Exhibit 10.6
SECOND AMENDMENT TO LEASE
This SECOND AMENDMENT TO LEASE ("Second Amendment") is made and entered
into as of the 23rd day of July, 2002, by and between KINGSTON ANDRITA LLC, a
Delaware limited liability company ("Landlord"), and PLAYBOY ENTERTAINMENT
GROUP, INC., a Delaware corporation ("Tenant").
Recitals
A. Tenant and Landlord are parties to that certain Lease, dated September
20, 2001, as amended by that certain First Amendment to Lease (the "First
Amendment"), dated May 15, 2002 (as amended, the "Lease"), pursuant to which
Landlord leased to Tenant certain premises located at 3030 Andrita Street, Los
Angeles, California as more particularly described in the Lease (the
"Premises").
B. Certain disputes have arisen between Landlord and Tenant regarding the
responsibility for the prosecution of and payment for construction of certain
improvements at the Premises and Landlord and Tenant intend that this Second
Amendment shall resolve all such disputes between them.
C. Landlord and Tenant desire to amend the Lease upon the terms and
conditions set forth below.
D. All capitalized terms used herein but not specifically defined in this
Second Amendment shall have the meanings ascribed to such terms in the Lease.
NOW, THEREFORE, in consideration of the mutual promises set forth
below and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant agree as follows:
1. Construction Drawings. Landlord and Tenant acknowledge that the parties
have not strictly complied with the requirements of Section 15.1(b) of the
Lease. Notwithstanding the foregoing, the plans and specifications listed on
Schedule 1 attached to this Second Amendment shall be deemed to be the
Construction Drawings for all purposes under the Lease.
2. Accepted Bid. The Accepted Bid required by Section 15.3(i) of the Lease
is in the amount of $5,407,237 as more particularly set forth on Schedule 2A
attached to this Second Amendment and includes the construction contract
executed between Landlord and Illig Construction described on Schedule 2B
attached to this Second Amendment, all of the Change Orders approved by Landlord
and Tenant described on Schedule 2B and all other costs of Landlord Work
incurred by Landlord as of the date of this Second Amendment. Landlord
represents and warrants to Tenant that the Accepted Bid covers all of Landlord's
Work (excluding any work to be performed by Landlord pursuant to the Phase 2
Change Order) and
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that the Accepted Bid contains no charges required to be paid exclusively by
Landlord pursuant to Section 15.4 of the Lease.
3. Above Standard Work. There is no Above Standard Work in Landlord's
Work.
4. Previous Change Orders. The Change Orders approved by Tenant prior to
the date of this Second Amendment are those items set forth on Schedule 4
attached to this Second Amendment. The aggregate cost for such Change Orders is
$48,717.00.
5. Waiver of Shared Excess. The total amount of costs and expenses related
to Landlord's Work that is susceptible of being construed as Shared Excess that
has been incurred by Landlord and has yet to be incurred by Landlord pursuant to
the Construction Drawings and the Accepted Bid is equal to $1,358,520 (the
"Disputed Excess") as more particularly set forth on Schedule 2C and Schedule 5
attached to this Second Amendment. Landlord and Tenant dispute the proper
allocation of the Disputed Excess. In order to fully resolve their differences
with regard to the Disputed Excess, all of the Disputed Excess shall be
allocated entirely to Landlord and no portion of the Disputed Excess shall be
considered or deemed Shared Excess allocable to Tenant. Tenant shall have no
obligation whatsoever to pay Landlord for any part of the Disputed Excess.
Notwithstanding the foregoing, Tenant remains liable under the Lease for Shared
Excess in excess of the Disputed Excess that may result from any additional
costs actually paid or incurred by Landlord for Landlord's Work subsequent to
the date of this Second Amendment for which any of the following apply: (a)
costs incurred by Landlord for project inspection, and filing fees, (b) any
costs incurred by Landlord for the construction of the open ceiling
modifications in accordance with Section 3 of the First Amendment, and (c) any
credits for or revised allocations of Landlord's Work as may be revealed by the
"Audit" (defined in Section 18 below) (collectively, "Post Amendment Additional
Costs"). All Post Amendment Additional Costs shall be shared equally by Landlord
and Tenant except for (a) those matters described in clause (c) of the preceding
sentence, which matters shall be allocated in accordance with Section 18, and
(b) any of the items set forth in the preceding sentence and any of the items
set forth in Section 6 that are directly related to the Phase 2 Change Order,
all of which shall be Tenant's sole responsibility.
6. Phase 2 Change Order. Tenant hereby approves the Change Order attached
to this Second Amendment as Schedule 6 (the "Phase 2 Change Order") in the
amount of $1,611,503. The Phase 2 Change Order constitutes a Landlord Change;
provided, however, that notwithstanding anything to the contrary in the Lease,
none of the initial $1,611,503 cost of the Phase 2 Change Order shall be
considered Shared Excess and all of the initial $1,611,503 cost of the Phase 2
Change Order shall be paid for solely by Landlord. Concurrently with the
execution of this Second Amendment, Landlord shall execute and deliver to Illig
Construction the Phase 2 Change Order. Landlord hereby waives any Tenant Delays
that may result from the completion of the work set forth in the Phase 2 Change
Order, except as expressly set forth below in this Section 6. The only Tenant
Delays or additional costs to be paid by Tenant which will be recognized by
Landlord and Tenant as a result of the Phase 2 Change Order are the Tenant
Delays or additional costs, as the case may be, that result solely from (a)
field conditions not
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known to Landlord, Tenant or Illig Construction as of the date of this Second
Amendment with regard to the work to be performed pursuant to the Phase 2 Change
Order, (b) all architectural fees incurred by Tenant related to the Phase 2
Change Order, (c) damage to the Landlord's Work caused by a Permitted Contractor
(as defined in Section 9(d) of this Second Amendment), (d) defective
construction by a Permitted Contractor or delays due to improperly timed
activities of the Permitted Contractors that are not consistent with the timing
of work agreed to in the daily construction meetings contemplated by Section
9(e) of this Second Amendment, and (e) changes required to Landlord's Work
resulting from required changes to the Construction Drawings pursuant to
governmental requirements for obtaining an amended building permit or any other
permits, licenses or temporary or permanent certificates of occupancy for the
Construction Drawings and/or Landlord's Work which result solely from the Phase
2 Change Order. Notwithstanding any of the foregoing provisions of this Section
6, if Landlord is required to execute a Change Order for a modification or
addition to the Landlord's Work connection with the Phase 2 Change Order, which
modification or addition is the direct result of an error or omission in the
plans and specifications that constitute the Phase 2 Change Order, then such
Change Order shall be deemed Other Work Change Costs and Tenant shall be
responsible to reimburse Landlord for the entire amount of such Change Order in
accordance with Section 15.3 of the Lease. The Phase 2 Change Order shall be
deemed not to contain any charges required to be paid exclusively by Landlord
pursuant to Section 15.4 of the Lease.
7. Security Deposit and Unpaid Amount.
(a) Notwithstanding anything to the contrary contained in Section
15.3(f) of the Lease or any other provision of the Lease, Tenant shall pay to
Landlord concurrently with the execution of this Second Amendment the sum of
$131,728 (the "Unpaid Amount") which is equal to the sum of (i) $48,717.00 for
the costs of the Change Orders set forth in Section 4 above, and (ii) $83,
011.00 for all construction management and other fees to which Landlord is
currently entitled under the Lease and this Second Amendment for all Change
Orders, the Phase 2 Change Order and all other work required to be performed by
Landlord pursuant to the Lease as amended by this Second Amendment (including
without limitation the five percent (5%) construction management fee payable to
Landlord for the Phase 2 Change Order and the Change Orders set forth in Section
4 of this Second Amendment).
(b) Concurrently with the execution of this Second Amendment, Tenant
shall pay to Landlord the sum of $2,160,000 (the "Security Deposit") which is
equal to the sum of (i) $2,420,000 (the total required security deposit), minus
(ii) the offset of $150,000 pursuant to Section 11 of this Second Amendment and
minus (iii) the offset of $110,000 pursuant to Section 16 of this Second
Amendment. The Security Deposit shall be non-refundable to Tenant during the
Term of the Lease, except as set forth in Section 19 of this Second Amendment.
Any unused portion of the Security Deposit shall be refunded to Tenant on the
expiration or earlier termination of this Lease (except for any termination that
results from a default by Tenant). Landlord shall hold the Security Deposit as
security to ensure the performance of all of Tenant's obligations under the
Lease and also for any damage that Landlord may sustain by reason of any act of
Tenant. Landlord may commingle the Security Deposit with its other funds and may
use
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the same for any purpose. Landlord shall not be required to pay Tenant any
interest on the Security Deposit. If there exists an Event of Default under the
Lease, Landlord may (but shall not be required to), without prejudice to any
other remedy available to Landlord, apply all or part of the Security Deposit to
the amounts to which Landlord is entitled pursuant to Landlord's remedies under
the Lease. Tenant hereby waives the provisions of California Civil Code section
1950.7, and all other provisions of law now in force or that may become in force
after the date of execution of this Second Amendment, that provide that Landlord
may claim from a security deposit only those sums reasonably necessary to remedy
defaults in the payment of rent.
(c) Notwithstanding any other provision of this Lease, as of the
date of this Second Amendment, except for any Post Amendment Additional Costs,
the Unpaid Amount shall be Tenant's sole and exclusive monetary obligation to
Landlord with respect to all Change Orders (including the Phase 2 Change Order),
Shared Excess, Playboy Office Work Change Costs, Other Work Change Costs, and
any Above Standard Work costs existing or incurred as of the date of this Second
Amendment. Other than the Unpaid Amount and any Post Amendment Additional Costs,
Tenant shall not be liable to Landlord for any other costs or expenses related
to Landlord's Work unless either (i) a Change Order for additional work is
executed by Landlord subsequent to the date of this Second Amendment in
accordance with the terms of the Lease and consented to in writing by Tenant or
(ii) such costs or expenses are payable by Tenant pursuant to Section 6 above or
Section 8 below. All Post Amendment Additional Costs shall be invoiced by
Landlord to Tenant pursuant to the terms of the Lease and shall be paid by
Tenant to Landlord in accordance with the terms of the Lease.
(d) Tenant shall offset against the first payment of Base Rent to
become due an amount equal to $7,000 as an offset for certain interest costs
incurred by Tenant.
8. Tenant Delays. Notwithstanding anything contained in the Lease or in
any correspondence or oral understandings between Landlord and Tenant prior to
the date of this Second Amendment, there are no Tenant Delays or Unavoidable
Delays which may result from any facts or circumstances existing as of the date
of this Second Amendment and known to Landlord, Illig Construction or Tenant or
which are reasonably ascertainable by Landlord, Illig Construction or Tenant
(including without limitation any such facts or circumstances related to any
Change Orders and the Phase 2 Change Order). Landlord waives all such Tenant
Delays and Unavoidable Delays that may exist as of the date of this Second
Amendment; provided, however, that such waiver does not include any Tenant
Delays that may be recognized by Landlord and Tenant in connection with the
Phase 2 Change Order strictly in accordance with Section 6.
9. Partial Delivery of the Premises.
(a) Landlord shall use its commercially reasonable efforts to cause the
Landlord's Work and the Phase 2 Change Order work to be completed as soon as
reasonably possible. Each of the areas of the Premises set forth in the table
below (and as more particularly shown on Schedule 9 attached to this Second
Amendment) shall be delivered by Landlord to Tenant in "Materially Complete"
condition (as defined below) on the dates (each a "Partial Delivery
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Date") set forth in Column 2 of the table below for Tenant to commence any
Tenant work in such portion of the Premises that Tenant desires:
- --------------------------------------------------------------------------------
Column 1 Column 2 Column 3 Column 4
- --------------------------------------------------------------------------------
PARTIAL PREMISES PARTIAL FINAL DAILY
NAME DELIVERY DATE DELIVERY DATE AMOUNT
- --------------------------------------------------------------------------------
Studio A August 30, 2002 September 10, 2002 $1,067.07
- --------------------------------------------------------------------------------
Studio B September 6, 2002 September 23, 2002 $ 700.00
- --------------------------------------------------------------------------------
Area F September 6, 2002 September 23, 2002 $ 700.00
- --------------------------------------------------------------------------------
Master Control Room August 16, 2002 September 10, 2002 $ 700.00
- --------------------------------------------------------------------------------
Production Control August 5, 2002 September 10, 2002 $ 700.00
- --------------------------------------------------------------------------------
Office Area A September 6, 2002 September 23, 2002 $ 700.00
- --------------------------------------------------------------------------------
Office Area C August 30, 2002 September 16, 2002 $ 700.00
- --------------------------------------------------------------------------------
Office Area D August 30, 2002 September 16, 2002 $ 700.00
- --------------------------------------------------------------------------------
In addition to the Partial Delivery Dates, each of the areas of the Premises set
forth in the table above shall be delivered by Landlord to Tenant in
substantially complete condition (as defined in the Lease), or in the case of
Studio A, the Production Control Area and that portion of Area F shown
crosshatched on Exhibit "F-2" to the Lease, in operational condition (as defined
in Exhibit "E-1" of the Lease), on the dates (each a "Final Delivery Date") set
forth in Column 3 of the table. As used in this Second Amendment, "Materially
Complete" means, with respect to a portion of the Premises, (i) that such
portion of the Premises is completed to such an extent that such portion of the
Premises may be used by Tenant and its contractors and agents to prepare such
portion of the Premises for the conduct of a film production business and
general office use (but not for actual occupancy to conduct business in such
portion of the Premises) and to prepare such portion of the Premises for the
prosecution of Tenant's work and (ii) that all of Landlord's Work in such
portion of the Premises shall be materially completed except only for minor or
insubstantial details of construction, mechanical adjustment, or decoration that
may remain to be performed, the performance of which shall not materially
interfere with any of Tenant's or its contractor's or agent's use of or work in
that portion of the Premises as provided in clause (i) above. A portion of the
Premises may be Materially Complete even if Landlord has not obtained a
temporary or permanent certificate of occupancy for such portion of the
Premises.
(b) If Landlord does not deliver any of the foregoing portions of
the Premises on either the required Partial Delivery Date or the required Final
Delivery Date in the condition required by Section 9(a), then a rent abatement
period as to each applicable portion of the Premises (each, a "Landlord Delay
Period") shall be calculated (i) for each Partial Delivery Date missed, equal to
the period commencing fifteen (15) days after the applicable Partial Delivery
Date and ending in each case on the date when the applicable portion of the
Premises is actually delivered in Materially Complete condition, and (ii) for
each Final Delivery Date missed, equal to the period commencing on the day after
the applicable Final Delivery Date and ending in each case on the date when the
applicable portion of the Premises is actually delivered in substantially
complete condition, or in the case of Studio A , the Production Control Area and
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that portion of Area F shown crosshatched on Exhibit "F-2" to the Lease, in
operational condition. The commencement of any Landlord Delay Period shall be
postponed by a number of days equal to the number of days in any Tenant Delay
consistent with Section 6 and Section 8. Notwithstanding the foregoing, with
respect to any portion of the Premises, there shall not be any overlapping
Landlord Delay Periods such that the entire Landlord Delay Period for any
portion of the Premises shall not exceed in the aggregate the period commencing
on the sixteenth day after the required Partial Delivery Date and ending on the
date the applicable portion of the Premises is actually delivered in
substantially complete condition, or in the case of Studio A , the Production
Control Area and that portion of Area F shown crosshatched on Exhibit "F-2" to
the Lease, in operational condition.
(c) If any portions of the Premises are not delivered by Landlord to
Tenant on or before December 31, 2002 (as such date may be extended by
Unavoidable Delay or Tenant Delay) in substantially complete condition, or in
the case of Studio A, the Production Control Area and that portion of Area F
shown crosshatched on Exhibit "F-2" to the Lease, in operational condition,
Tenant, by delivering written notice (a "Tenant Completion Notice") to Landlord,
may at any time thereafter elect to complete such portions of the Premises
itself. The Tenant Completion Notice shall provide a list of the matters that
Tenant considers incomplete (to the extent Tenant is aware of the same). If a
Tenant Completion Notice is delivered to Landlord, Landlord shall have five (5)
business days to deliver any undelivered portions of the Premises in
substantially complete condition, or in the case of Studio A, the Production
Control Area and that portion of Area F shown crosshatched on Exhibit "F-2" to
the Lease, in operational condition. On the sixth business day after the date of
the Tenant Completion Notice, Landlord shall cease work on the Premises and
Tenant shall thereafter have free and unencumbered access to the Premises to
complete all of the unfinished Landlord's Work.
(d) Subject to the cooperation obligations contained in Section 9(e)
and Tenant fulfilling the insurance requirements in Section 9(f), commencing on
July 24, 2002, Landlord shall grant access to the entire Premises to Tenant's
"Permitted Contractors" (defined below) to begin prosecuting the Tenant's work;
provided that the Premises shall only be required to be Partially Complete on
such date. "Partially Complete" means, for any portion of the Premises, a state
of incomplete construction (including Landlord not having obtained a temporary
or permanent certificate of occupancy) such that Tenant may use such portion of
the Premises with tradesmen, material, equipment and furniture to commence and
continue to prosecute Tenant's work in such portion of the Premises; except that
Landlord's Work in such portion of the Premises need not then be completed; any
electrical power may be supplied as temporary power; and Landlord shall continue
to use such portion of the Premises with Landlord's contractors, subcontractors
and Tenant shall jointly use such portion of the Premises with Tenant's
Permitted Contractors in such a way as not to materially interfere with one
another's work in such portion of the Premises. As used in this Second
Amendment, "Permitted Contractors" means, Academy Lighting, Sony Systems
Integration, Korum Engineering, Pacific Bell, a telecommunications and wiring
contractor to be identified by Tenant, and such other contractors as Tenant may
require; provided that, with respect to such unidentified contractors, (i)
Tenant provides Landlord not less than three (3) days prior written notice of
such additional Permitted
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Contractor commencing work, (ii) such other contractors do not materially
interfere with Landlord's Work, and (iii) such other contractors are reasonably
approved by Landlord.
(e) Landlord, its contractors, Tenant and the Permitted Contractors
shall have daily construction meetings to coordinate the work of the trades in
all Partially Complete portions of the Premises (as the same may exist from time
to time) such that Landlord, its contractors, Tenant and the Permitted
Contractors may simultaneously prosecute their respective work within the
Partially Complete portions of the Premises. If the work being performed by
Landlord's contractors and agents and Tenant's Permitted Contractors, as the
case may be, is consistent with the type of work and schedule of work agreed
upon at the daily construction meetings, then Landlord may not claim that any
Tenant Delays occur as a result of such joint use or as a result of such work
performed by Tenant's Permitted Contractors in such portions of the Premises.
(f) Concurrently with the execution of this Second Amendment, Tenant
shall have in force the insurance required by Section 6.1(b) and Section 6.1(e)
of the Lease and shall deliver to Landlord evidence reasonably satisfactory to
Landlord that the required insurance is in force. The insurance required by the
preceding sentence shall remain in force until all of the areas of the Premises
have been delivered by Landlord to Tenant in substantially complete condition,
or in the case of Studio A, the Production Control Area and that portion of Area
F shown crosshatched on Exhibit "F-2" to the Lease, in operational condition.
(g) The Indemnity contained in Section 17.1 of the Lease shall be
effective as of the date of this Second Amendment; provided, however that from
the date of this Second Amendment until all of the areas of the Premises have
been delivered by Landlord to Tenant in substantially complete condition, or in
the case of Studio A, the Production Control Area and that portion of Area F
shown crosshatched on Exhibit "F-2" to the Lease, in operational condition,
Section 17.1(d) shall be deemed to read as follows: "Any accident, injury
(including death) or damage to any Person or property caused directly by an act
of Tenant or by a Permitted Contractor occurring in, on, or about the Premises
or any part thereof or in, on or about any street, alley, sidewalk, curb,
passageway, gutter, or space comprising a part thereof or adjacent thereto;".
10. Commencement Date, Base Rent Increase, Tenant Completion Offset and
Delay Offset Amount.
(a) Notwithstanding anything in the Lease or in this Second
Amendment to the contrary, the Commencement Date and the Premises Base Rent
Commencement Date shall be deemed to be the earlier of (a) the Substantial
Completion Date or (b) September 15, 2002.
(b) The Office Abatement Period is hereby waived and relinquished by
Tenant.
(c) In addition to Landlord's right to receive the Base Rent, Tenant
shall pay to Landlord as additional rent without offset or deduction the amount
of $25,000 per month (the
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"Enhanced Premises Rent"), for the period commencing on the Premises Base Rent
Commencement Date and ending on the earlier of (i) the date that is one hundred
twenty (120) months thereafter and (ii) the date, if any, on which the Transfer
is consummated pursuant to Section 19(a) (the "Enhanced Premises Rent Period").
(d) For each Landlord Delay Period, Tenant shall offset against any
Base Rent next coming due on or after November 1, 2002 under the Lease an amount
(each, a "Delay Offset Amount") equal to the product of (i) the "Daily Amount"
shown in Section 9(a) for the portion of the Premises to which the Landlord
Delay Period applies, multiplied by (ii) the number of days in the period
commencing on December 16, 2002 and ending on the Substantial Completion Date.
(e) If Tenant delivers a Tenant Completion Notice, Tenant shall
offset against any Base Rent next coming due all reasonable costs and expenses
paid to third parties or incurred with respect to third parties by Tenant in
completing the Landlord's Work until such time as Tenant has offset an aggregate
amount equal to all those costs and expenses.
11. Substitute Space Payment. Tenant shall offset against the payment of
the amount required by Section 7(b) of this Second Amendment the sum of
$150,000.00 (the "Substitute Space Offset Amount") such that the net amount paid
by Tenant under Section 7(b) is the Security Deposit. The Substitute Space
Offset Amount constitutes the commercially reasonable costs of substitute studio
space and services incurred by Tenant pursuant to Section 2.2(d)(i) of the
Lease. Such amount is the entire amount to which Tenant is entitled pursuant to
Section 2.2(d)(i) of the Lease. Other than the Substitute Space Offset Amount,
Tenant shall not be entitled to any additional reimbursement from Landlord
pursuant to Section 2.2(d)(i) of the Lease. Tenant hereby waives any claim
against Landlord (other than the Substitute Space Offset Amount) for any amounts
that may be due to Tenant or subject to offset by Tenant pursuant to Section
2.2(d)(i) of the Lease.
12. Base Rent Increase. Section 2.2(e)(i) is hereby amended by deleting
the words "until the day following the last day of the Office Abatement Period"
and substituting the following words therefore: "until the end of the first
Lease Year." Section 2.2(e)(ii) of the Lease is hereby amended in its entirety
to read as follows: "The Base Rent for each Lease Year (excluding the First
Lease Year) shall be increased by an amount equal to $82,988.84 plus the product
obtained by multiplying (a) fifteen percent (15%) by (b) the Post Amendment
Additional Costs (excluding any Post Amendment Additional Costs incurred
pursuant to Section 3 of the First Amendment." The $82,988.84 is calculated in
accordance with Schedule 12 attached to this Second Amendment. Notwithstanding
any other provision of the Lease, Landlord hereby confirms that the amount of
Shared Excess shown as Landlord's share of the Shared Excess on Schedule 12
constitutes all of the Shared Excess that, as of the date of this Second
Amendment, Landlord is entitled to include in the calculation of increase to
Base Rent pursuant to Section 2.2(e)(ii) and Landlord hereby waives any right to
claim any additional amounts which may exist as of the date of this Second
Amendment for the purpose of such calculation.
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13. Additional Parking.
(a) Landlord shall use its commercially reasonable efforts to
acquire the number of additional parking spaces to serve the existing Premises
as may be required to obtain a permanent certificate of occupancy for the
Premises. If, on or before the Substantial Completion Date, Landlord acquires
fee title to, a license for, or a leasehold interest in the real property shown
on Schedule 13 attached to this Second Amendment (the "Adjacent Property"), then
on the date of Landlord's acquisition, leasing or licensing of the same, Exhibit
"A" of the Lease shall be amended by adding Schedule 13 to the existing Exhibit
"A" to the Lease.
(b) If Landlord acquires, leases or licenses the Adjacent Property,
and the Premises are expanded as set forth in Section 13(a), then from and after
the date that the Adjacent Property is acquired, leased or licensed, the Base
Rent shall be increased by $812.50 for each month then remaining in the Term of
the Lease. If Landlord has leased or licensed the Adjacent Property, the $812.50
of additional rent shall cease on the date that any such lease or license
expires, unless Landlord has then acquired fee title to the Adjacent Property
(in which event the additional rent shall continue).
(c) If Landlord fails to acquire, lease or license the Adjacent
Property on or before the Substantial Completion Date, or if Landlord has not
acquired fee title to the Adjacent Property and a lease or license expires prior
to the expiration of the Term of the Lease, Landlord shall use its best efforts
to present Tenant within thirty (30) days of such date an alternate plan for
providing the additional parking spaces required for the Premises to obtain a
permanent certificate of occupancy. Landlord and Tenant shall negotiate in good
faith to agree upon a reasonable alternative for parking and to share equally
the costs of such alternative between Landlord and Tenant.
14. Tenant Representations and Estoppel. Tenant warrants, represents and
certifies to Landlord that, as of the date of this Second Amendment, (a) to
Tenant's best knowledge, Landlord is not in default under the Lease, (b) other
than with respect to any act or omission of Landlord of which Tenant has no
knowledge, Tenant does not have any defenses or offsets to payment of rent and
performance of its obligations under the Lease as and when the same becomes due,
and (c) to the best knowledge of Tenant, all of the Schedules attached to this
Second Amendment are true, complete and accurate.
15. Landlord Representations and Estoppel. Landlord warrants, represents
and certifies to Tenant that, as of the date of this Second Amendment, (a) to
Landlord's best knowledge, Tenant is not in default under the Lease, (b) other
than with respect to any act or omission of Tenant of which Landlord has no
knowledge, Landlord does not have any defenses or offsets to the performance of
its obligations under the Lease as and when the same becomes due, and (c) to the
best knowledge of Landlord, all of the Schedules attached to this Second
Amendment are true, complete and accurate.
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16. Letter Agreement re Existing Lease. Landlord and Tenant executed that
certain letter agreement (the "Existing Lease Letter"), dated September 20,
2001, providing for the payment by Landlord to Tenant of certain sums related to
the Existing Lease (as defined in the Existing Lease Letter). The Indemnified
Cost due from Landlord to Tenant under the Existing Lease Letter is $110,000.00
(the "Existing Lease Offset Amount") as set forth in Schedule 16. Tenant shall
offset the Existing Lease Offset Amount against the payment of the amounts
required by Section 7(b) such that the net amount paid by Tenant under Section
7(b) is the Security Deposit. Other than the Existing Lease Offset Amount,
Tenant shall not be entitled to any other amounts pursuant to the Existing Lease
Letter. Tenant hereby waives any claim against Landlord (other than the Existing
Lease Offset Amount) for any amounts that may be due to Tenant or subject to
offset by Tenant pursuant to the Existing Lease Letter.
17. Deleted and Amended Sections of Lease. The second full paragraph of
Section 2.2(d)(i) of the Lease that begins "If for any reason Studio A shall not
be in operational condition, as determined in accordance with Article 15, on or
prior to June 1, 2002, then..." is hereby deleted in its entirety. The first
full paragraph of Section 2.2(d)(ii) of the Lease is hereby deleted in its
entirety. The second paragraph of Section 2.2(d)(ii) of the Lease is hereby
amended as follows: the date "December 31, 2002" is deleted from each place it
appears and the date "March 31, 2003" is substituted therefore, the date
"January 15, 2003" is deleted from each place it appears and the date "April 15,
2003" is substituted therefore, and the date "January 31, 2003" is deleted from
each place it appears and the date "April 30, 2003" is substituted therefore.
Notwithstanding the foregoing, if a Tenant Completion Notice is delivered to
Landlord, Tenant shall waive and relinquish any right to terminate this Lease
pursuant to Section 2.2(d) of this Lease.
18. Project Audit. Within thirty (30) days after the Substantial
Completion Date, Tenant shall, subject to Landlord's prior reasonable approval,
retain an auditor to conduct an audit of construction costs. The auditor shall
conduct a thorough audit (the "Audit") of all costs and expenses incurred by
Landlord and Tenant in connection with the construction of the Landlord's Work
(including the Phase 2 Change Order), all Change Orders, Shared Excess, Playboy
Office Work Change Costs, Other Work Change Costs, Above Standard Work, the
Unpaid Amount and any Post Amendment Additional Costs. The Audit shall be
completed no later than sixty (60) days after the commencement of the Audit.
Landlord and Tenant shall share equally in the costs of the Audit. Any
additional credits, overcharges, corrections, changes or other matters disclosed
by the Audit (excluding any of the foregoing related to the Phase 2 Change
Order) shall be paid by Landlord or Tenant to the other, as applicable, as the
same may be reasonably allocated between the parties by the auditor.
Notwithstanding the foregoing, but subject to the possible reallocation of the
Shared Excess costs set forth in Schedule 2(C) and other charges for which
Tenant is specifically responsible under Section 5, Section 6, Section 7(c) and
Section 8, under no circumstances whatsoever shall Tenant be responsible for any
additional costs, undisclosed change orders, or other charges from Illig
Construction or any subcontractor, materialmen, suppliers or laborers that the
Audit may reveal. Landlord shall make available to Tenant and the auditor the
following items: (a) full and accurate books of account and records, including,
without limitation, any sub-journals maintained in connection with
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construction of the Premises; (b) copies of all Change Orders, invoices and
other correspondence with contractors, materialmen, suppliers and laborers and
other pertinent transactions; and (c) all books and records of Illig
Construction and other contractors to which Landlord has a right of access in
connection with any construction contracts or other agreements for construction
of the Premises. Such books, receipts and records shall be kept for a period of
eighteen (18) months after the Substantial Completion Date. Such books, receipts
and records shall be available for inspection and audit by Tenant and the
auditor or its representative at a location in Los Angeles, California as
Landlord may determine, at all times during regular business hours.
Notwithstanding anything to the contrary in this Second Amendment, if the Audit
reveals that any amounts shown in the fifth column of Schedule 2C (entitled
"Shared Excess Amount - Tenant") are required to be increased solely as a result
of the reallocation of the existing amount on such line (and not as a result of
overall increases to the unallocated amount), Tenant shall pay to Landlord an
amount equal to the difference between (a) the amount that the Audit determines
should be in the fifth column of such line item and (b) the amount shown for the
fifth column of such line item on Schedule 2C. Notwithstanding anything to the
contrary in this Second Amendment, if the Audit reveals that any amounts shown
in the fourth column of Schedule 2C (entitled "Shared Excess Amount - Landlord")
are required to be increased solely as a result of the reallocation of the
existing amount on such line (and not as a result of overall increases to the
unallocated amount) Landlord shall pay to Tenant an amount equal to the
difference between (a) the amount that the Audit determines should be in the
fourth column of such line item and (b) the amount shown for the fourth column
of such line item on Schedule 2C.
19. Tenant's Election to Purchase Improvements.
(a) Within thirty (30) days after the later to occur of (i)
completion of the Audit and (ii) January 15, 2003, Tenant, by delivering to
Landlord written notice (the "Tenant Purchase Notice"), may elect (but shall not
be so obligated) to consummate the "Transfer" in accordance with this Section
19(a). If Tenant elects to consummate the Transfer then within ten (10) days
after the date of the Tenant Purchase Notice, (i) Landlord shall deliver to
Tenant a bill of sale in a form reasonably acceptable to Tenant and otherwise in
accordance with all of the requirements of this Section 19(a) (the "Transfer")
for all of the "Purchased Improvements" (defined in Section 19(g)) and (ii)
Tenant shall pay to Landlord the "Improvement Cost" (defined in Section 19(f)).
Tenant may, in lieu of the payment of the Improvement Cost, elect to have
Landlord offset the Security Deposit (as its sole and exclusive remedy and
source of payment) against the Improvement Cost concurrently with the receipt by
Tenant of the bill of sale. If the Security Deposit that remains as of the date
of the Transfer exceeds the Improvement Cost, Landlord shall, concurrently with
delivery of the bill of sale, pay to Tenant the difference between the then
remaining Security Deposit and the Improvement Cost. The Purchased Improvements
shall be free of any mechanics' liens or materialmens' liens on the date of the
Transfer. On the date of the Transfer, Landlord will assign to Tenant pursuant
to an assignment agreement reasonably acceptable to Tenant all of Landlord's
right, title and interest in and to the warranties and guaranties of Illig
Construction and all other contractors and subcontractors who provide warranties
or guaranties related to the Purchased Improvements, the plans, specifications,
permits, inspection cards, Building Department records and similar materials
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relating to the construction of the Purchased Improvements, to the extent the
same are in Landlord's possession or in the possession of its contractors or
agents. At such time, Landlord shall also deliver to Tenant, true, complete and
correct copies of all surveys, plans and specifications (marked to show all
field changes), permits, testing and inspection results, inspection cards,
physical test results or analysis, copies of subcontracts, purchase orders and
invoices for work done at the Premises, and similar materials developed or
obtained by Landlord in connection with the construction of the Purchased
Improvements, to the extent the same are in Landlord's possession or in the
possession of its contractors or agents.
(b) The Purchased Improvements shall be deemed Alterations for all
purposes under the Lease. The Purchased Improvements automatically shall become
the property of Landlord if there is an early termination of the Term of the
Lease. On the expiration of the Term of the Lease and subject to Landlord's
rights in the next sentence, Tenant may remove the Purchased Improvements from
the Building, but Tenant (at Tenant's sole cost) shall repair or replace any
damage done to the Building resulting from the removal of the Purchased
Improvements. Landlord shall have the right to prevent Tenant from removing the
Purchased Improvements from the Building by delivering a written notice to
Tenant not less than thirty (30) days prior to the expiration of the Term
stating that Landlord elects to purchase from Tenant the Purchased Improvements.
If Landlord elects to purchase the Purchased Improvements, then within ten (10)
days after the expiration of the Term, Tenant shall deliver to Landlord a bill
of sale for all of the Purchased Improvements in a form reasonably acceptable to
Landlord. Landlord shall, concurrently with delivery of the bill of sale, pay to
Tenant $100,000. Landlord and Tenant have mutually determined that $100,000 is a
reasonable estimate of the fair market value of the Purchased Improvements at
the end of the Term. If a Transfer occurs, (i) the insurance to be maintained by
Landlord pursuant to Article 6 of the Lease shall not cover the Purchased
Improvements, (ii) Landlord shall have no obligation pursuant to Article 7 of
the Lease to restore the Purchased Improvements in the event of a casualty, and
(iii) Tenant shall maintain insurance with respect to such Purchased
Improvements and to restore the same in the event of a casualty as though they
were Alterations installed by Tenant.
(c) Section 6.4(a) of the Lease is hereby amended by adding the
following language at the end of Section 6.4(a): "If Tenant is obligated by
Article 7 to restore any portion of the Premises (including the Purchased
Improvements) in the event of a casualty, then as to any proceeds received
pursuant to the insurance coverages obtained by Tenant at Tenant's expense that
are payable with respect to such casualty, Tenant shall apply such proceeds
first to the payment in full of the cost of such casualty restoration before
using any part of the same for any other purpose. If Tenant is not obligated by
Article 7 to utilize insurance proceeds to restore the Premises in the event of
a casualty, then as to any proceeds received pursuant to the insurance coverages
obtained by Tenant at Tenant's expense, Tenant may retain such proceeds."
(d) Section 7.2 of the Lease is hereby amended by (i) adding the
following words after the words "any and all Alterations" in clause (i) of
Section 7.2: "any Purchased Improvements," and (ii) adding the words "other than
the Purchased Improvements" at the end
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of the parenthetical phrase in clause (i) of Section 7.2 and at the end of the
second sentence of Section 7.2.
(e) Section 8.8 of the Lease is hereby amended by deleting the words
"unamortized value of Tenant's trade fixtures" and substituting the following
words therefore: "unamortized value of Tenant's Purchased Improvements (if any)
and trade fixtures"
(f) "Improvement Cost" means the sum of (i) Landlord's actual
out-of-pocket costs and expenses (not to exceed $1,611,503) paid directly to
contractors and materialmen constructing the Purchased Improvements, plus (ii)
$808,497, minus (iii) the Substitute Space Offset Amount, minus (iv) the
Existing Lease Offset Amount, minus (v) any additional credits, overcharges,
corrections, changes or other cost reduction matters disclosed by the Audit
related to the Phase 2 Change Order.
(g) "Purchased Improvements" means all of the following (i) the
leasehold improvements constructed at the Premises pursuant to the Phase 2
Change Order, (ii) the leasehold improvements constructed at the Premises
pursuant to the Change Orders listed on Schedule 2C as numbers 10,12 through 15,
17 through 21, 23, 26 through 34, 46, 50, 53, 54, 55, 57, 70, 92, 93, 99, 101,
102, 103, 144, 145, 146, 155, and 156, and (iii) all of Landlord's right, title
and interest to the related architectural and engineering plans and
specifications indicated on Schedule 2A related to the items in (g)(i) and
(g)(ii) (excluding the item listed as the Illig Construction Contract).
20. Notices Pursuant to Second Amendment. Any notice required or desired
to be given under this Second Amendment shall be given in writing and shall be
deemed sufficiently given and served for all purposes when personally delivered
(if delivered on a business day prior to 5:00 p.m. and otherwise on the next
business day) or delivered by any generally recognized courier or sent by
facsimile transmission (with confirmation of receipt prior to 5:00 p.m. on a
business day and otherwise on the next business day and in any event if followed
by delivery by one of the other methods specified above), addressed to the
appropriate address shown below.
Landlord: Kingston Andrita
c/o Kingston Investors Corp.
135 E. 57th Street
New York, NY 10021
Attention: Peter Krulewitch
Facsimile No.: (212) 644-5540
With a copy to: Robert Safron, Esq.
Bingham McCutchen LLP
399 Park Avenue
New York, NY 10022
Facsimile No.: (212) 702-3620
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Tenant: Playboy Entertainment Group Inc.
9242 Beverly Boulevard
Beverly Hills, CA 90210
Attn: Jeff Jenest
Facsimile No.: (310) 246-4050
With a copy to: Playboy Entertainment Group Inc.
9242 Beverly Boulevard
Beverly Hills, CA 90210
Attn: David Mandell
Facsimile No.: (310) 246-4050
With a copy to: Playboy Enterprises
680 North Lake Shore Drive
Chicago, IL 60611
Attn: Sue Shoemaker
Facsimile No.: (312) 751-2818
21. Lease in Full Force. All references in the Lease to the "Lease" shall
hereafter refer to the Lease, as amended by this Second Amendment. Except for
(a) those provisions of the Lease deleted in this Second Amendment, (b) those
provisions of the Lease that are inconsistent with this Second Amendment and (c)
those terms, covenants and conditions for which performance has heretofore been
completed, all other terms, covenants and conditions of the Lease shall remain
in full force and effect and Tenant and Landlord hereby ratify the Lease, as
amended by this Second Amendment.
22. Brokers. Landlord and Tenant represent to one another that they have
not dealt with any broker with respect to this Second Amendment. If Landlord or
Tenant has dealt with any broker or person with respect to this Second
Amendment, such party shall be solely responsible for the payment of any fees
due said person or firm. Each of Landlord and Tenant shall defend and indemnify
the other from and against any claims, demands and actions brought by any broker
or other finder to recover a brokerage commission or any other claims or damages
on the basis of alleged dealings with the indemnifying party contrary to the
foregoing representation.
23. Successors and Assigns. This Second Amendment shall be binding upon
and shall inure to the benefit of Landlord and Tenant and their respective
successors and assigns.
24. Disputes Subject to Arbitration. Any disputes which may arise between
Landlord and Tenant pursuant to any section of this Second Amendment (including
without limitation Section 18) shall be subject to the arbitration provisions of
Article 31 of the Lease, including without limitation the provisions of Section
31.4 of the Lease requiring a single arbitrator.
Page 14
25. Guarantor Consent. Guarantor, by executing the consent to this Second
Amendment set forth below, hereby agrees that the guaranteed obligations covered
by the Guaranty include all of the additional payment and other obligations of
Tenant set forth in this Second Amendment.
26. Exhibits and Schedules. All Exhibits and Schedules attached to this
Second Amendment are hereby made a part of this Second Amendment as if fully set
forth herein.
27. Counterparts. This Second Amendment may be executed in one or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute a single instrument.
{signatures on next page}
Page 15
IN WITNESS WHEREOF, this Second Amendment is executed as of the date first
written above.
KINGSTON ANDRITA LLC
By: /s/ Peter Krulewitch
-----------------------------------
Name:
Title:
PLAYBOY ENTERTAINMENT GROUP, INC.
By: /s/ Jeffrey M. Jenest
-----------------------------------
Name: Jeffrey M. Jenest
Title: Exec VP
THIS SECOND AMENDMENT IS CONSENTED TO:
PLAYBOY ENTERPRISES, INC.,
Guarantor
By: /s/ Howard Shapiro
-----------------------------------
Name: Howard Shapiro
Title: Executive Vice President
CAPITALSOURCE FINANCE LLC
By:
-----------------------------------
Name:
Title:
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