Section 13000 et seq.) and other comparable state laws (collectively, "Hazardous Materials Laws"), relating to industrial hygiene, environmental protection or the use, analysis, generation, manufacture, storage, disposal or transportation of any oil, flammable explosives, asbestos, urea formaldehyde, radioactive materials or waste, or other hazardous, toxic, contaminated or polluting materials, substances or wastes, including, without limitation, any "hazardous substances", "hazardous wastes", hazards, federal, state or local laws, statutes, ordinances or regulations (collectively, "Hazardous Materials"). (b) At Tenant's own expense, Tenant shall procure, maintain in effect and comply with all conditions of any and all permits, licenses, and other governmental and regulatory including, without limitation, discharge of (appropriately treated) materials or wastes into and through any sanitary sewer serving the Development or sewer in strict accordance and conformity with all applicable Hazardous Materials Laws, Tenant shall not cause any and all Hazardous transported, except solely by duly licensed haulers to duly licensed facilities for disposal of such materials and wastes. Tenant shall in all respects handle, treat, deal with and manage any and all Hazardous Materials in, on, under or about the Development in total conformity with all applicable Hazardous Materials Laws and prudent industry practices regarding management of such Hazardous Materials. Upon transfer of possession of the Premises, such transferor shall cause all Hazardous Materials to be removed from the Premises, transferred and transported for use, storage or disposal in accordance with and in compliance with all applicable Hazardous Materials Laws. Upon the expiration or sooner termination of this Lease, Tenant agrees to remove from the Premises, at its sole cost and expense, any and all Hazardous Materials, including any equipment or systems containing Hazardous Materials which are installed, brought, incorporated, stored, used, generated or released upon, in or under the Premises or any portion of the Development by Tenant or any of the Tenant Parties. 67 75 (c) Tenant shall immediately notify Landlord in writing of (i) any enforcement, clean-up, removal or other governmental or regulatory action instituted, completed or threatened pursuant to any Hazardous Materials Laws; (ii) any claim made or threatened by any person against Tenant, any of the Tenant Parties, the Premises, or any portions of the Development including, without limitation, any buildings located thereon, relating to damage, contribution, cost recovery compensation, loss or injury resulting from or claimed to result from any Hazardous Materials; and (iii) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials in or removed from the Premises or any portions of the Development, including any complaints, notices, warnings or asserted violations in connection therewith. Tenant shall also supply to Landlord as promptly as possible, and in any event within five (5) business days after any Tenant Party first receives or sends the same, copies of all claims, reports, complaints, notices, warnings or asserted violations, relating in any way to the Premises, any portions of the Development or Tenant's or any Tenant Party's use thereof. (d) Tenant shall immediately indemnify, defend, protect, and hold Landlord and each of its constituent partners, members, employees, agents, attorneys, successors and assigns, free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses and expenses (including attorneys' fees), as well as the death of or injury to any person and damage to any property whatsoever, arising from or caused in whole or in part, directly or indirectly, by Tenant's or any Tenant Party's use, analysis, storage, transportation, disposal, release, threatened release, discharge or generation of Hazardous Materials to, in, on, under, about or from the Premises or any portion of the Development including, without limitation, any building located thereon. Tenant's obligations hereunder shall include, without limitation, and whether foreseeable or unforeseeable, all costs of any required or necessary repair, clean-up or detoxification or decontamination of the Premises or Development or any building thereon, or the preparation and implementation of any closure, remedial action or other required plans in connection therewith. For purposes of the release and indemnity provisions hereof, any acts or omissions of Tenant or any Tenant Party, or anyone holding under Tenant or any Tenant Party, or by any of their employees, agents, assignees, contractors or subcontractors or others acting for or on behalf of Tenant or any Tenant Party (whether or not they are negligent, intentional, willful or unlawful) shall be strictly attributable to Tenant. The terms of the indemnification by Tenant set forth in this Section 29.16 shall survive the expiration or earlier termination of this Lease. 29.17 NONDISCRIMINATION. Tenant herein covenants by and for itself, its heirs, executors, administrators, successors and assigns, and all persons claiming under or through them and this Lease is made and accepted upon and subject to the following conditions: 68 76 That there shall be no discrimination against or segregation of any person, or group of persons, on account of race, color, creed, religion, sex, marital status, age, physical or mental disability, ancestry or national origin, in the leasing, renting, subleasing, transferring, use, occupancy, tenure or enjoyment of the land herein leased, nor shall the lessee itself, or any person claiming under or through it, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, sublessees, subtenants or vendees in the land herein leased. 29.18 TITLE OF LANDLORD. Landlord covenants that, as of the Effective Date hereof, there are no liens upon its estate in the Premises and Common Area other than (a) the effect of covenants, conditions, restrictions, easements, mortgages or deeds of trust, any ground lease(s), if any, of record, any rights of way of record, and any other matters or documents of record; (b) the effect of any zoning laws of the city, county and state where the Development is situated; and (c) general and special taxes and assessments not delinquent. Tenant agrees that (i) as to its leasehold estate it, and all persons in possession or holding under it, will conform to and will not violate the terms of said matters of record, and (ii) this Lease is subordinate to the REA and/or any Declaration of Restrictions, Grant of Easements or Reciprocal Easement Agreement (the "Declaration") and any amendments or modifications thereto; provided, however, if the REA and/or Declaration is not of record as of the Effective Date hereof, then this Lease shall automatically become subordinate thereto upon recordation thereof, and Tenant further agrees to execute and return to Landlord within ten (10) days after written demand therefor by Landlord, an agreement in recordable form (substantially in the form of Exhibit "H") subordinating this Lease to the REA and/or Declaration and/or any amendment or modification thereof (it being understood that the Declaration, REA and/or any amendment or modification thereto shall not prevent Tenant from using the Premises for the purpose set forth in Section 1.1(l) hereof). 29.19 RESTRICTION ON SIMILAR BUSINESSES. Notwithstanding anything to the contrary herein, if Tenant or any Transferee, or any officer, director or manager of Tenant or a Transferee, or any entity owned or controlled by, or owning or controlling, Tenant or any Transferee (each of which is herein referred to as a "Tenant Affiliate") shall own, operate or become financially interested in a motion picture theater or theaters or a similar competing business within the radius of three (3) miles of the Development, Tenant covenants that the pattern of films exhibited in the movie screens operated on the Premises shall not be changed from the pattern of films exhibited prior to the time such competing theater or theaters opened and that the films selected for exhibition on the movie screens operated on the Premises shall be selected in such a manner as to reasonably assure that the per screen revenues from the Premises shall not be less than Gross Sales from Box Office Sales 69 77 prior to the time that such competing theater or theaters commenced operation (after taking into account any decline or increase in average national box office revenues). In addition to Rent, and any other rights and remedies available to Landlord herein or under law or in equity in the event this covenant is breached, Landlord shall be entitled to damages in an amount equal to the highest Percentage Rent paid by Tenant prior to opening such competing use, for the balance of the term of this Lease, or any Extension hereof, so long as such competing use remains in effect. 29.20 AGENCY. The parties acknowledge and agree that the addition of new provisions to this Lease may be required by the Agency, or by other governmental entities. The parties agree to execute such modifications of this Lease as may be reasonably necessary to incorporate such required terms or conditions, provided that such modifications do not have a material adverse effect on the intended use of the Premises by the Tenant. 29.21 TIME. Time is of the essence in the performance of each provision of this Lease. 29.22 WAIVER. The waiver of performance of any covenant, term or condition of this Lease by Landlord or Tenant shall not be construed as a waiver of any subsequent breach of the same covenant, term or condition. The various rights, options, elections, powers and remedies of the parties contained in this Lease shall be construed as cumulative and no one of them exclusive of any other or of any legal or equitable remedy which either party might otherwise have in the event of a breach by the other, and the exercise of one right or remedy by a party shall not in any way impair its right to any other right or remedy. The acceptance of Rent by Landlord shall not be deemed a waiver of Landlord's right to enforce any term or provision hereof. 29.23 COUNTERPARTS. This Lease may be executed in any number of counterparts, each of which shall be deemed an original, and all of which, taken together, shall constitute one Lease. 29.24 LEASE NOT TO BE RECORDED. The parties hereto shall promptly execute and deliver a Memorandum of this Lease for recording purposes in the form attached hereto as Exhibit "K," but recording shall not take place without Landlord's prior written consent until the Conditions Precedent referred to in Article 4 have been satisfied or waived. Landlord shall cause the same to be recorded, at Landlord's expense, provided that Tenant shall pay all documentary and transfer taxes. 29.25 MORTGAGEE REQUIREMENTS. Tenant acknowledges that a portion of the financing for the development of the Development Site may be conditioned upon Tenant's compliance with various antidiscrimination and other requirements for employment of low and moderate income persons, all of which are set forth on Exhibit "L" 70 78 hereto. Tenant agrees to comply with all such requirements, and shall make such modifications to this Lease as may be requested by Mortgagees so long as Tenant's rights are not materially impaired and Tenant's obligations are not materially altered. 29.26 TENANT ACKNOWLEDGMENT. Except as expressly provided in this Lease, Tenant agrees that Tenant shall accept the Premises in its condition as of the Delivery Date, on an "AS-IS WITH ALL FAULTS BASIS" and is relying solely upon Tenant's own independent factual, physical and legal investigations, examinations and inquiries and the materials and information prepared by Tenant or by third parties at Tenant's request in determining that the Premises are suitable and adequate in all respects for Tenant's use and any and all other activities and uses which Tenant may conduct thereon. Landlord is not making, has not made, and expressly disclaims any representation, warranty or other assurance whatsoever with respect to the Premises, the Development, and any condition or feature thereof, other than the representations or warranties expressly provided herein. IN WITNESS WHEREOF, Landlord and Tenant have duly executed and delivered this Lease as of the day and year first above written. LANDLORD MDA-San Bernardino Associates, L.L.C., a Delaware limited liability company By: SK Metro Development, L.P., a California limited partnership, its managing member By: SK Metro Corp., a California corporation, its general partner By: /s/ REX SWANSON Rex Swanson Title: President TENANT CINEMASTAR LUXURY THEATERS, INC., a California Corporation By: /s/ ALAN GROSSBERG Alan Grossberg Title: Executive Vice President/CFO 71 79 EXHIBIT "A-1" LEGAL DESCRIPTION TO THEATER PARCEL [to be attached] 80 DOWNTOWN SAN BERNARDINO - MULTIPLEX THEATER CONCEPTUAL SITE PLAN [DIAGRAM] EXHIBIT A-2 81 EXHIBIT "A-3" LEGAL DESCRIPTION OF DEVELOPMENT PARCELS [to be attached] 82 EXHIBIT "B" ELEVATION DRAWINGS OF THE PREMISES [to be attached] 83 EXHIBIT "C" CONSTRUCTION PROVISIONS AGREEMENT This Construction Provisions Agreement ("Agreement") dated as of December ___, 1996, shall set forth the terms and conditions relating to the construction of the Premises described in that certain Lease Agreement (the "Lease") of even date herewith between MDA-San Bernardino Associates L.L.C., a Delaware limited liability company, as Landlord, and Cinemastar Luxury Theaters, Inc., a California corporation, as Tenant. All references in this Agreement to Paragraphs or Subparagraphs of this Lease shall mean the relevant portions of the Lease, to which this Agreement is attached as Exhibit C, and all references in this Agreement to Sections of this Agreement shall mean the relevant portions hereof. All defined terms used herein shall be given the meaning ascribed to them in the Lease, unless a contrary indication is specifically made. SECTION 1 DELIVERY OF THE BUILDING PAD 1.1 Building Pad as Constructed by Landlord Upon the full execution and delivery of this Lease by Landlord and Tenant, and subject to the terms and conditions thereof, Landlord shall deliver the Building Pad, as that term is defined below, to Tenant, and provided that the Building Pad conforms to descriptions set forth in subparagraph 1.2.1, below, Tenant shall accept the Building Pad from Landlord in its then existing, as-is condition. 1.2 Landlord's Work. Landlord shall cause the construction or installation of, or supply, the following items at its sole cost and expense (collectively, the "Landlord's Work"), which Tenant may not change or alter, except as provided in the Lease, or this Agreement: 1.2.1 Landlord shall do all required on-site work for the Building, which site work shall include the creation of a finished, certified, compacted, and appropriately sloped buildable pad (the "Building Pad") which conforms to the Construction Drawings, as defined below, which pad shall be located as shown on Exhibit 1 to this Agreement. The Building Pad shall be built in conformity with all applicable governmental regulations, and pursuant to plans and specifications mutually agreed to by Landlord and Tenant. 1.2.2 Landlord shall provide normal utility lines (electrical, gas, telephone, water and sewer) stubbed to within five feet (5') of the Building footprint line, as shown on the approved Construction Drawings. 1 84 1.2.3 Landlord shall enter into Parking Agreements with third parties to provide off-site nonexclusive parking spaces during the hours and in the number specified in the Lease, for use by Permittees within walking proximity of the Building, which parking may be at one or more locations. 1.2.4 Landlord shall be responsible for the construction and installation of curbs and gutters, sidewalks surrounding the Building, which shall be designed to conform to the hardscape plans shown in the Construction Drawings which are part of Tenant's Work. In addition, all landscaping, irrigation systems, and lighting in the Common Area, shall be supplied by Landlord. 1.3 Once the Construction Drawings are approved by Landlord and Tenant, any changes thereto which are the result of Tenant's requests or requirements, or which become necessary in order to conform to Tenant's Final Plans are referred to herein as a "Change". All costs, expenses and fees incurred as a result of Changes shall be charged to Tenant and payable by Tenant within five (5) days after written invoice from Landlord and, if not paid when due, may be deducted from the Tenant Improvement Allowance. SECTION 2 TENANT'S WORK 2.1 Tenant Improvement Allowance. Tenant shall be entitled to a one-time tenant improvement allowance (the "Tenant Improvement Allowance") in the amount of One Hundred and Fifteen Dollars ($115.00) per square foot of actual floor area of the Building (excluding surrounding sidewalks, walkways, and mezzanine) measured in accordance with Section 2.2 of the Lease (but in no event shall the Tenant Improvement Allowance exceed $9,200,000 regardless if the Building, as constructed, is over 80,000 square feet of floor area). The Tenant Improvement Allowance shall be used solely for the costs of the initial design and construction of the Building (the "Tenant's Work"), as more particularly described below. Subject to its obligation to deliver the Building Pad in the condition described above, and to complete the balance of Landlord's Work, described in paragraph 1.2, in no event shall Landlord be obligated to make disbursements pursuant to this Agreement or the Lease in a total amount which exceeds the Tenant Improvement Allowance. All other costs of constructing the Building and improving the Premises, including Changes, shall be born by Tenant. The Building shall be a first-class, state of the art motion picture theater building, which may include a second floor mezzanine structure, and shall include concrete floors, both sloped and flat, auditorium dividing walls which are adequate to prevent the intrusion into, or the- diversion out of, each. individual auditorium, of all sounds and vibrations generated within the Premises, and exterior walls, roof and other structural 2 85 elements which are suitable to prevent the release or disbursement of any sound or vibration generated within the Building or the Premises outside of such walls or roof; a long span roof structure and all related roof materials; complete fire sprinkler system as required by law, throughout the Building, interior stairways and elevators as required by the design of the Building on the Premises, finished dropped ceiling, completed electrical system, (but excluding sound system); finished plumbing, including full, finished, and fixturized restroom facilities; all emergency exit ways, exit doors, ramps, and other facilities required by all building, health and safety laws, and the Americans with Disabilities Act; all HVAC systems and equipment; store front, including exit doors; all interior and exterior hardware, carpeting, tile, all wall coverings, and each and every other item related to the Building structure or Building systems. The items described below as Tenant's furniture, fixture and equipment ("FF&E") are included within the definition of Tenant's Work for all purposes of this Agreement, except that no reimbursement shall be made from the Tenant Improvement Allowance for said items, as Tenant shall bear all costs related to the furniture, fixture and equipment, except as expressly described below as Tenant's furniture, fixture and equipment ("FF&E"). The Building shall conform to the general architectural design plan and standards of the Development, and Landlord's architect and Tenant's architect shall work together to achieve this result. 2.2 Disbursement of the Tenant Improvement Allowance. 2.2.1 Tenant Improvement Allowance Items. Except as otherwise set forth in this Agreement, the Tenant Improvement Allowance shall be disbursed by Landlord only for the following items and costs (collectively the "Tenant Improvement Allowance Items"): 2.2.1.1 Payment of the fees of, and costs incurred by, the "Architect" and the "Engineers" as those terms are defined in Section 3.1 of this Agreement, including all plans, drawings and specifications; 2.2.1.2 All items described in paragraph 2.1, above, as being part of the Building (except the FF&E); 2.2.1.3 Other hard costs of construction of the Tenant's Work, including, without limitation tes ting and inspection costs, freight elevator usage, if any, hoisting and trash removal costs, and contractors' fees and general conditions; 2.2.1.4 The cost of all signs, and fees for Conditional Use Permits, utility hookups, sewer charges, and building plan check and permit fees (including but not limited to seismic review), and other governmental fees and charges (including but not limited to traffic systems, cultural and school fees) 3 86 payable in connection with construction of the Tenant Improvements, except as specifically set forth in the Lease or this Agreement. Tenant shall not be responsible for traffic studies, environmental impact reviews or other required studies or governmental approvals regarding the Development in general. Rather, Tenant's liability for governmental approvals shall be limited to plan review, and other fees and costs imposed in connection with obtaining the building permit for the Demised Premises. 2.2.1.5 Sales and use taxes and Title 24 fees related to the Tenant Improvements; and 2.2.1.6 All other hard costs expended by Te nant in connection with the construction of the Tenant Improvements, except as specifically set forth in the Lease or this Agreement. Landlord, upon Tenants request, will provide Tenant with reasonable evidence of Landlord's ability to fund all improvements which are the responsibility of Landlord pursuant to this Lease, and Tenant shall similarly supply Landlord of Tenant's financial ability to meet its construction obligations hereunder. 2.2.2 Disbursement of Tenant Improvement Allowance. During the construction of the Tenant Improvements, Landlord shall make monthly disbursements of the Tenant Improvement Allowance for Tenant Improvement Allowance Items, and shall authorize the release of monies as follows: 2.2.2.1 Monthly Disbursements. On or before a day to be specified by Landlord of each calendar month during the construction of the Tenant's Work (the "Request Date"), Tenant shall deliver to Landlord ("Payment Request"): (i) a request for payment of the "Contractor," (as that term is defined in this Agreement) approved by Tenant, in a form to be provided by Landlord, showing the schedule, by trade, of percentage of completion of the Tenant's Work in the Premises, and detailing the portion of the work completed and the portion not completed; (ii) invoices from all of "Tenant's Agents," as that term is defined in Section 4.1.2 of this Agreement, for labor rendered and materials delivered to the Premises; (iii) executed mechanic's lien releases from all of Tenant's Agents which shall comply with the appropriate provisions, as reasonably determined by Landlord, of California Civil Code Section 3262(d); and (iv) all other information reasonably requested by Landlord or Landlord's Mortgagee, if any, on or before the twenty-fifth (25th) day after each such Request Date (the "Payment Date"), and assuming Landlord timely receives the applicable information described in items (i) through (iv), above, and unconditional lien releases, as applicable, for all work included in the Payment Request for the previous month, Landlord shall deliver a check to Tenant, made jointly payable to Contractor and Tenant, in payment of the amounts so requested by Tenant, as set forth in this Section 2.2.2.1, above, multiplied by the "Draw 4 87 Multiplier" (defined in Section 2.2.2.2 below), less a ten percent (10%) retention (the aggregate amount of such retentions to be known a the "Final Retention"), provided that Landlord does not dispute any request for payment based on non-compliance of any work with the "Final Plans," as that term is defined in Section 3.4 below, or due to any substandard work, or for any other reason. Landlord's payment of such amounts shall not be deemed Landlord's approval or acceptance of the work furnished or materials supplied as set forth in Tenant's Payment Request. 2.2.2.2 Draw Multiplier. As used herein, the Draw Multiplier shall mean a fraction, the numerator of which is the aggregate Tenant Improvement Allowance and the denominator of which is the total cost of construction of Tenant's Work ("Tenant Work Cost") as determined in accordance with Section 4.2.1 below and may be adjusted as provided therein. 2.2.2.3 Final Retention. Subject to the provisions of this Agreement, a check for the Final Retention payable jointly to Tenant and Contractor shall be delivered by Landlord to Tenant within thirty (30) days following the completion of construction of the Building and the Premises, provided that (i) Tenant delivers to Landlord properly executed mechanics lien releases in compliance with both California Civil Code Section 3262 (d) (2) and either Section 3262(d)(3) or Section 3262(d)(4); (ii) Landlord has determined that no substandard work exists which adversely affects the mechanical, electrical, plumbing, heating, ventilating or air conditioning, life-safety or other systems of the Building, any curtain walls of the Building, the structure or exterior appearance of the Building, or the Premises; (iii) Architect delivers to Landlord a certificate, in a form reasonably acceptable to Landlord, certifying that the construction of the Building and the Premises has been completed in accordance with the Final Plans; (iv) Tenant delivers to Landlord a certificate of occupancy for the Premises from all applicable governmental agencies; (v) all "punch list" items reasonably effecting the construction, use, and operation of the Building have been completed; (vi) Tenant has delivered a detailed breakdown of Tenant's final and total Tenant Work Costs; (vii) Tenant has delivered to Landlord all items returned under Section 4.3 below; (viii) Tenant has opened for business at the Premises as required in this Lease; and (ix) Tenant has delivered the Estoppel Certificate. 2.2.2.4 Other Terms. Landlord shall only be obligated to make disbursements from the Tenant Improvement Allowance only to the extent costs are incurred by Tenant for Tenant Improvement Allowance Items. All Tenant Improvement Allowance Items for which the Tenant Improvement Allowance has been made available shall be deemed Landlord's property under the terms of this Lease. 5 88 2.2.2.5 Landlord's Mortgagee. In the event that any construction or other Mortgagee of Landlord requires any further or different procedure for the disbursement of the Tenant Improvement Allowance, Tenant agrees to comply with same, so long as the general timing and terms for payment are reasonably consistent with Section 2.2.2.1. 2.3 Tenant's Furniture, Fixture and Equipment. Tenant shall also be required, at Tenant's sole cost. and expense, to complete all interior finish improvements (FF&E) for a first-class, state of the art motion picture theater, which FF&E shall include, but not be limited to, state of the art screens, speakers, sound system, projection equipment, concession equipment, seating, furniture, all decorative items not described elsewhere in this Agreement communication systems, security systems, and any other fixturization of any other type which is required in order to render the theater fully operational and open to the public for business. The FF&E shall be shown on the fully detailed Final Working Drawings and be subject to all of the requirements set forth herein with respect to FF&E. Tenant shall provide the First LC, Second LC and evidence of FF&E financing as and when required under the Lease. SECTION 3 CONSTRUCTION DRAWINGS 3.1 Selection of Architect/Construction Drawincgs. Tenant shall retain a qualified, licensed architect, reasonably approved by Landlord, as its architect (the "Architect") to prepare the Construction Drawings, as that term is defined in this Section 3.1. Tenant shall retain engineering consultants, reasonably approved by Landlord (the "Engineers") to prepare all plans and engineering working drawings relating to the Tenant's Work, including without limitation, structural, mechanical, electrical, plumbing, HVAC, life safety, and sprinkler work, exterior elevations, and all of Tenant's other improvements and FF&E in the Building and Premises. The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the Construction Drawings. All Construction Drawings shall comply with the drawing format and specifications reasonably designated by Landlord or Landlord's Architect prior to Tenant's preparation of such drawings, and shall be subject to Landlord's reasonable approval. Tenant and Architect shall verify, in the field, all relevant dimensions and conditions of the Building Pad, and following Tenant's approval of same, Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. Landlord's review of the Construction Drawings as set forth in this Section 3, shall be for its sole purpose and shall not imply Landlord's review of the same, or obligate Landlord to review the same, for quality, design, 6 89 compliance with applicable laws or other like matters. Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its space planner, Architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord's space planner, architect, engineers, and counselor in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings, and Tenant's waiver and indemnity set forth in this Lease shall specifically apply to the Construction Drawings. 3.2 Plan. Tenant shall supply Landlord with four (4) copies signed by Tenant of its plan for the Building and Premises before any architectural working drawings or engineering drawings have been commenced. The plan (the "Plan") shall include a layout and designation of all auditoriums, lobbies, offices, rooms and other partitioning, their intended use, and equipment to be contained therein, as well as exterior elevations, which shall conform to the architectural design of the Development. Landlord may request clarification or more specific drawings for special use items not included in the Plan. Landlord shall advise Tenant within thirty (30) business days after Landlord's receipt of the Plan for the Premises if the same is unsatisfactory or incomplete in any respect. If Tenant is so advised, Tenant shall promptly cause the Plan to be revised to correct any deficiencies or other matters Landlord may reasonably require and which are consistent with the Lease and this Agreement. Landlord shall advise Tenant within five (5) business days after Landlord's receipt of any revised draft if the same is unsatisfactory or incomplete in any respect. 3.3 Final Working Drawings. After the Plan has been approved by Landlord, Tenant shall supply the Engineers with a complete listing of standard and non-standard, structural elements, systems, equipment and specifications! including, without limitation, BTU calculations, electrical requirements and special electrical receptacle requirements for the Building and Premises, to enable the Engineers and the Architect to complete the "Final Working Drawings" (as that term is defined below) in the manner as set forth below. Upon the approval of the Plan by Landlord and Tenant, Tenant shall promptly cause the Architect and the Engineers to complete the architectural and engineering drawings for the Building and Premises, and Architect shall compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in conformance with the approved Plan and in a form which is complete to allow contractors and subcontractors to bid on the work and to obtain all applicable permits (collectively, the "Final Working Drawings"), together with a proposed time schedule for commencement, progress and completion of Tenant's Work, and shall submit the same to Landlord for Landlord's approval. Tenant shall supply Landlord with four (4) copies signed by Tenant of such Final Working Drawings and one (1) copy of the time schedule. Landlord shall advise Tenant within 7 90 thirty (30) business days after Landlord's receipt of the Final Working Drawings for the Premises and time schedule if the same is unsatisfactory or incomplete in any material respect. If Tenant is so advised, Tenant shall immediately revise the Final Working Drawings and adjust the time schedule in accordance with such review and any reasonable disapproval of Landlord in connection therewith. Landlord shall advise Tenant within five (5) business days after Landlord's receipt of any revised draft if the same is unsatisfactory or incomplete in any material respect. 3.4 Approved Final Plan. The Plan and Final Working Drawings, including the time schedule for performance of Tenant's work (collectively the "Final Plan"), shall be approved by Landlord prior to the commencement of construction of the Premises by Tenant. After approval by Landlord of the Final Plan, Tenant shall submit the same to the appropriate municipal authorities for all applicable building permits. Tenant hereby agrees that neither Landlord nor Landlord's consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that obtaining the same shall be Tenant's responsibility, but subject to Landlord's responsibility for obtaining permits related to Landlord's Work; provided, however, that in all events Landlord shall cooperate with Tenant in executing permit applications and performing other acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy. No material changes, modifications or alterations in the Final Plan may be made without the prior written consent of Landlord, which consent may not be unreasonably withheld. 3.5 Review Costs. Tenant shall reimburse to Landlord its actual, reasonable and documented costs incurred in approving the Tenant's Conceptual Design Plans and Tenant's Working Drawings within ten (10) days after Tenant's receipt of an itemized statement from Landlord therefor if the work submitted by Tenant is substandard in Landlord's architects' reasonable opinion. SECTION 4 CONSTRUCTION OF THE IMPROVEMENTS 4.1 Tenant's Selection of Contractors. 4.1.1 The Contractor. A general contractor shall be retained by Tenant to construct Tenant's Work. Such general contractor ("Contractor") shall be selected by Tenant, and subject to approval by Landlord, and Tenant shall deliver to Landlord notice of its selection of the Contractor upon such selection. Landlord shall have the right to designate general contractors to be included in Tenant's bidding process for the selection of the Contractor. By its execution hereof, Landlord approves any of the contractors described on Exhibit 4 hereto as the Contractor. 8 91 4.1.2 Tenant Is Agents. All subcontractors, laborers, materialmen, and suppliers used by Tenant (such subcontractors, laborers, materialmen, and suppliers, and the Contractor to be known collectively as "Tenant's Agents") must be approved in writing by Landlord, which approval shall not be unreasonably withheld or delayed. If Landlord does not approve any of Tenant's proposed subcontractors, laborers, materialmen or suppliers, Tenant shall submit other proposed subcontractors, laborers, materialmen or suppliers for Landlord's written approval. 4.2 Construction of Tenant's Work by Tenant's Agents. 4.2.1 Construction Contract: Cost Budget. Prior to the commencement of the construction of Tenant's Work, and after Tenant has accepted all bids for Tenant's Work, Tenant shall provide Landlord with a detailed breakdown, by trade, of the final costs to be incurred or which have been incurred, in connection with the design and construction of Tenant's Work to be performed by or at the direction of Tenant or the Contractor, which costs form a basis for the amount of the Contract (the "Tenant Work Costs"). Tenant shall also provide Landlord with a copy of its final draft of the construction contract, which shall be subject to Landlord's written approval, which shall not be unreasonably withheld or delayed. If Landlord objects to any term or condition thereof, Landlord and Tenant, and Contractor, if necessary, shall meet and confer to resolve Landlord's objection. Tenant shall submit to Landlord detailed information regarding anticipated increases or decreases, if any, in the Tenant Final Costs with each submittal of a Payment Request, together with documentation supporting such change; provided, however, in no event shall Tenant's cash contribution (i.e., amounts contributed by Tenant which are not secured by any lien on Tenant's Work, Tenant's interest in this Lease or FF&E) towards Tenant's Work Costs be less than $1 million (excluding the Tenant Improvement Allowance). The Draw Multiplier shall be adjusted from time to time to account for such changes. 4.2.2 Tenant's Agents. 4.2.2.1 Landlord's General Conditions for Tenant's Agents and Tenant Improvement Work. Tenant's and Tenant's Agent's construction of Tenant's Work shall comply with the following: (i) Tenant's Work shall be constructed in strict accordance with the Approved Working Drawings; (ii) Tenant's Agents shall submit schedules of all work relating to Tenant's Work to Contractor and Contractor shall, within five (5) business days of receipt thereof, inform Tenant's Agents of any changes which are necessary therein and Tenant's Agents shall adhere to such corrected schedule; and (iii) Tenant shall abide by all reasonable rules made by Landlord's architect or property manager with respect to the use of freight, loading dock and service elevators, storage of materials, coordination of work with the contractors of other 9 92 tenants, and any other matter in connection with this Agreement, including without limitation, the construction of the Tenant's Work. 4.2.2.2 Indemnity. Tenant's indemnity of Landlord as set forth in this Lease shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Tenant or Tenant's Agents, or anyone directly or indirectly employed by any of them, or in connection with Tenant's non-payment of any amount arising out of or related to Tenant's Work and/or Tenant's disapproval of all or any portion of any request for payment. 4.2.2.3 Requirements of Tenant's Agents. Each of Tenant's Agents shall guarantee to Tenant and for the benefit of Landlord that the portion of Tenant's Work for which it is responsible shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof. Each of Tenant's Agents shall be responsible for the replacement or repair, without additional charge, of all work done or furnished in accordance with its contract that shall become defective within one (1) year after the later to occur of (i) completion of the work performed by such contractor or subcontractors and (ii) the Commencement Date. The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of Tenant's Work, and/or the Building and/or common or parking areas that may be damaged or disturbed thereby. All such warranties or guarantees as to materials or workmanship of or with respect to Tenant' Work shall be contained in the Contract or subcontract and shall be written such that such guarantees or warranties shall inure to the benefit of both Landlord and Tenant, as their respective interests may appear, and can be directly enforced by either. Tenant covenants to give to Landlord any assignment or other assurances which may be reasonably necessary to effect such right of direct enforcement. 4.2.2.4 Insurance Requirements. 4.2.2.4.1 General Coverages. All of Tenant's Agents shall carry worker's compensation insurance covering all of their respective employees, and shall also carry public liability insurance, including property damage, all with limits, in form and with companies as are required to be carried by Tenant as set forth in this Lease. 4.2.2.4.2 Special Coverages. Tenant shall carry Builder's All Risk insurance in an amount approved by Landlord covering the construction of Tenant's Work, and such other insurance reasonably required by Landlord or Landlord's lender, if any, it being understood and agreed that Tenant's Work shall be 10 93 insured in accordance with this Lease immediately upon completion thereof. Such insurance shall be in amounts and shall include such extended coverage endorsements as may be reasonably required by Landlord including, but not limited to, the requirement that Contractor shall carry excess liability and Products and Completed Operation Coverage insurance, each in amounts not less than $1,000,000 per incident, $5,000,000 in aggregate, and in form and with companies as are required by Landlord. 4.2.2.4.3 General Terms. Certificates for all insurance carried pursuant to this Section 4.2.2.4 shall be delivered to Landlord before the commencement of construction of Tenant's Work and before the Contractor's equipment is moved onto the site. All such policies of insurance must contain a provision that the company writing said policy will give Landlord and Landlord's lender, if any, thirty (30) days prior written notice of any cancellation or lapse of the effective date or any reduction in the amounts -of such insurance. In the event that Tenant's Work is damaged by any cause during the course of the construction thereof, Tenant shall immediately repair the same at Tenant's sole cost and expense. Tenant's Agents shall maintain all of the foregoing insurance coverage in force until Tenant's Work is fully completed and accepted by Landlord, except for any Products and Completed Operation Coverage insurance required by Landlord, which is to be maintained for ten (10) years following completion of the work and acceptance by Landlord and Tenant. All policies carried under this Section 4.2.2.4 shall insure Landlord, Landlord's lender, if any, and Tenant, as their interests may appear, as well as Contractor and Tenant's Agents. All insurance, except Workers' compensation, maintained by Tenant's Agents shall preclude subrogation claims by the insurer against anyone insured thereunder. Such insurance shall provide that it is primary insurance as respects Landlord and that any other insurance maintained by Landlord is excess and noncontributing with the insurance required hereunder. The requirements for the foregoing insurance shall not derogate from the provisions for indemnification of Landlord by Tenant under Section 4.2.2.2 of this Agreement. 4.2.3 Governmental Compliance. Tenant's Work shall comply in all respects with the following: (i) all building codes and other state, federal, city or quasi-governmental laws, codes, ordinances and regulations, as each may apply according to the rulings of the controlling public official, agent or other person; (ii) applicable standards of the American Insurance Association (formerly, the -National Board of Fire Underwriters) and the National Electrical Code; and (iii) building material manufacturer's specifications. 4.2.4 Inspection by Landlord. Landlord shall have the right to inspect Tenant's Work at all times, provided however, that Landlord's failure to inspect Tenant's Work shall in no event constitute a waiver of any of Landlord's rights hereunder nor shall 11 94 Landlord's inspection of Tenant's Work constitute Landlord's approval of the same. Landlord shall endeavor to inspect Tenant's Work during construction at reasonable intervals and shall present any objections thereto as soon as possible after discovering same, in order to avoid, to the extent reasonably possible, Tenant's incurring of correction costs in excess of those which would have been incurred had the inspection and notification taken place in a timely fashion. Should Landlord disapprove any portion of Tenant's Work, Landlord shall notify Tenant in writing' of such disapproval and shall specify the items disapproved. Any defects or deviations in, and/or proper disapproval by Landlord of, Tenant's Work shall be rectified by Tenant at no expense to Landlord, provided however, that in the event Landlord determines that a defect or deviation exists or disapproves of any matter in connection with any portion of Tenant's Work and such defect, deviation or matter might adversely affect the mechanical, electrical, plumbing, heating, ventilating and air conditioning or life-safety systems of the Building, the structure or exterior appearance of the Building or any other tenant's use of such other tenant's leased premises, the common area, or the parking areas, Landlord may, following reasonable notice to Tenant and an opportunity for Tenant to cure same within a reasonable time after receipt of the notice of the alleged defect, take such action as Landlord deems necessary, at Tenant's expense and without incurring any liability to Tenant on Landlord's part, to correct any such defect, deviation and/or matter, including, without limitation, causing the cessation of performance of the construction of the Tenant's Work until such time as the defect, deviation and/or matter is corrected to Landlord's reasonable satisfaction. 4.2.5 Meetings. Commencing upon the execution of this Lease, Tenant shall hold weekly (or, with the consent of Landlord, less frequent, but regularly scheduled) meetings at a reasonable time, with the Architect and the Contractor regarding the progress of the preparation of Construction Drawings and the construction of Tenant's Work, and Landlord and/or its agents shall receive prior notice of, and shall have the right to attend, all such meetings, and, upon Landlord's request, certain of Tenant's Agents shall attend such meetings. In addition, minutes shall be taken at all such meetings, a copy of which shall be promptly delivered to Landlord. One such meeting each month shall include the review of Contractor's current request for payment. 4.2.6 Work Schedule. Concurrently with approval of the Final Plans Landlord and Tenant shall agree upon a Tenant Work time schedule so as to enable Tenant to timely complete Tenant's Work and open for business at the Premises no later than the Rental Commencement Date. Tenant's failure to strictly adhere to such time schedule (plus any extensions provided for in the Lease) shall be deemed a material default under the Lease. 12 95 4.3 Notice of Completion: Copy of Record Set of Plans. Within ten (10) days after completion of construction of Tenant's Work, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the county in which the Project is located in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, and shall furnish a copy thereof to Landlord upon such recordation. If Tenant fails to do so, Landlord may execute and file the same on behalf of Tenant as Tenant's agent for such purpose, at Tenant's sole cost and expense. At the conclusion of construction, (i) Tenant shall cause the Architect and Contractor (A) to update the Approved Working Drawings as necessary to reflect all changes made to the Approved Working Drawings during the course of construction, (B) to certify to the best of their knowledge that the "record-set" of as-built drawings are true and correct, which certification shall survive the expiration or termination of this Lease, and (C) to deliver to Landlord two (2) sets of copies of such record set of drawings within ninety (90) days following issuance of a certificate of occupancy for the Premises., and (ii) Tenant shall deliver to Landlord a copy of all warranties, guaranties, and operating manuals and information relating to the improvements., equipment, and systems in the Building and the Premises. 4.4 Bonds. Prior to the commencement of construction of the Tenant Improvements" Tenant shall obtain a performance and completion bond and a labor and materials payment bond, satisfactory to Landlord for all of the Tenant Improvements (the cost of which bonds may be submitted by Tenant for reimbursement under Section 2.2.2.1 above). SECTION 5 MISCELLANEOUS 5.1 Tenant's Representative. Tenant has designated Alan Grossberg as its sole representative with respect to the matters set forth in this Agreement, who shall, until further notice to Landlord, have full authority and responsibility to act on behalf of the Tenant as required in this Agreement. 5.2 Landlord's Representative. Landlord has designated Rex Swanson as its sole representative with respect to the matters set forth in this Agreement, who, until further notice to Tenant, shall have all authority and responsibility to act on behalf of the Landlord as required in this Agreement. 5.3 Clean Work Area. Tenant will provide for and pay all costs and expenses of cleaning the construction area and for any cleanup required in adjacent areas as a result of the Tenant Improvements. 13 96 5.4 Debris. All construction materials! supplies and equipment shall be stored in the Premises unless Landlord shall consent in writing to a contrary arrangement. All rubbish and debris resulting from performance of the Tenant Improvements shall be removed from the Premises and the Shopping Center no less often than weekly. Upon completion of the Tenant Improvements, Tenant shall promptly remove from the Shopping Center and dispose of all remaining rubbish and debris resulting from the construction and performance of the Tenant Improvements. 5.5 Time of the Essence in This Agreement. Unless otherwise indicated, all references herein to a number of days" shall mean and refer to calendar days. If any item requiring approval is timely disapproved by Landlord, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Landlord. 5.6 Tenant's Lease Default. Notwithstanding any provision to the contrary contained in this Lease, if an event of 'material default as described in the Lease or this Agreement has occurred at any time on or before the substantial completion of Tenant's Work, then (i) in addition to all other rights and remedies granted to Landlord pursuant to this Lease, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and/or Landlord may cause Contractor to cease the construction of the Tenant Work (in which case, Tenant shall be responsible for any delay in the substantial completion of the Building and Premises caused by such work stoppage), and (ii) all other obligations of Landlord under the terms of this Agreement shall be forgiven until such time as such default is cured pursuant to the terms of this Lease (in which case, Tenant shall be responsible for any delay in the substantial completion of the Building and Premises caused by such inaction by Landlord). 5.7 Davis-Bacon Act. Tenant shall comply with the DavisBacon Act, as amended (40 U.S.C. 276a-276a-5) respecting wages to be paid by contractors and subcontractors to laborers and mechanics employed by such contractors or subcontractors in connection with Tenant's Work, and Tenant shall comply with the requirements of the Contract Work Hours and Safety Standards Act (40 U.S.C. 327 et sea.) respecting work performed by contractors, subcontractors, laborers and mechanics. 14 97 EXHIBIT "D" GUARANTY OF LEASE This Guaranty of Lease (the "Guaranty") is attached to and made part of that certain real estate Lease (the "Lease") dated December ____, 1996 between MDA-SAN BERNARDINO ASSOCIATES, L.L.C., a Delaware limited liability company, as Landlord, and CINEMASTAR LUXURY THEATERS, INC., a California corporation, as Tenant, covering the certain real property described in Exhibit "All thereto and referred to as the "Theater Parcel." The terms used in this Guaranty shall have the same definitions as set forth in the Lease. In order to induce Landlord to enter into the Lease with Tenant, JOHN ELLISON, JR., ALAN GROSSBERG, JERRY WILLITS and RUSSELL SEHEULT (individually, a "Guarantor" and collectively, the "Guarantors"), have agreed to execute and deliver this Guaranty to Landlord. Each Guarantor acknowledges that Landlord would not enter into the Lease if each Guarantor did not execute and deliver this Guaranty to Landlord. 1. GUARANTY. In consideration of the execution of the Lease by Landlord and as a material inducement to Landlord to execute the Lease, each Guarantor hereby irrevocably, unconditionally, jointly and severally guarantees the full, timely and complete (a) payment of all rent and other sums payable by Tenant to Landlord under the Lease, and any amendments or modifications thereto by agreement or course of conduct, and (b) performance of all covenants, representations and warranties made by Tenant and all obligations to be performed by Tenant pursuant to the Lease (including but not limited to, the timely commencement, performance and completion of Tenant's Work), and any amendments or modifications thereto by agreement or course of conduct. The payment of those amounts and performance of those obligations shall be conducted in accordance with all terms, covenants and conditions set forth in the Lease, without deduction, offset or excuse of any nature and without regard to the enforceability or validity of the Lease, or any part thereof, or any disability of Tenant. 2. LANDLORD'S RIGHTS. Landlord may perform any of the following acts at any time during the Lease Term, without notice to or assent of any Guarantor and without in any way releasing, affecting or impairing any of Guarantor's obligations or liabilities under this Guaranty: (a) alter, modify or amend the Lease by agreement or course of conduct; (b) grant extensions or renewals of the Lease; (c) assign or otherwise transfer its interest in the Lease, the Theater Parcel, or this Guaranty; Initials ______________ 98 (d) consent to any transfer or assignment of Tenant's or any future tenant's interest under the Lease; (e) release one or more Guarantor, or amend or modify this Guaranty with respect to any Guarantor, without releasing or discharging any other Guarantor from any of such Guarantor's obligations or liabilities under this Guaranty; (f) receive and hold security for the payment of this Guaranty and exchange, enforce, waive and release any such security; (g) apply such security and direct the order or manner of sale thereof as Landlord, in its sole discretion, deems appropriate; and (h) foreclose upon any such security by judicial or nonjudicial sale, without affecting or impairing in any way the liability of Guarantor under this Guaranty, except to the extent the indebtedness has been paid. 3. TENANT'S DEFAULT. This Guaranty is a guaranty of payment and performance, and not of collection. Upon any breach or default by Tenant under the Lease, Landlord may proceed immediately against Tenant and/or any Guarantor to enforce any of Landlord's rights or remedies against Tenant or any Guarantor pursuant to this Guaranty, the Lease, or at law or in equity without notice to or demand upon either Tenant or any Guarantor. This Guaranty shall not be released, modified or affected by any failure or delay by Landlord to enforce any of its rights or remedies under the Lease or this Guaranty, or at law or in equity. 4. GUARANTOR'S WAIVERS. Each Guarantor hereby waives: (a) presentment, demand for payment and protest of non-performance under the Lease; (b) notice of any kind including, without limitation, notice of acceptance of this Guaranty, protest, presentment, demand for payment, default, nonpayment, or the creation or incurring of new or additional obligations of Tenant to Landlord; (c) any right to require Landlord to enforce its rights or remedies against Tenant under the Lease, or otherwise, or against any other Guarantor; (d) any right to require Landlord to proceed against any security held from Tenant or any other party, including but not limited to, the First LC and Second LC; Initials ______________ 2 99 (e) any right of subrogation; and (f) any defense arising out of the absence, impairment or loss of any right of reimbursement or subrogation or other right or remedy of Guarantors against Landlord or any such security, whether resulting from an election by Landlord, or otherwise. Any part payment by Tenant or other circumstance which operates to toll any statute of limitations as to Tenant shall operate to toll the statute of limitations as to Guarantor. 5. SEPARATE AND DISTINCT OBLIGATIONS. Each Guarantor acknowledges and agrees that such Guarantor's obligations to Landlord under this Guaranty are separate and distinct from Tenant's obligations to Landlord under the Lease. The occurrence of any of the following events shall not have any effect whatsoever on any Guarantor's obligations to Landlord hereunder, each of which obligations shall continue in full force or effect as though such event had not occurred: (a) the commencement by Tenant of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended or replaced, or any other applicable federal or state bankruptcy, insolvency or other similar law (collectively, the "Bankruptcy Laws"); (b) the consent by Tenant to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or similar official of Tenant or for any substantial part of its property; (c) any assignment by Tenant for the benefit of creditors; (d) the failure of Tenant generally to pay its debts as such debts become due; (e) the taking of corporate action by Tenant in the furtherance of any of the foregoing; or (f) the entry of a decree or order for relief by a court having jurisdiction in respect of Tenant in any involuntary case under the Bankruptcy Laws, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Tenant or for any substantial part of its property, or ordering the winding-up or liquidation of any of its affairs and the continuance of any such decree or order unstayed and in effect for a period of sixty (60) consecutive days. Initials ______________ 3 100 The liability of Guarantors under this Guaranty is not and shall not be affected or impaired by any payment made to Landlord under or related to the Lease f or which Landlord is required to reimburse Tenant pursuant to any court order or in settlement of any dispute, controversy or litigation in any bankruptcy, reorganization, arrangement, moratorium or other federal or state debtor relief proceeding. If, during any such proceeding, the Lease is assumed by Tenant or any trustee, or thereafter assigned by Tenant or any trustee to a third party, this Guaranty shall remain in full force and effect with respect to the full performance of Tenant, any such trustee or any such third party's obligations under the Lease. If the Lease is terminated or rejected during any such proceeding, or if any of the events described in Subparagraphs (a) through (f) of this Paragraph 5 occur, as between Landlord and each Guarantor, Landlord shall have the right to accelerate all of Tenant's obligations under the Lease and each Guarantor's obligations under this Guaranty. In such event, all such obligations shall become immediately due and payable by Guarantors to Landlord. Guarantors waive any defense arising by reason of any disability or other defense of Tenant or by reason of the cessation from any cause whatsoever of the liability of Tenant. 6. SUBORDINATION. All existing and future advances by Guarantor to Tenant, and all existing and future debts of Tenant to any Guarantor, shall be subordinated to all obligations owed to Landlord under the Lease and this Guaranty. 7. SUCCESSORS AND ASSIGNS. This Guaranty binds each Guarantor's personal representatives, successors and assigns. By execution below, each married Guarantor represents and warrants that he is managing his spouse's community property interest, if any, in all community assets. 8. ENCUMBRANCES. If Landlord's interest in the Theater Parcel or the Lease, or the rents, issues or prof its therefrom, are subject to any deed of trust, mortgage or assignment for security, any Guarantor's acquisition of Landlord's interest in the Theater Parcel or Lease shall not affect any of Guarantor's obligations under this Guaranty. In such event, this Guaranty shall nevertheless continue in full force and effect for the benefit of any mortgagee, beneficiary, trustee or assignee or any purchaser at any sale by judicial foreclosure or under any private power of sale, and their successors and assigns. Any married Guarantor expressly agrees that Landlord has recourse against any Guarantor's separate property for all of such Guarantor's obligations hereunder. 9. GUARANTOR'S DUTY. Guarantors assumes the responsibility to remain informed of the financial condition of Tenant and of all other circumstances bearing upon the risk of Tenant's default, which reasonable inquiry would reveal, and agree that Landlord Initials ______________ 4 101 shall have no duty to advise Guarantors of information known to it regarding such condition or any such circumstance. 10. LANDLORD'S RELIANCE. Landlord shall not be required to inquire into the powers of Tenant or the officers, employees, partners or agents acting or purporting to act on its behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Guaranty. 11. INCORPORATION OF CERTAIN LEASE PROVISIONS Each Guarantor hereby represents and warrants to Landlord that such Guarantor has received a copy of the Lease, has read or had the opportunity to read the Lease, and understands the terms of the Lease. Each Guarantor shall be jointly and severally liable under this Guaranty. The provisions in the Lease relating to the execution of additional documents, legal proceedings by Landlord against Tenant, severability of the provisions of the Lease, interpretation of the Lease, notices, waivers, the applicable laws which govern the interpretation of the Lease, delivery of financial statements and the authority of the Tenant to execute the Lease are incorporated herein in their entirety by this reference and made a part hereof. Any reference in those provisions to "Tenant" shall mean each Guarantor and any reference in those provisions to the "Lease" shall mean this Guaranty, except that (a) any notice which any Guarantor desires or is required to provide to Landlord shall be effective only if signed by all Guarantors and (b) any notice which Landlord desires or is required to provide to any Guarantor shall be sent to such Guarantor at such Guarantor's address indicated below, or if no address is indicated below, at the address for notices to be sent to Tenant under the Lease. Signed on December 20, 1996 JOHN ELLISON, JR. ----------------------------------- JOHN ELLISON, JR. 431 College Blvd. Oceanside, CA 92507 - --------------------------- Address Signed on December 20, 1996 ALAN GROSSBERG ----------------------------------- ALAN GROSSBERG 431 College Blvd. Oceanside, CA 92507 - --------------------------- Address (signatures) continued on next page) Initials ___________ 5 102 (signatures) continued from previous page) Signed on December 20, 1996 JERRY WILLITS ----------------------------------- JERRY WILLITS 4784 Terracina Oceanside, CA 92506 - --------------------------- Address Signed on December 20, 1996 RUSSELL SEHEULT ----------------------------------- RUSSELL SEHEULT 1184 Nevada Street Redlands, CA - --------------------------- Address 6 103 EXHIBIT "E" TENANT'S CERTIFICATE Cinemaster Luxury Theaters, Inc., a California corporation ("Tenant") hereby certifies the following with respect to that certain Multi-plex Theater Lease ("Lease"), dated December ___, 1996, between MDA-San Bernardino Associates, L.C.C., a Delaware limited liability company ("Landlord") and Tenant: 1. The date of Substantial Completion of Landlord's Work is _________. 2. The date of issuance by the City of San Bernardino of permits for Tenant's Work is _________. 3. The Rent Commencement Date is _____________. Minimum Annual Rent is currently payable at $_______ per month and has been paid through ___________. 4. The Initial Term commences [commenced]: _____________. 5. Landlord's Work is complete except for the following items:___________. 6. To Tenant's knowledge, Landlord is not in default of any of Landlord's obligations under the Lease, and no event has occurred which with the passage of time or the giving of notice would constitute such a default (except as follows:_____________. 7. The Lease is in full force and effect and has not been modified in any manner [except as follows: ______________. 8. Tenant has (not] exercised any right to an Extended Term granted in the Lease. 9. Tenant's address for notice purposes is: --------------------------------- --------------------------------- --------------------------------- Tenant acknowledges that Landlord and/or Landlord's Mortgagees and/or prospective purchasers and tenants of the Development are relying on the certifications made by Tenant herein, all of which are true and correct to Tenant's knowledge as of the date of execution hereof. 104 This Tenant's Certificate is executed this ___ day of __________,19__. CINEMASTER LUXURY THEATERS, INC., a California corporation By ________________________________ Its_____________________________ 105 EXHIBIT "F" SIGN CRITERIA [to be attached] 106 EXHIBIT "G" RULES AND REGULATIONS [to be attached] 107 RECORDING REQUESTED BY, AND WHEN RECORDED MAIL TO: Greenberg Glusker Fields Claman & Machtinger LLP 1900 Avenue of the Stars Suite 2100 Los Angeles, CA 90067-4590 Attn: Debby R. Zurzolo, Esq. - -------------------------------------------------------------------------------- SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT This SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT is made this 14th day of October, 1996, by and between (1) ____________________, a ______________________, hereinafter referred to as "Lender;" (2) CINEMASTAR LUXURY THEATERS, INC., a California corporation, hereinafter referred to as "Tenant;" and (3) MDA-SAN BERNARDINO ASSOCIATES, L.L.C., a Delaware limited liability company, hereinafter referred to as "Landlord." W I T N E S S E T H: WHEREAS, Lender is the holder of a deed of trust (hereinafter the "Deed of Trust") encumbering the real property described in Exhibit "All hereto, which Deed of Trust is dated _____________________ and recorded as Instrument No. ________________________in the Official Records of the County Recorder of the County of San Bernardino, California ("Official Records"), and that certain UCC-1 filed with the California Secretary of State as File No. (collectively the "Security Documents"). The Security Documents encumber the real property described in Exhibit "All hereto; WHEREAS, Tenant is a tenant under a lease dated as of ___________________, 1996 by and between Landlord and Tenant (the "Premises Lease"). The Lease demises certain premises in the City of San Bernardino, San Bernardino County, California; and such premises (the "Leased Premises") are encumbered by the Security Documents; WHEREAS, Tenant is the beneficiary of certain parking rights and easements under that certain Parking Agreement dated _______________, 1996, recorded __________ as Instrument No. ________ in Official Records, which agreement and Premises Lease are collectively referred to herein as the "Lease"); and WHEREAS, Lender and Tenant desire to enter into this agreement to establish certain rights, safeguards and obligations EXHIBIT H 1 108 with respect to their interests, and to further provide for various contingencies as herein set forth. NOW, THEREFORE, in consideration of the foregoing and of the mutual agreement of the parties hereto to the terms and conditions hereinafter contained, the parties hereto agree as follows: 1. The Lender hereby consents to the Lease and agrees that no action taken by Lender under the Deed of Trust or the Security Documents to enforce the rights of Lender thereunder shall disturb or affect the Lease or Tenant's rights thereunder, unless and until Tenant is in default under the Lease and Landlord or Lender is entitled to take action under the Lease in accordance with the terms thereof. 2. Tenant hereby agrees that no action taken by Lender to enforce any rights under the Deed of Trust or the Security Documents, by reason of any default thereunder (including, without limitation, the appointment of a receiver, taking of possession by Lender as Trustor under the Deed of Trust, foreclosure of the Deed of Trust, transfer of title in lieu of foreclosure or demand for rent under any assignment of rents or leases) shall give rise to any right of Tenant to terminate the Lease or shall invalidate or constitute a breach by Landlord of any of the terms thereof. 3. The Lease and any amendment, renewal, modification or extension of the Lease, and all right, title and interest of Tenant in and to the Leased Premises, are and shall be subject and subordinate in all respects to the Security Documents. 4. Tenant shall attorn to Lender, its successors and assigns, to a receiver for the Leased Premises appointed by a court of competent jurisdiction or to a purchaser at any sheriff's or foreclosure sale of the Leased Premises or its successors and assigns whenever said party (i) is in possession of the Leased Premises, (ii) is exercising the right to collect rent pursuant to the Deed of Trust, any assignment of rents and leases granted in connection therewith or as otherwise provided in the Security Documents, (iii) has commenced foreclosure of the Deed of Trust in any manner permitted by the laws of the state in which the Leased Premises are located, (iv) has caused a receiver to be appointed for the Leased Premises by a court of competent jurisdiction, or (v) has acquired or succeeded to Landlord's interest in the Leased Premises by deed in lieu of foreclosure or any other method. In such event, Tenant shall be bound to Lender or said party under all of the terms, covenants and conditions of the Lease for the balance of the term of the Lease then remaining and any extensions or renewals thereof which may be exercised in accordance with the terms thereof, with the same force and effect as if Lender or said party were the Landlord under the Lease. Said attornment shall be effective and self-operative without the execution of any further instrument on the part of any of the 2 109 parties hereto upon occurrence of an event described above; however, upon request, Tenant will execute and deliver to Lender or said party any instrument which is necessary or desirable to evidence such attornment. Tenant shall be under no obligation to pay rent to Lender or said party until Tenant receives written notice that Lender or said party is exercising its rights under any assignment of rents and leases contained in the Security Documents or that it has succeeded to the interest of Landlord under the Lease. If the Lease is terminated as a result of Landlord's bankruptcy or reorganization, and Lender subsequently obtains fee title to the Leased Premises, so long as Tenant is not then in default Lender agrees to reinstate the Lease as between Lender (as Landlord) and Tenant. 5. Tenant agrees that Lender shall not (i) be liable for any act, omission or default on the part of Landlord arising or accruing prior to Lender succeeding to the pos ition of the named Landlord under the Lease or for any indemnification obligation of Landlord to Tenant under the Lease arising or accruing prior to Lender succeeding to the position of the named Landlord under the Lease, (ii) be subject to any offset which shall have accrued to Tenant against Landlord, (iii) be liable for any security deposit, rental prepayment for more than one month in advance, or other deposit (including, but not limited to tax and insurance deposits, if any) unless and until such funds have been transferred to Lender, (iv) be bound by any modification renewal, extension or amendment of the Lease to which Lender has not consented, (v) be bound by any collateral agreement, or by any waiver or forbearance suffered, entered into or granted by Landlord unless Lender has consented to the same in writing, (vi) be bound by or incur any liability under any provision in the Lease pursuant to which the Landlord agrees to indemnify Tenant in connection with hazardous or toxic substances, or (vii) be liable for any obligations or covenants which arise and are to be performed before Lender becomes owner of the Leased Premises or after it is no longer owner. 6. The agreements made herein shall be binding upon and inure to the benefit of the parties hereto, their respective successors and assigns. Tenant agrees that Lender may assign its note and Security Documents. The rights and obligations of Lender under this Agreement shall be assignable by Lender to such an assignee, to a purchaser at a foreclosure sale of Landlord's interest in the Leased Premises or to a purchaser of the Leased Premises from Lender. As used herein, the words "foreclosure" and "foreclosure sale" shall be deemed to include the acquisition of Landlord's estate in the Leased Premises by voluntary deed (or assignment) in lieu of foreclosure; and the word "Lender" shall include Lender herein specifically named and any of its successors and assigns, including anyone who shall have succeeded to Landlord's interest in the Leased Premises by, through or under foreclosure of the Deed of Trust, and/or action under the other Security Documents. 3 110 7. All notices required or permitted to be given by this Agreement shall be sent or delivered to the parties addressed as follows: Lender: _______________________________________ _______________________________________ _______________________________________ _______________________________________ Attn:__________________________________ Tenant: CinemaStar Luxury Theaters, Inc. 431 College Boulevard Oceanside, CA 92057 Attn: John Ellison Jr., President Landlord: MDA-San Bernardino Associates, L.L.C. c/o Metropolitan Development 300 Continental Boulevard Suite 360 El Segundo, CA 90245 Attn: Rex Swanson With copy to: Greenberg Glusker Fields Claman & Machtinger LLP 1900 Avenue of the Stars Suite 2100 Los Angeles, CA 90067-4590 Attn: Debby R. Zurzolo, Esq. The parties hereto may change such addresses at any time by written notice thereof to the other parties in accordance with the provisions hereof. All notices shall be either (i) personally delivered to the addresses set forth above, in which case it shall be deemed given on the date of delivery to said address, or (ii) sent by registered or certified mail, return receipt requested, in which case it shall be deemed given three (3) business days after deposit in the U.S. mail postage prepaid, or (iii) sent by a nationally recognized overnight courier, in which case it shall be deemed given upon receipt. 8. For so long as Lender has a security interest in the Leased Premises, as a condition of Tenant declaring the Lease in default, it must provide written notice of such violation to Lender. Such notice shall state the nature of default. In addition to any cure rights afforded Landlord in the Lease, Lender shall be afforded an additional 60-day period to cure any default, provided, however, that (i) with respect to nonmonetary defaults Lender shall be provided extensions of such 60-day period for so long as Lender is diligently attempting to cure the default, and (ii) after the expiration of the 60-day period, as the same may be extended as provided herein, unless the default shall have been cured, Tenant may proceed with the remedies for default as contained within the Lease. 4 111 9. This Agreement shall inure to the benefit of, and be binding upon the parties hereto and their permitted successors and assigns. 10. This Agreement may be executed in counterparts and each copy of this Agreement to which is attached counterpart signature pages containing the signatures of each of the parties hereto shall be deemed for all purposes to be an executed original of this Agreement. 11. This Agreement shall be effective as of the "Rent Commencement Date" (as defined in the Lease). IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first hereinabove set forth. "LENDER" ----------------------------------------- a --------------------------------------- By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- "TENANT" CINEMASTAR LUXURY THEATERS, a California corporation By: -------------------------------------- Alan Grossberg, Executive Vice President/CFO (signatures) continued on next page) 5 112 (signatures) continued from previous page) "LANDLORD" MDA-SAN BERNARDINO ASSOCIATES, L.L.C., a Delaware limited liability company By: SK Metro Development, L.P., a California limited partnership, its managing member By: SK Metro Corp., a California corporation, its general partner By: ---------------------------- Rex Swanson, President 6 113 STATE OF CALIFORNIA ) ) SS: COUNTY OF ) On ________________________, 1996, before me, _________________________ a Notary Public, 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/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. Signature_____________________________ (Seal) STATE OF CALIFORNIA ) ) SS: COUNTY OF ) On __________________________________________, 1996, before me, ______________________________________ , a Notary Public, 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/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. Signature ___________________________ (Seal) 7 114 STATE OF CALIFORNIA ) ) SS: COUNTY OF __________________ ) On _________________________________________ 1996, before me, ___________________________________________ a Notary Public, 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/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. Signature ______________________________ (Seal) 8 115 EXHIBIT "I" PARKING AGREEMENT [to be attached] 116 EXHIBIT "J" PERMITTED TITLE EXCEPTIONS [to be attached) 117 EXHIBIT "K" RECORDING REQUESTED BY AND WHEN RECORDED, MAIL TO: GREENBERG GLUSKER FIELDS CLAMAN & MACHTINGER LLP 1900 Avenue of the Stars Suite 2100 Los Angeles, CA 90067-4590 Attn: Debby R. Zurzolo, Esq. - -------------------------------------------------------------------------------- SHORT FORK OF LEASE 1. Parties. This Short Form of Lease ("Memorandum"), dated for identification purposes only _______________________, 1996, is entered into by and between MDA-SAN BERNARDINO ASSOCIATES, L.L.C., a Delaware limited liability company ("Landlord"), and CINEMASTAR LUXURY THEATERS, INC., a California corporation ("Tenant"). 2. Recitals. a. Landlord is the fee owner of that certain real property more particularly described on Exhibit "All attached hereto ("Theater Parcel"). b. The Theater Parcel is Part of a larger project which may be developed. by Landlord on adjacent real property (collectively with the Theater Parcel, the "Development Site"), described on Exhibit "B" attached hereto. The Development Site is part of a larger tract of land that is subject to the Redevelopment Plan of the Redevelopment Agency of the City of San Bernardino for Project Area No. __________________ C. Pursuant to the Lease, Tenant shall design and construct an approximately 80,000-foot building on the Theater Parcel for use as a first-class, state of the art, movie theater. d. In order to accommodate Tenant's parking requirements, Landlord has or will enter into certain parking agreements more particularly described in the Lease. e. In consideration of the Recitals contained herein and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant agree as follows: 1 118 3. Grant of Leases. Landlord leases to Tenant, and Tenant leases from Landlord the Theater Parcel, together with all improvements constructed thereon, subject to the provisions of that certain unrecorded Lease dated , 1996, between Landlord and Tenant ("Lease") . 4. Term of Lease. The initial term of the Lease commences on the "RentCommencement Date" as defined in Section 1.1(b) of the Lease, and, unless sooner terminated pursuant to the terms thereof, shall expire twenty-five (25) years from' the date thereof, unless extended as provided therein. 5. Option to Renew. Section 3.7 of the Lease provides that Tenant shall have the option to extend the initial term of the Lease for two (2) additional periods of five (5) years each, subject to the terms and conditions set forth therein. 6. Tenant's Exclusive Use. Section 7.3 of the Lease provides as follows: "So long as Tenant continuously operates the Premises for the use specified in Section 1.1(1), Landlord shall not lease space within the Development to anyone for the purpose of operating within the Development a movie theater, or conducting a business requiring the use of auditoriums exceeding 10, 000 square feet for meetings and conventions at the Development, without Tenant's prior written approval. This restriction shall not apply to the operation of restaurant or banquet facilities." 7. Purpose of Short Form of Lease. This Memorandum is prepared for the purpose of recordation only, and in no way modifies the terms and provisions of the Lease. In the event of any inconsistency between the terms and provisions of this Memorandum and the terms and provisions of the Lease, the terms and provisions of the Lease shall prevail. 8. Successors and Assigns. This Memorandum shall be binding upon and inured to the benefits of the parties hereto and their respective permitted successors and assigns. 2 119 9, Exhibits. All exhibits attached hereto are incorporated herein by this reference. The parties have executed this Memorandum as of the date first set forth opposite their signatures below. Executed this 20 day "LANDLORD" ------- of December , 1996, --------------------- at Oceanside . --------------------- MDA-San Bernardino Associates L.L.C., a Delaware limited liability company By: SK Metro Development, L.P., a California limited partnership, its managing member By: SK Metro Corp., a California corporation, its general partner By: \s|Rex Swanson ---------------------- Rex Swanson Title: President Executed this 20 day "TENANT" ------- of December , 1996, CINEMASTAR LUXURY THEATERS, --------------------- INC., a California Corporation at Oceanside . --------------------- By: \s\Alan Grossberg ---------------------- Alan Grossberg Title: Executive Vice President/CFO 3 120 STATE OF CALIFORNIA ) ) SS: COUNTY OF Los Angeles ) ------------------- On December 24 , 1996, before me, ------------------------------------------- Colleen M. Rafferty , a Notary Public, personally appeared - ------------------------------------ Rex Swanson , personally ------------------------------- known to me 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 the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. Signature \s\Colleen M. Rafferty --------------------------- (Seal) STATE OF CALIFORNIA ) ) SS: COUNTY OF San Diego ) ------------------- On December 20 , 1996, before me, ------------------------------------------- Dana R. Carter , a Notary Public, personally appeared - ------------------------------------ Alan Grossberg , personally ------------------------------- known to me 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 the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. Signature \s\Dana R. Carter --------------------------- (Seal) 4 121 EXHIBIT "A" LEGAL DESCRIPTION OF THEATER PARCEL EXHIBIT "B" LEGAL DESCRIPTION OF DEVELOPMENT SITE 5 122 EXHIBIT "L" ADDITIONAL COVENANTS (to be attached] EX-27 8 FINANCIAL DATA SCHEDULE
5 9-MOS MAR-31-1997 DEC-31-1996 839,640 0 89,393 0 0 1,490,808 14,111,071 2,612,804 13,650,328 3,963,319 850,000 0 0 8,676,336 0 13,650,328 14,092,914 14,092,914 4,409,412 14,673,198 (5,951,850) 0 469,357 (1,032,547) 2,400 (1,034,947) 0 0 0 (1,034,947) (0.16) (0.16)
-----END PRIVACY-ENHANCED MESSAGE-----