SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE

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1 OVERSIGHT BOARD AGENDA: 03/23/17 ITEM: 6.3 SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE MEMORANDUM TO: OVERSIGHT BOARD FROM: RICHARD A. KEIT EXECUTIVE OFFICER SUBJECT: SEE BELOW APPROVED^ DATE: DATE: MARCH 17, 2017 <? '7 SUBJECT: SALE OF REAL PROPERTY LOCATED AT 366 SOUTH FIRST STREET RECOMMENDATION Adopt one of the following resolutions: a. Instruct Successor Agency staff to prepare and send a Notice of Intent to Sell as required to commence the Right of First Refusal process contained in the Lease dated May 3, 2005, as amended, between the Successor Agency and Brian Elder and Cherri Lakey dba Two Fish Design Group, and to follow the process as set forth therein; or b. Offer the property for sale through the open solicitation process after the Lease expires on October 24, 2017; or c. Approve the sale of Successor Agency owned real property located at 366 South First Street to Brian Elder and Cherri Lakey dba Two Fish Design Group, the current tenant of the real property under a Lease dated May 3, 2005, as amended for the appraised amount of $750,000 as set forth in the appraisal prepared by Valbridge dated December 5, BACKGROUND The Successor Agency owns property located at 366 South First Street ("Property"). The Property contains a one story commercial building and has been leased to Two Fish Design ("Tenant") since May The Lease has been amended three times (collectively, "Lease") and terminates on October 24, At the February 9, 2017, Oversight Board meeting, Successor Agency staff recommended that the Oversight Board approve the sale of the Property to the Tenant for the amount of $750,000, which was established by an appraisal performed by Valbridge Property Advisors ("Valbridge") at the request of Tenant. The Oversight Board rejected the staff recommendation and initially moved to direct staff to sell the property through the solicitation process. The Tenant requested the item be deferred so their attorney could review the Right of First Refusal section of the

2 OVERSIGHT BOARD March 17,2017 Subject: Sale of Property Located at 366 S. First St. Page 2 Lease. The Oversight Board agreed to revisit the item in thirty-days at the Oversight Board meeting scheduled for March 9, The Oversight Board at the February 23, 2017, meeting cancelled the March 9, 2017, meeting and agreed to agendize the item for March 23, On February 22, 2017, the Tenant and his attorney met with the Managing Director to discuss the sale process. Most of the discussion focused on the Long Range Property Management Plan ("LRPMP") including the dates of approval by the Oversight Board and State Department of Finance and if the LRPMP could be amended. The approval dates were provided and it was stated that the LRPMP could not be amended. The Tenant's attorney also stated emphatically that the Lease clearly gives his client the right to purchase the Property and the actions taken by the Landlord (the Successor Agency) where in furtherance of the sale. On March 2, 2017, Tenant's attorney sent the attached letter, asserting the Tenant's position that the decision to sell the property was made when the property was designated for sale on the Successor Agency's LRPMP, thereby vesting the Right of First Refusal contained in the Lease and that the October 13, 2016 letter from the Managing Director (attached) constituted the Notice to Sell. ANALYSIS When the Property was originally placed on the solicitation schedule, Successor Agency staff was not aware that the Tenant had a right of first refusal under the Lease. Section 41 of the Lease provides the Tenant with a Right of First Refusal to acquire the Property if the Successor Agency "determines not to pursue a redevelopment project with the Property and desires to sell the Property as a single parcel in its then current condition and existing use" during the term of the Lease. Successor Agency staff approached the Tenant to inform them that the property was designated for sale in the Successor Agency's LRPMP. The Tenant was interested in acquiring the Property pursuant to the Lease but needed to know the purchase price. The Tenant subsequently hired and paid for Valbridge Property Advisors ("Valbridge") to appraise the Property. The Property was appraised at $750,000 or $185 a square foot for the gross building area. Successor Agency staff reviewed the appraisal and determined that the amount was within a range of fair market value. Successor Agency staff acknowledges that the Tenant has an argument that the Right of First Refusal vested upon final approval of the LRPMP. However, the letter from the Managing Director was not intended to be a Notice of Intent to Sell and did not comply with the provisions of Section 41 of the Lease. STAFF RECOMMENDATION Based on the above, Successor Agency staff recommend that the Oversight Board approve Recommendation (a), instructing staff to issue a formal Notice of Intent to Sell to the Tenant and have a second appraisal prepared pursuant to Section 41 set forth in the Lease. This action would provide the Tenant the opportunity to purchase the Property and address the Oversight

3 OVERSIGHT BOARD March 17, 2017 Subject: Sale of Property Located at 366 S. First St. Page 3 Board's concern with the December 5, 2016, appraisal prepared by Valbridge and would be consistent with the terms of the Lease. If Recommendation (a) is approved by the Oversight Board, Successor Agency staff would comply with the provisions of Section 41 of the Lease as follows: hire an Oversight Board approved appraiser to prepare an appraisal, which should take approximately two months. Upon completion of the appraisal, Successor Agency legal counsel would prepare a purchase and sale agreement ("Purchase Agreement") which shall contain the purchase price as established by the appraisal prepared for the Successor Agency. The Purchase Agreement, together with a Notice of Intent to Sell, shall then be delivered to the Tenant. Upon receipt of the Purchase Agreement, Tenant would have thirty (30) days to deliver to the Successor Agency a signed Purchase Agreement and a deposit ("Deposit") equal to ten (10) percent of the purchase price. Escrow would close within sixty (60) days after the Successor Agency's receipt of the signed Purchase Agreement and the Deposit. Staff estimates that escrow should close by the end of August 2017 or early September at the latest. Please note that if Recommendation (a) is approved by the Oversight Board and the Tenant follows the process above, the amount of the appraisal and subsequent sale of the property does not come back to the Oversight Board for approval. If the Oversight Board approves Recommendation (a) and the Tenant fails to execute the Purchase Agreement, or secure funding for either the deposit or acquisition, or fails to close escrow to acquire the property, then the Right of First Refusal would terminate and the Successor Agency would solicit the Property for sale pursuant to the Oversight Board approved Property Disposition Process when the lease expires on October 24, Therefore, the solicitation process would commence in November 2017 and the Property would be sold in January Please note that Recommendation (c) will require an amendment to the Successor Agency's Property Disposition Process ("Disposition Process") to allow for the direct sale of the property to the Tenant. If the Board decides to approve that option, Staff will need to bring back an amendment at a future Oversight Board meeting to the Disposition Process to allow the direct sale to Tenant. COORDINATION This item was coordinated with the City Attorney's Office. /s/ RICHARD A REIT Managing Director For more information, contact Richard Keit, Managing Director, Successor Agency, at Encl.

4 OSB Agenda: 2/9/17 Item 6.3 Attachments LEASE ral 3 day of (77A3, 2005, by and This Lease is made as of this between the REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE ("Landlord" or "Agency"), a public body, and BRIAN EDER AND CHERRI LAKEY, individuals d/b/a TWO FISH DESIGN GROUP (collectively, 'Tenant"). Whereas, Agency owns certain property located at 366 South First Street in San Jose, California, which Agency acquired for use as a future development site; and Whereas, the parties to this lease desire to enter into this lease to allow Tenant to conduct its business from the property until such time as the Agency requires use or development of the property; Now therefore, the parties agree to the following. 1. Basic Lease Provisions and Definitions. 1.1 Tenant's Trade Name. Two Fish Design Group 1.2 Address of Premises. 366 South First Street San Jose, CA 1.3 Limit of Premises. Approx. 4,158 rentable square feet 1.4 Initial Term. Five (5) years 1.5 Options to Extend. Two (2) one (1) year options to extend 1.6 Monthly Base Rent. Year 1 $1,000 per month Year 2 $1,250 per month Year 3 $1,500 per month Year 4 $1,750 per month Years $2,000 per month Security-Deposit None 1.8 Use. Art Gallery and Studio 2. Premises. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord that certain building (hereinafter called the "Premises") located at 366 South T /296827_3 4/28/05

5 FIRST AMENDMENT TO LEASE This First Amendment o Lease ("First Amendment") is made as of this /02 day of_jaimi i1 r, 200%, y and between the REDEVELOPMENT AGENCY OF THE CITY OF SAN,1401SE ("Landlord" or "Agency"), a public body, and BRIAN EDER AND CHERR1LAKEY, individuals d/b/a TWO FISH DESIGN GROUP (collectively, "Tenant"). RECITALS A. Landlord is the owner of that certain real property located at 366 South First Street in the City of San Jose, County of Santa Clara, State of California ("Property"). The Property is imprbved with a buiithrig ('Building"). B. Pursuant to a Lease dated May 3, 2005, Landlord leased to Tenant and Tenant leased from Landlord the Building ("Premises"). C. Landlord and Tenant now desire to amend the Lease to, among other things, provide for the construction of certain improvements to the Premises by Landlord. NOW, THEREFORE, in consideration of the covenants herein contained, Landlord and Tenant hereby amend the Lease as follows: 1. Landlord Improvements. Notwithstanding anything to the contrary contained in the Lease, the Landlord will will undertake the design, permitting and construction of certain ADA and exiting improvements to the Building as more particuarly described as follows: (i) a handicapped accessible restroom on the ground floor, (ii) modify the storefront to provide for a handicapped-accessible entry, (Hi) install panic hardware on the exit doors, and (iv) modify the rear exit of the Building to comply with fire and building code requirements based on the permits obtained by Tenant (collectively, "Landlord Improvements"). Landlord shall use good faith efforts to complete construction of Landlord Improvements no later than two months after execution of this Agreement, provided that Landlord shall incur no liability for any failure to complete the Landlord improvements by such date. Pursuant to a separate written agreement, Landlord shall obtain, at Landlord's cost, conceptual plans from Bill Gould Architects ('BGA") for the Landlord Improvements and shall engage BGA to design the Landlord's Improvements. 2. Term. The parties hereby acknowledge that for purposes of this Lease, the "Lease Commencement Date" shall be October 25, Rent Abatement. The last sentence of Subsection shall be deleted in its entirety and replaced with the following: , / /22/2005

6 cinohivithstanding anything to the contrary contained herein, in no event shall (i) the sum of the Construction Costs credited against Base Rent hereunder exceed Thirty Thousand Dollars ($30,000.D0), and (II) any work undertaken or paid for by Landlord, including the Landlord Improvements, be taken into account in calculation of any rent abatement. 4. ConflIct. In the event of a conflict between the terms and provisions of this First Amendment and the terms and provisions of the Lease, the terms and provisions of this First Amendment shall control. Except as amended hereby, the Lease shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment the day and year first above written. Landlord. oci"agericyti Approved to form: 0."), Senior Associate Counsel REDEVELOPMENT AG ENC.( OF THE CS. OF SAN JOSE By - ry S. litia,-nes Executive rector "Tenant" Ten_S: DESIGN GROUP " allearva ill T

7 BOARD AGENDA: 12/13/05 ITEM: 7.4 THE IED13\ 111.,OPMENT AGENCY OF _, CITY 01 SAN JOSE MEMORANDUM TO REDEVELOPMENT AGENCY BOARD SUBJECT: SEE BELOW HARRY S. MAVROGENES EXECUTIVE DIRECTOR DECEMBER 13, 2005 SUBJECT: AUTHORIZATION FOR THE EXECUTIVE DIRECTOR TO NEGOTIATE AND EXECUTE AN AMENDMENT TO THE LEASE WITH BRIAN EDER AND CHERRI LAKEY, INDIVIDUALS DBA TWO FISH DESIGN GROUP RECOMMENDATION It is recommended that Redevelopment Agency Board adopt a resolution authorizing the Executive Director to negotiate and execute an amendment to the lease with Brian Eder and Cherri Lakey, individuals dba Two Fish Design Group at 366 South First Street to allow the Agency to construct certain building improvements. BACKGROUND On May 3, 2005, the Redevelopment Agency Board approved a lease with Brian Eder and Cherri Lakey, individuals dba Two Fish Design (Two Fish) for the Agency-owned building at 366 South First Street (formerly the Camera One Theater). The lease provided that Two Fish (Tenant), would construct necessary improvements and occupy the entire 4,158-square foot building with art gallery, studio and ancillary retail uses. The lease also provided that the Agency would demolish certain theater improvements at the Tenant's request so that they were better able to implement the necessary building improvements for their gallery. The Agency completed the interior demolition of the building and partial abatement of hazardous materials in October 2005.

8 Redevelopment Agency Board Page 2 TWO FISH LEASE AMENDMENT December 13, 2005 By early Fall 2005, Two Fish began working with the Building Department on approvals necessary to occupy the Premises. The Tenant has now determined that certain ADA and exiting improvements will be necessary to utilize the space. The Tenant has requested that the Agency provide assistance in the construction and funding of these improvements. ANALYSIS Key terms of the current lease agreement are as follows: Term: Five years, with two one-year extension options Base Rent: Utilities/Taxes: Tenant Improvements: Rent Credit: Operating Hours: Public/Non-Profit Use: Year 1 - $1,000 per month Year 2 -$1,250 per month Year 3 -$1,500 per month Year 4- $1,750 per month Year 5 - $2,000 per month All utility costs and taxes are the Tenant's responsibility. Tenant estimated that they would invest approximately $45,000 for tenant improvements in the building, using both cash and donations in-kind. In recognition of the tenant improvement investment, Two Fish will receive a monthly rent credit for a maximum of $45,000 of tenant improvement costs, which is equal to three years of base rent. Minimum operating hours will be noon through 8:00 pm, Tuesday through Saturday. For up to 12 days per lease year, the Premises will be available for public use for up to eight hours per date. There will be no rent or usage fee charged for such use. In addition, Two Fish will use its best efforts to make the Premises available for use by non-profit organizations. Two Fish Lease Amendment

9 Redevelopment Agency Board Page 3 TWO FISH LEASE AMENDMENT December 13, 2005 Two Fish has requested Agency assistance to make the following building modifications: construct a handicapped-accessible restroom on the ground floor; modify the storefront to provide for a handicapped-accessible entry; install panic hardware on the exit doors; and modify the rear exit of the building. Since all work other than the interior demolition and partial hazardous materials abatement was to be performed by Two Fish under the original Lease, a lease amendment is necessary to accommodate the Tenant's request. In order to minimize the time and cost associated with implementing this new scope of work, the Agency will buy the concept drawings already prepared by the Tenant's architect, Bill Gould Architects and then hire Tenant's architect to complete the designs and specification required for an Agency bid package. As the project has not been fully designed, permitted and bid, a final cost for this scope of work has not been determined. However, Agency staff estimates that the cost of design, permitting and construction for this general scope of work is in the range of $50,000. The project will be designed, bid and awarded under the Executive Director's authority as provided under the Agency By-Laws. At lease execution, the Tenant contemplated that the majority of its tenant improvement work would be funded through cash and donations in-kind over the first Lease Year. To date the Tenant has performed a certain scope of tenant improvement work including: installation of dry wall on the interior of the perimeter walls; patching of existing furred walls; and painting. Some of this work may have required a permit, but a permit was not obtained. In order for the Tenant to obtain a certificate of occupancy for the Building as quickly as possible, the Agency's resources are needed. In consideration for the requested lease amendment, Two Fish will reduce the maximum allowable rent credit earned. Staff is working with Two Fish to determine the appropriate amount and this will result in the Agency receiving rent sooner than under the original lease provisions. COORDINATION This memo has been coordinated with the Agency's General Counsel. Two Fish Lease Amendment

10 Redevelopment Agency Board Page 4 TWO FISH LEASE AMENDMENT December 13, 2005 FISCAL IMPACT The costs associated with this item are budgeted for in the Agency's Adopted FY Capital Budget in the Merged: Downtown Business Improvements Pool. CEQA Exempt, PP05-090, HARRY S. MAVROGENES Executive Director Two Fish Lease Amendment

11 SUPPLEMENTAL ITEM: 7.4 THE REDEVELOPMENT AGENCY OF THE CITY or SAN CSIT 1 11;MORAN!"ATM 0 : REDEVELOPMENT AGENCY BOARD 1m_ ;-;\ t : HARRY S. MAVROGENES EXECUTIVE DIRECTOR St SEE BELOW DECEMBER 13, 2005 SUBJECT: SUPPLEMENTAL INFORMATION REGARDING AUTHORIZATION FOR THE EXECUTIVE DIRECTOR TO NEGOTIATE AND EXECUTE AN AMENDMENT TO THE LEASE WITH BRIAN EDER AND CHERRI LAKEY, INDIVIDUALS DBA TWO FISH DESIGN GROUP Item number 7.4 on the December 13, 2005, Redevelopment Agency Board Agenda recommends that the Board adopt a resolution authorizing the Executive Director to negotiate and execute an amendment to the lease with Brian Eder and Cheni Lakey, individuals dba Two Fish Design Group at 366 South First Street to allow the Agency to construct certain building improvements. The purpose of this memo is to update the Board on its discussions with the tenant with regard to the proposed lease amendment. Staff has been meeting with Two Fish Design to negotiate an adjustment to the rent credit or to identify some other consideration for the increased assistance the Agency is providing the tenant to come into compliance with the Building Code. Negotiations are still ongoing, but staff is requesting authorization to negotiate a new rent credit for allowable tenant improvements paid for by Two Fish Design of between $20,000 and $30,000. In addition, the award of a contract for the requested tenant improvements will not occur until the lease amendment has been fully executed, HARRY S. MAVROGENES Executive Director

12 LEGAL DOCUMENT REQUEST (GENERAL) PROJECT COORDINATOR/MGR Ruth ill PROJECT ANALYST APPROVAL DIVISION DIRECTOR APPROVAL DATE: 12/14/05 DATE: DATE: El El TYPE of Agreement: Amendment BOARD Approval: Date 12/13/050 Not Require Note: Board Approval is required, attach a copy of the Draft Board Memo ( NAME of Contracting Party: Brian Eder and Cherri Lakey Note: If an amendment, include any name changes since the original agreement Amendment No. Contract No. Budget Adjustment? 0 Yes aer.,49 D71CTEW 0 OLD - VENDOR # BUSINESS FORM of Contracting Party (i.e. corporation, partnership, incorporated, etc.): individuals 12 'Redevelopment PROJECT AREA(s): 1/ Project Name: g4;244-1-/- Lci TERM of the Agreement: LO/V Crf7 Note: The term should extend past the Schedule rettformance iLla (3G SI 1-17L Si-;) eyra ErDATE for Contracting Party to begin work (New Contracts): aer\raximuun amount of COMPENSATION: Basic Reimbursables / -) /41-- Contingency Additional Services Efris--the Compensation to be paid based on TIME AND MATERIALS (hourly) or LUMP SUM (per task Hourly Rate: (Thri any REIMBURSABLE EXPENSES allowed? E Yes El No If so, attach a list. VI Wi Note: Agency policy is NO mark-ups on reimbursables/subconsultants. ll SUBCONSULTANTS be used? Yes CONTACT 1NFORMA.TION for Contracting Party: Principal Contact: Brian Eder and Cherri Lakey Address: 366 South First Street San Jose CA Note: Agency policy is to provide or lump sum (without reimbursables) whenever appropriate. No If s o att achrisf Sne ti tfl., ' ll'7 '!Th i DECfir 2005 El Phone Number: Fax Number: ATTACHMENTS: To be completed for both New and Amended contracts El Scope of Services Note: Scope, including any ADDITIONAL SERVICES, should be drafted, keeping in mind logical order, completeness, clear definitions of deliverables and specific reference to any standards that need to be incorporated. LI Schedule of Performance, including dates for deliverables IE Schedule for Compensation O Insurance Requirements LI EDD Letter 'or W-9 O Any Additional Provisions unique to this agreement Fund Source: Bus, Unit Contingency: Bus. Unit N-fir'947- Ubject Object /g Job Cost Job Cost oo/,9 1444' /0/016

13 THE REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE MEMORANDUM TO: HARRY MAVROGENES EXECUTIVE DIRECTOR FROM: SANDY SHAYESTEH SR. FINANCIAL ANALYST SLMJ EgkRACT APPROVAL CHECKLIST APPROVED: DATE: DATE: January 12, 2006 REGENT JAN EXECUTIVE DIRECTOR ATTACHED FOR YOUR REVIEW AND SIGNATURE IS: CONTRACT/ AMEND- MENTS LAND PURCHASE AGREEMENT NOTICE TO PROCEED (MASTER AGREEMENT) OTHER - LEASE DIVISION DIRECTOR: RUTH SHIKADA TENANT: TWO FISH DESIGN GROUP AMOUNT OF LEGAL DOCUMENT: N/A SUBJECT: FIRST AMENDMENT TO LEASE TO PROVIDE FOR CONSTRUCTION OF CERTAIN IMPROVEMENTS TO THE PREMISES. FUNDS ARE AVAILABLE IN THE MERGED: DOWNTOWN BUSINESS IMPROVEMENTS POOL BUDGET LINE ITEM TO FUND THE BUILDING IMPROVEMENTS. BOARD APPROVAL: DATE OBTAINED: 12/13/05 NOT REQUIRED _ RESOLUTION NUMBER: PLEASE REVIEW, EXECUTE AND RETURN TO SANDY SHAYESTEH, SR. ANALYST. LOGGED: Two Fish Lease Amendment

14 THE REDEVELOPMENT AGENCY CITY OF SAN JOSE LETTER OF TRANSMITTAL TO: Harry Mavrogenes DATE: 1/11/06 SUBJECT: Two Fish Lease Amendment THE ATTACHED IS BEING TRANSMITTED as checked below: For Signature For Review/Comments As Requested FOR YOUR USE OTHER REMARKS: For your signature. This item has been approved as to form by Tom Murtha. Please returned signed copy to me or call me if you have any questions. Thanks. Signed: \ Name: uth Shikada Title: Director, Transactions Approved: Document2

15 SECOND AMENDMENT TO LEASE This Second Amendment to Lease ("Second Amendment") is made as of this hday of Oci-D be r, 2009, by and between THE REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE ("Landlord" or "Agency), a public body, and BRIAN EDER AND CHERRI LAKEY, individuals d/b/a TWO FISH DESIGN GROUP (collectively, "Tenant"). RECITALS A. Landlord is the owner of that certain real property located at 366 South First Street in the City of San Jose, County of Santa Clara, State of California ("Property's). The Property is improved with a building. B. Pursuant to a Lease dated May 3, 2005 ("Original Lease"), Landlord leases to Tenant and Tenant leases from Landlord the building for Tenants Art Gallery and Studio ("Premises"). C. The Original Lease was amended on January 12, 2006 to provide for certain Landlord Improvements as defined therein ("First Amendment"). The Original Lease and the First Amendment shall be collectively referred to herein as the "Lease". D. Landlord and Tenant now desire to amend the Lease to, among other things, reduce the amount of rent Tenant must pay for approximately two years to assist Tenant in remaining financially viable in the current economic downturn and thus remain a Tenant in Agency's Premises, extend the current term by a period of two (2) years and remove the provision which provides Tenant with two one-year options to extend the term of the Lease. In exchange, Tenant shall continue to occupy the Premises and make the Premises available for non-profit groups' use for a certain period of time as enumerated herein. NOW, THEREFORE, in consideration of the covenants herein contained, Landlord and Tenant hereby amend the Lease as follows: 1. Initial Term. Section 1.4 shall be deleted in its entirety and replaced with the following: "1.4 Initial Term. Seven (7) years from the Lease Commencement Date of October 25, 2005." 2. Options to Extend. Section 1.5 shall be deleted in its entirety. T /587081_2_2 10/28/2009

16 3. Monthly Base Rent. Section 1.6 shall be deleted in its entirety and replaced with the folllowing: "1.6 Monthly Base Rent. Year 1 $1,000 per month Year 2 $1,250 per month Year 3 $1,500 per month Year 4-mo 1-10 $1,750 per month Year 4-mo 11,12 $ 500 per month Year 5 $ 500 per month Year 6 $ 500 per month Year 7 $2,000 per month" 4. Term. Section 3, Term, shall be deleted in its entirety and replaced with the following: "3. Term. The term of this Lease shall be for a period of seven (7) years ("Initial Term") commencing on the date Landlord delivered possession of the Premises to Tenant, October 25, 2005, (the "Lease Commencement Date") and terminates seven (7) years thereafter (the "Termination Date"). Landlord shall deliver possession of the Premises to Tenant within ten (10) days after completion of Landlord's Work defined in Section 11.1 below." 5. Rent. Section 4 shall be deleted in its entirety and replaced with the following: "4. Rent. Subject to the rent credit for the construction costs of the Tenant Improvements described in Paragraph 6, Tenant shall pay to Landlord rent ("Base Rent") as follows: 4.1 For the first year of the Lease Term, Tenant shall pay to Landlord Base Rent in the amount of Twelve Thousand and no/100ths Dollars ($12,000.00) in a single lump sum installment, which shall be due on or before the first anniversary of the Commencement Date. 4.2 Commencing on the first anniversary of the Commencement Date, Tenant shall pay to Landlord Base Rent in equal advance monthly installments of $1,250 on or before the first day of every calendar month. 4.3 Commencing on the second anniversary of the Commencement Date, Tenant shall pay to Landlord Base Rent in equal advance monthly installments of $1,500 on or before the first day of every calendar month. T /587081_2.doc_2 10/15/ Ltu_ad. L I 1 11 M eal,..e

17 4.4 Commencing on the third anniversary of the Commencement Date, Tenant shall pay to Landlord Base Rent in equal advance monthly installments of $1,750 on or before the first day of every calendar month through August 31, 2009, and thereafter shall pay an amount of $ for the remainding two months of Year 4 rent. 4.5 Commencing on the fourth anniversary of the Commencement Date, Tenant shall pay to Landlord Base Rent in equal advance monthly installments of $ on or before the first day of every calendar month. 4.6 Commencing on the fifth anniversary of the Commencement Date, Tenant shall pay to Landlord Base Rent in equal advance monthly installments of $500 on or before the first day of every calendar month. 4.7 Commencing on the sixth anniversary of the Commencement Date, Tenant shall pay to Landlord Base Rent in equal advance monthly installments of $2,000 on or before the first day of every calendar month. 4.8 Base Rent payable under Subsections 4.2 through 4.7 above shall be referred to herein as "Monthly Base Rent": 6. Options to Extend. Section 9 shall be deleted in its entirety. 7. Non-Profit Use. Section 17.2 shall be amended to read as follows: "17.2 Non-Profit Use. Tenant shall make Premises available to not-for-profit organizations ("Non-Profit Use") for no rent or usage fee, as defined in Section 17.1 above, and subject to reasonable insurance requirements, subject to availability given the Tenant's regular work schedule for atleast fifteen (15) days each lease year starting October 25, 2009 for eight (8) hours per date. Non-Profit Use shall be limited to uses appropriate to the venue such as performances, or workshops or lectures that further educational and cultural pursuits. Tenant, upon Agency's approval, may charge any non-profit user pursuant to this section, any extraordinary charges Tenant incurs as a result of non-profit user's use of the Premises. Tenant shall consult with the City of San Jose Office of Cultural Affairs in order to assure public awareness of the availability of the Premises for not-for-profit organizations. All reservations for Non-Profit Use shall be made and coordinated through the Redevelopment Agency Staff. Upon Landlords request, Tenant shall provide Landlord with evidence, sufficient to Landlord, that Tenant is complying with this provision of the Lease. Under no circumstances T /587081_2.doc_2 10/15/

18 shall Tenant be entitled to receive from the Agency or the City of San Jose cash or other consideration for Non-Profit use of the Premises." 8. Holding Over. Section 23 shall be amended to read as follows: "23. At the end of the Initial Term should Tenant hold over for any reason, it is agreed that in the absence of a written agreement to the contrary between Tenant and Landlord, that tenancy shall be month-tomonth only and not a renewal of this Lease, nor an extension for any further term. Tenant shall pay Rent in an amount equal to one hundred fifty percent (150%) of the last Base Rent paid hereunder unless otherwise agreed in writing with Landlord and the month-to-month tenancy shall be subject to every other term, covenant, and condition in this Lease that is consistent with and not contrary to a month-to-month tenancy." 9. Notice of Intent to Sell. Section 41.1 is amended to read as follows: "41.1 Notice of Intent to Sell. Unless previously terminated as described below, if at any time during the Initial Term, Landlord, in its sole and absolute discretion, determines not to pursue a redevelopment project with the Property and desires to sell the Property as a single parcel in its then current condition and existing use, Landlord shall notify Tenant in writing of Landlord's desire to sell the Property ("Notice of Intent to Sell") and shall provide Tenant with a form of purchase and sale agreement prepared by Landlord's legal counsel ("Purchase Agreement"). The Purchase Agreement shall contain the purchase price for the Property ("Purchase Price"), which shall be the fair market value of the Property as determined by Landlord based on an appraisal conducted and prepared by a third party appraiser for Landlord." 10. EXHIBIT B "INSURANCE REQUIREMENTS", is deleted in its entirety and EXHIBIT B "FIRST AMENDED INSURANCE REQUIREMENTS", attached hereto is substituted therefore. T /587081_2.doc_2 10/15/

19 11. Conflict. In the event of a conflict between the terms and provisions of this Second Amendment and the terms and provisions of the Lease, the terms and provisions of this Second Amendment shall control. Except as amended hereby, the Lease shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment the day and year first above written. Approved to form: "Landlord" or "Agency" THEREDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE r, A areilit Assobiate Counsel By: filr: Zategenes -Ir. May Executive Director "Tenant" TWO FISH DESIGN GROUP T /587081_2.doc_2 10/15/

20 EXHIBIT B FIRST AMENDED INSURANCE REQUIREMENTS Insurance Requirements Tenant shall maintain throughout the term of this Lease, the following insurance 1. Insurance Services Office Commercial General Liability coverage ("occurrence" form CG 0001), Fire Legal Liability, Liquor Liability (if the sale of alcohol). 2. Workers' Compensation insurance as required as required by the State of California and Employer's Liability insurance (for lessees with employees). 3. All Risk Property insurance insuring the Premises. 4. Property insurance against all risks of loss to any tenant owned contents and/or improvements or betterments. 5. Builders Risk during build outs, remodels or tenant improvements and betterments, if approved by Landlord. Minimum Limits of Insurance: Tenant shall maintain limits no less than: 1. General Liability: $1,000,000 per occurrence for bodily injury, personal injury and property damage. If Commercial General Liability Insurance or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to this project/location or the general aggregate limit shall be twice the required occurrence limit. Fire Legal Liability $100,000; Liquor Liability (if the sale of alcohol) $1,000, Employer's Liability: $1,000,000 per accident for bodily injury or disease. 3. Property Insurance: Full replacement cost with no coinsurance penalty provision. 4. Builder's Risk: during build outs, remodels or tenant improvements and betterments, if approved by Landlord, Limit shall be Completed value of the project. No deductible shall exceed $25,000. T /587081_2.doc 10/15/2009 Page 1 of 3 EXHIBIT B

21 Deductibles and Self-Insured Retentions Any deductibles or self-insured retentions must be declared to and approved by the Agency (also referred to as "Landlord") and the City of San Jose. At the option of the Agency and City, either: the insurer shall reduce or eliminate such deductibles or selfinsured retentions as respects the Agency, the City, and their officers, officials, employees, agents and volunteers; or the Tenant shall procure a bond guaranteeing payment of losses and related investigations, claim administration and defense expenses. Other Insurance Provisions The general liability policy is to contain, or be endorsed to contain, the following provisions: 1. The Agency, the City, and their officers, officials, employees, agents and volunteers are to be covered as an additional insured as respects: liability arising out of premises owned, occupied or used by the Tenant. The coverage shall contain no special limitations on the scope of protection afforded to the Agency, the City, and their officers, officials, employees, agents and volunteers. 2. The Tenant's insurance coverage shall be primary insurance as respect the Agency, the City, and their officers, officials, employees, agents and volunteers. Any insurance or self-insurance maintained by the Agency, the City, and/or their officers, officials, employees, agents and volunteers shall be excess of the Tenant's insurance and shall not contribute with it. 3. Any failure to comply with reporting or other provisions of the policies including breaches of warranties shall not affect coverage provided to the Agency, the City, and/or their officers, officials, employees, agents and volunteers. 4. Coverage shall state that the Tenant's insurance shall apply separately to each insured against whom claim is made or suit is brought, except with respect to the limits of the insurer's liability. All policies are to contain: Each insurance policy required by this clause shall be endorsed to state that coverage shall not be suspended, voided, canceled, or reduced in coverage or in limits except after thirty (30) days' prior written notice by certified mail, return receipt requested, has been given to the Agency and City. T /587081_2.doc 10/15/2009 Page 2 of 3 EXHIBIT B

22 Builders' Risk policies shall contain the following provisions: a. The Redevelopment Agency and City of San Jose shall be named as loss payee. b. The insurer shall waive all rights of subrogation against the City of San Jose Acceptability of Insurers Insurance is to be placed with insurers acceptable to the City's Risk Manager. Verification of Coverage Tenant shall furnish the Agency and City with certificates of insurance and with original endorsements affecting coverage required by this Exhibit. The certificates and endorsements for each insurance policy are to be signed by a person authorized by that insurer to bind coverage on its behalf. Proof of insurance shall be mailed to the following address or any subsequent address as may be directed in writing by Risk Management: Subtenants City of San Jose Human Resources Risk Management 200 East Santa Clara Street, 2nd Floor Wing San Jose, CA Tenant shall include all Subtenants as insured under tis policies or shall obtain separate certificates and endorsements for each Subtenant. Review of Coverage These insurance requirements shall be subject to periodic review by City's Risk Manager. Should the Risk Manager require any change in any coverage such change shall be communicated in writing to Tenant and Tenant shall comply with the said change within thirty (30) days of the date of receipt of the notice. T /587081_2.doc 10/15/2009 Page 3 of 3 EXHIBIT B

23 INSTRUCTIONS FOR INSURANCE APPROVAL: Forward the following to, 200 East Santa Clara Street, 3 rd Floor Wing San Jose, CA This form (149-7) completed; 2. Copy of face page of Contract; 3. Copy of insurance requirements included in contract. DATE: Service Provider: Two Fish Design Phone No. (408) Project: Lease South First Street, San Jose, CA Project Amount: $42, Estimated Estimated Start Date: 09101/09 Completion Date: 10/24/ 12 Scope of Work: Second Amendment to Lease to make premises available for non-profit groups' use for a certain period of time. Department Redevelopment Division: Transactions 86 Real Estate Department Extension: (408) Contact: Allen Ishibashi, Project Coordinator Comments: COMPLIANCE WITH INSURANCE REQUIREMENTS Signature:.0* sig.. knemcereamv Andrea Cervantez E",==== On SOY Risk Management Date: FOR RISK MANAGEMENT USE ONLY Date Forwarded to Sandy Shayeateh COMPLIANCE WITH BOND REQUIREMENTS Signature: City Clerk Form (03/05) Date:

24 LEGAL DOCUMENT REQUEST (REAL ESTATE/ACQUISITIONS) yis PROJECT COORDINATOR/MGR Allen lshibashi DIVISION DIRECTOR APPROVAL Peter Larko DATE: 9/1109 DATE: 9/1/09 Eit TYPE of Agreement: 7- Board Approval: Other JC-- Amendment No. 2 Contract No. Nit Date Note: Board Approval is required, attach a copy of the Draft Board Memo Er-Property OWNER(s) or TENANT(s): Two Fish Design 'Property ADDRESS: 366 S. 1st Street V APN: Ei7lf SETTLEMENT AGREEMENT: Is Property subject to any Lease(s)? If so, List: Is Tenant operating a Business on the Property? If so, Name: Date Tenant will vacate the Premises: If Tenant has not yet vacated upon Agency's possession of Premises, what monthly rent will Tenant pay to Agency? Status of any Relocation: Not Required Budget Adjustment? LI Yes Ilk No Er-Redevelopment PROJECT AREA(s): Market Gateway-- Project Name: Er-SETTLEMENT Payment/Purchase Price: /Viik C Allocation of Settlement Payment/Purchase Price: ryclose OF ESCROW Date: Nfe &Title Company CONTACT INFORMATION: Escrow Holder: / Address: Phone Number: Fax Number: Escrow Number: -1ECIEOVL, SEP a.-date of PRELIMINARY TITLE REPORT: a--attach each of the following: 0 Legal Description 0 Conditions to Closing In Any Additional Provisions unique to this agreement El Environmental Indemnity Required? LI Yes El No areplacement Housing Requirements: 14 /4 A- a4und Source: Bus Unit flen Contingency: Bus. Unit Order No. si_ard AO& re-vt'''. -tr--job Cost / Object Job Cost D Preliminary Title Report LI Insurance Requirements 0 Hazardous Materials Reports

25 BOARD AGENDA: 10/27/09 ITEM: 7.1 THE REDEVELOPMENT AGENCY OF1 HE CITY OF SAN JOSE MEMORANDUM TO. REDEVELOPMENT AGENCY BOARD SUBJECT: SEE BELOW FROM' HARRY S. MAVROGENES EXECUTIVE DIRECTOR DATE: OCTOBER 15, 2009 SUBJECT: SECOND AMENDMENT TO THE LEASE WITH BRIAN EDER AND CHERRI LAKEY, INDIVIDUALS DBA TWO FISH DESIGN. RECOMMENDATION It is recommended that Redevelopment Agency Board approve the second amendment to the lease with Brian Eder and Cherri Lakey, individuals dba Two Fish Design, at 366 South First Street to reduce the monthly base rent to $500 per month through October 24, 2011, extend the term by two years and strengthen the non-profit use provision. OUTCOME Approval of the proposed action will enable Two Fish Design to continue as a tenant in the SoFA Neighborhood at 366 S. 1 st Street (see attachment). BACKGROUND In Spring 2004 the Agency released a Request for Proposals (REP) for reuse of the former Camera 1 Theater at 366 S. l st Street. Two proposals were submitted and a panel comprised of the downtown business community, Agency and City staff members interviewed both groups. The panel selected the proposal prepared by Two Fish Design. On May 3, 2005, the Redevelopment Agency Board approved a lease with Brian Eder and Cherri Lakey, individuals dba Two Fish Design (Two Fish) for the Agency-owned building at 366 South First Street. The lease provided that Two Fish Design (Tenant) would construct necessary improvements and occupy the entire 4,158-square foot building with an art gallery, studio and ancillary retail uses. On December 13, 2005, the Redevelopment Agency Board authorized the

26 Redevelopment Agency Board Page 2 TWO FISH DESIGN LEASE AMENDMENT October 15, 2009 Executive Director to execute the first amendment to the lease to modify the building to meet ADA requirements. The total construction cost associated with these improvements was $65,000. In December 2002, the SoFA Strategic Development Plan (Plan) was created by the Agency to outline guiding principles for the neighborhood. In the Plan, SoFA was positioned to be the downtown district where arts, entertainment and technology could effortlessly blend to create a unique place. In addition, the Plan stated that SoFA should be a stage for special events that would bring residents and visitors together for celebrations, performances, parades, concerts and festivals. Two Fish Design is a critical component of the SoFA art culture and it currently contributes to the SoFA neighborhood in the following ways: ANNO DOMINI GALLERY: Two Fish operates the Anno Domini Art Gallery from the leased space on South First Street. The gallery is an asset to the SoFA district and it has been gaining international attention because of the artists that have been on exhibit. Anno Domini gallery is also a member of the curatorial committee for the 3rd Annual OISJ Biennial in The gallery is one of the official exhibition spaces for the biennial. SOUTH FIRST FRIDAYS ART WALK: Two Fish Design is the founder and producer (including: the brochure, website, posters, and rickshaw service) of this monthly SoFA event. The event started with six venues in February 2007 and it is now up to 14 venues. STREET MARKET: Two Fish Design founded and produces four art markets featuring local artists and bands during the summer months on the first block of South 1 5' Street. The market is an extension of Anno Domini gallery and coincides with South FIRST FRIDAYS. SUBZERO FESTIVAL + STREET MARKET (JUNE 2009): Two Fish is the founder and co-producer of the annual SubZERO Festival with OISJ. lie SoFA district had desired an annual event to replace the SoFA Festival that was cancelled several years ago. The 2008 SubZERO Festival attracted 7,000 attendees. The 2009 SubZERO Festival, a collaboration between South FIRST FRIDAYS and OISJ, attracted over 10,000 attendees in only its second year. Two Fish Design Lease

27 Redevelopment Agency Board Page 3 TWO FISH DESIGN LEASE AMENDMENT October 15, 2009 OFFICIAL JAll BEYOND STAGE AT STREET MARKET (AUGUST 2009): Two Fish Design invited the San Jose Jazz Festival to collaborate during the South FIRST FRIDAYS art walk at STREET MARKET. This year was the first time that there was a stage in the SoFA District. The event drew 5,000 attendees. SOFA IMPROVEMENT PROJECT: Two Fish Design is a member of the committee for the SoFA Improvement Project that is spearheaded by 1 st Act Silicon Valley. PHANTOM GALLERIES. Two Fish Design founded and produces the Phantom Gallery Project in Downtown. This program utilizes empty retail space to create exhibition opportunities for local artists. In addition to the art gallery and the ancillary retail uses at 366 S. Street, Two Fish Design's main income-producing component is its graphic design business. Business is down significantly for the graphic design component. Over the first three quarters of 2009, Two Fish Design's gross income is down 65% when compared to the first three quarters of The th quarter projection is estimated to be 65% to 70% below that of the 4th quarter of Based on the current schedule of projects and the overall business climate, Two Fish Design does not expect to see a recovery until late ANALYSIS The proposed Lease amendment with Two Fish Design presents an opportunity to keep an active art tenant in the SoFA district for three more years (One year on the existing term plus 2 additional years) during these difficult economic times. The rent is scheduled to increase from $1,750 to $2,000 per month on October 25, To keep Two Fish Design viable as a tenant and as an active promoter of arts in SoFA, the current monthly rent is proposed to be reduced to $500 per month (retroactively) from September 1, 2009 to October 24, This is proposed to be a temporary rent reduction to allow Two Fish Design the ability to remain in the space and continue being an anchor art tenant in SoFA. With the expectation that the economy will improve by 2011, the monthly rent will be restored on October 25, In addition to increasing the rental term for two additional years, the City/Non- Profit Premises Use Provision in the lease is being increased and revised to expand the opportunities for free public space in the SoFA Neighborhood. The tenant shall now be required to make the premises available to non-profit groups at least 15 days a year and to work with the Office of Cultural Affairs to assure public awareness of the space. Two Fish Design Lease IIIIMISSIIM

28 Redevelopment Agency Board Page 4 TWO FISH DESIGN LEASE AMENDMENT October 15, 2009 Summary of the proposed amendment: Monthly Base Year 4 $500 (9/01/09 to 10/24/09) Rent: Year 5 $500 (10/25/09 to 10/24/10) Year 6 $500 (10/25/10 to 10/24/11) Year 7 $2,000 (10/25/11 to 10/24/12) Term: 7 years The additional two years added to the term of the Lease (Years 6 and 7) and the revised City/Non-Profit Premises Use provision provide sufficient consideration for the revision to the rent schedule. EVALUATION AND FOLLOW-UP No special follow-up action required for the lease. PUBLIC OUTREACH/INTEREST The proposed action does not meet any of the criteria noted below for added outreach efforts. This staff report will be posted on the Agency's website and made available for public review in the Agency's public lobby area. Criterion 1: Requires Council action on the use of public funds equal to $1 million or greater. Criterion 2: Adoption of a new or revised policy that may have implications for public health, safety, quality of life, or financial/economic vitality of the City. Criterion 3: Consideration of proposed changes to service delivery, programs, or staffing that may have impacts to community services and have been identified by staff, the Board or Council, or a community group that requires special outreach. COORDINATION This report has been coordinated with the Agency's General Counsel. Two Fish Design Lease

29 Redevelopment Agency Board Page 5 TWO FISH DESIGN LEASE AMENDMENT October 15, 2009 FISCAL IMPACT The reduction in rental receipts in the initial rental agreement will be offset by the increased revenue generated from the extended lease. The overall net increase in rent revenue will be $9,500 over the term of the lease. CEPA Not a project. Attachment ARRY S. MAVROGENES Executive Director Two Fish Design Lease

30

31 THIRD AMENDMENT TO LEASE This Third Amendment to Lease ("Third Amendment") is made as of this 17 1-k day of slime., 2011, by and between THE REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE ("Landlord" or "Agency"), a public body, and BRIAN EDER AND CHERRI LAKEY, individuals d/b/a TWO FISH DESIGN GROUP (collectively, "Tenant"). RECITALS A. Landlord is the owner of that certain real property located at 366 South First Street in the City of San Jose, County of Santa Clara, State of California ("Property"). The Property is improved with a building. B. Pursuant to a Lease dated May 3, 2005 ("Original Lease"), Landlord leases to Tenant and Tenant leases from Landlord the building for Tenant's Art Gallery and Studio ("Premises"). C. The Original Lease was amended on January 12, 2006 to provide for certain Landlord Improvements as defined therein ("First Amendment"); and on October 27, 2009 to lower the rent and extend the term ("Second Amendment"). The Original Lease and amendments shall be collectively referred to herein as the "Lease". D. Landlord and Tenant now desire to further amend the Lease to, among other things, update the insurance requirements, reduce the amount of rent Tenant pays for the remainder of the Lease and extend the current term of the Lease. E. This Third Amendment will allow Tenant to remain financially viable in the Premises during the current economic downturn and will allow the Agency to retain a tenant and avoid an empty storefront in a redevelopment project area. In exchange, Tenant shall continue to occupy the Premises and continue to make the Premises available for use by non-profit groups. NOW, THEREFORE, in consideration of the covenants herein contained, Landlord and Tenant hereby amend the Lease as follows: 1. Initial Term. Section 1.4 shall be deleted in its entirety and replaced with the following: "1.4 Initial Term. Twelve (12) years from the Lease Commencement Date of October 25, 2005." T \ doc 1 5/18/2011

32 2. Monthly Base Rent. Section 1.6 shall be deleted in its entirety and replaced with the following: "1.6 Monthly Base Rent. Year 1 $1,000 per month Year 2 $1,250 per month Year 3 $1,500 per month Year 4 mos 1-10 $1,750 per month Year 4 mos 11 &12 $ 500 per month Years 5-12 $ 500 per month 3. Term. Section 3, Term, shall be deleted in its entirety and replaced with the following: "3. Term. The term of this Lease shall be for a period of twelve (12) years ("Initial Term") commencing on October 25, 2005 (the "Lease Commencement Date") and terminating on October 24, 2017 (the "Termination Date"). Landlord shall deliver possession of the Premises to Tenant within ten (10) days after completion of Landlord's Work defined in Section 11.1 below." 4. Rent. Section 4 shall be deleted in its entirety and replaced with the following: "4. Rent. Subject to the rent credit for the construction costs of the Tenant Improvements described in Paragraph 6, Tenant shall pay to Landlord rent ("Base Rent") as follows: 4.1 For the first year of the Initial Term, Tenant shall pay to Landlord Base Rent in the amount of Twelve Thousand and no/100ths Dollars ($12,000.00) in a single lump sum installment, which shall be due on or before the first anniversary of the Commencement Date. 4.2 Commencing on the first anniversary of the Commencement Date, Tenant shall pay to Landlord Base Rent in equal advance monthly installments of $1,250 on or before the first day of every calendar month. 4.3 Commencing on the second anniversary of the Commencement Date, Tenant shall pay to Landlord Base Rent in equal advance monthly installments of $1,500 on or before the first day of every calendar month. 4.4 Commencing on the third anniversary of the Commencement Date, Tenant shall pay to Landlord Base Rent in equal advance monthly installments of $1,750 on or before the first day of every T \ doc 2 5/18/2011

33 calendar month through August 31, 2009, and thereafter shall pay an amount of $ for the remaining two months of Year Commencing on the fourth anniversary of the Commencement Date and for the remainder of the Initial Term of the Lease, Tenant shall pay to Landlord Base Rent in equal advance monthly installments of $ on or before the first day of every calendar month. 4.6 Base Rent payable under Subsections 4.2 through 4.5 above shall be referred to herein as "Monthly Base Rent"." 5. Subsection 18.1, Tenant's Insurance, shall be deleted in its entirety and replaced with the following: "18.1 Tenant's Insurance. During the Initial Term, Tenant shall at all times maintain in force, at Tenant's sole cost and expense, the insurance set forth on EXHIBIT B, entitled "SECOND AMENDED INSURANCE REQUIREMENTS", attached hereto." 6. EXHIBIT B "FIRST AMENDED INSURANCE REQUIREMENTS", is deleted in its entirety and EXHIBIT B, "SECOND AMENDED INSURANCE REQUIREMENTS", attached hereto is substituted therefore. 7. Conflict. In the event of a conflict between the terms and provisions of this Third Amendment and the terms and provisions of the Lease, the terms and provisions of this Third Amendment shall control. Except as amended hereby, the T \ doc 3 5/18/2011

34 Lease shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment the day and year first above written. Approved to form: *III Zak env\ VAIPM. Supervising Sr. Associate Counsel "Landlord" or "Agency" THEREDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE By: Harry S. Mavrogenes Executive Director "Tenant" TWO FISH DESIGNIMIONSP T \ doc 4 5/18/2011

35 EXHIBIT B SECOND AMENDED INSURANCE REQUIREMENTS Tenant, at Tenant's sole cost and expense, shall procure and maintain for the duration of this Agreement insurance against claims for injuries to persons or damages to property which may arise from, or in connection with the Tenant's operation and use of the leased premises. The cost of such insurance shall be born by the Tenant. A. Minimum Scope of Insurance Coverage shall be at least as broad as: 1. Coverage provided by insurance Services Office Commercial General Liability coverage ("occurrence" form CG 0001) including premises operations, products and completed operations, contractual liability, Fire Legal Liability, Liquor Liability (if the sale of alcohol); and 2. Workers' Compensation insurance as required by the California Labor Code and Employers Liability insurance; and 3. Property insurance against all risks of loss to any Tenant improvements or betterments including Business Interruption; and 4. Builders Risk during build outs, remodels or Tenant improvements and betterments. There shall be no endorsement reducing the scope of coverage required above unless approved by the City's Risk Manager. B. Minimum Limits of Insurance Tenant shall maintain limits no less than: 1. Commercial General Liability: $1,000,000 per occurrence for bodily injury, personal injury and property damage. If Commercial Liability Insurance or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to this project/location or the general aggregate limit shall be twice the required occurrence limit. Fire Legal Liability $100,000, $1,000,000 Liquor Liability (if the sale of alcohol); and 2. Workers' Compensation and Employers' Liability: Workers' Compensation limits as required by the California Labor and Employers Liability limits of $1,000,000 per accident; and T / doc 5/18/2011 Page 1of 4 EXHIBIT B

36 3. Property insurance against all risks of loss including but not limited to fire, vandalism and malicious mischief, and other perils at the Landlords desecration, in an amount equal to 100% of the replacement cost of all furniture, fixtures, stock and equipment, including fixtures, improvements and betterments installed by Tenant, in the leased Premises; Plate Glass coverage and Business Interruption coverage to include not less than the Actual Loss Sustained by the Insured during a Period of Interruption; and 4. During the period of any Tenant's build out, remodeling or any Tenant Improvements and Betterments, Tenant shall carry Builders' Risk insurance under which the building containing the leased premises and work in process are insured against loss or damage are insured against loss or damage resulting from the acts or omissions of Tenant, its agents and contractors in the course of such remolding. Landlord shall be named as additional insured and loss payee on such policies of insurance. Builder's Risk: Completed value of the project. No deductible shall exceed $25,000 C. Deductibles and Self-Insured Retentions Any deductibles or self-insured retentions must be declared to, and approved by Agency's. At the option of Agency, either; the insurer shall reduce or eliminate such deductibles or self-insured retentions as respects Agency, its officer, employees, agents and Tenants; or Tenant shall procure a bond guaranteeing payment of losses and related investigations, claim administration and defense expenses in an amount specified by the Agency. D. Other Insurance Provisions The policies are to contain, or be endorsed to contain, the following provisions: 1. Commercial General Liability a. The Agency, the City of San Jose, their officials, employees, agents and Contractors are to be covered as additional insureds as respects: Liability arising out of activities performed by or on behalf of, Tenant; products and completed operations of Tenant; premises owned, leased or used by Tenant; and automobiles owned, leased, hired or borrowed by Tenant. The coverage shall contain no special limitations on the scope of protection afforded to The Agency, the City, its officers, employees, agents and Tenants. b. Tenant's insurance coverage shall be primary insurance as respects Agency, the City, their officials, employees, agents and contractors. Any insurance or self-insurance maintained by T / doc 5/18/2011 Page 2of 4 EXHIBIT B

37 Agency, the City, their officials, employees, agents or contractors shall be excess of Tenant's insurance and shall not contribute with it. c. Any failure to comply with reporting provisions of the policies by Tenant shall not affect coverage provided Agency, the City, their officials, employees, agents, or contractors. d. Coverage shall state that Tenant's insurance shall apply separately to each insured against whom claim is made or suit is brought, except with respect to the limits of the insurer's liability. e. Coverage shall contain waiver of subrogation in favor of the Agency, and the City of San Jose, its officers, employees, agents and contractors 2. Workers' Compensation and Employers' Liability Coverage shall contain waiver of subrogation in favor of the City of San Jose, its officers, employees, agents and contractors 3. All Coverages Each insurance policy required by this Agreement shall be endorsed to state that coverage shall not be suspended, voided, canceled, or reduced in limits except after thirty (30) days' prior written notice has been given to Agency, except that ten (10) days' prior written notice shall apply in the event of cancellation for non-payment of premium. E. Acceptability of Insurers Insurance is to be placed with insurers acceptable to City's Risk Manager. F. Verification of Coverage Tenant shall furnish Agency with certificates of insurance and with original endorsements affecting coverage required by this Agreement. The certificates and endorsements for each insurance policy are to be signed by a person authorized by that insurer to bind coverage on its behalf. Proof of insurance shall be either ed in pdf format to: Riskmcimtsanioseca.qov, or mailed to the following postal address (or any subsequent or postal address as may be directed in writing by the Risk Manager): T / doc 5/18/2011 Page 3of 4 EXHIBIT B

38 City of San Jose - Human Resources Risk Management 200 East Santa Clara St., 2nd Floor - Wing San Jose, CA G. Contractors, sub-contractors and Subtenants Tenant shall include all listed above as insured under its policies or shall obtain separate certificates and endorsements for each. H. Review of Coverage These insurance requirements shall be subject to review by City's Risk Manager. Should the Risk Manager require any change in coverage, any such change shall be noticed in writing by City to Licensee and Licensee shall comply with the change within thirty (30) days of the date of receipt of the notice. T / doc 5/18/2011 Page 4of 4 EXHIBIT B

39 INSTRUCTIONS FOR INSURANCE APPROVAL: Forward the following too t, 200 East Santa Clara Street, 2nd Floor Wing San Jose., CA This form (149-7) completed; 2. Copy of face page of Contract; 3. Copy of insurance requirements included in contract. DATE: Service Provider: Two Fish Design Phone No. (408) Project: Lease South First Street, San Jose, CA Project Amount: $500/month Estimated Estimated Start Date: 10 /25/05 Completion Date: 10/24 /17 Scope of Work: Third Amendment to Lease to reduce the monthly rent payments and to extend the term of the lease. Department Redevelopment Division: Real Estate Depai talent Extension: (408) Contact: Allen Ishibashi, Project Coordinator COMPLIANCE WITH INSURANCE REQUIREMENTS Comments: Signature: Pin. II 'I SY DN: cn=michele Coveau, o=city of /raft eittatt, San.lose,.ou=Risk Management,p Risk Management gov, c=lis Date: :49:00-08'00' Date: ea o ayerte COMPLIANCE WITH BOND REQUIREMENTS Signature: Form (03/05) City Clerk Date:

40 BOARD AGENDA: 6/21/11 ITEM: 7.4 THE REDEVELOPMENT AGENCY OF THE CITY OF SAN DOSE MEMORANDUM TO: REDEVELOPMENT AGENCY BOARD FROM: HARRY S. MAVROGENES EXECUTIVE DIRECTOR SUBJECT: SEE BELOW DATE: JUNE 9, 2011 SUBJECT: THIRD AMENDMENT TO THE LEASE WITH BRIAN EDER AND CHERRI LAKEY, INDIVIDUALS DBA TWO FISH DESIGN. RECOMMENDATION It is recommended that Redevelopment Agency Board approve the third amendment to the lease with Brian Eder and Cherri Lakey, individuals dba Two Fish Design, at 366 South First Street to extend the term by five years, through October 25, 2017, and maintain the current rent amount. OUTCOME Approval of the proposed action will keep Two Fish Design as a contributing partner in SoFA through BACKGROUND In Spring 2004 the Agency released a Request for Proposals (REP) for reuse of the former Camera 1 Theater at 366 S. 1 st Street. (See attached site map) Two proposals were submitted and a panel comprised of members from the downtown business community, Agency and City staff interviewed both groups. The panel selected the proposal prepared by Two Fish Design. On May 3, 2005, the Redevelopment Agency Board approved a lease with Brian Eder and Cherri Lakey, individuals dba Two Fish Design (Two Fish) for the Agency-owned building at 366 South First Street. The lease provided that Two Fish (Tenant) would construct necessary improvements and occupy the entire 4,158-square foot building with an art gallery, studio and ancillary retail uses. On December 13, 2005, the Redevelopment Agency Board authorized the Executive Director to execute the first amendment to the lease to modify the building to meet

41 Redevelopment Agency Board Page 2 TWO FISH DESIGN LEASE AMENDMENT June 9, 2011 ADA requirements. The total construction cost associated with these improvements was $65,000. On October 27, 2009, the Board approved a second amendment to the lease that extended the term by two years, reduced the monthly rent to $500 a month through October 2011 and strengthened the public use language in the lease. In December 2002, the SoFA Strategic Development Plan (Plan) was created by the Agency to outline guiding principles for the neighborhood. In the Plan, SoFA was positioned to be the downtown district where arts, entertainment and technology could effortlessly blend to create a unique place. In addition, the Plan stated that SoFA should be a stage for special events that would bring residents and visitors together for celebrations, performances, parades, concerts and festivals. Two Fish is a critical component of the SoFA art culture and it currently contributes to the SoFA neighborhood in the following ways: ANNO DOMINI GALLERY: Two Fish operates the Anno Domini Art Gallery from the leased space on South First Street. The gallery is an asset to the SoFA district and it has been gaining international attention because of the artists that have been on exhibit. In addition to the monthly rotating exhibitions, the gallery hosts up-and-coining producers of unique cultural events in the space. SOUTH FIRST FRIDAYS ART WALK: Two Fish is the founder and producer (including: coordination of venues and all marketing brochure, website, posters and press releases) of the monthly event in SoFA. The event started with six venues in February 2007 and is now up to 18 participating venues, including monthly programming from San Jose Jazz STREET MARKET: Two Fish founded and produces two art markets featuring local artists and bands during the summer months on the first block of South l st Street. The market is an extension of Anno Domini Gallery and coincides with South FIRST FRIDAYS. SUBZERO FESTIVAL + STREET MARKET: Two Fish is the founder of the annual SubZERO Festival. In 2008 and 2009 they coproduced the festival with 01 SJ. Beginning in 2010, Two Fish became the sole producer of the festival. The SoFA district had desired an annual signature event to replace the SoFA Festival that was eliminated several years ago. The 2008 SubZERO Festival attracted 3-5,000 attendees. The 2009 SubZERO Festival, a collaboration between South FIRST FRIDAYS and 01SJ, attracted 6-8,000 attendees in only its second year. Two Fish Design Lease Amend.

42 Redevelopment Agency Board Page 3 TWO FISH DESIGN LEASE AMENDMENT June 9, 2011 For the 3rd annual SubZERO Festival in 2010, attendance reached its highest level yet at 10,000 to 12,000 attendees. The 4th annual Festival returned on June 3, 2011, and despite the economic challenges the event experienced another period of growth with an estimated 12,000 to 14,000 attendees. PHANTOM GALLERIES: Two Fish founded and produces the Phantom Galleries art project in downtown. This program utilizes vacant retail space to create exhibition opportunities for local artists. The program has grown to include local businesses that want to participate in the arts with year-round exhibitions at Caffe Trieste, Pho 69, Good Karma Cafe and Camera 12. ANALYSIS The proposed Lease amendment with Two Fish presents an opportunity to keep an active art tenant in the SoFA district for six more years (one year on the existing term plus five additional years). The rent is scheduled to increase from $500 to $2,000 per month on October 25, To keep Two Fish viable as a tenant and as an active promoter of arts in SoFA, the current monthly rent is proposed to remain at $500 per month through the end of the extended lease term on October 25, Summary of the proposed amendment: Monthly Base Years 7-15 $500 (10/25/11 to 10/25/17) Rent: Term: 12 years The additional five years added to the term of the Lease (Years 8 through 12) provide sufficient consideration for the revision to the rent schedule. EVALUATION AND FOLLOW-UP No special follow-up action required for the lease. PUBLIC OUTREACH/INTEREST The proposed action does not meet any of the criteria noted below for added outreach efforts. This staff report was posted on the Agency's website and made available for public review in the Agency's public lobby area. Two Fish Design Lease Amend.

43 Redevelopment Agency Board Page 4 TWO FISH DESIGN LEASE AMENDMENT June 9, 2011 Criterion 1: Requires Council action on the use of public funds equal to $1 million or greater. Criterion 2: Adoption of a new or revised policy that may have implications for public health, safety, quality of life, or financial/economic vitality of the City. Criterion 3: Consideration of proposed changes to service delivery, programs, or staffing that may have impacts to community services and have been identified by staff, the Board or Council, or a community group that requires special outreach. COORDINATION This report has been coordinated with the Agency's General Counsel. FISCAL IMPACT The reduction in rental receipts in the initial rental agreement will be offset by the increased revenue generated from the extended lease. The Agency will forgo $18,000 in rent from October 2011 to October 2012 but the overall net increase in rent revenue will be $18,000 over the term of the lease. CEOA Not a project, File No. PP10-066(f), lease of existing space for the same use. Attachment HARRY S. MAVROGENES Executive Director Two Fish Design Lease Amend.

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