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Congdon Development Company LLC - Lease with Option to PurchaseEFFECTIVE DATE: May 1, 2007. PARTIES: Congdon Development Company, LLC, a Washington limited liability company, hereinafter "Lessor," Yakima Air Torminal-McAllister Field, an agency of the City of Yakima and Yakima County, Washington, hereinafter "Lessee" when referencing the entity, and the "Airport" when referencing its public function. RECITALS: Lessor owns certain vacant real property in close proximity to Lessee, being Yakima County Assessor's Parcels 181334-44001, 181334-42002, and 181335-33001, comprising approximately 100.38 acres (the "Property"), The legal description for the Property is set forth on the attached Exhibit "A!'. For several years Lessor and Lessee have been working in good faith towards a means by which Lessee could acquire the Property for utilization in conjunction with future development of the Airport, together with protection of land users and occupants from the inherent hazards of aviation. In order to provide Lessee the opportunity to obtain Federal Aviation Administration ("FAA!') approval and funding for this acquisition, the parties have agreed to enter into a landlord/tenant relationship with regard to the Property, granting Lessee the option of purchasing the Property during the lease term if, and when, FAA approval and funding is forthcoming, all in accordance with the terms and conditions set forth hereinbelow. NOW, THEREFORE, in consideration of the mutual rights and obligations contained herein, the parties agree as follows: 1. Description of Leased Property: The real estate situate in the County of Yakima, State of Washington, consisting of approximately 100.38 acres, more or less, and more particularly described on the attached Exhibit "A" attached hereto, shall be referred to herein as the "Property." 2. Term of Lease: This Lease shall commence on May 1, 2007, and, shall terminate at midnight on May 31, 2010, provided, however, that the Lease ,shall automatically renew for successive one-year terms, subject to the parties' rights to terminate as set forth in Paragraph 11, below. 3. Rent: Lessee shall pay to Lessor, as rent for the Property the sum of $5,000.00 per year payable on, or before, June 1 of each year during the lease, beginning June 1, 2007, for the 2007-08 lease year; provided, however, that the Lease price shall increase five percent (5%) per annum on each anniversary, May 1, of the Lease, commencing May 1, 2008. 4. Taxes, Assessments Utilities: Lessee agrees to pay all real estate taxes and assessments levied against the Property, and Lessee agrees to pay for all utilities, water, and other services used on or in connection with the said Property, as well as all personal property taxes and other charges to Federal, State or Municipal governments or agencies, incurred in connection therewith, all of the same to be paid promptly when due. 5. Care and --M-a-i-n-t-e-n-a-n-e--e- cif -the --Property; Lessee has inspected the property and accepts it in its present condition. Lessee shall not commit or permit waste, damage or injury to the Property. Lessee shall keep the grounds in good order and not let or permit any rubbish to be deposited upon it. Lessee shall make no alterations, additions or improvements in or to the Property without Lessor's prior written consent. 6. Indemnity, Property/Liability" Insurance: Lessee agrees to and shall defend, indemnify, and save Lessor harmless from any and all loss, liability and expense of any kind which may be incurred by reason of any accident, damage, or injury arising from or in any way growing out of the use, misuse, or neglect of the subject Property; provided that such indemnity shall not apply to any act of Lessor or negligence on the part of Lessor. Lessee shall promptly notify Lessor of casualties or accidents occurring on the Property. Lessee shall carry general liability insurance coverage with a minimum limit of $1,000,000 per occurrence, covering the Property, and including coverage for anyone injured on the Property. All liability insurance policies shall name Lessor as an additional insured and the property insurance shall name Lessor as the sole named insured and shall be with companies and with loss-payee clauses reasonably satisfactory to Lessor. Copies of all policies or certificates evidencing such insurance shall be delivered to Lessor by Lessee prior to Lessee's occupancy of the Property. All policies shall bear endorsements requiring thirty (30) days written notice to Lessor prior to any change or cancellation, 7. Hazardous Substances- Lessor hereby represents that to the best of Lessor's actual knowledge, the Property is not now contaminated with any hazardous substance and Lessor agrees to indemnify, defend and hold Lessee harmless from any and all loss, liability, damage, expense, injury and claims of any sort whatsoever, involving directly or indirectly the presence on, or under, or the discharge or release from the Property of any hazardous substance occurring prior to the commencement date of this Lease. Lessee agrees that it shall not dispose of or otherwise allow the release of any hazardous substance in, on or under the Property, except that Lessee may during the term of this Lease bring onto and use on the Property those chemicals that are customarily used to control weeds and noxious plants, provided that all such chemicals are used and disposed of in a manner which fully complies with all applicable federal, state or local statutes, regulations, rules or ordinances now or hereafter in effect, including, but not limited to, Federal Comprehensive Environmental Response, Compensation, and Liability Act ( 'CERCLA!') and the Washington Model Toxic Control Act, RCW Chapter 70.105D. Lessee acknowledges that it will be solely responsible for all costs and expenses related to the clean-up of hazardous materials on the premises resulting from Lessee's use or possession of the Property. The phrase "to the best of Lessor's actual knowledge" shall mean the actual knowledge of Clifford Adams. 8. Encumbrances — Liens: Lessor shall timely discharge any mortgages, encumbrances or other liabilities created by Lessor affecting the Property. Lessee shall not suffer or create any hens of any kind against the Property. 9. Assignment — Subletting: Lessee shall not assign or otherwise transfer any interest in this Lease or any part of the Property, without first obtaining Lessor's written consent which shall not be unreasonably withheld or delayed. No transfer shall relieve Lessee of any liability under this Lease notwithstanding Lessor's consent to such transfer. Consent to any transfer shall not operate as a waiver of the necessity for Lessor's consent to any subsequent transfer. In the event such approval is sought, Lessor also hereby notifies Lessee that the reason the below market rental rate of $5,000 per year, for over 100 acres, has been chosen is in the interest of allowing Lessee to pursue necessary approvals and funding sources during the lease term in order to purchase the Property, not to create an additional profit source for Lessee through assignment or subletting. Therefore, Lessor shall require, as a condition to assignment or subletting that rents in excess of $5,000 per year for any such assignment or subletting be assigned to Lessor. 10. OPtion to Purchase: Provided that Lessee is not in default hereunder, during the Lease term Lessor hereby grants to Lessee the right and option to purchase the subject Property, under the following terms and conditions: 10.1 The Purchase Price shall be Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000,00), payable all cash at closing, subject to adjustments as follows, and provided, that Lessor will agree to consider, in good faith, reasonable terms for an installment purchase offered by Lessee, at an interest rate mutually agreeable, over a term not to exceed five years. 10.1.1 The purchase price shall be increased three percent (3%) on each anniversary, May 1, of the Lease, commencing May 1, 2008. 10.1.2 The purchase price shall be increased by the "'value- added" for the extension of any sewer, water, or other utilities to the Property or for any improvements made to the Property, not made by Lessee, between the effective date of this agreement and the closing date. If the parties are unable to agree upon the "value- added" for any such utilities or improvements, the increase in the purchase price shall be determined by appraisal. Lessee shall first submit its figure for value-added to Lessor from its appraiser, and if Lessor disagrees it shall obtain its own appraisal, the two appraisers chosen by the parties shall select a third appraiser who shall also calculate the value-added, and the party coming closest to the third appraiser shall prevail with respect to its determination of value-added, and the non-prevailing party shall also be responsible for payment of the third appraisers fee. In the event Lessee gives notice of its intent to purchase hereunder it shall, at the same time, deliver its appraisers calculation of the "value-added", and Lessor shall notify Lessee within fifteen (15) days whether it accepts Lessee's figure. 10.2 As a condition for the exercise of Lessee's option to purchase hereunder, Lessee shall diligently pursue all reasonably necessary approvals and financing means to purchase the Property within the Lease term, or any extension thereof, shall give the attainment of all such approvals its highest priority in terms of land acquisitions, and shall submit semi-annual written progress reports to Lessor, beginning June 1, 2007, with regard to steps taken, and to be taken, to secure such approvals, and a timetable for their completion. In the event Lessee should reasonably determine during the Lease term that it will be unable to procure the necessary approvals and/or financing for acquisition of the Property, it shall provide written notice thereof to Lessor, in which event either party may treat such notice as grounds for immediate termination of the Lease 10.3 To exercise the purchase option, Lessee shall notify Lessor in writing, within forty-five (45) days of the intended closing date, whereupon Lessor shall immediately apply for a preliminary commitment for an ALTA Standard Form Owners Policy with a mutually agreeable title company. Said preliminary commitment and the title policy to be issued shall contain no exception other than those provided for in said standard form and conveyance shall be by Statutory Warranty Deed. Closing shall occur at the mutually agreed upon title company, closing costs to be apportioned between the parties as is the custom in Yakima County, Washington, with Lessor paying for the standard policy of title insurance, real estate excise tax due on the transaction, and any additional costs or taxes that may be due should the property be removed from Open Space, or similar classification. 10.4 Lessee's option to purchase shall not preclude Lessor from negotiating purchase and sale of the subject Property with other parties. If Lessor receives a written offer to purchase during the Lease term, or any extension thereof, and before receipt of notice of Lessee's exercise of its option rights, which Lessor wishes to accept, it shall give Lessee thirty (30) days written notice of Lessors intent to accept, within which time Lessee may give notice of its exercise of its option to purchase under the terms set forth hereinabove, If Lessee fails to give such notice, or closing thereon does not occur within forty-five (45) days thereof, through no fault of Lessor, then Lessor shall be permitted to complete closing on the third party offer, provided such closing occurs within ninety (90) days of Lessors notification to Lessee of its intent to accept such offer. Upon any such third party sale, this Lease shall terminate, and Lessee and any persons deriving rights or interests in the Property through Lessee shall be required to immediately vacate and surrender possession of the Property to Lessor, Notwithstanding the foregoing, this subsection 10.4 shall not be exercisable by Lessor prior to October 1, 2008, in order to provide Lessee with reasonable time to seek financing to purchase the Property. 11. Default - Cancellation Right, Lessor may cancel this lease for any breach of the terms hereof by giving Lessee thirty (30) days within which to cure the breach or default following written notice of the breach or default claimed by Lessor. The, parties may also cancel the lease by providing written notice to the other party of intent to terminate the Lease at the end of the then current term, or extension thereof, with such notice to be delivered not less than ninety (90) days prior to the end of the then current term, provided, however, that should Lessee reasonably determine during the Lease term that it will be unable to procure necessary approvals and/or financing for acquisition of the Property, providing written notice thereof to Lessor, pursuant to Subparagraph 10.2 above, then either party may treat such notice as grounds for immediate termination of the Lease. Upon cancellation, Lessee and any persons deriving rights or interests in the Property through Lessee shall immediately vacate and surrender possession of the Property to Lessor. 12. Inspection: Lessor and its authorized representatives shall have the right to enter upon the Property at all reasonable times for purposes of inspection. 13. Notices: All notices required under this Lease to be given to either party shall be effective if mailed by certified mail, return receipt requested, postage pro-paid, and properly addressed to the parties at the address shown below their signature lines hereto or as the szune may be changed from time to time upon written notice to the other party. Such notices shall be effective as of the date of mailing, as evidenced by the official United States Post Office date and time stamp on the said return receipt. Congdon Development Company, LLC 1155 Camino Vallecito Lafayette, CA 94563 To Lessee: Yakima Air Terminal McAllister Field 2400 W. Washington Ave. Attn: Clifford Adams With a copy to: Michael F. Shinn 1433 Lakeside Ct., Suite 100 Yakima, WA 98902 * I r n w_lq a a "EMO #14 irty MY RA i 14. No Waiver: No waiver of any term, condition, default, or breach of this Lease shall be effective unless in writing and executed by the party making such waiver; and no such waiver shall operate as a waiver of such term, condition, or default on any other occasion, or any other term, condition, or default of this Agreement. No delay or failure to enforce any provision of this Lease shall operate as a waiver of such provision or any other -provision herein or in any document related hereto. 15. Bindina Effect: This Lease and the terms, covenants., benefits, and duties set forth herein shall inure to the benefit of and be binding upon the parties, their permitted heirs, successors, and assigns. 16. Attorney Fees and Venue: In the event any legal action is instituted through an attorney by either party to enforce the terms of this Lease, the prevailing party therein, in addition to the costs allowed by law, shall recover a reasonable sum as attorneys' fees, all of which the other party agrees to pay. The venue of any such court action shall lie in Yakima County Superior Court, Yakima County, Washington, Each of the parties will pay their own legal and other fees and expenses incurred incident to the review and preparation of this Lease and for any sale that may ultimately occur hereunder, 17. No Brokerage Fees: Each of the parties represents to the other that there are no brokerage or finder's fees payable in connection with this transaction. EXECUTED this 2 4 ,5� day of 2007. LESSEE: 'T -1 William Wheeler, Board Chairman WMIMSM STATE OF WASHINGTON County of Yakima I certify that I know or have satisfactory evidence that William Wheeler, is the person described in and who is the Chairman of YAKIMA AIR TERMINAL- McA:LLIST-ER FIELD, the agency that executed the foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said agency, for the uses and purposes therein mentioned, and on oath stated that he is authorized to execute the same instrument on behalf of the corporation. PS Given under my hand and official seal this C day of-S(e VQ 2007. NOT I C in and for the State 30 of Wash gton, residing at)L�jv 7 t-,A- My COMUL 4:0 My commission Expires: 1111101 STATE OF WASHINGTON County of Yakima I certify that I know or have satisfactory evidence that CLIFFORD S. ADAMS, is the person who appeared before me and is the Chairman and CEO of CONGDON ORCHARDS, INC., Manager of CONGDON DEVELOPMENT COMPANY, LLC, the limited liability company that executed the foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said limited liability company, for the uses and purposes therein mentioned, and on oath stated that he is authorized to execute the same instrument on behalf of said corporation and said corporation is authorized to execute the same on behalf of the limited liability company. Given under my hand and official seal this/j�R/ Ay OJ007., [STATE OF WASjjjN(;TO* 'kS H 0 MICHAEL F. SHINN NOTARY PUBLIC 13L C MMISSIO, N E FE OMMISSION EXPIRES R FEBRUARY 12.�2009 INS" §,A M*' 11',01W, # IWO . Z Exhibit "A" (181334-44001) The Southeast 1/4 of the Southeast % of Section 34, Township 13 North, Range 18 E.W.M., records of Yakima County, Washington, (181334-42002) The Northwest 1/ of the Southeast I/, of Section 34, Township 13, Range 18 E.W.M., records of Yakima County, Washington; EXCEPT the East 20 feet deeded to Yakima County by deed recorded in Volume 368 of Deeds, under Auditoes File Number 955489; AND EXCEPT beginning at the Northwest corner of the Northwest 1/4 of the Southeast -1/4 of Section 34, Township 13 North, Range 18 E.W.M.; thence easterly along the North line of said subdivision 1,320 feet more or less to the Northeast corner of the Northwest 1/4 of the Southeast 1/4 of Section 34, Township 13 North, Range 18 E.W.M.; thence southerly along the easterly line of said subdivision, 511,03 feet; thence North 70'03' West 1,402.4 feet, more or less, to the westerly line of said subdivision, thence northerly along the westerly line of said subdivision 37.1 feet, more or less, to the Point of Beginning. (181335-33001) Beginning at the Northeast corner of the West Y2 of the Southeast V4 of the Southwest 1/4 of Section 35, Township 13 North, Range 18 E.W.M., records of Yakima County, Washington; thence South 87 feet; thence southwesterly to a point 95 feet North of the Southwest corner of the section; thence North to the Northwest corner of the Southwest 1/4of the Southwest %; thence East to the Beginning; EXCEPT beginning 300 feet West of the Northeast corner of the Southwest 1/4 of the Southwest Y4; thence South 70 °03' East 740 feet, more or less, to the northwesterly line of the Municipal Airport; thence northeasterly along said property line to a point 87 feet South of said subdivision; thence North 87 feet; thence West to the Point of Beginning. MEMORANDUM OF UNDERSTANDING CONGDON DEVELOPMENT CO., LLCIYAKIMA AIR TERMINAL THIS MEMORANDUM OF UNDERSTANDING ("MOU") is by and between CONGDON DEVELOPMENT CO., LLC, a Washington limited liability company ("Congdon") and YAKIMA AIR TERMINAL-MCALLISTER FIELD, an agency of the City of Yakima and County of Yakima, Washington ("Airport"), and is with respect to three parcels of vacant land in close proximity to Airport, being Yakima County Assessor's Parcels 181334-44001, 181334- 42002, and 181335-33001, comprising approximately 100.38 acres (the "Property"). Congdon and Airport have, for some time, been working in good faith towards a means by which Airport can acquire the Property for utilization in conjunction with future development of the Airport, together with protection of land users and occupants from inherent hazards of aviation. To that end, Congdon and Airport have undertaken to provide the mechanism by which Airport can ultimately acquire ownership of the Property. Airport has no funds with which to acquire the Property presently, would need to not only acquire approval of Federal Aviation Administration ("FAA") for purchase, but also funding from FAA and/or other sources not yet ascertainable. Congdon is willing to await such approval and funding for a reasonable amount of time, therefore the parties hereto wish to set forth their mutual understanding of the means by which Airport might ultimately acquire ownership of the Property, permitting Congdon to look elsewhere for its development needs. The terms and conditions herein do not purport to be all-inclusive and do not constitute a commitment by either party to sell or purchase the transaction, rather such a commitment shall be conditioned upon certain matters set forth herein, including the following: I Approval of Airport's Board of Directors, Yakima City Council, Yakima County Commissioners, FAA. 2. Approval of Congdon's Members. 3. Obtaining financing sufficient to permit Airport to pay the purchase price, 4. Satisfactory completion of a full and comprehensive due diligence by Airport. Further, this MOLT shall not be binding and shall create no obligation on either party to negotiate towards, conclude or enter into any agreement or definitive documentation. Accordingly, any party may withdraw or unilaterally terminate its involvement at any time, until the definitive documentation has been signed, and no person shall have any liability with respect to such withdrawal or termination for any or no reason. The proposed transaction contemplated by this MOU is further described as follows: Airport shall lease the Property from Congdon on what is considered a "triple- net" basis, by means of which tenant shall be responsible for all costs of upkeep, maintenance, insurance, utilities, water, real property taxes and assessments and so forth. 2, Lease price shall be $2,500.00 per year, payable in annual installments not later than January 21 " falling during each year of the lease term; provided, that said lease price shall increase by two percent (2.0%) per annum on each anniversary of said lease. 3. The lease term shall begin , 2007, and shall expire three (3) years thereafter, provided, however, that the lease shall automatically renew for successive one-year terms unless either party provides written notice to the other party of intent to terminate at the end of the then current lease year, with such written notice to be delivered not less than six months prior to the end of the then current term. 4. Airport shall be permitted to sublet any or all of the Property during the lease terms upon terms and conditions as it shall deem appropriate, without firtlier consent of Congdon, and shall be entitled to retain all sub-rents thereby generated. 5. Airport shall diligently pursue all reasonably necessary approvals and financing means to purchase the Property within the Lease Term or any then current extension thereof. 6. Purchase price of the Property shall be $2,600,000,00, payable all cash at closing; provided, however, that Congdon shall consider reasonable terms for an installment purchase upon terms and conditions, and at an interest rate, to be mutually determined, In such event, conveyance shall be by statutory warranty deed, with security in the form of a first mortgage on the Property, or as the parties shall agree. Closing shall occur in a Yakima, Washington title insurance company, which company shall provide a title insurance policy in standard form, at Congdon's expense, providing insurable title in commercially-reasonable fashion, with costs of closing to be apportioned between buyer and seller as is currently the custom for such properties in Yakima County, Washington, Seller shall be responsible for any costs and additional taxes involved in removing the property from Open Space or similar classification, if that be required at closing. T The Property shall, at closing, be free and clear of all encumbrances and liabilities. During the period of the contemplated lease, Congdon shall timely discharge any mortgages, encumbrances or other liabilities thereon, and indemnify Airport from and against all such matters, and provide quiet title during the lease term. 8. The lease shall provide such environmental assurances and cross-indemnifications as the parties shall reasonably agree, understanding that the Airport shall agree to �v2 abide by all applicable environmental laws, rules and regulations during the lease term. 9. In the event Airport should reasonably determine during the lease term that it will be unable to procure necessary approvals and/or financing for acquisition of the Property, it shall provide written notice thereof to Congdon, in which event either party may elect to terminate the lease at the next succeeding anniversary date thereof. 10. Each of the parties will pay their own legal and other fees and expenses incurred herein, whether or not the lease and/or sale ultimately occurs. 11. Each of the parties represents to the other that there are no brokerages or finder's fees payable in connection with the proposed transaction. 12. This MOU sets forth the entire understanding of the parties regarding the proposed transactions and supersedes all prior agreements, understandings, or representations between the parties, if any, not expressly set forth herein. The terms and provisions of this MOU shall not be amended, waived, or modified except in writing signed by the parties. CONGDON DEVELOPMENT CO., LLC in Clifford Adams, President/Manager Date: March 2007 By: Buck Taylor, M r 3 1-1/1 Date. March 4, 2007