Morro Bay City Council
March 26, 2024

CITY OF MORRO BAY
City Council Regular Meeting Agenda

Tuesday, March 26, 2024, 5:30 p.m.

Veterans Memorial Hall, 209 Surf St., Morro Bay, CA
Public Participation
Public participation is offered in the following ways:
• Community members may attend the meeting in person at the Morro Bay Veterans Hall.

Alternatively, members of the public may watch the meeting and speak during general Public Comment or on a specific agenda item by logging into the Zoom webinar using the information provided below. Please use the "raise hand" feature to indicate your desire to provide public comment.
•
Zoom webinar link:
https://us02web.zoom.us/j/82722747698?pwd=aWZpTzcwTHlRTk9xaTlmWVNWRWFU QT09
•
• Password: 135692
Or Telephone Attendee: 1 (408) 638-0968 or 1 (669) 900-6833 or 1 (346) 248-7799; Webinar ID: 827 2274 7698; Password: 135692: Press *9 to raise hand for public comment.
•
• Meetings are also broadcast on cable Channel 20 and streamed on the City's website.

Community Members are encouraged to submit agenda correspondence via email to the City Council at [email protected] prior to the meeting. Agenda correspondence received by 10:00 a.m. on the meeting day will be posted on the City website. •
Pages

1. ESTABLISH QUORUM AND CALL TO ORDER

2. MOMENT OF SILENCE

3. PLEDGE OF ALLEGIANCE

4. REPORTS

4.a Closed Session Report

4.b Mayor and Councilmembers' Reports, Announcements and Presentations

4.c City Manager Reports, Announcements and Presentations

5. RECOGNITION AND PRESENTATIONS

5.a Month of the Child and Child Abuse Prevention Month Proclamation

5.b San Luis Obispo Council of Governments (SLOCOG) Presentation on 5 Countywide Self-Help Transportation Measure

6. PUBLIC COMMENT
Members of the audience wishing to address the Council on City business matters not on the agenda may do so at this time. For those desiring to speak on items on the agenda, but unable to stay for the item, may also address the Council at this time.

Public comment is an opportunity for members of the public to provide input to the governing body. To increase the effectiveness of the Public Comment Period, the City respectfully requests the following guidelines and expectations be followed:
•
Those desiring to speak are asked to complete a speaker slip, which are located at the entrance, and submit it to the City Clerk. However, speaker slips are not required to provide public comment. •
When recognized by the Mayor, please come forward to the podium to speak. Though not required, it is helpful if you state your name, city of residence and whether you represent a business or group. Unless otherwise established by the Mayor, comments are to be limited to three minutes.
•
All remarks should be addressed to Council, as a whole, and not to any individual member thereof.
•
The Council respectfully requests that you refrain from making slanderous, profane or personal remarks against any elected official, commission and/or staff.
•
Please refrain from public displays or outbursts such as unsolicited applause, comments or cheering.
•
Any disruptive activities that substantially interfere with the ability of the City Council to carry out its meeting will not be permitted and offenders will be requested to leave the meeting.
•
Your participation in City Council meetings is welcome and your courtesy will be appreciated.
•
The Council in turn agrees to abide by its best practices of civility and civil discourse according to Resolution No. 07-19.
•

7. CONSENT AGENDA
Unless an item is pulled for separate action by the City Council, the following actions are approved without discussion. The public will also be provided an opportunity to comment on consent agenda items.

Recommended Action
Approve Consent Agenda Items 7.a through 7.f as submitted.

7.a Approval of Minutes
(City Clerk)
Recommended Action
Approve as submitted.

1. March 12, 2024 - Special Closed Session Meeting 48

2. March 12, 2024 - Regular City Council Meeting 50

7.b Authorization to Apply for and Accept the Grant, if awarded, from the Department of Homeland Security and Federal Emergency
Management Agency for funding under the Staffing for Adequate Fire and Emergency Response (SAFER) Grant
57 (Fire Department)
Recommended Action
Authorize the Fire Department to apply for and accept the grant, if awarded, of funding under the Staffing for Adequate Fire and Emergency Response (SAFER) Grant from the Department of Homeland Security and Federal Emergency Management Agency for the hiring of limited term Firefighters. This application would be for two (2) Firefighter positions to increase daily staffing to five (5) Firefighters.

7.c Approval of Assignment and Assumption Agreement, transferring Lease Site 129W-131W located at 1231 Embarcadero from Morro Bay Fish Company to Morro Bay Seafood Company and Approval of Settlement and Release Agreement with Morro Bay Fish Company
60 (Harbor Department)
Recommended Action
Approve the Assignment and Assumption Agreement transferring Lease Site 129W-131W located at 1231 Embarcadero from Morro Bay Fish Company to Morro Bay Seafood Company for the remainder lease term which ends on June 30, 2025, and authorize the Mayor to execute a Settlement Agreement and Release of all claims with Morro Bay Fish Company.

7.d Approval of Lease Agreements between the City of Morro Bay and Orietta M. DeGarimore, as Trustee of Michael G. and Orietta M.

DeGarimore Revocable Trust for Lease Sites 105.1W/105.2 and Lease Sites 102/102W
128
(Harbor Department)
Recommended Action
Approve the Lease Agreement by and between the City of Morro Bay and Orietta M. DeGarimore, as Trustee of Michael G. and Orietta M.

DeGarimore Revocable Trust for Lease Sites 105.1W/105.2 and Lease Sites 102/102W.

7.e Proclamation Declaring April 2024 as Month of the Child and Child Abuse Prevention Month
213
(Administration)
Recommended Action
Approve as submitted.

7.f Proclamation Declaring the month of April as Fair Housing Month 214 (Administration)
Recommended Action
Approve as submitted.

8. PUBLIC HEARING ITEMS
None

9. BUSINESS ITEMS
None

10. COUNCIL DECLARATION OF FUTURE AGENDA ITEMS

11. ADJOURNMENT
The next Regular Meeting will be held on April 9, 2024.

This agenda is subject to amendment up to 72 hours prior to the date and time set for the meeting. Please refer to the agenda posted at City Hall, 595 Harbor Street, Morro Bay, CA 93442 for any revisions or call the Clerk's office at (805) 772-6205 for further information.

Materials related to an item on this agenda submitted to the City Council after distribution of the agenda packet are available for public inspection upon request by calling the City Clerk's office at (805) 772-6205.

In compliance with the Americans Disability Act, if you need special assistance to participate in a City meeting, please contact the Clerk's office 24 hours prior to the meeting to insure reasonable arrangements can be made to provide accessibility to the meeting.

Prepared By: _JB_ Dept Review: _ __
City Manager Review ____ City Attorney Review ____
Staff Report
TO: Honorable Mayor and City Council DATE: March 18, 2024 FROM: Yvonne Kimball, City Manager
SUBJECT: San Luis Obispo Council of Governments (SLOCOG) Presentation on Countywide Self-Help Transportation Measure

RECOMMENDED ACTION
Receive a presentation by SLOCOG staff regarding a potential Countywide Self-Help Sales Tax Measure, Draft Transportation Investment Plan, and provide comments if desired.

BACKGROUND
This item consists of a presentation by SLOCOG staff to the City Council regarding a potential Countywide Self-Help Sales Tax Measure and related Draft Transportation Investment Plan. This is not a City sponsored item and if the SLOCOG Board provides direction to its staff to continue advancing this measure toward the November ballot at its May 1, 2024 meeting, this item will return to the Morro Bay City Council in May (currently scheduled for May 14, 2024). At that hearing, SLOCOG staff would present proposed ballot language, a refined/Final Transportation Investment Plan, more specific details on how the potential revenues would be administered to local agencies, and more information on the taxpayer oversight committee and other proposed safeguards.

Ultimately, the Council will also be asked to consider a proposed resolution of support for the transportation sales tax measure as part of this follow-up hearing.

ATTACHMENTS

1. Draft Local Road Repair & Transportation Safety Investment Plan

2. February 7, 2024 SLOCOG Board Staff Report on Regional Self-Help Measure

3. PowerPoint Presentation
AGENDA NO: 5.b
MEETING DATE: March 26, 2024

LOCAL ROADS FIRST

SLO COUNTY & CITIES
Local Road Repair & Transportation Safety Investment Plan Summary Draft 3-5-24

LOCAL ROAD REPAIR
& TRANSPORTATION SAFETY

INVESTMENT PLAN SUMMARY
$700 M
Funded by a proposed half-cent sales tax, requiring twothirds voter-approval. Twenty-five counties throughout California have passed similar measures, choosing
to fund transportation projects and infrastructure
improvements within their local communities. These
measures ensure that all funds raised stay local and
cannot be stolen by Sacramento. Enacting such a
measure would also return a fair-share of State and
Federal funds to San Luis Obispo County by qualifying
the region for an additional $900 million in competitive grants.
20 YEARS
If placed on the ballot and approved by voters, the
proposed measure would ensure a dedicated, reliable
source of funding to address road repair and critical
safety needs for the next 20 years.

Total funding distributed by subregion
based on population, over 20 years
$100M, 14%
North Coast
Morro Bay,
Cambria,
Cayucos,
Los Osos
$154M, 22%
Central County
San Luis Obispo,
Avila Beach
$246M, 35%
North County
Atascadero, Paso Robles,
San Miguel, Creston, Santa
Margarita, Shandon,
Templeton
$200M, 29%
South County
Arroyo Grande, Grover
Beach, Pismo Beach,
Nipomo, Oceano 1
includes 1% maximum administration fee,
unescalated for inflation
1 ATTACHMENT 1

LOCAL ROADS FIRST

SLO COUNTY & CITIES
Local Road Repair & Transportation Safety Investment Plan Summary Draft 3-5-24
$162 M
66%
$84 M
34%

NORTH COUNTY PROJECTS
$246 M
Local Projects - 66% $162 M
Atascadero $49 M
• Road Repairs to El Camino Real, Traffic Way, Santa Lucia Road, & San Gabriel Road $30 M • Community Road Safety & Congestion Improvements
° US 101 corridor congestion/safety improvements to overcrossings, intersections, interchanges, signalization, ramps, parallel routes (San Anselmo Avenue and Santa Rosa Road) ° Local Road Safety Improvements, bridges, guardrails, road widening, pavement edge improvements
° Safe Routes to School and trail & walkway connectivity ° Public Transit for Seniors, Persons with Disabilities, and Veterans $19 M
Paso Robles $52 M
• Road Repairs to Union Road, Paso Robles St., Creston Rd, Niblick Rd, Spring St, Commerce $30 M • Community Road Safety & Congestion Improvements
° US 101 corridor congestion/safety improvements to overcrossings, intersections, interchanges, signalization, ramps, parallel routes
- Highway 46E (US 101 to Jardine Rd.) safety improvements / Union Overcrossing - Salinas River Trail & Eastside “Grand Loop” bikeway
- US 101 / Highway 46W interchange improvements
° Safe Routes to School
° Public Transit for Seniors, Persons with Disabilities, and Veterans $22 M
Local Projects
Regional Projects Atascadero
Paso Robles
San Miguel
Creston
Santa Margarita
Shandon
Templeton
Other/Unincorp.

Regional Road Safety
Mobility for All
$80 M
$70 M
$60 M
$50 M
$40 M
$30 M
$20 M
$10 M

LOCAL ROADS FIRST

SLO COUNTY & CITIES
Local Road Repair & Transportation Safety Investment Plan Summary Draft 3-5-24

NORTH COUNTY PROJECTS
San Miguel
• Road Repairs and Safety Improvements to Mission St. Sidewalks $9 M
Creston
• Safety improvements to Highway 41/Creston/La Panza intersection $2 M
Santa Margarita/Garden Farms
• Downtown Safety Improvements to Highway 58
• Road Repairs and Safety Improvements
$6 M
Shandon
• Centre Street safety and revitalization
• Road Repairs, Paving, and Safety Improvements
$5 M
Templeton
• Road Repairs and Safety Improvements (Vineyard Dr. and others) • Local Interchange improvements
$21 M
Other/Unincorporated $18 M
• Road Repairs and Safety Improvements for all North County Unincorporated areas $6 M • Community Road Safety & Congestion Improvements
° US 101 corridor congestion/safety improvements to overcrossings, intersections, interchanges, signalization, ramps, parallel routes
° Safe Routes to School
° Public Transit for Seniors, Persons with Disabilities, and Veterans $12 M
Regional Projects - 34% $84 M
Regional Road Safety Improvements
• Highway 46E (US 101 to Jardine Rd.) safety improvements, including Union Road intersection $30 M • North County US 101 Regional Safety Corridor Improvements ° At US 101 Northbound off-ramp to Highway 46E
° Between Cuesta Grade and San Miguel, to address safety, mobility, and congestion issues (i.e. lanes, interchanges, crossings, ramps, bus, vanpool, parallel routes) $37 M
Mobility for All $17 M
• Public Transit for Seniors, Persons with Disabilities, and Veterans $7 M • Active Transportation (Bicycle & Pedestrian)
° Templeton, Vineyard Drive improvements
° Salinas River/N. Anza Trail corridor
° Paso Robles River Trail/Grand Loop trail
° Atascadero Westside corridor
$10M
*Dollar amounts shown in millions (M) reflect estimates from a half-cent sales tax generating $35M/year TOTAL $246 M for 20 years, unescaleted for inflation. Actual dollar amounts may fluctuate based on local retail sales and inflation, but distributions are guaranteed as a relative percentage of total funds collected.

LOCAL ROADS FIRST

SLO COUNTY & CITIES
Local Road Repair & Transportation Safety Investment Plan Summary Draft 3-5-24
$132 M
66%
$68 M
34%

SOUTH COUNTY PROJECTS
$200 M
Local Projects - 66% $132 M
Arroyo Grande $33 M
• Road Repairs to Grand, N. Oak Park, E. Branch, W. Branch, James Way, El Camino Real, Traffic Way $29 M • Community Road Safety & Congestion Improvements
° US 101 corridor congestion/safety improvements to over/undercrossings, intersections, interchanges, signalization, ramps, parallel routes in the Five Cities area ° Safe Routes to School
° Public Transit for Seniors, Persons with Disabilities, and Veterans $4 M
Grover Beach $24 M
• Road Repairs on Grand, Oak Park, 4th, El Camino Real, Farroll, The Pike, and other local streets $22 M • Community Road Safety & Congestion Improvements
° Intersection improvements
° Safe Routes to School
° Public Transit for Seniors, Persons with Disabilities, and Veterans $2 M
Pismo Beach $16 M
• Road Repairs to Bello, Cypress, 4th, Five Cities, Price Canyon Rd., Hines $8 M Local Projects
Regional Projects Arroyo Grande
Grover Beach
Pismo Beach
Nipomo
Oceano
Other/Unincorp.

Regional Road Safety
Mobility for All
$50 M
$40 M
$30 M
$20 M
$10 M

LOCAL ROADS FIRST

SLO COUNTY & CITIES
Local Road Repair & Transportation Safety Investment Plan Summary Draft 3-5-24

SOUTH COUNTY PROJECTS
• Community Road Safety & Congestion Improvements
° US 101 corridor congestion/safety improvements to over/undercrossings, intersections, interchanges, signalization, ramps, parallel routes in the Five Cities area ° Intersection improvements, Promenade maintenance/extensions ° Safe Routes to School
° Public Transit for Seniors, Persons with Disabilities, and Veterans $8 M
Nipomo
• Road Repairs and Safety Improvements to roads in Nipomo, Black Lake, Woodlands, Callender; Tefft, Orchard, Thompson, and Pomeroy
• Local Interchange improvements
$24 M
Oceano
• Safe Routes to School, Beach Access
• Road Repairs, Sidewalks, and Safety Improvements to 4th, 13th, 17th, 22nd, Elm, Pier $11 M
Other/Unincorporated $23 M
• Road Repairs to Halcyon, Price Canyon, Orcutt, Lopez; and Safety Improvements for all South County Unincorporated areas
$12 M
• Community Road Safety & Congestion Improvements
° US 101 corridor congestion/safety improvements to overcrossings, intersections, interchanges, signalization, ramps, parallel routes
° Safe Routes to School
° Public Transit for Seniors, Persons with Disabilities, and Veterans $11 M
Regional Projects - 34% $68 M
Regional Road Safety Improvements $50 M
• South County US 101 Regional Safety Corridor Improvements, between Shell Beach and the Santa Maria River, to address safety, mobility, and congestion issues based on latest adopted plan (i.e. lanes, interchanges, crossings, ramps, bus, vanpool, parallel routes, etc.) Mobility for All $17 M
• Public Transit for Seniors, Persons with Disabilities, and Veterans $8 M • Active Transportation (Bicycle & Pedestrian)
° Bob Jones, Coastal, and South Anza Trails
° Promenades & Boardwalks
$9M
TOTAL $200 M
*Dollar amounts shown in millions (M) reflect estimates from a half-cent sales tax generating $35M/year for 20 years, unescaleted for inflation. Actual dollar amounts may fluctuate based on local retail sales and inflation, but distributions are guaranteed as a relative percentage of total funds collected.

LOCAL ROADS FIRST

SLO COUNTY & CITIES
Local Road Repair & Transportation Safety Investment Plan Summary Draft 3-5-24
$66 M
66%
$34 M
34%

NORTH COAST PROJECTS
$100 M
Local Projects - 66% $66 M
Morro Bay $21 M
• Road repairs, safety, and congestion improvements
° Pavement management program programs (i.e. Road Repair) ° Local Roadway Safety Plan implementation projects
° Embarcadero congestion improvements
° South Bay Blvd. climate adaptation roadway improvements ° Pedestrian Safety
° Bridges
° Public docks
° Tidelands park boat ramp
° Roadway striping
° Safe Routes to School
° Public Transit for Seniors, Persons with Disabilities, and Veterans Cambria $10 M
• Road Repairs, Safety and Congestion Improvements to Burton, Ardath, Main, Windsor, Highway 1 Cayucos $4 M
• Road Repairs, Safety Improvements, and Downtown Improvements Local Projects
Regional Projects Morro Bay
Cambria
Cayucos
Los Osos
Other/Unincorp.

Regional Road Safety
Mobility for All
$25 M
$20 M
$15 M
$10 M
$5 M

LOCAL ROADS FIRST

SLO COUNTY & CITIES
Local Road Repair & Transportation Safety Investment Plan Summary Draft 3-5-24

NORTH COAST PROJECTS
Los Osos
• Road Repairs, Safety Improvements, and Downtown Improvements identified in the Community Plan, including 2nd Street revitalization and LOVR corridor multiuse path $20 M
Other/Unincorporated $11 M
• Road Repairs and Safety Improvements for all North Coast Unincorporated areas $6 M • Community Road Safety & Congestion Improvements
° Safe Routes to School
° Public Transit for Seniors, Persons with Disabilities, and Veterans $5 M
Regional Projects - 34% $34 M
Regional Road Safety Improvements $17 M
• Highway 1 Safety improvements (i.e., lanes, interchanges, crossings, ramps, bus, vanpool, parallel routes, etc.)
• S. Bay Blvd. multimodal, capacity, and climate resiliency improvements Mobility for All $17 M
• Public Transit for Seniors, Persons with Disabilities, and Veterans $8 M • Active Transportation (Bicycle & Pedestrian)
° Coastal Trail
° Chorro Valley Trail
° Boardwalks
° Pedestrian/bicycle safety and operational improvements on Los Osos Valley Road between 9th and Montana de Oro State Park
$9 M
*Dollar amounts shown in millions (M) reflect estimates from a half-cent sales tax generating $35M/year TOTAL $100 M for 20 years, unescaleted for inflation. Actual dollar amounts may fluctuate based on local retail sales and inflation, but distributions are guaranteed as a relative percentage of total funds collected.

LOCAL ROADS FIRST

SLO COUNTY & CITIES
Local Road Repair & Transportation Safety Investment Plan Summary Draft 3-5-24
$102 M
66%
$52 M
34%

CENTRAL COUNTY PROJECTS
$154 M
Local Projects - 66% $102 M
San Luis Obispo $77 M
• Road Repairs to Los Osos Valley Road, Broad Street, Tank Farm $37 M • Community Road Safety & Congestion Improvements
° East/West major roadway safety and mobility improvements (Tank Farm and South Street) ° Broad St. Safety Improvements (South St. to Buckley)
° Foothill Safety Improvements (Patricia to California) ° Intersection Safety Improvements (Foothill & Santa Rosa, California & Taft) ° Prado Road Improvements
° Local safety and intersection improvements
° Safe Routes to School (Laguna, CL Smith, Sinsheimer, and SLO High crossings) ° Public Transit for Seniors, Persons with Disabilities, and Veterans $40 M
Avila Beach $3 M
• Road Repairs and Safety Improvements
Local Projects
Regional Projects San Luis Obispo
Avila Beach
Other/
Unincorp.

Regional Road
Safety
Mobility
for All
$80 M
$70 M
$60 M
$50 M
$40 M
$30 M
$20 M
$10 M

LOCAL ROADS FIRST

SLO COUNTY & CITIES
Local Road Repair & Transportation Safety Investment Plan Summary Draft 3-5-24

CENTRAL COUNTY PROJECTS
Other/Unincorporated $22 M
• Road Repairs and Safety Improvements for all Central County Unincorporated area (Orcutt, Foothill, Buckley)
$10 M
• Community Road Safety & Congestion Improvements
° Los Osos Valley Road (Laguna Middle School to Foothill) ° Highway 227
° Intersection improvements at Los Osos Valley Road & Foothill ° Safe Routes to School (San Luis Bay Drive and Los Ranchos) ° Public Transit for Seniors, Persons with Disabilities, and Veterans $12 M
Regional Projects - 34% $52 M
Regional Road Safety Improvements $30 M
• US 101 Regional Safety Corridor improvements, between Cuesta Grade and Avila Beach Dr. to address safety, mobility, and congestion issues, based on the latest adopted plan (i.e. lanes, interchanges, crossings, ramps, bus, vanpool, parallel routes, etc.) • Highway 227 corridor safety and congestion improvements (between Tank Farm and Price Cyn) Mobility for All $22 M
• Public Transportation, Senior Transportation, and Disabled Services $11 M • Active Transportation (Bicycle & Pedestrian)
° Coastal Trail
° Chorro Valley Trail
° Bob Jones Trail
° Edna/Anza Trail
$11 M
*Dollar amounts shown in millions (M) reflect estimates from a half-cent sales tax generating $35M/year TOTAL $154 M for 20 years, unescaleted for inflation. Actual dollar amounts may fluctuate based on local retail sales and inflation, but distributions are guaranteed as a relative percentage of total funds collected.

LOCAL ROADS FIRST

SLO COUNTY & CITIES
Local Road Repair & Transportation Safety Investment Plan Summary Draft 3-5-24

SAFEGUARDS IN THE PLAN

SAFEGUARDS
The Local Road Repair
& Transportation Safety
Investment Plan includes
strong taxpayer safeguards
to ensure that the projects
and programs approved by
the voters are funded and
delivered as promised.

Included in the plan:
• 20-year sunset date
• 1% administrative expense cap
• Independent Taxpayer Oversight Committee
• Annual independent audit and annual reporting
• Strategic implementation plan required to be
developed with local input groups
• No revenue generated shall be used to replace fair
share contribution from new development
• Requirements that funding be used to augment, and
not replace, local funds
All funding stays local and cannot be
stolen by Sacramento.

LOCAL ROADS FIRST

SLO COUNTY & CITIES
Local Road Repair & Transportation Safety Investment Plan Summary Draft 3-5-24

SAFETY & RELIABILITY
Safety and reliability is critical to our transportation system’s function. The Plan aims to reduce fatalities and serious injuries on our highways, streets, and roads, while improving system reliability by focusing on operational efficiency and resilency to environmental changes and natural disasters.

IMPROVED MOBILITY
Quality of life depends on our ability to access jobs, goods, and services.

The Plan will improve mobility by ensuring transportation to and from places such as work, school, shopping centers and medical appointments remains accessible & affordable for everyone living and working in the San Luis Obispo County region.

TRAFFIC CONGESTION RELIEF
Traffic congestion increases travel times and has a harmful effect on air quality. The Plan will improve travel times and preserve our air quality by investing in transportation solutions that reduce traffic congestion across our region.

GRANT LEVERAGE
Our region competes for grant funding with other California regions. Many grants require applicants to provide local match money to win back State and Federal funds through these grant programs. The Plan leverages funding collected from this half-cent sales tax to return our fair-share of State and Federal funds to the region. By securing funds locally through The Plan, San Luis Obispo County and its cities qualify for an extra $900 million in competitive grants.

ECONOMIC VITALITY
Our region depends on goods movement, travel and tourism to support our local economies. The Plan ensures our communities will continue to prosper by securing funds for the transportation infrastructure that is needed to balance economic growth and development.

BENEFITS OF THE PLAN

LOCAL ROADS FIRST

SLO COUNTY & CITIES
Local Road Repair & Transportation Safety Investment Plan Summary Draft 3-5-24

ABOUT THE PLAN
Ensures local funding
collected stays in local
communities
Guarantees funding
cannot be re-allocated to
other projects and must
be spent on improving
transportation
Creates jobs that will
support the maintenance
and improvement of
transportation infrastructure
in San Luis Obispo County, its
cities and communities
Brings more Federal and
State tax dollars back to
San Luis Obispo County
through competitive grant
programs
The San Luis Obispo County region will need $5.4 billion in transportation infrastructure over the next 23 years, but only expects $3.1 billion in available funds. With a $2.3 billion projected deficit, basic transportation projects such as fixing potholes, improving road safety, and reducing traffic congestion cannot be implemented.

The Local Road Repair & Transportation Safety Investment Plan would add a half-percent sales tax to every dollar spent within the region, generating $700 million over 20 years (unescalated for inflation). Funding would be allocated to each subregion based on its population and be required to stay local, with a minimum of 99% going to improve transportation infrastructure and safety. In addition, jobs would be created, public transit would be improved, and tourists would pay for the roads they use.

LEARN MORE AT LOCALROADSFIRST.COM

F-2-1

SAN LUIS OBISPO COUNCIL OF GOVERNMENTS

STAFF REPORT
MEETING DATE: FEBRUARY 7, 2024 ITEM F-2

SUBJECT
Staff Contact:

Supplemental Funding Update: Draft Investment Plan, Engagement Results, and Next Steps
James Worthley

SUMMARY
Transportation funding for future infrastructure falls well short of the need. A dedicated, local transportation sales tax is an invaluable tool that 25 California county transportation authorities use to deliver timely, cost-efficient transportation improvements to their communities. Adding San Luis Obispo County to the list of California’s self-help counties would help unlock hundreds of millions of dollars in additional transportation funding, guaranteeing, and delivering much-needed transportation improvements and repairs for our residents and to our communities.

A two-thirds vote is a challenging threshold. Successful Investment Plans contain funding distributions and investments that are grounded in polling results, focus groups, and stakeholder input. The desired result is an equitable distribution of investments with a wide-range of investments to address multiple concerns. The member agencies must come together to identify a distribution of funds and investments that is fair and understandable by the voters.

A San Luis Obispo regional, ½ cent sales tax for transportation would:

Generate $35M annually, escalating each year (or $700M over 20 years without escalations) Reclaim $0.8M to $1M, annually, from State funds
Collect a $3M to $5M one-time windfall from State funds Qualify the region to receive our fair-share of State and Federal funds

RECOMMENDATIONS
Staff: 1) Receive and Comment
2) Adopt Distribution Formulas
3) Direct Staff to Present Draft Investment Plan to Member Agencies and Seek Comments and Feedback and Proceed with Development/Refinement of Draft Materials 4) Amend Consultant Contract to Extend the Polling Contract (No increased funding) 5) Direct Staff to Return on May 1 for SLOCOG Board Determination of Next Steps.

TTAC: Support Staff Recommendation.

CTAC: Support Staff Recommendation.

SSTAC: Support Staff Recommendation.

City Managers: Reviewed/Supported the Distribution Formulas

DISCUSSION
To have a reasonable chance of passage by 2/3rd of voters, a measure must focus on the projects and improvements that voters identify as their priorities and be accompanied by robust community and leader engagement, education, and communication to raise awareness of the region’s transportation challenges and build community consensus around a proposal. Staff worked with its consultants, gained input from community groups/organizations, responded to media inquiries and interviews, and hosted a website with information and a survey to gain input from the public.

Benefits of a Dedicated Transportation Sales Tax
Transportation investments improve the region’s: safety, reliability, mobility, goods movement, and economic vitality; and a sales tax is paid by all users of the transportation system, including tourists.

Regions (self-help counties) with more local funding have a competitive advantage: they are better able to build and maintain infrastructure and services, recapture competitive funds (our paid taxes), and have more flexibility to build partnerships and prepare for new technologies and future challenges.

ATTACHMENT 2

F-2-2
Our jurisdictions require new funds to repair our roadways, to deliver regional improvements, to improve transportation overall, and to offer as a match in order to capture competitive State or Federal funds. Higher funding leverages or ‘wins’ more funds from Sacramento. Without our own dedicated transportation sales tax, we are effectively providing a ‘tax holiday’ to our tourists that come from the 25 counties with it.

Ability to Leverage
Comparing one investment category (Active Transportation), Santa Cruz recently ‘won’ $147m from Sacramento using their 2016 sales tax measure funds. The Santa Cruz region has another $53m remaining in measure funds to use as leverage for more Active Transportation grants. In comparison, SLOCOG’s long range plan projects $184m for Active Transportation in our region between 2023 and 2045. Monterey will spend $600m from their 2016 measure funds on road maintenance and improvements in the coming decades. This is on top of their local jurisdictions’ annual investments and state or federal allotments, and they will use some of it to leverage or ‘win’ State and Federal funds, outpacing our region.

With the failure of Measure J in 2016, the region lost out on over $180M in the last 6 years and this could have easily doubled by capturing grants and competitive funds returned to the region. The impact of a dedicated transportation sales tax for successful measure counties is evident. Those counties deliver more projects and investments, faster, and at a lower cost.

Shrinking Fuel Tax
Reliant on the fuel tax, locally, we have a funding problem. Most of our jurisdictions have pavement conditions that are too low which cost more to maintain at a low level than to maintain at a ‘very good’ level and do not have a path to reach it. Our primary artery, U.S. 101 has recurring congestion in South County and emerging congestion in North County and we do not have the funding necessary to address its existing or emerging congestion or safety issues.

The Insufficient Status Quo
The region’s current funding path relies not only on stable state and federal fund sources but also aspires to win competitive state and federal transportation grants. Every two years, SLOCOG programs its formula allotment of state and federal transportation funds. In January, the SLOCOG Board approved the 2024 RTIP, a five-year capital investment program (FY 24/25 through FY 28/29).

The investment portfolio contains past and present funding secured and allotted by State and Federal sources. SLOCOG received $33.9M (new funding) to program in the outer years. Half of this amount was to address cost increases on six projects that were either “fully funded” in the 2020 fund cycle or realized project-cost increases. In order to complete all 20 projects (only 7 are now fully funded), $298M is still needed to close the shortfall This equates to 17+years based on status quo funding ($34M every two years) without State and/or federal grants or any additional project cost increases.

Projects are Cheaper Now than Tomorrow
Regions with a sales tax have a significant advantage over those without. When their new improvements are ‘fully funded’ but run into unexpected project escalations or inflation, these regions can use sales tax revenues to close the gap rather than losing the project (sometimes grant funded) or delaying for several months or years to await additional funding (and incurring further cost escalations). All regions are susceptible to State budget cuts (i.e., the 2024 proposed 50% cut to REAP funding in the State) but measure counties are better equipped to backfill and deliver improvements in spite of the state cuts.

We are Better Together
Setting aside our own self-interests can be challenging, but a regional approach helps to build the infrastructure for today and the next generation. There is a holistic benefit of a regional measure. City measures collect and spend only within their borders, yet, our residents travel beyond the singular bubbles of each city, whether for commuting, shopping, or entertainment. We all do better when everyone does better. An increase of transportation funding across the region provides benefits (safety, access, mobility, cost-savings, etc.) to each individual, community, and jurisdiction. With both local needs and regional needs, collaboration and coordination would be a key aspect if both a regional measure and a local measure were on the same ballot.

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Draft Local Roads Repair & Transportation Safety Investment Plan: Attachment 1 The draft investment plan identifies how 20 years of collected, unescalated, revenues would be allocated. Staff, working with its consultants and considering all feedback to date, developed a draft (20-year, 1/2 cent sales tax) Investment Plan based on the following distribution premises.

1. Distribute all collected revenues by (4) subregions based on population. (i.e., 35% of the population resides in the North County and 35% of the funds would be used in the North County)

2. Within each subregion, distribute 66% of funds to its jurisdictions for Road Repairs & Community Road Safety & Congestion Improvements based on relative population (with a $3m increase to the four smallest cities).
a. Two Local Investment categories are: Road Repairs and Community Road Safety & Congestion Improvements.
b. Respective investment levels are to be customized to the needs and priorities of each city and community (pending City Council, staff, and public feedback.)

3. Within each subregion, distribute 34% of funds for Regional Road Safety & Congestion Improvements and for Mobility for All.
a. Two Regional Investment categories are: Regional Road Safety Improvements and Mobility for All (i.e., transit, senior services, and active transportation). b. Regional Investment categories are to be customized to the needs of each subregion. (pending additional feedback).

Staff reviewed various data metrics (including Population, Sales Taxes collected, Road miles, and Employment by city and subregion) and various combinations with the City Managers in January 2024 and received concurrence for the previously described funding distribution methodology.

Key Questions for a Transportation Measure

1. Is there an unfunded need?

2. Is a dedicated transportation sales tax the best option?

3. Is it fair and understandable?

4. Does it improve your travel?

5. Is it protected?

6. Is it supportable?

1. Is there an unfunded need? Yes
Outreach and Engagement
SLOCOG staff engaged our community groups and organizations to give citizens the opportunity to provide input to the needs of their communities. SLOCOG hosted four focus group meetings and developed a website with a public survey. The message that ‘there are needs’ resounds at every level.

Engagement Meetings
Staff and SLOCOG’s Engagement Consultant were invited to present a 20-minute PowerPoint discussion to 26 community groups and organizations over the past 6 months. In addition to these presentations, staff, or the consultant, made a 3-minute comment at nine public meetings, engaged with six media outlets garnering local press, and held four regional focus groups.

Focus Groups
In Fall 2023, four regional Focus Groups were held and facilitated by SLOCOG’s Consultant, MMKelly Consulting. Staff used voter files to identify an ideal representation (political party, location, age (<25, 25-44, 45-65, 65+) and gender). Staff used a random selection tool to fill the categories until a representative balance was achieved with confirmations of 12 members for each subregion’s focus group. Each Focus Group was held and notes were drafted to include: General Views, Identified Transportation Needs and Improvements, Funding Issues & Feedback, and Additional Insights. The Consultant’s memo is Attachment 2.

Website
Staff developed and hosted its website, www.localroadsfirst.com and developed content to include FAQs, meeting information, past projects completed by SLOCOG in each subregion, and developed a simple online survey tool. Responses were collected (through November) and the following figures show results, by subregion, of which investment type garnered the highest support. Investment types

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were ranked 1-10 and included: Improve Highways and
Interchanges; Improve Local Road Intersections; Repair Roads, Potholes and Bridges; Build More Safe Routes to School and Pedestrian Improvements; Extend Bike Lanes or Trails; Expand Buses or Senior Transportation Options; and Safety Improvements. Additionally, an open-ended question offered respondents to share what transportation improvements are needed (included as Attachment 3). Results of this survey were shared and discussed with consultants.

Pavement Conditions Index (PCI)
A few jurisdictions are doing well, or making strides,
but most are not keeping up. A few examples are:
• Morro Bay’s PCI dropped 15 points in 2023.
• Atascadero’s 2022 Road Report identified its
PCI reached 49 (2 points higher than 2015)
with 25% of all roads rated as ‘Failed’ (16%
failed in 2015)
• For the San Luis Obispo County
unincorporated areas, the PCI was:
o 63 in 2013
o 64 in 2017
o 60 in 2020
o 60 in 2022
Fuel Taxes
Existing State and Federal funding are based
upon an antiquated system of cents per gallon of
fuel. The system predated the proliferation of
mileage improvements, hybrids, ethanol fuels,
and electric vehicles. The Federal gas tax has
had no adjustment in over 30 years. Further, 20%
of all new cars sold in CA in 2022 were electric
and this market share will grow. Fuel taxes have
not kept up and will only diminish over time. A
local solution is required to address our current
and future local problems to protect our quality of
life.

North County Survey Results
South County Survey Results
North Coast Survey Results
Central County Survey Results

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Volumes on US 101
U.S. 101 is our major artery, connecting six of our cities, and many unincorporated communities. Twice in 25 years, SLOCOG has been fortunate to leverage State grants for its improvement. In the late 1990s a grant award funded Cuesta Grade to be widened and improved with truck climbing lanes with construction completed in 2003. Two decades later, a new State grant was awarded to improve U.S. 101 in a four-mile section (southbound only) in the Shell Beach area. The Shell Beach Straits has long been the most regularly congested and problematic section. However, over the past decade, volumes on U.S. 101 have been growing in the North County with peak hour numbers higher than that in Shell Beach. (See Figures below). In several sections, 2021 Peak Hour volumes match and surpass those of 2019; 2022 volumes are not yet available.
5900 - 6400
9000 - 10200

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2. Is a dedicated transportation sales tax the best option? Yes.

The 2023 RTP examined potential funding sources specific for transportation, including – Fuel Tax, Vehicle Fees, Impact Fees or VMT fees, Bonds, and others. For a single improvement, bonds (repaid through income tax, local sales tax, local property tax, or other levied taxes) may offer a solution.

Bonds significantly impact those that currently (or in the future) reside near the improvement, but it benefits everyone that uses it. A broader funding source is needed, that will not diminish over time (fuel tax) and that is paid for by all those that benefit, including tourists. The unfunded needs are across the region; the benefits of improvements would benefit all users and residents.

While the cents per gallon of fuel tax (for the State but not the nation) is indexed to inflation, EVs will erode the total gallons purchased affecting the total tax collected. In tourist-attracting regions, sales tax outperforms inflation. The
adjacent chart shows the
effects of inflation (orange
line) on our region’s sales tax
(of what a ½ cent raises)
originating in FY 09/10. The
blue line follows the actual
amount raised from a ½ cent
sales tax. From 2010 to 2020,
the region grew in population
by less than 5%; inflation
grew by 32%; sales taxes
nearly doubled.

Monterey county (region)
voters approved their sales
tax in 2016 and began
spending an additional $13M
annually (and growing) on
road repairs – above their
local, state, and federal allotments. Santa Cruz County (region) voters also approved their transportation sales tax in 2016 and have successfully used it to leverage over $100M in 2022 from a single State competitive pot. Our region is at a disadvantage to compete and capture State and Federal grant funds without our own dedicated sales tax.

The 25 counties with their transportation sales tax annually receive a direct allocation from statewide gas taxes. Annually, we lose out on this to a tune of $0.8M to $1M and cannot capture these funds.

Essentially, the State competitive system is rigged to reward those with a dedicated transportation tax, and those regions without will continue to lose out and leave dollars on the table. Additionally, new transportation-specific voter-approved measures receive a one-time share of a $20M set aside from the State, up to $5M.

3. Is it Fair and Understandable? Yes.

The draft Investment Plan uses population percentages to distribute funds to each subregion – guaranteeing each a fair-share amount. One complaint heard and lesson learned from Measure J in 2016 was the need to be clearly fair in the distribution of revenues and to make the distribution easily understandable. Additionally, staff recognizes that ‘one size does not fit all’ and this is reflected within the draft investment plan where subregions differ in investment areas of focus.

Our economy and quality of life are dependent on not only a good transportation system but one that offers our residents and tourists options of travel. The transportation system benefits everyone:
residents, commuters, shoppers, recreationalists, drivers, bus riders, cyclists, pedestrians, and tourists. State and federal transportation funding comes from a gas tax which is no longer a fair funding mechanism. EV owners pay no gas tax; the fee they pay for roads is far lower than an average vehicle’s gas tax and is regardless of total miles traveled. Hybrid owners pay roughly half of their gasoline equivalents. All non-drivers benefit without paying a fuel tax. Tourists with gasoline and hybrid vehicles pay a gas tax, however, revenues that are generated by the fuel tax are deposited to the

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State’s Highway and Users Tax Account (HUTA) and its distribution of formula funds are largely based on population – which means our region receives the same proportion of fuel taxes whether we have 1,000 tourists or one million. 100% of a dedicated-transportation sales tax stays local for the betterment of our system and be paid by all users of the transportation system, including tourists.

4. Does it improve your travel? Yes.

The draft investment plan guarantees a wide-range of investments for:
• Rural areas and urban areas
• Personal vehicle drivers, and cyclists, and bus riders • School aged children and senior mobility needs
• Road repairs and betterments
• Local roads and highways
• Safety and congestion relief
• Economic progress, accessibility, and mobility improvements.

Through polling, surveys, engagement meetings, and focus groups the list of needs is long. The investment plan includes many, but it cannot include all requests without sacrificing investments in another mode, community, or category.

New funds through a dedicated sales tax would become an added piece of the larger funding picture.

Similar to other COGs, SLOCOG receives and invests over 20 state or federal revenue sources for transportation. New funding grows the pie for all things transportation in all areas of the region.

5. Is it protected? Yes.

As a ‘Special Tax’ a dedicated sales tax differs from a ‘General Tax’. A special tax guarantees transportation investments where voters want, need, and expect them; effectively taking away any bait and switch actions or reprioritization by any future board or council. General taxes go into the local general fund, can go for any purpose for a city or county, and are determined annually by the (then) current elected officials. Voters must trust that general funds will be spent as they hoped, but every two years an election may replace three-fifths of the governing body.

Special taxes – like a dedicated transportation tax – go solely to improve transportation and the voter measure contains an Investment Plan that details exactly what and where the funds will go, and these funds do not go into a general fund. Our draft Investment Plan is attached and if sent to and approved by voters, distributions and expenditures would strictly adhere to it. Current and future elected officials, and staff, must follow it for all expenditures and distributions.

On an annual basis, the 25 counties (our population is greater than 6 of these counties) -which comprise 89% of the State’s population- have dedicated transportation sales taxes that collectively raise more than the gas tax statewide. The San Luis Obispo region has less than 1% of the State’s population; imposing or expecting change to transportation funding in Sacramento is pointless.

Our local funds would be required to be spent within our region – they cannot be borrowed, redirected, or stolen by Sacramento. Some counties have had their dedicated transportation sales tax for decades and voters have renewed these taxes (like in Santa Barbara) after realizing the benefits and recognizing the promises made were kept, and the funds cannot be stolen.

A voter measure would include safeguards, including an independent citizens’ oversight committee, a sunset date, annual independent audits and reporting, a 1% administrative cap, and requirements for a local maintenance of effort and for new development. Safeguards would be drafted for review and input at the May SLOCOG Board.

6. Is it supportable? By the SLOCOG Board, City Councils, Supervisors, and Voters (TBD) At this point, the draft investment plan is ready for review, for comments, and for modifications. Staff anticipates changes to occur to this draft investment plan over the coming months to improve it.

In 2016, Measure J received 66.3% support of voters. Transportation conditions and needs have not improved notably and transportation funding faces its latest challenge of a growing share of EVs.

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Any future SLOCOG Measure would allow voters the final say on such a new tax; would increase their voice; would require the necessitated 2/3rd approval; would include accountability and transparency with no bait and switch; would have a sunset date; would have safeguards and be protected from Sacramento; and would dedicate its funds to improve our transportation system only.

Additional Requirements and Restrictions
If February Board direction is to proceed with the development of draft materials, all components (Ordinance, Safeguards, and Investment Plan) must be developed in time for the May 1st SLOCOG Board meeting. The draft sections of an ordinance will include:

1. Draft Title: An ordinance providing for the imposition of a one-half of one percent retails transactions and use tax by the San Luis Obispo County Local Transportation Authority for the San Luis Obispo County and Cities Road Repair, Traffic Relief, and Transportation Safety.

2. Draft Compliance with CEQA: All projects funded with these transportation sales tax funds will be required to complete appropriate California Environmental Quality Act (CEQA) and other environmental review as required.

3. Draft Ballot Label: Draft 75-word ballot labels shall be further tested in upcoming polling:

The proposition to be placed may read as follows:

In order to repair and maintain local streets, highways, bridges, and infrastructure; fix potholes; improve highway and roadway safety; provide safe routes to schools; reduce traffic congestion; make pedestrian, bike, and transit improvements; and qualify for 900 million dollars in State and Federal grant funds; shall San Luis Obispo County’s measure establishing a half cent sales tax for transportation improvements be adopted, providing approximately 35 million dollars annually for 20 years that cannot be taken by the State, with citizen oversight and all money locally-controlled?

4. Draft Investment Plan Amendments
a. To address changing population: In FY2032/33, amend local distribution categories based on new population as determined by the 2030 Census. This would amend the four subregions’ respective shares relative to each other and, within each subregion, the respective shares of jurisdictions while maintaining the $3m increase to the 4 smallest cities.
b. To address new or changed laws, requirements, technologies, or needed investments:

Amendments to the Plan would require a high threshold. No changes to the 66%:34% (local:regional split) would be accepted. No changes to the relative share of the four subregions or shares within each subregion (jurisdictional splits) with the exception of the 2030 Census noted above. Any changes within the Local Investment category would be allowed if supported by 2/3rd of the Independent Taxpayer Oversight Committee, a 2/3 approval by the Authority, AND majority-vote approvals from a majority of the city councils constituting a majority of the incorporated population, AND majority vote of the Board of Supervisors. Any changes within the Regional Investment category – while maintaining the promised share of funds within each subregion -- would be allowed if supported by 2/3rd of the Independent Taxpayer Oversight Committee, and a 2/3 approval by the Authority by a roll call vote, with prior notice (30-day) provided to all jurisdictions.

5. Draft Cooperative Fund Agreements: To maximize the effective use of funds, revenues may be transferred or exchanged between or among jurisdictions. Jurisdictions receiving funds may, by annual or multi-year agreement, exchange funds provided that the percentage of funds allocated as provided in the Investment Plan is maintained over the duration of the period of time the tax is imposed.

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6. Support for Local Job Creation and Contracts

7. Eligible Uses of Categories: Investment categories are still undergoing refinement, but staff recommends that the following be applied:

Local Investments
Road Repairs:
• Potholes, repaving, repair, and maintenance,
• Maintaining, improving, or constructing streets, roads, bridges, and bicycle and pedestrian facilities (including maintenance of public docks), • Safety Improvements,
• Storm damage repair to transportation facilities,
• Roadway drainage facilities,
• Traffic signal coordination, intersection and channelization, • Traffic management,
• Landscaping Maintenance,
• And other transportation purposes as allowable under the Surface Transportation Program.

Community Road Safety & Congestion Improvements:
• Community Enhancements, such as downtown streetscapes, transportation enhancements, way finding, and accessibility improvements, street lighting, street furniture and trees
• Safety Improvements,
• Bus and rail transit services and support facilities, • Programs that reduce transportation demand,
• Reduced transit fares for seniors, veterans, students, and persons with disabilities, • Education and incentives designed to reduce single occupant auto trips, • Downtown streetscapes and transportation enhancements, multiuse paths, sidewalks, Safe Routes to School, and ADA improvements.
• And other transportation purposes as allowable under the Surface Transportation Program.

Regional Investments
Regional Road Safety Improvements ($ and % varies by subregional needs) • Highways and Major Roadway improvements for: safety, congestion-relief, and mobility improvements. (i.e., US 101 Northbound offramp to Highway 46E) Mobility for All ($ and % varies by subregional needs)
• Public Transit investments (Seniors, Persons with Disabilities, Veterans, Fixed Route, etc.)
• Active Transportation (Bicycle and Pedestrian improvements on regional trail corridors, Boardwalks, Promenades, etc.)
Budget and Next Steps
Budget
The effort remains within the scope of the adopted FY 23/24 budget.

Polling
A new statistically valid poll (phone, cell, text, internet) is funded to occur in March with results to follow. True North Research will perform a full-size tracking poll, expecting over 900 responses using a statistically valid methodology. This poll will test success of recent public engagement efforts and public concern about transportation and awareness of needs; test support for transportation-related issues and quality of life investments; test support for a new tax, and related issues, such as taxpayer safeguards; and assess support for overall goals of a local sales tax plan. Staff, working with city managers, aim to add a question that also tests compatibility of regional and local measures. Top lines

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will be produced and presented to the SLOCOG Board and a final report prepared. A contract amendment (attached) is necessary to extend the existing contract.

Engagement and Outreach
Staff will continue engagement with interested groups and organizations with the draft Investment Plan. (February – April). All engagement efforts will remain within the current budget.

Revised Investment Plan
Following meetings in February – April, and coupled with new polling results, staff will make necessary revisions to the draft Investment Plan and present changes to the SLOCOG Board on May 1st for the determination of the next step. Staff will also present draft ordinance language for review and comment.

Public Meetings: Review and Comment
March 11 City Council Meeting –Grover Beach
March 12 City Council Meeting –Arroyo Grande
March 19 City Council Meeting –San Luis Obispo
April 9 City Council Meeting –Atascadero
TBD City Council Meeting –Morro Bay
TBD City Council Meeting –Paso Robles
TBD City Council Meeting –Pismo Beach
April 9 Board of Supervisors Meeting
May 1 SLOCOG Board Meeting – Approve/Deny Investment Plan; Review Polling results

ATTACHMENTS

1. Draft Local Road Repair & Transportation Safety Investment Plan

2. Focus Group Summary Memo from MMK Consulting

3. Survey Responses: Open Ended (North County, North Coast, Central County, South County)

4. Contract Amendment #2 with True North Research

Local Roads First:

A Roadmap to
Transportation
Independence
Presentation on the Draft
Transportation Investment
Plan
Summer 2023
March & April 2024

2 Introduction to SLOCOG
Connecting Communities
(7 cities & SLO County)
Founded
in 1968
San Luis Obispo County & 7 Cities
 Arroyo Grande
 Atascadero
 Grover Beach
 Morro Bay
 Paso Robles
 Pismo Beach
 San Luis Obispo
+40,000 new people

23-Year Outlook Unfunded Need
Highways, Interchanges -$687M
Major Roads, Downtowns -$372M
Local Road Maintenance -$400M
Public Transit/Senior Mobility -$100M
Bikes, Peds, Safe Routes to School -$714M

4 The why: A Shrinking Fuel Tax
1970s, ‘80s, ’90s:

More cars & travel
meant more Revenues
2001-2024+
Conservation + Hybrids +
EVs means flat Revenues
2035 and beyond
No new gas/diesel cars
to be sold in CA
2023: EVs were 25%
of all new car sales

Fallacies, Misperceptions, and Unicorns
Gas Tax will repair our roads
- No
Gas Tax went up, it will fix all our roads
- No
The State will reprioritize its funds to our roads
- Nope
Local funding will be reprioritized to roads
- Maybe/maybe not
Caltrans will fund 101 improvement
- two major improvements in 25 years
EV owners pay an average amount for road repairs
- Not even close
The State will change…..’something’.....that will fix everything - No chance

Local Road Maintenance Issues Persist 2022 Pavement Condition Index 100
90 80
70 60
50 40
30 20
10 SLO: 70
Pismo Beach: 67
Morro Bay: 63…
County: 60
Paso Robles: 57
Arroyo Grande: 56
Grover Beach: 52
Atascadero: 49
Morro Bay: dropped 15 points
from 63 to 48 in 2023.

Atascadero: 47 to 49 over 8 years,
but ‘Failed’ (25 or less) increased
from 16% to 25% (2023) now 22%
County roads were:
63 in 2013
64 in 2017
60 in 2020
60 in 2022

7 Highway Congestion
Shell Beach: South of Avila Beach Rd Atascadero: North of San Anselmo S.Co Peak Hour:
6,400 cars
N.Co Peak Hour:
10,000 cars

Neighboring County Comparison
• Currently, 25 Counties (89% of
Californians) HAVE a Special
Transportation Tax
• San Benito – 2018 – 30 years
• Monterey – 2016 – 30 years
• Santa Cruz – 2016 – 30 years
• Santa Barbara - 2008 – 30 years
• San Luis Obispo –Lost out on
~$30m/yr over 7 years

9 What is the Cost?

For the San Luis Obispo Region, a ½ cent sales tax would:
 Raise $35m / year
 Be used to Leverage ~$1 billion out of Sacramento
 Be protected from Sacramento (cannot be stolen)
 Speed up project delivery (reducing cost)
 Guarantee every penny for our local TRANSPORTATION priorities (no bait and switch)
 Contain Safeguards (accountability, oversight, audits, reporting, a sunset date, and 1% maximum for SLOCOG administration)
 Provide that tourists pay a tax guaranteed for our roads (finally!) 10 Draft Local Road Repair & Transportation Safety Investment Plan

11 Draft Local Road Repair & Transportation Safety Investment Plan Fair and Understandable
Local Distribution Formula:
• 4 Subregion Population %
• 66% to Local Direction
• %City
• %City
• %Unincorporated
($3M added to 4 smallest cities
from uninc. subregional share)

12 Draft Investment Plan: NORTH COUNTY

13 Draft Investment Plan: SOUTH COUNTY

14 Draft Investment Plan: CENTRAL COUNTY

15 Draft Investment Plan: NORTH COAST

16 Local Area Investments - Draft

Key Regional Projects:

Regional Road Safety Improvements $17 M
 Highway 1 Safety improvements (i.e., lanes, interchanges, crossings, ramps, bus, vanpool, parallel routes, etc.)
 S. Bay Blvd. multimodal, capacity, and climate
resiliency improvements
Mobility for All $17 M
 Public Transit for Seniors, Persons with Disabilities, Veterans $8 M  Active Transportation (Bicycle & Pedestrian) $9 M
 Coastal Trail, Chorro Valley Trail, Boardwalks
 Pedestrian/bicycle safety and operational improvements on Los Osos Valley Road between 9th and Montana de Oro State Park 17 Draft Investment Plan: NORTH COAST

 Feb 7: SLOCOG Board Direction to Present Draft to Member Agencies, Seek Feedback, Continue Engagement Efforts, Develop Polling
 March: Polling by phone/text/email
 March/April: Draft TIP review/comment by all jurisdictions  3-5: San Luis Obispo
 3-11: Grover Beach
 3-12: Arroyo Grande
 3-19: Pismo Beach & Paso Robles
 4-9: Atascadero & County Supervisors
 ?-?: Morro Bay
 May 1: SLOCOG Approve/Deny Final TIP
 May: All Jurisdictions Approve/Deny Final TIP
 May 29: SLOCOG Determines Direction
 November 2024 Election
 Fail => No change
 Pass => Delivers Investment Plan
 Other Future Election
18 Steps and Timing
Learn more at: www.localroadsfirst.com

20 ILLUSTRATIVE LOOK AT PCI

1 MINUTES - MORRO BAY CITY COUNCIL

CLOSED SESSION MEETING
March 12, 2024, 3:00 p.m.

City Hall Conference Room
595 Harbor Street, Morro Bay, CA 93442
Members Present: Mayor Carla Wixom
Council Member Zara Landrum
Council Member Laurel Barton
Council Member Cyndee Edwards
Council Member Jennifer Ford
Staff Present: City Manager Yvonne Kimball
City Attorney Chris Neumeyer
Harbor Director Ted Schiafone
City Clerk Dana Swanson
Ashley Freel (Implementation Consultant)
_____________________________________________________________________

1. ESTABLISH QUORUM AND CALL TO ORDER
Mayor Wixom called the meeting to order at 3:00 p.m., with all members present.

2. SUMMARY OF CLOSED SESSION ITEMS
Mayor Wixom opened public comment; seeing none, the public comment period was closed.

3. THE COUNCIL WILL CONVENE IN CLOSED SESSION TO HEAR THE FOLLOWING ITEM(S):

3.a CONFERENCE WITH REAL PROPERTY NEGOTIATOR -
GOVERNMENT CODE SECTION 54956.8
Property: Lease Site 137, Crill's Saltwater Taffy, 1247 Embarcadero Road, Morro Bay
Property Negotiators: Horton and Savanah Williams
Agency Negotiators: Ted Schiafone, Harbor Director; Yvonne Kimball, City Manager; Chris Neumeyer, City Attorney
Negotiation: Price and Terms of Payment

3.b PUBLIC EMPLOYEE PERFORMANCE EVALUATION

2 Conduct an employee evaluation of the City Manager pursuant to Government Code section 54957

4. RECONVENE IN OPEN SESSION
The City Council reconvened in Open Session. The Council did not take any reportable action in accordance with the Brown Act.

5. ADJOURNMENT
The meeting adjourned at 5:19 p.m.

Respectfully submitted,
/s/ Dana Swanson, City Clerk

1 MINUTES - MORRO BAY CITY COUNCIL

REGULAR MEETING
March 12, 2024, 5:30 p.m.

Veterans Memorial Hall, 209 Surf St., Morro Bay, CA
Members Present: Mayor Carla Wixom
Council Member Zara Landrum
Council Member Laurel Barton
Council Member Cyndee Edwards
Council Member Jennifer Ford
Staff Present: City Manager Yvonne Kimball
City Attorney Chris Neumeyer
City Clerk Dana Swanson
Interim Asst City Mgr/Admin Svcs Director Steve Conway
Public Works Director Greg Kwolek
Police Chief Amy Watkins
Fire Chief Dan McCrain
Harbor Director Ted Schiafone
_____________________________________________________________________

1. ESTABLISH QUORUM AND CALL TO ORDER
Mayor Wixom called the meeting to order at 5:32 p.m. with all but Council Member Barton present. Council Member Barton joined the meeting at 5:39 p.m.

2. MOMENT OF SILENCE

3. PLEDGE OF ALLEGIANCE

4. REPORTS

4.a Closed Session Report
City Attorney Neumeyer announced no reportable action was taken in closed session.

4.b Mayor and Councilmembers' Reports, Announcements and Presentations
https://youtu.be/7EKbY39SDwo?si=ILPmWVpBJvxekjs3&t=121

4.c City Manager Reports, Announcements and Presentations https://youtu.be/7EKbY39SDwo?si=3FoNnTnpfZrWr8ne&t=741

2 5. RECOGNITION AND PRESENTATIONS

6. PUBLIC COMMENT
https://youtu.be/7EKbY39SDwo?si=WbCoZlkY6iVs0SYK&t=1536  Linda Winters, Morro Bay, commented on Morro Bay's strong voter turnout in the March 5th Election and other recent events.  Barry Branin, Morro Bay, raised safety concerns regarding the proposed route for the Cayucos-Morro Bay Bike Trail connector.
 Betty Winholtz, Morro Bay, concurred with safety concerns raised by the previous speaker, commented on odors from Scout Coffee roasting activities, posed questions regarding the resident selection process for the HASLO affordable housing project, and appreciated the extended comment period for the BESS EIR.
 An unnamed resident opposed seismic testing due to its impacts on sea life.
 An unnamed resident offered comments.
 Nicole Dorfman, Morro Bay, thanked everyone who attended the Save our Seas event hosted by REACT Alliance and commented on an anticipated PG&E rate increase.

End of public comment.

7. CONSENT AGENDA
https://youtu.be/7EKbY39SDwo?si=CmJpc6e_DM3oFzds&t=2705 Unless an item is pulled for separate action by the City Council, the following actions are approved without discussion. The public will also be provided an opportunity to comment on consent agenda items.

Mayor Wixom opened public comment for the Consent Agenda.  Bill Luffee, Morro Bay resident and President of Friends of Morro Bay Harbor Department thanked those who contributed to fundraising goal to purchase a Polaris UTV for the Harbor Department.
 Terry Simons, Morro Bay, commented on Item 7.g, urging the City to consider direct potable reuse as an alternative to the current project.  Betty Winholtz, Morro Bay, spoke regarding Items 7.b and 7.d and expressed concern about the potential project cost for the recycled water portion of the WRF Project (Item 7.g)
 An unnamed resident questioned the annual revenues proposed in Item

7.e.

3 End of public comment.

Staff responded to questions raised during public comment.

Council Member Ford pulled Item 7.f. to recuse herself from that item due to a conflict of interest.

Council Member Landrum pulled Item 7.g.

Council Member Edwards pulled Items 7.d. and 7.h.

Motion by Mayor Wixom
Seconded by Council Member Ford
Approve Consent Agenda Items 7.a, 7.b, 7.c and 7.e as submitted.

Ayes (5): Mayor Wixom, Council Member Landrum, Council Member Barton, Council Member Edwards, and Council Member Ford
CARRIED (5 to 0)

7.a Approval of Minutes
Approve as submitted.
a. February 27, 2024 - Special Closed Session Meeting
b. February 27, 2024 - Regular Council Meeting

7.b Update to the Harbor Department Rules and Regulations, Section 9, to align with the City's Skiff Storage Fee established in the City's Master Fee Schedule
Adopt Resolution 17-24 updating the Harbor Department Rules and Regulations to align with the City's current adopted Master Fee Schedule for Skiff Storage Fee.

7.c Ministerial approval of Parcel Map MP 22-0025 (3230 Beachcomber) and Acceptance of 5' Public Sewer Utility Easement
Adopt Resolution No. 18-24 ministerially approving finality of proposed Parcel Map MB 22-0025 (which was previously approved by Planning Commission under the designation of Tentative Parcel Map PAR22-02) with a 5’ public utility easement.

7.d Report on attendance at the 2024 C-MANC Washington Week Meetings
Motion by Mayor Wixom
Seconded by Council Member Ford
Receive and file.

4 Ayes (5): Mayor Wixom, Council Member Landrum, Council Member Barton, Council Member Edwards, and Council Member Ford CARRIED (5 to 0)

7.e Adoption of Resolution No. 19-24 Approving a New Lease Agreement with Van Beurden Investments Lease site 78-81/78W-81W,
Dutchman's Seafood House, 701 Embarcadero
Adopt Resolution No. 19-24, approving 29-year Master Lease Agreement with Van Beurden Investments for lease site 78-81/78W-81W, Dutchman's Seafood House.

7.f Authorization to accept $35,888.50 in Grant Funds from the Friends of the Morro Bay Harbor Department for the purchase of a Polaris Utility Terrain Vehicle (UTV) for the Harbor Department Council Member Ford declared a conflict on this item. (financial interest) Motion by Mayor Wixom
Seconded by Council Member Landrum
Authorize the City Manager to execute an agreement accepting grant funding from the Friends of the Morro Bay Harbor Department to purchase a Polaris UTV for beach rescue operations.

Ayes (4): Mayor Wixom, Council Member Landrum, Council Member Barton, and Council Member Edwards
Recused (1): Council Member Ford
CARRIED (4 to 0)

7.g California State Water Resources Control Board Division of Financial Assistance Minimum Recycled Water Implementation Requirements Letter
Staff responded to Council questions and issues raised during public comment.

Motion by Council Member Landrum
Seconded by Council Member Ford
Receive and file the following letter from the California State Water Resources Control Board (SWRCB) Division of Financial Assistance (DFA) Letter regarding the minimum recycled water implementation requirements necessary to satisfy the requirements of the City’s Clean Water State Revolving Fund (SRF) Loan Agreement.

5 Ayes (5): Mayor Wixom, Council Member Landrum, Council Member Barton, Council Member Edwards, and Council Member Ford CARRIED (5 to 0)

7.h Authorization to reimburse Council Member Travel Expenses to attend C-MANC Washington Week Meetings
Motion by Mayor Wixom
Seconded by Council Member Ford
Approve reimbursement of travel expenses of approximately $2,500 submitted by Mayor Pro Tempore Landrum to be paid from grant funds received from the Central Coast Joint Cable Fisheries Liaison Committee Ayes (5): Mayor Wixom, Council Member Landrum, Council Member Barton, Council Member Edwards, and Council Member Ford CARRIED (5 to 0)

8. PUBLIC HEARING ITEMS

9. BUSINESS ITEMS

9.a Key Staffing Vacancies Update
https://youtu.be/7EKbY39SDwo?si=o6ZmrmP4uDxAwNC7&t=4286 City Manager Kimball provided the report and responded to Council inquiries.

Mayor Wixom opened public comment for Item 9.a.
https://youtu.be/7EKbY39SDwo?si=f6BnEJ_e4BM5HAHX&t=6656  Bill Luffee, Morro Bay, 40-year business owner, urged the City to reconsider its plan to split up the Harbor Department.
 Terry Simons, Morro Bay, commented on director responsibilities, workload and compensation.
 Jeff Eckles, Morro Bay, appreciated the report and opportunity to create a culture that attracts qualified employees.
 Betty Winholtz, Morro Bay, was supportive of the request to approve a Finance Director position and hoped the Harbor Director would choose to remain with the City.
 Barry Branin, Morro Bay, reemphasized importance of Finance Director role.

6  Linda Donnelly, Morro Bay, stressed the importance of a qualified City Engineer.

End of public comment.

No formal action was taken by the City Council on this item.

9.b Approval of Finance Director Job Description and revised Salary Schedule
https://youtu.be/7EKbY39SDwo?si=zcKKEyu2YufvSltN&t=7971 City Manager Kimball provided the report and responded to Council inquiries.

Mayor Wixom opened public comment on Item 9.b.
 Terry Simons, Morro Bay, commented on Director responsibilities and related compensation.

End of public comment.

Motion by Council Member Barton
Seconded by Council Member Landrum
Adopt Resolution No. 20-24 reinstating the Finance Director Job Classification and Job Description and approve pay schedule, and adopt Resolution No. 21-24 approving a revised FY 23-24 pay schedule including the Finance Director Classification and increasing the salary for the Community Development Director to align with other Morro Bay director positions.

Ayes (5): Mayor Wixom, Council Member Landrum, Council Member Barton, Council Member Edwards, and Council Member Ford CARRIED (5 to 0)

10. COUNCIL DECLARATION OF FUTURE AGENDA ITEMS
https://youtu.be/7EKbY39SDwo?si=L0rTsCxoNznCIzYO&t=9672 Council Member Ford requested the Cal Poly Climate Action Plan presentation to Planning Commission be presented at a Council Meeting. Given the length of that presentation, City Manager Kimball offered to explore a condensed version.

Council Member Landrum requested a presentation by Morro Bay students who recently competed at an event at Teach Elementary. Mayor Wixom wanted more information to understand if the presentation aligns with an advisory board effort.

11. ADJOURNMENT
The meeting adjourned at 8:16 p.m.

7 8:16 p.m.
/s/ Dana Swanson, City Clerk

Prepared By: ___DM_____ Dept Review: ______
City Manager Review: YK________ City Attorney Review: _LNL____ Staff Report
TO: Honorable Mayor and City Council DATE: March 18, 2024 FROM: Daniel McCrain, Fire Chief
SUBJECT: Authorization to Apply for and Accept the Grant, if awarded, from the Department of Homeland Security and Federal Emergency Management Agency for funding under the Staffing for Adequate Fire and Emergency Response (SAFER) Grant

RECOMMENDED ACTION
Authorize the Fire Department to apply for and accept the grant, if awarded, of funding under the Staffing for Adequate Fire and Emergency Response (SAFER) Grant from the Department of Homeland Security and Federal Emergency Management Agency for the hiring of limited term Firefighters. This application would be for two (2) Firefighter positions to increase daily staffing to five (5) Firefighters.

FISCAL IMPACT
The SAFER Grant covers 100% of the “fully burdened” salary, i.e., salary, benefits, etc., of a Firefighter position which is approximately $158,865 for year one, $165,566 year two, and $172,601 year three per firefighter, or between $317,731and $345,202 for the two (2) positions annually. Under the Fire Department’s proposal to apply for two (2) positions, the grant request will be for $994,064 for the three-year grant period. Under this year’s SAFER Grant there is no local matching funds required during the grant’s three-year performance period.

BACKGROUND
Every year multiple grant funding opportunities are made available for fire departments around the nation. It is common practice for departments to continually apply for these types of grants to help support firefighter safety through strategic grant seeking and funding. The most well-known grant programs are the Department of Homeland Security/Federal Emergency Management Agency (DHS/FEMA) SAFER and Assistance to Firefighter Grant (AFG). The primary goal of the SAFER Grant is to enhance the safety of the public and firefighters with respect to fire-related hazards. This is done by providing direct financial assistance to eligible fire departments, nonaffiliated Emergency Medical Services organizations, and State Fire Training Academies. This funding is for critically needed resources to equip and train emergency personnel to recognized standards, enhance operations efficiencies, foster interoperability, and support community resilience. This year’s SAFER Grant has set the highest priority to assist departments experiencing staffing levels significantly below AGENDA NO: 7.b
MEETING DATE: March 26, 2024

2 the ideal staffing level required to comply with National Fire Protection Association (NFPA) standards 1710 or 1720. For this grant cycle FEMA has allocated $360,000,000 for this program and anticipates awarding approximately 300 awards.

As recommended in the Hunt report in 2004, the Emergency Services Ad-Hoc Committee report in 2005, the 2010 strategic plan, and updated 2015 strategic plan, our community will be best served with two (2) three-person engine companies. This staffing model would create less dependency for off-duty personnel to respond from home while meeting the need to respond to medical aids with the ability to contain a structure fire in the room of origin. By increasing our daily staffing from four to five personnel on-duty daily we are taking a measured step closer to the optimum level of service outlined in the above-mentioned reports. While it would be acceptable to request enough personnel to get to the recommended daily staffing level of six (6) Firefighters, that large of an increase in personnel would be unsustainable at the termination of the grant period. By taking smaller steps toward that goal, we improve safety and efficiency without creating a situation where we cannot sustain the personnel when funding expires.

The goal of the SAFER grant program is to assist local fire departments with staffing and deployment capabilities to respond to emergencies and ensure that communities have adequate protection from fire and fire-related hazards. Local fire departments accomplish this by improving staffing and deployment capabilities, so they may more effectively and safely respond to emergencies. With enhanced staffing levels, departments should experience a reduction in response times and an increase in the number of trained personnel assembled at the incident scene. The citizens of Morro Bay resonated with this sentiment as outlined in the SAFER Grant goals, as demonstrated by the recent successful passage of Measure E in 2020 and Measure Q in 2006.

DISCUSSION
NFPA standard 1710 states a department should provide 16 Firefighters on scene within eight minutes 90% of the time for a fire in a single-family residence with the first engine arriving on scene within 4 minutes or 17 Firefighters if responding with a ladder truck. Currently, our Fire Department operates with 13 full-time operational personnel and runs nearly 2,200 calls annually from one fire station. The average response from Morro Bay Fire is currently 4 paid Firefighters with two on one engine and two on the rescue or second engine. During the summer months we hire Seasonal Firefighters to augment staffing to allow for mutual aid, support bringing our daily staffing to five Firefighters during the summer. By adding (2) SAFER Firefighter positions, we would increase our daily staffing to five personnel on-duty year-round and increase to six on-duty during the summer, allowing for two fully staffed apparatus.

The reserve Firefighter program has been successful for many years in Morro Bay, but we have witnessed a dramatic decline in qualified candidates due to training obligations, state training mandates and the limited availability to respond to incidents off-duty. This has been a trend throughout San Luis Obispo County with all fire departments. In fact, Morro Bay’s is one of the last city fire departments in SLO County to still operate a reserve Firefighter program. Our current organizational design also depends on off-duty, full-time personnel responding from home. With the change of our reliability of reserve firefighters and the limited full-time personnel responding from home, today we must rely on auto aid and mutual aid response from our neighboring communities.

Automatic aid requests bring only one fire engine, one ambulance and one chief officer from neighboring agencies for a staffing level of five.

A very accurate measurement of the Fire Department’s capabilities to mitigate emergencies, is its

3 ISO rating. Currently the Fire Department’s ISO rating is a Public Protection Classification (PPC) 3 where a class 1 rating is the highest rating, and a class 9 is the lowest rating. It is extremely important to maintain this rating, not just for the Fire Department but for the benefit of the entire community.

The City’s last Insurance Services Office (ISO) rating was conducted in 2022 and the Fire Department received a PPC of 3/3x. Considering most fire departments like Morro Bay’s Fire Department have a common PPC rating of 5, and with limited full-time staffing, a PPC-3 is an exceptional rating. But maintaining this rating is dependent on staffing levels as 50% of the ISO evaluation rating is based on fire department capabilities. Increasing staffing to meet the increasing call volume and response times is expected to maintain the Fire Department’s current ISO rating. The next scheduled ISO evaluation is anticipated in the summer of 2025.

By funding these two positions, our Department will be able to respond with 5 personnel and 2 apparatus, 2 Chief Officers (along with 5 Firefighters from our automatic aid agencies) within 8 minutes to any single-family fire. This would bring us closer to full NFPA 1710 compliance. Additional staffing will also increase the overall health and safety of the members of the Department (NFPA 1500) by relieving physical and emotional stress, reducing injuries, and providing for a healthier working environment. All of these will reduce risk to Firefighters and our community.

The FEMA SAFER Grant that we are applying for, and hope to get, will pay for two additional Firefighter positions. If accepted, it would pay for the total salary and benefit costs for each of the funded positions to include payroll, taxes, and all anticipated costs over the next three years. Under normal circumstances SAFER Grants cover a three-year grant period with grant funding being reduced each year until the year when the city was responsible for 100% of the cost of the subject firefighters. Additionally, the earlier SAFER grants only covered allowable salary ranges, however the new SAFER grant covers “fully burdened” salaries, i.e., salaries, benefits, etc. The other significant change is that the grant covers 100% of all personnel costs due to COVID-19. The proposed two grant-funded positions would be brought into the Department at the Firefighter salary range and the start date would depend on the award date.

CONCLUSION
The SAFER Grant was created to provide funding directly to fire departments to help them increase or maintain the number of trained “front line” firefighters available in their communities. Appling for this grant is just one element of the mission of the Morro Bay Fire Department, “To enhance the quality of life by providing exceptional emergency services.” The anticipated grant funding awards are scheduled to begin in June 2024 and continue through September 2024.

ATTACHMENT
None

Prepared By: ___TS Dept Review: ___TS
City Manager Review: yk________ City Attorney Review: __CFN____ Staff Report
TO: Honorable Mayor and City Council DATE: March 18, 2024 FROM: Ted Schiafone, Harbor Director
SUBJECT: Approval of Assignment and Assumption Agreement transferring Lease Site 129W-131W located at 1231 Embarcadero from Morro Bay Fish Company to Morro Bay Seafood Company and Approval of Settlement and Release Agreement with Morro Bay Fish Company

RECOMMENDED ACTION
Approve the Assignment and Assumption Agreement transferring Lease Site 129W-131W located at 1231 Embarcadero from Morro Bay Fish Company to Morro Bay Seafood Company for the remainder lease term which ends on June 30, 2025, and authorize the Mayor to execute a Settlement Agreement and Release of all claims with Morro Bay Fish Company.

FISCAL IMPACT
Loss of monthly income of $1,166 through the end of the lease term, June 30, 2025, for a total of $20,988. However, the former lease holder has agreed to provide 20 insulated fish storage bins at a replacement value of $28,000 to the Harbor Department as compensation for the lost rent revenue.

BACKGROUND
On November 21, 2023, Morro Bay Fish Company informed the City they are losing too much money on operations of the Morro Bay fish landing facilities due to recent developments in the fishing industry and they would vacate the premises on December 31, 2023. The Harbor Department scheduled a closed session meeting with Council December 4, 2023, to determine the best path forward.

Due to the limited time to develop a Request for Proposals (“RFP”) to find a suitable lessee for the property and the potential damage to the icehouse from non-operations, the Harbor Director requested authorization to identify and negotiate the assignment of the current lease with a new lessee for the remainder of the term, until June 30, 2025.

With the help of the Morro Bay Commercial Fishermen’s Organization (“MBCFO”), three possible lessees were identified. Garret Rose and Mark Tognazzini were interviewed, and the third lessee decided not to participate. It was determined that Garret Rose (Morro Bay Seafood Company) would be the best fit to assume the interim lease, however an RFP will be produced in early 2025 to determine the best long-term lessee for this property.

DISCUSSION
In the best interest of the Harbor and commercial fishing, the Harbor Department needed to react AGENDA NO: 7.c
MEETING DATE: March 26, 2024

swiftly to identify a suitable operator for the Morro Bay fish landing. The icehouse needs continued power and maintenance otherwise it could be subject to severe damage. Commercial fishers also needed to have the ability to sell fish. Rather than seeking litigation to force Morro Bay Fish Company to continue operations or pay damages for lost rent, the Harbor Director sought to prioritize minimizing operation down time so that commercial fishing can proceed without interruption. That solution involved negotiating and obtaining equipment necessary for running the fish landing and eliminating the monthly rent for the interim lease so that a new operator can build the business and remain in operation during this 18-month term. Additionally, the former operator, MBFC agreed to provide 20 insulated fish storage bins at a replacement value of $28,000 to the Harbor Department as compensation for the lost rent revenue. In conclusion our solution has resulted in a win-win scenario for all parties involved. As a part of this agreement, the City will release Morro Bay Fish Company from the existing lease and Morro Bay Fish Company will agree to assign the lease to Morro Bay Seafood Company.

CONCLUSION
Staff recommends the City Council approve the Assignment and Assumption Agreement transferring Lease Site 129W-131W located at 1231 Embarcadero from Morro Bay Fish Company to Morro Bay Seafood Company for the remainder term which ends on June 30, 2025, and authorize the Mayor to execute the Settlement Agreement and Release of all claims with Morro Bay Fish Company.

ATTACHMENTS

1. Assignment and Assumption Agreement

2. Settlement Agreement and Release of All Claims

3. City of Morro Bay and Morro Bay Fish Company Lease Agreement

SETTLEMENT AGREEMENT AND RELEASE OF ALL CLAIMS
This SETTLEMENT AGREEMENT AND RELEASE OF ALL CLAIMS (this “Agreement”) is made as of December 31, 2023 (“Effective Date”) by and between the City of Morro Bay, a municipal corporation (hereinafter “Landlord”) and Morro Bay Fish Company, a California corporation (hereinafter “Tenant”).

RECITALS
A. Landlord and Tenant entered into a certain Lease Agreement dated July 1, 2015 (the “Lease”) whereby Landlord agreed to lease to Tenant and Tenant agreed to lease from Landlord Lease Site 129W-131W (the “Premises”).

B. Tenant provided notice to Landlord that Tenant wishes to terminate the Lease prior to its scheduled expiration on June 30, 2025 (the “Scheduled Expiration Date”).

C. In consideration of entering into this Agreement, Tenant has agreed to, rather than terminate the Lease prior to the Scheduled Expiration Date, assign the Lease to a sublessee selected by the City of Morro Bay’s (the “City”) Harbor Director.

D. Landlord and Tenant have agreed to enter into this Agreement to release any claims related to the Agreement, subject to the terms and conditions herein.

AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and mutual covenants set forth below, and for other consideration hereinafter set forth, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Recitals. The recitals set forth above are incorporated herein by this reference.

2. Vacation of Premises. Tenant shall vacate the Premises pursuant to Section 5(a) by 5:00PM on December 31, 2023 (the “Vacation Date”). If earlier delivery of possession of the Premises is desired by Tenant, then such arrangements can be made by contacting Landlord’s Harbor Director.

Vacation of the Premises shall not release Tenant from any indemnity provisions in the Lease with respect to acts or omissions that occurred prior to the Vacation Date.

3. Lease Assignment. Within three days after receipt from Landlord’s Harbor Director, Tenant shall sign an assignment and assumption agreement substantially similar to Exhibit A, attached hereto.

Failure to sign that agreement will void the waiver set forth in Section 4, below.

4. Compliance with Obligations. As consideration for Landlord’s consent to early vacation of the Premises, (1) Tenant shall comply with all the requirements of this Agreement; (2) Landlord agrees to waive the outstanding rent amounts owed by Tenant under the Lease and release any claims related to the Agreement; and (3) Tenant acknowledges and agrees it has made no deposits in relation to the Lease and, therefore, releases Landlord from any liability or claim that the Tenant may have relating to the return of such deposits to the Tenant.

5. Condition of Premises; Landlord Property.
a. Condition of Premises. By the Vacation Date, Tenant shall deliver possession of the Premises to Landlord and shall remove all of its personal property (except as provided in Section 5(b)); repair all damage to the Premises, including, without limitation, such damage caused by such removal of Tenant’s personal property to the reasonable satisfaction of Landlord; vacate the Premises and leave such Premises in reasonably good condition and repair and otherwise in such condition as is required under the Lease with respect to surrender of the Premises at the end of the term of the Lease; and deliver the key, lock, and any other security access equipment of the Premises to Landlord. b. Landlord Property. Prior to the Vacation Date, Tenant shall complete the following requirements:
i. Surrender and deliver all equipment installed and utilized on the Premises and all property owned by Landlord, including, but not limited to, any equipment obtained by Landlord that is placed within the Premises (collectively referred to as the “Landlord Property”). Tenant shall ensure the Landlord Property is left in reasonably good condition and repair, normal wear and tear excepted. Tenant acknowledges the Landlord Property is the property of Landlord and is located at the Premises solely in connection with Tenant’s use of the Premises and performance of services under the Lease. Tenant shall make all reasonable efforts to safeguard the Landlord Property while vacating the Premises and shall not remove, damage, or dispose of the Landlord Property without prior written consent from Landlord. Tenant shall leave the Landlord Property within the Premises as applicable. Landlord Property includes, without limitation, the list of equipment provided in Exhibit “B”.
ii. Deliver to the Harbor Director and the City Manager, or their respective designees, an inventory of the Landlord Property at least 10 days prior to the Vacation Date. Such inventory shall consist of Exhibit B, and revised to include any additional property Tenant believes to be the Landlord Property. However, any revision of Exhibit B pursuant to this Subsection 5(b)(ii) shall require the Harbor Director’s and City Manager’s, or their respective designee’s written approval.
iii. Prior to the Vacation Date, Tenant agrees to permit the Harbor Director and City Manager, or their respective designees, access to the Premises at any reasonable time to inspect or inventory the Landlord Property and Tenant shall cooperate fully with the Harbor Director and City Manager, or their respective designees, to facilitate the return of the Landlord Property to Landlord in the same condition as when received, except for normal wear and tear. In the event Tenant fails to surrender the Landlord Property as required under this Section 5, Tenant shall be responsible for any costs incurred by Landlord in recovering, repairing, or replacing the Landlord Property.

6. Notice. Any notice, demand, request, document, consent, approval, or communication either party desires or is required to give to the other party or any other person shall be in writing and either served personally or sent by prepaid, first-class mail, addressed to the other party at the address set forth below. Either party may change its address by notifying the other party of the change of address in writing. Notice shall be deemed communicated at the time personally delivered or in forty-eight (48) hours from the time of mailing if mailed as provided in this Section.

If to Landlord: If to Tenant:

Harbor Director
City of Morro Bay
1275 Embarcadero
Morro Bay, CA 93442
With a copy to:

City Manager
City of Morro Bay
595 Harbor Street
Morro Bay, CA 93442
Morro Bay Fish Company
Attn: Roger A. O’Brien, President
5495 Traffic Way
Atascadero, CA 93422
With a copy to:

Roger A. O’Brien, President & CEO
Santa Monica Seafood Company
18531 S. Broadwick Street
Rancho Dominguez, CA 90220

7. Enforcement. In the event Tenant fails to comply with this Agreement, Landlord shall have all remedies available at law and equity.

8. Knowing and Voluntary. In executing this Agreement, each party hereto acknowledges they have been given the opportunity to consult with and receive the advice of counsel and the parties have executed this Agreement after independent investigation and without fraud, duress, or undue influence.

9. General Release. For valuable consideration, the receipt and adequacy of which are hereby acknowledged, Landlord hereby agrees to release and forever discharge Tenant, including its current and former employees, officials, agents, directors, officers, corporate affiliates, or representatives, or any of them, and the Tenant hereby agrees to release and forever discharge Landlord and the “Releasees” hereunder, consisting of the City of Morro Bay’s elected or appointed public officials, officers, employees and agents, including, but not limited to, each of their associates, predecessors, successors, heirs, assignees, agents, directors, officers, employees, representatives, elected or appointed public officials, attorneys, and all persons acting by, through, under or in concert with them, or any of them, of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands, damages, loss, attorneys’ fees, costs and/or expenses, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called “Claims”), which any of the parties now has or may hereafter have against each other and/or the Releasees, or any of them, by reason of any matter, cause, or thing whatsoever from the beginning of time to the date hereof including, without limiting the generality of the foregoing, any Claims constituting, arising out of, based upon, or relating to the Lease.

10. Waiver of Civil Code Section 1542. Further, Tenant expressly agrees to waive and relinquish all rights and benefits he may have against the City, and/or the Releasees under Section 9 of this Agreement based on Section 1542 of the Civil Code of the State of California. That section reads as follows:
“§1542. [General release; extent] A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

11. Waiver. Waiver by any party to this Agreement of any term, condition, or covenant of this Agreement shall not constitute a waiver of any other term, condition, or covenant. Waiver by any party of any breach of the provisions of this Agreement shall not constitute a waiver of any other provision or a waiver of any subsequent breach or violation of any provision of this Agreement. No delay or omission in the exercise of any right or remedy by a non-defaulting party on any default shall impair such right or remedy or be construed as a waiver. Any waiver by either party of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this Agreement.

12. Attorneys’ Fees. If any dispute arises between the parties hereto or their legal representatives, successors and assigns concerning any provision of this Agreement or the rights and duties of any person in relation thereto, then the party prevailing in such dispute shall be entitled, in addition to such other relief that may be granted, to recover reasonable attorneys’ fees and costs in connection with such dispute.

13. Adequate Consideration. The parties hereto irrevocably stipulate and agree that they have each received adequate and independent consideration for the performance of the obligations they have undertaken pursuant to this Agreement.

14. Governing Law. This Agreement shall be governed and construed under the laws of the State of California and shall in all respects be interpreted, enforced and governed under the laws of said State without giving effect to conflicts of laws principles. Any action to enforce, invalidate, or interpret any provision of this agreement shall be brought in the Superior Court of California, County of San Luis Obispo.

15. Interpretation. The terms of this Agreement shall be construed in accordance with the meaning of the language used and shall not be construed for or against either party by reason of the authorship of this Agreement or any other rule of construction which might otherwise apply.

16. Final and Complete Expression. This Agreement is the final and complete expression of the parties regarding the subject matter hereof. This Agreement may not be modified, interpreted, amended, waived or revoked orally, but only by a writing signed by all of the parties hereto.

17. Severability. If any provision in this Agreement is deemed invalid, then the remaining provisions thereof will continue in full force and effect and will be construed as if the invalid provision had not been a part of this Agreement.

18. Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original and all of which together shall constitute one and the same document.

19. Authority. The persons executing this Agreement on behalf of the parties hereto warrant that (i) such party is duly organized and existing, (ii) they are duly authorized to execute and deliver this Agreement on behalf of said party, (iii) by so executing this Agreement, such party is formally bound to the provisions of this Agreement, and (iv) the entering into this Agreement does not violate any provision of any other agreement to which said party is bound.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date written below.
[SIGNATURES ON FOLLOWING PAGE]

Dated: ______________, 2023 LANDLORD:

CITY OF MORRO BAY, a municipal corporation,
By: ______________________________
Carla Wixom, Mayor
ATTEST:
______________________________
Dana Swanson, City Clerk
APPROVED AS TO FORM:
______________________________
Chris F. Neumeyer, City Attorney
Dated: ______________, 2023 TENANT:

MORRO BAY FISH COMPANY,
a California corporation
By: ______________________________
Roger A. O’Brien
Its: President

EXHIBIT “A”

ASSIGNMENT AND ASSUMPTION AGREEMENT
[see attached]

ASSIGNMENT AND ASSUMPTION AGREEMENT
This assignment is made and entered as of the 1st of day of January 2024 by and between MORRO BAY FISH COMPANY, a California corporation (hereinafter referred to as “Assignor”) and MORRO BAY SEAFOOD COMPANY, a California corporation (hereinafter, referred to as “Assignee”).

1. Assignee acknowledges the City of Morro Bay (the “City”) has, leased the premises, known as Morro Bay Lease Site 129W-131W and as more particularly described in Attachment “A” attached hereto, to Assignor pursuant to that certain unrecorded Lease dated July 1, 2015. Assignee acknowledges any assignment of the Lease is subject to prior approval by the City’s City Council and is also subject to prior execution between Assignor and Assignee.

2. Assignee agrees (i) to comply with all the terms and conditions of the Lease, with the exception of the construction of capital improvements as described in Section

13.06 of the Lease, (ii) to assume all liabilities required under the Lease and any amendments, (iii) to defend, indemnify and hold harmless the City and its officers, employees and representatives from and against, any and all claims, lawsuits, costs and expenses, including reasonable attorney’s fees and court costs arising from, or in any way related to the Lease, and (iv) to maintain liability insurance in the manner, form and amount required by Lease and any amendments, thereto, with the City, its officers, employees and representatives, included as an additional insureds without the offset against the City’s insurance.

3. Assignor hereby assigns to Assignee all rights, title and interest it has in the Lease.

4. Assignor confirms to the City it has no actual knowledge or reasonable cause to believe any release of hazardous substance has come to be located on/or beneath the real property during the term of Assignors’ occupation of the leased premises that has not been reported pursuant to Health and Safety Code section 25359.7.

ASSIGNOR:

MORRO BAY FISH COMPANY,
a California corporation
Dated: , 2024 By:

Dated: , 2024 By:

The undersigned, jointly and severally, consents to and accepts, on and after January 1, 2024 assignment & assumptions of the payment of rent, including all percentage of gross sales rent, and performance of all duties and obligations as set forth in the Lease, with the exception of the construction of capital improvements as described in Section 13.06 of the Lease.

ASSIGNEE:

MORRO BAY SEAFOOD COMPANY,
a California corporation
Dated: , 2024 By:

Garrett Rose,
The City, Lessor named in the Lease, consents to this Assignment upon the conditions set forth above. The City also consents to the agreements by Assignee to assume on and after January 1, 2024, the payment of rent, including all percentage of gross sales rent, and performance of all duties and obligations as set forth in the Lease. This Assignment has been approved by the City’s City Council on or prior to the date set forth below.

LESSOR:

City of Morro Bay
Dated: , 2024 By:

Carla Wixom, Mayor

ATTACHMENT “A”
LEASE AGREEMENT FOR LEASE SITE 129W-131W
[see attached]

EXHIBIT “B”

LIST OF LANDLORD PROPERTY
The following list includes the Landlord Property as specified in the Lease as exhibit B:
 One 5000 lb. platform scale
 One Ice plant with thrower assembly Forklift
 One Hoist
 One Salt-water wash down pump
 One 40 ft. refrigerated container
 One De-icer
 Four 280-gallon fish tanks with 2 salt water pumps and air compressor  10 (approximately) Stainless steel albacore racks with pipes and hooks (10?)  Various Loading and dump buckets
 Various Metal totes labeled "Driscoll's Wharf'
The following is a list of equipment agreed to be left for new tenant as specified in email dated December 18, 2023 by Fernando Gonzales:
 All equipment in the deck, except one of two forklifts that is under lease and cannot be sold or transferred, the remaining one is in good shape and only needs a tire to be replaced.
 17 fish totes necessary for the new operator to work.  New operator would buy all the existing bait inventory. We will work with them with payment terms.

Prepared By: ___TS Dept Review: ___TS
City Manager Review: _YK_______ City Attorney Review: __CFN____ Staff Report
TO: Honorable Mayor and City Council DATE: March 19, 2024 FROM: Ted Schiafone, Harbor Director
SUBJECT: Approval of Lease Agreements between the City of Morro Bay and Orietta M.

DeGarimore, as Trustee of Michael G. and Orietta M. DeGarimore Revocable Trust for Lease Sites 105.1W/105.2 and Lease Sites 102/102W

RECOMMENDED ACTION
Approve the Lease Agreement by and between the City of Morro Bay and Orietta M. DeGarimore, as Trustee of Michael G. and Orietta M. DeGarimore Revocable Trust for Lease Sites 105.1W/105.2 and Lease Sites 102/102W.

FISCAL IMPACT
Total revenue for all lease sites will be $61,532.16 this first year with future annual CPI increases.

Initial rent for Lease Site 102 is $20,000 with CPI annual increases. Lease Site 102W is currently paying $37,532.16 per year with future CPI annual increases. Lease Sites 105.1W/105.2 will remain at $4,000 per year however will now have CPI annual increases. In addition, the seawall and harbor walk on Lease Sites 105.1W/105.2 will be repaired and improved within the next five years by lessee.

BACKGROUND
These businesses have been in the DeGarimore family since the 1980’s. The Michael G. and Orietta M. DeGarimore Revocable Trust is the lessee. Both leases are expired and on holdover with outdated lease formats. The Harbor Department has worked to renegotiate these leases for nearly a decade without much progress. Lease sites 105.1W/105.2 encompass the fuel dock and a tiny portion of upland with no buildings located on State Tidelands. Lease sites 102/102W are primarily over water and include slips for eight vessels. A very small portion of the main building sits on a portion of Tidelands. It is estimated 11% to 16% of the total square feet of the main building are sitting on State Tidelands, depending upon information reviewed. The reason for this discrepancy is that State Tidelands survey is not detailed and the State has declined to have another survey completed. At one point the Harbor Department investigated the option of a State Tidelands boundary line adjustment so that a sale of this small portion of land could be sold to the DeGarimore Trust and thereby eliminate the stalemate in negotiations. Current staff confirmed from the State that a boundary line adjustment to accommodate a sale of Tidelands is not possible. As a result, staff negotiated over the past six months and secured the recent agreement on lease terms.

DISCUSSION
Regarding the fuel sites 105.1W/105.2, staff believes the current operations are at best a break even and potential loss. Fuel sales are considerably lower as the commercial fishing vessel fleet has downsized over the term of this lease. While the fuel dispensing system is on the lease site, the fuel AGENDA NO: 7.d
MEETING DATE: March 26, 2024

tanks are on privately owned property of the DeGarimore Revocable Trust. Developing an alternative fuel dock could take over a decade and pose to be extremely challenging. Additionally, the seawall needs rebuild/repair and the Harbor fund is not capable of taking on that project. Maintaining the operations of the fuel dock is very important to our existing commercial fishing vessels, recreational boating, Coast Guard, California Fish and Wildlife, Army Corp, and Harbor Patrol.

Regarding lease sites 102/102W, the Harbor Department has been at an impasse with the leaseholder for over a decade. The calculation of percentage rent depending upon the amount of building on State Lands and the amount of sales generated on that portion of the property has created the stalemate. Instead of continuing down a path that led to no mutual agreement, staff pursued a fixed rent agreement. Negotiations ended at a mutual agreement of $20,000. To determine if $20,000 fixed rent is market rate, staff provides the following analysis: State Lands recommends the rental of raw land be leased based on an annual rent of 8% of the land value. If the building is on 11% to 16% of State Lands, then $20,000 should be 8% of that portion of the land value. That would mean the portion on State Lands is worth $250,000. If the portion on State Lands is 11%-16% of the total parcel, the total value of that parcel would be between $1.56M to $2.27M. That value is in line with similar lease sites along the Embarcadero.

CONCLUSION
Staff recommends the City Council approve the Lease Agreement by and between the City of Morro Bay and Orietta M. DeGarimore, as Trustee of Michael G. and Orietta M. DeGarimore Revocable Trust for Lease Sites 105.1W/105.2 and Lease Sites 102/102W.

ATTACHMENTS

1. Lease Agreement 102/102W

2. Lease Agreement 105.1W/105.2

01181.0024/959944.5

L E A S E
This LEASE is made and entered into by and between the CITY OF MORRO BAY, a municipal corporation of the State of California herein called CITY, and ORIETTA M.

DEGARIMORE, AS TRUSTEE OF MICHAEL G. AND ORIETTA M. DEGARIMORE REVOCABLE TRUST, UNDER DECLARATION DATED JUNE 30, 2005, herein called TENANT. (CITY and TENANT, at times, are referred to herein individually as Party and collectively as Parties)

WITNESSETH
WHEREAS, the State of California granted certain tide and submerged lands located within the CITY limits of CITY to the County of San Luis Obispo and to its successors, being Chapter 1076, Statutes of 1947, as amended by Chapter 413, Statutes of 1955, Chapter 1874, Statutes of 1957, and Chapter 70, Statutes of 1960, first extraordinary session; which Statutes may be amended from time to time by the Legislature of the State of California; all of which Statutes are expressly recognized and agreed to be in full force and effect by the Parties; and WHEREAS, the Parties hereto recognize and agree, on July 17, 1964, CITY succeeded to all of the right, title and interest of the County of San Luis Obispo in and to all of the tide and submerged lands conveyed to said County by the State of California pursuant to the above mentioned acts; and
WHEREAS, judgment has been entered on October 14, 1968, in the case of City of Morro Bay, Plaintiff, versus County of San Luis Obispo, and State of California, Defendants, by the Superior Court of the State of California in and for the County of San Luis Obispo, #30417, adjudging and decreeing, among other things, the title to said tide and submerged lands so conveyed by the State of California to the County of San Luis Obispo in trust, as set forth above, passed automatically to CITY upon the date of its incorporation as a city on the 17th day of July, 1964; and
WHEREAS, TENANT accepts the within Lease with full knowledge there is no warranty of title in and to the within described premises by CITY to TENANT; and WHEREAS, in order to develop and improve Morro Bay Harbor and to assist in carrying out the provisions of the tideland grant as aforesaid, and in order to provide facilities for the accommodation of those using Morro Bay Harbor, CITY desires to lease to TENANT the within described property upon the terms and conditions set forth herein;

01181.0024/959944.5

L E A S E
by and between
the CITY OF MORRO BAY
("CITY")
and
ORIETTA M. DEGARIMORE, AS TRUSTEE OF MICHAEL G. AND
ORIETTA M. DEGARIMORE REVOCABLE TRUST,
UNDER DECLARATION DATED JUNE 30, 2005
("TENANT")

01181.0024/959944.5 -iTABLE OF CONTENTS
Article 1 FIXED TERM.............................................................................................................2 Section 1.01 Term..............................................................................................2 Section 1.02 No Extensions. ..............................................................................2 Section 1.03 Hold Over......................................................................................2 Section 1.04 Replacement..................................................................................3 Article 2 RENT..........................................................................................................................3 Section 2.01 Annual Minimum Rent. ................................................................3 Section 2.02 CPI Adjustment to Annual Minimum Rent. .................................3 Section 2.03 Special Slip Rate. .............................................................................4 Section 2.04 Reimbursements............................................................................4 Section 2.05 Penalty and Interest.......................................................................4 Article 3 USE OF PREMISES...................................................................................................5 Section 3.01 Permitted Uses. .............................................................................5 Section 3.02 Unauthorized Use..........................................................................5 Section 3.03 Operation of Business - Hours of Operation.................................5 Section 3.04 Competition...................................................................................6 Section 3.05 Environmental Considerations and Hazardous Materials.............6 Section 3.06 Tidelands Trust. ............................................................................7 Section 3.07 Compliance with Law...................................................................8 Section 3.08 Waste or Nuisance. .......................................................................8 Section 3.09 Use by CITY.................................................................................8 Article 4 CONSTRUCTION, ALTERATION AND REPAIRS ...............................................8 Section 4.01 Construction Approval..................................................................8 Section 4.02 Construction Bond. .......................................................................9 Section 4.03 Mechanics' Liens.........................................................................10

01181.0024/959944.5 -iiSection 4.04 Ownership of Improvements.......................................................10 Article 5 LEASEHOLD MORTGAGES .................................................................................11 Article 6 REPAIRS, MAINTENANCE AND RESTORATION ............................................11 Section 6.01 Maintenance by TENANT..........................................................11 Section 6.02 Seawalls and Revetment. ............................................................12 Section 6.03 Legal Requirements. ...................................................................12 Section 6.04 Failure to Repair. ........................................................................12 Section 6.05 Inspection by CITY.....................................................................13 Section 6.06 TENANT'S Duty to Restore Premises........................................13 Section 6.07 Termination of Lease for Destruction.........................................13 Section 6.08 Destruction Due to Risk Not Covered by Insurance...................15 Article 7 INDEMNITY AND INSURANCE ..........................................................................15 Section 7.01 Indemnity Agreement. ................................................................15 Section 7.02 Liability Insurance. .....................................................................16 Section 7.03 Worker's Compensation..............................................................16 Section 7.04 Property Insurance. .....................................................................16 Section 7.05 Additional Coverage. ..................................................................17 Section 7.06 General Requirements.................................................................17 Section 7.07 No Subrogation. ..........................................................................18 Section 7.08 TENANT'S Waiver.....................................................................19 Section 7.09 Insurance Not a Limit. ................................................................19 Article 8 TAXES AND FEES..................................................................................................19 Section 8.01 TENANT to Pay Taxes...............................................................19 Section 8.02 TENANT to Pay License and Permit Fees. ................................19 Section 8.03 Utilities........................................................................................19

01181.0024/959944.5 -iiiArticle 9 CONDEMNATION..................................................................................................20 Section 9.01 Total Condemnation....................................................................20 Section 9.02 Condemnation Award. ................................................................20 Section 9.03 Termination for Partial Taking. ..................................................21 Section 9.04 Rent Abatement for Partial Taking.............................................21 Section 9.05 Conveyance in Lieu of Eminent Domain....................................22 Section 9.06 Temporary Taking. .....................................................................22 Article 10 ASSIGNMENT AND SUBLEASING .....................................................................22 Section 10.01 No Assignment Without CITY'S Consent. .................................22 Section 10.02 Change of Ownership as Assignment.........................................23 Section 10.03 Application for Assignment........................................................23 Section 10.04 Probate Transfer of Assignment. ................................................24 Section 10.05 No Sublease Without CITY'S Consent.......................................24 Section 10.06 Subtenant Subject to Lease Terms..............................................25 Section 10.07 Consent to Sublease Agreement. ................................................25 Section 10.08 TENANT and Guarantor Remain Liable....................................25 Section 10.09 Nondisturbance. ..........................................................................25 Article 11 DEFAULT AND TERMINATION..........................................................................26 Section 11.01 Abandonment by TENANT........................................................26 Section 11.02 Termination for Breach by TENANT.........................................26 Section 11.03 Termination for Failure to Pay Rent. ..........................................26 Section 11.04 Lender May Cure Default. ..........................................................27 Section 11.05 Damages for Breach....................................................................27 Section 11.06 Cumulative Remedies. ................................................................27 Section 11.07 Waiver of Breach. .......................................................................28 Section 11.08 Surrender of Premises.................................................................28

01181.0024/959944.5 -ivArticle 12 MISCELLANEOUS .................................................................................................28 Section 12.01 Notices. .......................................................................................28 Section 12.02 Governing Law and Jurisdiction.................................................29 Section 12.03 Binding on Successors. ...............................................................29 Section 12.04 Partial Invalidity..........................................................................29 Section 12.05 Sole and Only Agreement...........................................................29 Section 12.06 Modification................................................................................30 Section 12.07 Time of Essence..........................................................................30 Section 12.08 Memorandum of Lease for Recording........................................30 Section 12.09 Force Majeure. ............................................................................30

01181.0024/959944.5 -2-
NOW, THEREFORE, in consideration of the covenants to be performed and the rental to be paid by TENANT to CITY, CITY leases to TENANT, and TENANT leases from CITY, all of the following premises (herein collectively referred to as the "Premises") in the CITY of Morro Bay, County of San Luis Obispo, State of California, described as follows:

Lease Sites 102-102W
This Premises is delineated on Parcel Map of the CITY of Morro Bay No. 68-30, which map was recorded on October 10, 1968, in Book 3, Page 10 of Parcel Maps in the Office of the County Recorder, San Luis Obispo County, California. A copy of said Map is attached hereto as Exhibit A and made a part hereof by reference.

Article 1 FIXED TERM
Section 1.01 Term.

The term of this Lease for is a period of 20 years, commencing July 1, 2024 (the “Commencement Date”). The term of this Lease will terminate without notice on June 30, 2044.

Section 1.02 No Extensions & Limited Option to Renew.

Except as provided in except as noted in the last sentence of this Section, the term of this Lease will not be extended nor will this Lease be renewed. Requests for continued use of the Premises, after expiration of the term, will be treated as an application for a new lease and will require appropriate application to CITY with all required supporting information and documents, City Council approval and the execution of a new lease, containing the then most current terms, covenants, conditions and rent schedules. If the Parties renegotiate a new Rent for that site, then the term for the Lease for that site will be extended 5 years to June 30, 2049.

Section 1.03 Hold Over.

If TENANT holds the Premises after the expiration of the term of this Lease for a Lease Site with the consent of CITY, express or implied, then such holding over (in the absence of a written agreement between CITY and TENANT with respect thereto) will be deemed to create a tenancy from month-to-month, terminable on 30-days’ written notice from either Party to the other, at a monthly rental equal to two hundred percent (200%) of the average total Rent per month for the twelve (12) months immediately preceding the expiration of this Lease for that Lease Site, and otherwise subject to each and every term, covenant and condition of this Lease.

01181.0024/959944.5 -3-
Section 1.04 Replacement.

Subject to the next paragraph, as of the Commencement Date, this Lease will extinguish and replace every prior lease between CITY and TENANT respecting the Premises, if any. Any right or interest held by TENANT pursuant to any existing lease with respect to the Premises, which is not granted pursuant to this Lease, will be extinguished as of the Commencement Date of this Lease.

Article 2 RENT
Section 2.01 Annual Minimum Rent.

TENANT agrees to pay to CITY a minimum guaranteed annual rental for the use and occupancy of each of the Lease Sites, as described below (the “Minimum Rent”):

A. For Lease Sites 102, an initial total amount of $20,000 per year, payable in advance and at the option of TENANT either in equal semiannual installments or equal monthly installments.

B. For Lease Site 102W, an initial amount of $37,532.13 per year, payable in advance and at the option of TENANT either in equal semiannual installments or equal monthly installments.

C. If Minimum Rent is paid in equal semiannual installments, then such installments must be on January 1 and July 1 each year during the term of the Lease. If the Commencement Date is other than January 1 or July 1, then TENANT must pay, on the Commencement Date, the proportionate amount of the Minimum Rent payable for the period from the Commencement Date until the next payment date of January 1 or July 1, as the case may be. If the term of the Lease expires on a date other than December 31 or June 30, then TENANT'S final installment of Minimum Rent must be proportionate to the time remaining in the term. If paid in equal monthly installments, then each monthly installment must be paid no later than the tenth day of each applicable month. All Rent, including the Minimum Rent and the Percentage Rent, must be paid in lawful money of the United States of America, without offset or deduction and must be paid to CITY at City Hall located at 595 Harbor Street, Morro Bay, California, or at such other place or places CITY may from time to time designate by written notice delivered to TENANT.

Section 2.02 CPI Adjustment to Annual Minimum Rent.
(1) The Parties agree, as of every July 1 following the Commencement Date (each, a "CPI Adjustment Date"), the annual Minimum Rent will be adjusted in direct proportion to any

01181.0024/959944.5 -4-
upward or downward movement in the Consumer Price Index for calendar year 2022, which is hereby agreed to be 310.782 (Base Index). The percentage adjustment for any given year will be based on the monthly average Index for the calendar year immediately preceding the CPI Adjustment Date as compared with the Base Index. The Consumer Price Index referred to herein is the Consumer Price Index (all items indexes, all urban consumers) for Los Angeles – Long Beach – Anaheim, California, compiled and published by the United States Department of Labor, Bureau of Labor Statistics, 1982-84 Base Year = 100 (the "Index") (2) The Annual Minimum Rent will be adjusted as of each CPI Adjustment Date, and will remain in effect as adjusted until the next CPI Adjustment Date. As an illustration only, if the Base Index (Jan. 1, 1999 CPI) is 166.1 and the monthly average CPI for 2000 is 171.6, then the percentage increase is equal to 3.31%. Therefore, the Minimum Rent would be increased by

3.31% as of July 1, 2001, and would continue at that rate through June 30, 2002. (3) If the United States Department of Labor, Bureau of Labor Statistics, ceases to compile and make public the Index as now constituted and issued, but substitutes another index in its place, then said substituted index must be used for the purpose of adjusting the Minimum Rent for the Premises. If the Index is changed so the base year differs from that in effect on the Lease Commencement Date, then the Index must be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics.

Section 2.03 Special Slip Rate.

In 1989, CITY previously agreed to a special rate for two slips associated with the Premises. That agreement was memorialized by a letter date September 19, 1989, which is attached hereto as Exhibit B and incorporated herein by this reference.

Section 2.04 Reimbursements.

If TENANT fails to perform any term or covenant of this Lease, then CITY may, but is not obligated to, perform such term or covenant, and TENANT must reimburse CITY therefore as additional Rent hereunder. As an illustration and not as a limitation, if TENANT fails to procure the insurance required by this Lease, then CITY may, but is not obligated to, obtain such insurance, with the cost of the premiums being due to CITY upon demand as additional Rent.

Section 2.05 Penalty and Interest.
(1) If any Rent is not received within ten (10) days following the date on which the Rent first became due, then TENANT must pay a late penalty of ten percent (10%) of the total Rent due and payable in addition to the total amount of the unpaid Rent.

01181.0024/959944.5 -5-
(2) In addition to the penalty, TENANT must pay interest at the rate of one percent (1%) per month or fraction thereof or the maximum amount permitted by law as of the date this Lease is signed, whichever is greater (the "Default Rate"), on the amount of the Rent, exclusive of the penalty, from the date on which Rent first became delinquent until paid. The term "Rent" includes any sums advanced by the CITY and any unpaid amounts due from TENANT to the CITY.

Article 3 USE OF PREMISES
Section 3.01 Permitted Uses.

The Premises, during the term of this Lease, are to be used for the purpose of operating and conducting thereon only commercial seafood unloading and processing, dock, wholesale and retail fish market, passenger for hire at slips on docks, restaurant/bar, outdoor seating/dinning, shell and gift shop, sport fishing, construction and maintenance of fish dock and appurtenances.

Section 3.02 Unauthorized Use.

TENANT agrees to allow only those uses authorized in Section 3.01, hereinabove and any unauthorized use thereof constitutes a breach of this Lease and may, at the option of CITY, terminate this Lease.

Section 3.03 Operation of Business - Hours of Operation.

Failure to actively and diligently conduct the business authorized herein constitutes a breach of this Lease and may, at the option of CITY, terminate this Lease. (1) TENANT must, during the term of this Lease, conduct business of the nature specified in Section 3.01 of this Lease on the Premises, in an efficient and diligent manner and keep the Premises open for the conduct of those businesses continuously and without interruption for at least six hours each day of the year, except one day each week and legal holidays for all businesses. This provision does not apply if the Premises is closed and those businesses of TENANT are temporarily shut down for a period not to exceed 14 calendar days in any calendar year to make necessary repairs, maintenance or other construction deemed necessary by TENANT. This provision does not apply if the Premises is closed and those businesses of TENANT are temporarily shut down as authorized or required by the City Manager or on account of strikes, walkouts, or causes beyond the control of TENANT or for not

01181.0024/959944.5 -6-
more than three days out of respect to the memory of an officer, employee, or close relative of any officer or employee of TENANT.
(2) TENANT must operate TENANT'S businesses on the Premises with due diligence and efficiency and in like manner as comparable businesses operated in CITY or the coastal area of San Luis Obispo County, so as to produce the maximum amount of sales, which may be produced from TENANT'S businesses.

Section 3.04 Competition.

During the term of this Lease, TENANT must not directly nor indirectly acquire or establish any similar or competing business within a radius of five miles from the location of the Premises; provided, however, that TENANT may, with prior written approval from CITY, own or operate more than one business, whether or not competing and similar, along the Embarcadero upon one or more CITY lease sites. The purpose of this section is to prevent and prohibit TENANT from reducing revenue to CITY by diverting business from the operation at the Premises to another similar business owned by TENANT within the CITY, but not upon a CITY lease site from which CITY is paid rent based on Gross Sales.

Section 3.05 Environmental Considerations and Hazardous Materials. (1) TENANT must, at all times, comply with applicable environmental regulations, including government-adopted and industry-adopted environmental best management practices and programs.
(2) TENANT must not transport, use, store, maintain, generate, dispose, release, treat or discharge any "Hazardous Material" (as defined below) upon or about the Premises (such activities being hereafter referred to as "Hazardous Materials Activities"), nor permit TENANT'S employees, agents, or contractors to engage in Hazardous Materials Activities upon or about the Premises, except as allowed by applicable law. The term "Hazardous Material" for purposes hereof means any chemical, substance, material or waste or component thereof which is now or hereafter listed, defined or regulated as a hazardous or toxic chemical, substance, material or waste or component thereof by any federal, state or local governing or regulatory body having jurisdiction, or which would trigger any employee or community "right-to-know" requirements adopted by any such body. All Hazardous Materials Activities at the Premises must be conducted strictly in accordance with all applicable laws and regulations. If TENANT transports, or has transported, any hazardous waste from the Premises, then such transportation must be done only by a contractor duly licensed to haul hazardous waste and only a duly

01181.0024/959944.5 -7-
licensed site approved by TENANT'S liability insurer must be used for disposal of that hazardous waste.
(3) TENANT must promptly notify CITY of: (i) any enforcement, cleanup or other regulatory action taken or threatened by any governmental or regulatory authority with respect to the presence of any Hazardous Material on the Premises or the migration thereof from or to other property, (ii) any demands or claims made or threatened by any party against TENANT or the Premises relating to any loss or injury resulting from any Hazardous Material on or from the Premises, and (iii) any matters where TENANT is required by applicable law to give a notice to any governmental or regulatory authority respecting any Hazardous Material on the Premises.

CITY has the right (but not the obligation) to inspect the Premises, to take such remedial action on the Premises, as CITY may deem appropriate, and to join and participate, as a party, in any legal proceedings or actions affecting the Premises initiated in connection with any environmental, health or safety law.
(4) If any Hazardous Material is released, discharged or disposed of by TENANT or its employees, agents or contractors, on or about the Premises in violation of the foregoing provisions, TENANT must immediately notify CITY. CITY may elect either to take such remedial action as CITY deems appropriate, in which event TENANT must reimburse CITY for all costs thereof within ten days after demand, or direct TENANT to perform such remediation.

If CITY directs TENANT to perform the remediation, then TENANT must immediately take such remedial action, as CITY directs. TENANT must, properly and in compliance with applicable laws, clean up and remove the Hazardous Material from the Premises and any other affected property at TENANT'S expense. If CITY directs TENANT to perform remediation hereunder and if TENANT fails to comply with the provisions of this Section within five days after written notice by CITY, or such shorter time as may be required by applicable law or in order to minimize any hazard to persons or property, then CITY may (but is not be obligated to) arrange for such compliance directly or as TENANT'S agent through contractors or other parties selected by CITY at TENANT'S expense (without limiting CITY'S other remedies under this Lease or applicable law).

Section 3.06 Tidelands Trust.

In addition to the obligations set forth in this Article, TENANT must use and occupy the Premises in strict compliance with the Tidelands Trust purposes, as established by law or interpretation of the California State Lands Commission.

01181.0024/959944.5 -8-
Section 3.07 Compliance with Law.

TENANT must, at no cost to CITY, comply with all of the requirements of all local, municipal, county, state and federal authorities now in force, or which may hereafter be in force, pertaining to the Premises, and faithfully observe in the use of the Premises all local, municipal and county rules, regulations and ordinances and state and federal statutes, rules, regulations and orders now in force or which may hereafter be in force (collectively, "Legal Requirements"); provided, however, that TENANT shall not be required to comply with any Legal Requirement imposed by CITY that would substantially deprive TENANT of a material benefit under this Lease, unless such Legal Requirement has been imposed or required (i) by a county, state or federal authority or (ii) to preserve public health and safety and applied to similar businesses within CITY’S jurisdiction. The judgment of any court of competent jurisdiction, or the admission of TENANT in any action or proceeding against TENANT, whether CITY be a party thereto or not, that TENANT has violated any such Legal Requirement in the use of the Premises will be conclusive of that fact as between CITY and TENANT.

Section 3.08 Waste or Nuisance.

TENANT must not commit or permit the commission by others of any waste on the Premises; TENANT must not maintain, commit, or permit the maintenance or commission of any nuisance as defined by law on the Premises; and TENANT must not use or permit the use of the Premises for any unlawful purpose.

Section 3.09 Use by CITY.
(1) Subject to TENANT'S rights hereunder to possession of the Premises, CITY may grant licenses to, or otherwise authorize, other persons and entities permitting uses of the Morro Bay Harbor.
(2) CITY also retains and reserves for itself, its successors and assigns, all oil, gas, petroleum and other mineral or hydrocarbon substances in and under the lands leased hereby together with right to prospect and extract all such substances.

Article 4 CONSTRUCTION, ALTERATION AND REPAIRS
Section 4.01 Construction Approval.
(1) TENANT must not make or permit any other person to make any alterations or structural additions or structural modifications to the Premises or to any structure thereon or facility appurtenant thereto if the cost thereof exceeds Ten Thousand Dollars ($10,000), without

01181.0024/959944.5 -9-
the prior written consent of CITY. The consent to be obtained pursuant to this Section 4.01(1) must be requested from the Harbor Director, or the City’s designee, for CITY. If the Harbor Director or any future successor to the duties of the City’s Harbor Director, or the City’s designee, gives such consent to proceed, then it is understood such consent is given by CITY only in its capacity as the landlord under this Lease and not as the permit-issuing authority.

TENANT remains obligated to obtain any needed building permits and comply with all applicable land use entitlement processes.
(2) Where required by the Morro Bay Municipal Code, California Coastal Act, Corps of Engineers or any other state or federal agency having authority over the proposed project, then all Conditional Use Permits, Concept Plans, Precise Plans, Coastal Development Plans, and any other required plans or permits must be applied for and approved prior to any construction, alteration or repairs.

Section 4.02 Construction Bond.
(1) Prior to the commencement of any construction the cost of which is greater than the amount of One Hundred Thousand Dollars ($100,000), TENANT must file, with CITY’S City Clerk, a final detailed Civil Engineer's, Registered Architect's or Licensed and Bonded General Contractor's estimate of the cost of construction and installation of improvements on the Premises. Said estimate must be submitted to CITY’S City Engineer for approval. TENANT must file with the City Clerk a faithful performance bond, in a form and issued by a corporate surety company satisfactory to CITY, in an amount satisfactory to CITY, but not in excess of 100% of the final detailed cost estimate, securing the faithful performance of TENANT or its contractor in the completion of said construction.
(2) TENANT must also file with the City Clerk a labor and materials bond, in a form and issued by a corporate surety company satisfactory to CITY, in an amount satisfactory to CITY, but not in excess of 100% of the final detailed cost estimate, securing the payment of all claims for the performance of labor or services on, or the furnishing of materials for, the performance of said construction.
(3) In lieu of the above referenced bonds, TENANT may post cash deposits or may make other mutually satisfactory arrangements to guarantee the completion of construction projects.

In the event the contractor bonds the project, CITY may be named as additional indemnitee to comply with these requirements.

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Section 4.03 Mechanics' Liens.

At all times during the term of this Lease, TENANT must keep the Premises and all buildings, installations and other improvements now or hereafter located on the Premises free and clear of all liens and claims of liens for labor, services, materials, supplies, or equipment performed on or furnished to the Premises. TENANT further agrees to, at all times, save CITY free and harmless and indemnify and defend CITY against all claims for labor or materials in connection with any improvement, repairs, or alterations on the Premises, and the cost of defending against such claims, including reasonable attorneys' fees. If TENANT fails to pay and discharge or cause the Premises to be released from such liens or claim of liens within 10 days after the filing of such lien or levy, then TENANT must, upon written notification, immediately deposit with CITY a bond conditioned for payment in full of all claims on which said lien or levy has been filed. Such bond must be acknowledged by TENANT as principal and by a company or corporation, licensed by the Insurance Commissioner of the State of California to transact the business of a fidelity and surety insurance company as surety. The beneficiary of any security instrument, which instrument is on record with CITY, must have the right to file a claim for payment from such a bond on behalf of TENANT. CITY has the right to post and keep posted on the Premises notices of non-responsibility and any other notices that may be provided by law or which CITY may deem proper for the protection of CITY and Premises from such liens.

TENANT must give CITY notice at least 20 days prior to commencement of any work on the Premises to afford CITY the opportunity to post such notices.

Section 4.04 Ownership of Improvements.

The Parties agree, if the Lease terminates or expires, then CITY has the option and right to require TENANT to remove all buildings, structures, installations, improvements (“Improvements”) of any kind or other property belonging to or placed upon the Premises by TENANT, however occurring, providing CITY gives notice, in writing, no later than thirty (30) days prior to the termination or expiration of this Lease (unless 30-day’s notice is impossible, in which case CITY shall provide notice as soon as reasonably possible), of its decision to require the Improvements or other property be removed upon termination or expiration of this Lease.

The Parties agree, if CITY exercises its option, then at the termination or expiration of this Lease, however occurring, TENANT will have sixty (60) days thereafter to remove all buildings, structures, facilities, installations, improvements and other property belonging to TENANT from the Premises. If CITY exercises such option and TENANT fails to remove all such improvements and other property within sixty days after the termination of this Lease, then CITY has the right to have any or all the Improvements and other property removed at the

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expense of TENANT. If CITY does not exercise its option to remove (or require the removal of) the Improvements and other property, then title to the Improvements and other property vests in CITY and TENANT must not remove same.

Article 5 LEASEHOLD MORTGAGES
Tenant must not mortgage, securitize or hypothecate the leasehold interest created by this Lease, in whole or any part, without the prior written approval of CITY, as evidenced by a resolution of the City Council of CITY.

CITY will not approve financing related to or using that leasehold interest created by this Lease as collateral, unless such financing is (i) to install or construct capital improvements on the Premises, (ii) to install or construct CITY-requested public improvements or provide other benefits in the Tidelands Trust area, the latter as approved by the Harbor Director or (iii) to reduce the interest rate of existing, approved debt secured by leasehold interest created by this Lease without redeeming any equity in the leasehold interest.

Article 6 REPAIRS, MAINTENANCE AND RESTORATION
Section 6.01 Maintenance by TENANT.

At all times during the term of this Lease, TENANT must, at TENANT'S own cost and expense, keep and maintain, in good order and repair and in a safe and “broom clean” condition, all improvements now or hereafter on the Premises, including any public spaces, common areas, rights-of-way, sidewalks and other areas or spaces, even if not on the Premises but utilized as part of TENANT’S business operations. Furthermore, TENANT must, at TENANT'S own cost and expense, maintain at all times during the term of this Lease the whole of the Premises and other areas utilized for TENANT’S business operations as described above in a clean, sanitary, neat and orderly “broom clean” condition. CITY may, at the sole option of CITY, but not obligation,, clean, clear, maintain or repair the Premises, any improvements thereon or areas used by TENANT, as described above, at TENANT'S cost and expense, in the event TENANT fails to clean, clear maintain or make repairs, in accordance with this Section to the satisfaction of CITY, after 15-days' written notice to TENANT from CITY of CITY'S intent to exercise this option.

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Section 6.02 Seawalls and Revetment.

A. At all times during the term of this Lease, TENANT must, at TENANT'S own cost and expense, repair, maintain, replace and rebuild, as necessary, the improvements, pilings, bulkheads, seawalls, revetment, piers, posts and any structures or other improvements located in the water portion of the Premises. Further, TENANT must, at TENANT'S own cost and expense, conduct maintenance and structural inspections, evaluations or surveys, by a qualified individual or firm, at reasonable intervals not to exceed ten years, to locate and determine needed maintenance, repairs or replacements of these improvements.

B. In addition, as a fundamental and substantive condition of this Lease, TENANT shall fully comply, to the reasonable satisfaction of CITY, with all of the requirements of Article 13 of that certain contemporaneous lease between TENANT and CITY for Lease Site 105.1W/105.2.

Section 6.03 Legal Requirements.

At all times during the term of this Lease, TENANT, at no cost to CITY, must:
(1) Make all alterations, additions, or repairs to the Premises or the improvements or facilities on the Premises required by any Legal Requirements (as defined in Section 3.07, above);
(2) Observe and comply with all Legal Requirements respecting the Premises or the improvements or facilities located thereon;
(3) Obtain all required permits pursuant to the Morro Bay Municipal Code or State law prior to the initiation of any repair or maintenance activity; and (4) Indemnify, defend and hold harmless CITY and the property of CITY, including the Premises, from any and all liability, loss, damages, fines, penalties, claims and actions resulting from TENANT'S failure to comply with and perform the requirements of this section.

Section 6.04 Failure to Repair.

In the event failure to repair results in a hazardous or unsafe condition, CITY has the right and option, but not the obligation, to close and prohibit access to the unsafe portion of the Premises until such repairs are completed and accomplished and the Premises rendered safe for public use. In addition, if TENANT fails to repair any hazardous or unsafe condition within ten days after written notice thereof from CITY, then CITY has the right, but not the obligation, to perform such repair at TENANT'S expense. TENANT must reimburse CITY for any such repair undertaken by CITY, promptly upon CITY'S demand, as additional Rent. Failure by CITY to enforce any of the provisions of this Article does not constitute a waiver of these provisions and

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CITY may, at any time, enforce all of the provisions of this Article, requiring all necessary repairs, rebuilding or replacement.

Section 6.05 Inspection by CITY.

CITY or CITY'S agents, representatives, or employees may enter the Premises at all reasonable times for the purpose of inspecting the Premises to determine whether TENANT is complying with the terms of this Lease and for the purpose of doing other lawful acts that may be necessary to protect CITY'S interest in the Premises under this Lease or to perform CITY'S duties under this Lease or in its governmental capacity.

Section 6.06 TENANT'S Duty to Restore Premises.
(1) Except as provided in Section 6.07 below, if at any time during this Lease, any improvements now or hereafter on the Premises are destroyed in whole or in part by the elements, or any other cause not the fault of TENANT or CITY, then this Lease will continue in full force and effect and TENANT, at TENANT'S own cost and expense, must repair and restore the damaged or destroyed improvement(s) according to the original plan thereof or according to such modified plans therefor as are approved in writing by CITY. The work of permitting, repair and restoration must be (i) commenced by TENANT within 180 days after the damage or destruction occurs, (ii) pursued with due diligence, and (iii) completed not later than 12 full calendar months after the work is commenced, unless the Parties mutually agree, in writing, to an extension. In all other respects, the work of repair and restoration must be done in accordance with the requirements for construction work on the Premises set forth in Article 4 of this Lease.

Any failure by TENANT either to commence or to complete repair and restoration as required by this Section 6.06 constitutes a material default under this Lease. (2) Any and all insurance proceeds that become payable at any time during the term of this Lease because of damage to or destruction of any improvements on the Premises will be paid to TENANT and applied by TENANT toward the cost of repairing and restoring the damaged or destroyed improvements in the manner required by this Section 6.06, or, if this Lease is terminated, then applied as provided in Section 6.07. Except as set forth in Section 6.08 below, TENANT'S obligation to restore pursuant to this Section exist whether or not funds are available from insurance proceeds.

Section 6.07 Termination of Lease for Destruction.
(1) Notwithstanding the provisions of Section 6.06 of this Lease, TENANT has the option of terminating this Lease as provided in this Section 6.07 if:

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(a) During the last 15 years of the term of this Lease, any improvement now or hereafter on the Premises are so damaged or destroyed by the elements or any cause, not the fault of TENANT or CITY, the improvement cannot be repaired and restored as required by Section 6.06 of this Lease at a cost not exceeding 35 percent of the cost of replacing all improvements if they had been totally destroyed at the time of such damage; or (b) During the last 10 years of the term of this Lease, any improvement now or hereafter on the Premises are so damaged or destroyed by the elements or any cause, not the fault of TENANT or CITY, the improvement cannot be repaired and restored as required by Section 6.06 of this Lease at a cost not exceeding 15 percent) of the cost of replacing all improvements if they had been totally destroyed at the time of such damage. (2) TENANT may exercise its right to terminate pursuant to this Section 6.07 by providing written notice to CITY within 180 days following damage or destruction as described herein. Such termination is effective on the last day of the calendar month following the month in which TENANT provides its notice.
(3) If TENANT fails to commence or complete repair and restoration as required by Section 6.06, then CITY has all rights and remedies with respect to TENANT’S default, including, but not limited to, termination of this Lease pursuant to Article 11. (4) If this Lease is terminated as a result of damage or destruction, then any insurance proceeds received with respect to the improvements will be applied or distributed in the following order:
(a) first, to the demolition of the improvements and removal of all demolition debris; then
(b) to any accrued and unpaid Rent as of the effective date of the termination; then
(c) to each Lender under a Leasehold Encumbrance, in order of lien priority, an amount not to exceed the amount due under such Leasehold Encumbrance; then (d) to CITY, an amount equal to the present value, as of the date of termination, of the total Minimum Rent for the remainder of the Term; then (e) the remaining proceeds, if any, to TENANT.

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Section 6.08 Destruction Due to Risk Not Covered by Insurance.

Notwithstanding anything to the contrary in Section 6.06 of this Lease, TENANT has the right to terminate this Lease, at any time, if the improvements on the Premises are damaged or destroyed by a casualty for which TENANT is not required under this Lease to carry insurance and the cost to repair or restore such improvements exceeds 50 percent of the fair market value of all the improvements on the Premises immediately prior to the damage or destruction.

Article 7 INDEMNITY AND INSURANCE
Section 7.01 Indemnity Agreement.
(1) TENANT hereby agrees to indemnify, defend and hold harmless CITY, and the property of CITY (including the Premises and any improvements now or hereafter on the Premises), and CITY'S officers, officials, employees and volunteers from any and all liability, claims, loss, damages, and expenses, including reasonable attorney’s fees and litigation expenses, resulting from TENANT'S occupation and use of the Premises or any negligent act or omission of the TENANT or any of its officers, subtenants, employees, contractors, invitees or anyone for whom TENANT may be liable, specifically including, without limitation, any liability, claim, loss, damage, or expense arising by reason of:
(a) The death or injury of any person, including TENANT or any person who is an officer, employee, contractor, subtenant, invitee or agent of TENANT, or by reason of the damage to or destruction of any property, including property owned by TENANT or by any person who is an employee or agent of TENANT, from any cause whatever while such person or property is in or on the Premises or in any way connected with the Premises or with any of the improvements or personal property on the Premises;
(b) The death or injury of any person, including TENANT or any person who is an officer, employee, contractor, subtenant, invitee or agent of TENANT, or by reason of the damage to or destruction of any property, including property owned by TENANT or any person who is an officer, employee, contractor, subtenant, invitee or agent of TENANT, caused or allegedly caused by either (i) the condition of the Premises or any improvement placed on the Premises by TENANT, or (ii) any act or omission on the Premises by TENANT or any person in, on, or about the Premises with or without the permission and consent of TENANT; (c) Any work performed on the Premises or materials furnished to the Premises at the insistence or request of TENANT or any person or entity acting for or on behalf of TENANT;

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(d) TENANT'S failure to perform any provision of this Lease or to comply with any Legal Requirement imposed on TENANT or the Premises. (2) TENANT'S obligations pursuant to this Section to indemnify and hold harmless do not extend to any liability, claim, loss, damage or expense arising from CITY'S active negligence or willful misconduct.

Section 7.02 Liability Insurance.

During the term of this Lease, TENANT must maintain at its cost Commercial General Liability insurance with coverages as described in CITY’S HARBOR DEPARTMENT LEASE MANAGEMENT POLICY, as may be updated or changed from time to time at the sole discretion of the CITY. Such coverages must insure against claims for bodily injury (including death), property damage, contractual liability, personal injury and advertising injury occurring on the Premises or from operations located in any part of the Premises. Such insurance must afford protection in amounts no less than One Million Dollars ($1,000,000) per occurrence for bodily injury, personal injury and property damage; provided, that if insurance with a general aggregate limit is used, then either the general aggregate limit will apply separately to the Premises or the general aggregate limit will be twice the occurrence limit stated in this Section. All liability insurance carried by TENANT hereunder will name CITY, its officers, officials, employees and volunteers as additional insureds, and be primary insurance with respect to such additional insureds. TENANT must include all its subtenants as insureds under TENANT'S liability policies or furnish separate certificates and endorsements for each subtenant. All coverages for subtenants must comply with all requirements of this Article Seven.

Section 7.03 Worker's Compensation.

TENANT must maintain at TENANT'S own expense and keep in full force and effect during the term of this Lease, Worker's Compensation Insurance as provided by law. Said insurance must contain a waiver of subrogation rights against CITY. TENANT must also maintain employer's liability insurance with minimum coverage of $1,000,000 per accident for bodily injury or disease.

Section 7.04 Property Insurance.

TENANT must, at its cost, at all times during the term of this Lease keep all improvements and other structures on the Premises, as well as any and all additions, improvements and betterments thereto, insured for 100 percent) of their full replacement cost with no co-insurance provision against loss or destruction by the perils covered by "all risk"

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(excluding earthquake) property damage insurance policies. Any loss coverage under such insurance must be payable to TENANT, CITY, and any Lender under a Leasehold Encumbrance approved pursuant to Article 5 of this Lease, as their interests may appear, and such proceeds must be used and applied in the manner required by Article 6 of this Lease.

Section 7.05 Additional Coverage.

TENANT must also maintain, at its sole expense, the insurance described in this Section 7.05.
(1) If TENANT has (or is required by any Legal Requirement to have) a liquor license and is selling or distributing alcoholic beverages on the Premises, then TENANT must maintain liquor liability coverage in appropriate amounts. TENANT must require any subtenant who has (or is required by any Legal Requirement to have) a liquor license and who is selling or distributing alcoholic beverages on the Premises, to maintain such coverage. (2) TENANT must maintain "all risk" (excluding earthquake) property damage insurance covering TENANT'S personal property located at the Premises, in amounts not less than the full replacement value of such personal property. CITY has no interest in the proceeds of such insurance.
(3) TENANT must obtain and maintain any additional insurance coverages CITY may reasonably require. As illustration only and not as a limitation, in appropriate circumstances such additional insurance may include increased general liability limits, business interruption coverage, business automobile liability, boiler and machinery insurance or builder's risk insurance. TENANT, however, is not required to maintain additional coverages that are in excess of those typically maintained by similarly situated tenants in the Morro Bay area.

Section 7.06 General Requirements.

Except as specifically provided to the contrary, all the insurance required pursuant to this Article Seven is subject to the requirements of this Section 7.06. (1) Maintenance of proper insurance coverage is a material element of this Lease and failure to maintain or renew coverage or to provide evidence of coverage and/or renewal may be treated by the CITY as a material breach of contract. TENANT must forward CITY’S specifications and forms to TENANT’S insurance agent for compliance. (2) CITY may, at any time, require TENANT to increase the minimum coverage limits for insurance required by this Lease, but every such increase must be reasonable under the circumstances.

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(3) All policies must be issued by insurance companies authorized to issue such insurance in California, with an A.M. Best's rating of no less than A:VII. (4) Any deductibles or self-insured retentions must be declared to and approved by CITY. At the option of CITY, either: (i) the insurer must reduce or eliminate such deductibles or self-insured retentions as respects CITY, its officers, officials, employees and volunteers or (ii) TENANT must provide a financial guarantee satisfactory to CITY guaranteeing payment of losses and related investigations, claim administration and defense expenses. (5) Each insurance policy required by this Lease must be endorsed to state coverage will not be cancelled or reduced, except after 30-days' prior written notice by certified mail, return receipt requested, has been given to CITY.
(6) TENANT must furnish CITY with certificates and amendatory endorsements effecting the coverage required by this Lease. The endorsements must be on forms provided by CITY or on other than CITY'S forms; provided, that those endorsements or policies conform to the requirements. All certificates and endorsements are to be received and approved by CITY before use of the Premises, and promptly following any renewal or replacement. CITY reserves the right, at any time, to require complete, certified copies of all required insurance policies, including endorsements effecting the coverage required by these specifications. (7) TENANT'S insurance coverage must be primary insurance as respects CITY, its officers, officials, employees, and volunteers. Any insurance or self-insurance maintained by CITY, its officers, officials, employees, or volunteers will be excess of TENANT'S insurance and will not contribute with it.

Section 7.07 No Subrogation.

TENANT agrees, in the event of loss due to any of the perils for which it has agreed to provide insurance, TENANT will look solely to its insurance for recovery. TENANT hereby grants to the CITY, on behalf of any insurer providing insurance to either TENANT or CITY with respect to TENANT'S occupancy of the Premises, a waiver of any rights to subrogation, which any such insurer of TENANT may acquire against CITY by virtue of the payment of any loss under such insurance. Each insurance policy required under this Lease, including those insuring TENANT against claims, expense, or liability for injury to persons or property, must provide the insurer will not acquire by subrogation any right to recovery.

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Section 7.08 TENANT'S Waiver.

TENANT hereby waives any right of recovery against CITY for each claim, expense, liability, or business interruption, or other loss, except where caused by CITY'S active negligence or willful misconduct. TENANT agrees, to the extent TENANT fails to acquire insurance, TENANT will not have any claim against CITY for any loss that results from a risk or peril that would have been included in such insurance.

Section 7.09 Insurance Not a Limit.

The insurance requirements of this Article 7 are independent of, and do not limit or modify, TENANT'S indemnification, defense, hold harmless and other obligations pursuant to this Lease.

Article 8 TAXES AND FEES
Section 8.01 TENANT to Pay Taxes.

TENANT must pay, before delinquency, all taxes and assessments levied upon or assessed to TENANT on the Premises by reason of this Lease or of any equipment, appliances, improvement, or other development of any nature whatsoever, erected, installed, or maintained by TENANT or by reason of the business or other activity of TENANT upon or in connection with the Premises. TENANT must pay all possessory interest taxes applicable to the Premises.

Section 8.02 TENANT to Pay License and Permit Fees.

TENANT must pay any fees imposed by Legal Requirements for licenses or permits for any business or activities including construction by TENANT upon the Premises.

Section 8.03 Utilities.

TENANT must (i) pay, or cause to be paid and (ii) hold harmless CITY and the property of CITY, including the Premises, from all charges for the furnishing of gas, water, electricity, telecommunication service, and for other public utilities to the Premises during the term of this Lease and for the removal of garbage and rubbish from the Premises during the term of this Lease.

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Article 9 CONDEMNATION
Section 9.01 Total Condemnation.

If title and possession to all of the Premises is permanently taken for any public or quasipublic use under any statute, or by the right of eminent domain, then this Lease will be considered terminated on the date that possession of the Premises is taken; and both CITY and TENANT will thereafter be released from all obligations, including Rent, all of which will be prorated to the date of termination, except as specified in Section 9.02 of this Lease.

Section 9.02 Condemnation Award.

Any compensation or damages awarded or payable because of the permanent taking of all or any portion of the Premises by eminent domain will be allocated between CITY and TENANT as follows:
(1) All compensation or damages awarded or payable for the taking by eminent domain of any land that is part of the Premises will be paid to and be the sole property of CITY free and clear of any claim of TENANT or any person claiming rights to the Premises through or under TENANT.
(2) All compensation or damages awarded or payable which is specifically attributed by the taking party to the "goodwill" of TENANT'S business will be paid to and be the sole property of TENANT.
(3) All compensation or damages awarded or payable because of any improvements constructed or located on the portion of the Premises taken by eminent domain where only a portion of the Premises is taken by eminent domain, and TENANT is not entitled to or does not terminate this Lease, will be applied in the manner specified in Section 9.04 toward the replacement of such improvements with equivalent new improvements on the remaining portions of the Premises.
(4) All compensation or damages awarded or payable because of any improvements constructed or located on the portion of the Premises taken by eminent domain where this Lease is terminated because of the taking by eminent domain, whether all or only a portion of the Premises is taken by eminent domain, will be allocated between CITY and TENANT as follows:
(a) That percentage of the compensation or damages awarded or payable because of the improvements that equals the percentage of the full term of this Lease that has, at the time of the taking, not expired will belong to and be the sole property of TENANT.

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(b) That percentage of the compensation or damages awarded or payable because of the improvements that equals the percentage of the full term of this Lease that has, at the time of the taking, expired will belong to and be the sole property of CITY. (c) The term "time of taking," as used in this Section, means 12:01 a.m. of the date the agency or entity exercising the eminent domain power, takes title to or the date it takes physical possession of the portion of the Premises, whichever first occurs. (5) Any severance damages awarded or payable because only a portion of the Premises is taken by eminent domain will be the sole and separate property of CITY.

Section 9.03 Termination for Partial Taking.

If, during the term of this Lease, title and possession of only a portion of the Premises is taken for any public or quasi-public use under any statute, or by right of eminent domain, then TENANT may, at TENANT'S option, terminate this Lease by serving written notice of termination on CITY within ninety (90) days after TENANT has been deprived of actual physical possession of the portion of the Premises taken for such public use. This Lease will terminate on the first day of the calendar month following the calendar month in which the notice of termination described in this section is served on CITY. On termination of this Lease, pursuant to this Article, all subleases and subtenancies in or on the Premises or any portion of the Premises created by TENANT under this Lease will also terminate and the Premises must be delivered to CITY free and clear of all such subleases and subtenancies; provided, however, that CITY may, at CITY'S option, by mailing written notice to a subtenant allow any subtenant to attorn to CITY and continue such subtenant's occupancy on the Premises as a TENANT of CITY. On termination of this Lease pursuant to this section, however, both CITY and TENANT will be released from all obligations under this Lease, except those specified in Section 9.02 of this Lease.

Section 9.04 Rent Abatement for Partial Taking.

If, during the term of this Lease, title and possession of only a portion of the Premises is taken under the power of eminent domain by any public or quasi-public agency or entity and TENANT does not terminate this Lease, then this Lease will terminate as to the portion of the Premises taken under eminent domain on the date actual physical possession of the portion taken by eminent domain is taken by the agency or entity exercising the eminent domain power.

Furthermore, the Rent payable under this Lease will, as of that time be reduced in the same proportion of the Premises taken by eminent domain bears to the full value of the Premises at that time; provided however, that TENANT will make a good faith effort to replace any

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improvements or facilities with equivalent new facilities on the remaining portion of the Premises and do all other acts at TENANT'S own cost and expense required by the eminent domain taking to make the remaining portion of the Premises fit for the use specified in this Lease.

Section 9.05 Conveyance in Lieu of Eminent Domain.

A voluntary conveyance by CITY, with the consent of TENANT, of title to all or a portion of the Premises to a public or quasi-public agency or entity in lieu of and under threat by such agency or entity to take the same by eminent domain proceedings will be considered a taking of title to all or such portion of the Premises under the power of eminent domain subject to the provisions of this Article.

Section 9.06 Temporary Taking.

If the possession of the Premises or any portion thereof are taken under the power of eminent domain by any public or quasi-public agency or entity for a limited period not extending beyond the term of this Lease, then this Lease will not terminate (except as provided in this Section 9.06) and TENANT must continue to perform all its obligations hereunder, except only to the extent TENANT is prevented from performing such obligations by reason of such taking.

TENANT will be entitled to receive the entire amount of compensation or damages awarded because of such temporary taking. If a temporary taking extends for more than 36 months, then TENANT will have the right to terminate this Lease, and TENANT will be entitled to receive, out of the compensation or damages awarded because of such temporary taking, the amount that is attributable to the period of time up until the effective date of TENANT'S termination of this Lease.

Article 10 ASSIGNMENT AND SUBLEASING
Section 10.01 No Assignment Without CITY'S Consent.

Except as provided in this Article 10, TENANT must not assign or otherwise transfer this Lease, any right or interest in this Lease, or any right or interest in the Premises or any of the improvements that may now or hereafter be constructed or installed on the Premises without the express written consent of CITY first had and obtained. Any assignment or transfer by TENANT without the prior written consent of CITY, as evidenced by a resolution of the City Council, whether it be voluntary or involuntary, by operation of law or otherwise, is void and may, at the option of CITY, terminate this Lease. A consent by CITY to one assignment will not

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be deemed to be a consent to any subsequent assignment of this Lease by TENANT. CITY will not unreasonably nor arbitrarily withhold its approval to the assignment or transfer of this Lease to an assignee who is financially reliable and qualified to conduct the business for which this Lease was granted. It is mutually agreed TENANT'S qualifications are a part of the consideration for granting of this Lease and said party does hereby agree to maintain active control and supervision of the operation conducted on the Premises.

Section 10.02 Change of Ownership as Assignment.

For purposes of this Article 10, the following transactions will be deemed to be assignments or transfers:
(1) If TENANT is a partnership or limited liability company:
(a) A change in ownership effected voluntarily, involuntarily, or by operation of law, within a 12-month period, of 25 percent or more of the partners or members or 25 percent or more of the partnership or membership interests; or
(b) The dissolution of the partnership or limited liability company without its immediate reconstitution.
(2) If TENANT is a closely held corporation (i.e., one whose stock is not publicly held and not traded through an exchange or over the counter):
(a) The sale or other transfer, within a 12-month period, of more than an aggregate of 25 percent of the voting shares of TENANT (other than to immediate family members by reason of gift or death); or
(b) The dissolution, merger, consolidation, or other reorganization of TENANT.

Section 10.03 Application for Assignment.

A condition of an assignment is TENANT must file with CITY an application to assign its leasehold interest prepared by the prospective assignee. Concurrently with filing the application, TENANT must pay a reasonable fee associated with the cost of processing said application, in cash or certified or cashier's check to enable CITY adequately to investigate the proposed assignee's qualifications, financial reliability and suitability as a permitted assignee.

CITY is not required to account for the use of the sum paid. If the proposed assignee's net worth, financial reliability and qualifications on the date of assignment are not sufficient to reasonably guarantee successful operation of the Premises in compliance with all applicable CITY, County, State and federal requirements, then CITY may withhold approval of the assignment or condition

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it upon TENANT'S guarantee of such assignee's obligations hereunder for such period as CITY deems advisable. Net worth means the amount by which the total of all assets exceed the total of all liabilities as determined in accordance with general accepted accounting principles as approved by CITY'S auditor, or other authorized representative or agent.

Section 10.04 Probate Transfer of Assignment.

If TENANT is an individual, nothing herein contained will prevent the transfer of this Lease by trust, will, or by operation of law under the intestacy provisions of the California Probate Code as it may be amended from time to time. Probate sale of the leasehold interest will not be permitted without the consent of the CITY, evidenced by a City Council resolution, first had and obtained.

Section 10.05 No Sublease Without CITY'S Consent.

A. Notwithstanding the terms and conditions of this Lease, any sublease for the Premises in effect and good standing for the 12 consecutive calendar months prior to the Commencement Date shall be deemed to have been approved as required by Subsection B. of this Section; provided, that TENANT shall be required to submit a copy of that sublease and any subsequent amendment thereto must be approved pursuant to the terms set forth below.

B. TENANT shall not sublease the whole nor any part of the Premises, or license, permit, or otherwise allow any other person (the employees of TENANT excepted) to occupy or use the Premises, or any portion thereof, without the prior written consent of CITY’S Harbor Director, or any future successor to the duties of the City’s Harbor Director. The process for obtaining that consent will not begin until TENANT has filed an application to sublease and paid a reasonable fee, as determined by CITY, associated with the cost of processing the application.

A consent to one subletting, occupation, licensing or use will not be deemed to be a consent to any subsequent subletting, occupation, licensing or use by another person. Any sublease or license without CITY'S written consent is void, and may, at CITY'S option, terminate this Lease.

CITY will not unreasonably nor arbitrarily withhold its consent to sublet to one who is qualified and financially reliable. CITY'S consent to any occupation, use, or licensing will be in CITY'S sole and absolute discretion. Notwithstanding any provisions herein to the contrary, the terms "assignment," "subletting," "occupation," or "use," are not to be construed or interpreted to mean or include the temporary, short-term renting or leasing of boat slips, motel, hotel, or apartment accommodations, if any, on the Premises.

01181.0024/959944.5 -25-
Section 10.06 Subtenant Subject to Lease Terms.

Any and all subleases must be expressly made subject to all the terms, covenants, and conditions of this Lease. In no event will the term of any sublease extend beyond the term of this Lease. Subject to Section 10.09, termination of this Lease prior to the expiration of this Lease term also terminates any and all subleases. A breach of the terms of this Lease by a subtenant constitutes a breach on the part of TENANT and subjects both the subtenant and TENANT to all the remedies provided to CITY herein and by law. Failure by any subtenant to report Gross Sales or to pay Percentage Rent due from subtenant constitutes a breach of this Lease. TENANT hereby agrees to and does guarantee payment of such Percentage Rent due by a subtenant under the terms of this lease.

Section 10.07 Consent to Sublease Agreement.

Prior to any consent by CITY to any sublease hereof, TENANT, CITY and any subtenant must have executed the CITY’S Consent to Sublease Agreement making CITY a third party beneficiary, whereby the subtenant agrees to be bound by all of the terms, covenants and conditions of this Lease. Further, it is agreed by TENANT any default by the subtenant of any of the terms, covenants and conditions of this Lease will be a violation by TENANT of this Lease and all remedies of CITY for such violation, including termination of this Lease, may immediately be enforceable by CITY against TENANT. TENANT must apply any and all monies received from any subtenant first to the payment of obligations of the subtenant to CITY.

Section 10.08 TENANT and Guarantor Remain Liable.

Prior to approval by CITY to any sublease hereof, TENANT must agree to be primarily and jointly and severally liable to CITY for all obligations due CITY by any subtenant, including the payment of rents; and TENANT must agree CITY may proceed directly against TENANT for any obligation owed to CITY by the subtenant. If this Lease is guaranteed, then neither the sublease nor CITY'S approval thereof will release the guarantor from its obligations pursuant to the guaranty.

Section 10.09 Nondisturbance.

On the terms set forth below, CITY may enter into agreements with subtenants establishing, in the event of any termination of this Lease prior to the expiration date, CITY will not terminate or otherwise disturb the rights of the subtenant under such sublease, but will instead honor such sublease as if that sublease had been entered into directly between CITY and such subtenant, conditioned upon such subtenant's agreement to attorn to CITY and full

01181.0024/959944.5 -26-
performance of all obligations under the sublease in question ("Non-Disturbance Agreement").

CITY agrees to execute a Non-Disturbance Agreement in connection with a particular sublease; provided, that Tenant provides CITY with a copy of the sublease, and the Non-Disturbance Agreement is customary in form and substance and otherwise reasonably acceptable to CITY.

Article 11 DEFAULT AND TERMINATION
Section 11.01 Abandonment by TENANT.

If TENANT breaches this Lease and abandon all or any part of the Premises prior to the scheduled expiration of the term of this Lease, then CITY may continue this Lease in effect by not terminating TENANT'S right to possession of the Premises, in which event CITY may, at its option, enforce all CITY'S rights and remedies under this Lease including the right to recover the Rent specified in this Lease as it becomes due under this Lease.

Section 11.02 Termination for Breach by TENANT.

All covenants and agreements contained in this Lease are declared to be conditions to this Lease and to the term hereby demised to TENANT. If TENANT fails to perform any covenant, condition, or agreement contained in this Lease, except for payment of any Rent or other monetary amount due, and such failure is not cured within thirty (30) days after written notice thereof is served on TENANT, then CITY may terminate this Lease immediately, and in the event of such termination, TENANT will have no further rights hereunder and TENANT must thereupon forthwith remove from the Premises and will have no further right or claim thereto and CITY will immediately thereupon have the right to re-enter and take possession of the Premises, subject only to appropriate legal process.

Section 11.03 Termination for Failure to Pay Rent.

If any payment of Rent is not made as herein provided and such failure to pay is not cured within three days after written notice thereof is served on the TENANT, then CITY will have the option to immediately terminate this Lease; and in the event of such termination, TENANT will have no further right or claim thereto and CITY will immediately thereupon have the right to re-enter and take possession of the Premises, subject only to appropriate legal process.

01181.0024/959944.5 -27-
Section 11.04 Lender May Cure Default.

CITY hereby affords the lender under any Leasehold Encumbrance of record with CITY the right to cure any default by TENANT of the covenants, conditions, or agreements hereof, as provided in Article 5 of this Lease.

Section 11.05 Damages for Breach.

If TENANT defaults in the performance of any covenant, condition or agreement contained in this Lease and the default be incurable or not be cured within the time period set forth hereinabove, then CITY may terminate this Lease and:
(1) Bring an action to recover from TENANT:
(a) The worth at the time of award of the unpaid Rent which had been earned at the time of termination of the Lease;
(b) The worth at the time of award of the amount by which the unpaid Rent, which would have been earned after termination of the Lease until the time of award exceeds the amount of rental loss that TENANT proves could have been reasonably avoided; (c) The worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss that TENANT proves could be reasonably avoided; and
(d) Any other amount necessary to compensate CITY for all detriment proximately caused by TENANT'S failure to perform its obligations under this Lease; and (2) Bring an action, in addition to or in lieu of the action described in subparagraph (1) of this Section, to re-enter and regain possession of the Premises in the manner provided by the laws of unlawful detainer of the State of California then in effect.

Section 11.06 Cumulative Remedies.

The remedies available to CITY in this Article are not exclusive, but are cumulative with and in addition to all remedies now or hereafter allowed by law or elsewhere provided in this Lease.

01181.0024/959944.5 -28-
Section 11.07 Waiver of Breach.

The waiver by CITY of any breach by TENANT of any of the provisions of this Lease does not constitute a continuing waiver or a waiver of any subsequent breach by TENANT either of the same or a different provision of this Lease.

Section 11.08 Surrender of Premises.

On expiration or sooner termination of this Lease, TENANT must surrender the Premises, and, subject to Section 4.04, all improvements in or on the Premises, and all facilities in any way appertaining to the Premises, to CITY in good, safe, and clean condition, reasonable wear and tear excepted.

Article 12 MISCELLANEOUS
Section 12.01 Notices.

Any and all notice or demands by or from CITY to TENANT, or TENANT to CITY, must be in writing. They must be served either personally, or by registered or certified mail.

Any notice or demand to CITY must be given to:

Harbor Director
1275 Embarcadero
Morro Bay, CA 93442
with a copy to:

City Manager of the City of Morro Bay
City Hall
595 Harbor Street
Morro Bay, CA 93442
Any notice or demand to TENANT must be given at:

Orietta M. DeGarimore, as trustee of Michael G. and
Orietta M. DeGarimore Revocable Trust, under declaration dated June 30,2005
2239 Lake Isabel Road
Templeton, CA 93465
[email protected]

01181.0024/959944.5 -29-
with a copy to:

Giovanni Comin
2223 Lake Ysabel Road
Templeton, CA 93465
[email protected]
Such addresses may be changed by written notice by either Party to the other Party.

Section 12.02 Governing Law and Jurisdiction.

This Lease, and all matters relating to this Lease, are governed by the laws of the State of California in force at the time any need for interpretation of this Lease or any decision concerning this Lease arises. CITY and TENANT consent to exclusive personal and subject matter jurisdiction in the Superior Court of the State of California in and for the county where the Premises are located, and each Party waives any claim such court is not a convenient forum.

Each Party hereby specifically waives the provisions of California Code of Civil Procedure Section 394, and any successor statute thereto.

Section 12.03 Binding on Successors.

Subject to the provisions herein relating to assignment and subletting, each and all of the terms, conditions, and agreements herein contained will be binding upon and inure to the benefit of the successors and assigns of any and all of the Parties; and all of the Parties hereto are jointly and severally liable hereunder.

Section 12.04 Partial Invalidity.

If any provision of this Lease is held by a court of competent jurisdiction to be either invalid, void, or unenforceable, then the remaining provisions of this Lease will remain in full force and effect unimpaired by the holding.

Section 12.05 Sole and Only Agreement.

This Lease, including all exhibits incorporated by reference, constitutes the sole and only agreement between CITY and TENANT respecting the Premises and the leasing of the Premises to TENANT and (ii) any other agreements or representations respecting the Premises and their leasing to TENANT by CITY, which are not expressly set forth in this Lease, are null and void.

The lease terms herein specified correctly set forth the obligations of CITY and TENANT as of the date of this Lease.

01181.0024/959944.5 -30-
Section 12.06 Modification.

This Lease can only be modified, amended or altered pursuant to a written amendment executed by the Mayor and attested to by City Clerk, pursuant to prior City Council approval.

Notwithstanding City Council approval, no amendment will become effective until it is in fact executed by the Mayor and attested to by City Clerk and approved as to form by the City Attorney (or designee). TENANT understands this Lease cannot be modified, amended or altered by oral statements by any person representing CITY, including the Mayor and City Clerk.

TENANT specifically agrees not to rely on oral statements, purported oral waivers, or purported oral modifications and agrees not to rely upon purported written modifications unless they meet the requirements of this Section. If the title of any person authorized to act for CITY under this Lease is changed during the term of this Lease, then the person who succeeds to substantially the same responsibilities with respect to CITY will have the authority to act for CITY under this Lease.

Section 12.07 Time of Essence.

Time is expressly declared to be the essence of this Lease.

Section 12.08 Memorandum of Lease for Recording.

CITY and TENANT agree, at the request of either at any time during the term of this Lease, to execute a Memorandum of Lease or "short form" of this Lease, which shall describe the Parties, set forth a description of the Premises, specify the term of this Lease, and incorporate this Lease by reference.

Section 12.09 Force Majeure.

If either Party hereto is delayed or hindered in or prevented from the performance of any act required hereunder by reason of a strike, lock-out, labor trouble, inability to procure materials, failure of power, governmental moratorium, riot, insurrection, war, pandemic or other reason of a like nature not the fault of the Party delaying in performing work or doing any act required under the terms of this Lease, then performance and doing of such act will be excused for the period of such delay. The Parties understand and agree, the foregoing will not extend any period of time for the payment of Rent or other sums payable by either Party or any period of time for the written exercise of an option or right by either Party.

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EXECUTED on ________________, 2024, at San Luis Obispo County, California.

CITY OF MORRO BAY TENANT
_____________________________________

CARLA WIXOM, MAYOR
By: ________________________________
ORIETTA M. DEGARIMORE, AS
TRUSTEE OF MICHAEL G. AND
ORIETTA M. DEGARIMORE

REVOCABLE TRUST, UNDER
DECLARATION DATED JUNE 30,
2005
ATTEST:
_____________________________________

DANA SWANSON, CITY CLERK
APPROVED AS TO FORM:
_______________________________________
CHRIS F. NEUMEYER, CITY ATTORNEY

01181.0024/959944.5 A-1

EXHIBIT A

COPY OF PARCEL MAP

01181.0024/959944.5 B-1

EXHIBIT B

SPECIAL SLIP RATE
(Immediately behind this page.)

01181.0024/948177.6 JWP

L E A S E
by and between
the CITY OF MORRO BAY
("CITY")
and
ORIETTA M. DEGARIMORE, AS TRUSTEE OF MICHAEL G. AND
ORIETTA M. DEGARIMORE REVOCABLE TRUST,
UNDER DECLARATION DATED JUNE 30, 2005
("TENANT")

01181.0024/948177.6 JWP -iTABLE OF CONTENTS
Article 1 FIXED TERM.............................................................................................................2 Section 1.01 Term..............................................................................................2 Section 1.02 No Extensions. ..............................................................................2 Section 1.03 Hold Over......................................................................................2 Section 1.04 Replacement..................................................................................3 Article 2 RENT..........................................................................................................................3 Section 2.01 Annual Minimum Rent. ................................................................3 Section 2.02 CPI Adjustment to Annual Minimum Rent. .................................3 Section 2.03 Special Slip Rate. ...........................................................................4 Section 2.04 Percentage Rent. ...........................................................................4 Section 2.05 Reimbursements............................................................................6 Section 2.06 Penalty and Interest.......................................................................6 Article 3 USE OF PREMISES...................................................................................................7 Section 3.01 Permitted Uses. .............................................................................7 Section 3.02 Unauthorized Use..........................................................................7 Section 3.03 Operation of Business - Hours of Operation.................................7 Section 3.04 Competition...................................................................................8 Section 3.05 Environmental Considerations and Hazardous Materials.............8 Section 3.06 Tidelands Trust. ............................................................................9 Section 3.07 Compliance with Law...................................................................9 Section 3.08 Waste or Nuisance. .....................................................................10 Section 3.09 Use by CITY...............................................................................10 Article 4 CONSTRUCTION, ALTERATION AND REPAIRS .............................................10 Section 4.01 Construction Approval................................................................10 Section 4.02 Construction Bond. .....................................................................11

01181.0024/948177.6 JWP -iiSection 4.03 Mechanics' Liens.........................................................................11 Section 4.04 Ownership of Improvements.......................................................12 Article 5 LEASEHOLD MORTGAGES .................................................................................13 Article 6 REPAIRS, MAINTENANCE AND RESTORATION ............................................13 Section 6.01 Maintenance by TENANT..........................................................13 Section 6.02 Seawalls and Revetment. ............................................................13 Section 6.03 Legal Requirements. ...................................................................14 Section 6.04 Failure to Repair. ........................................................................14 Section 6.05 Inspection by CITY.....................................................................14 Section 6.06 TENANT'S Duty to Restore Premises........................................15 Section 6.07 Termination of Lease for Destruction.........................................15 Section 6.08 Destruction Due to Risk Not Covered by Insurance...................16 Article 7 INDEMNITY AND INSURANCE ..........................................................................17 Section 7.01 Indemnity Agreement. ................................................................17 Section 7.02 Liability Insurance. .....................................................................18 Section 7.03 Worker's Compensation..............................................................18 Section 7.04 Property Insurance. .....................................................................18 Section 7.05 Additional Coverage. ..................................................................19 Section 7.06 General Requirements.................................................................19 Section 7.07 No Subrogation. ..........................................................................20 Section 7.08 TENANT'S Waiver.....................................................................20 Section 7.09 Insurance Not a Limit. ................................................................21 Article 8 TAXES AND FEES..................................................................................................21 Section 8.01 TENANT to Pay Taxes...............................................................21 Section 8.02 TENANT to Pay License and Permit Fees. ................................21 Section 8.03 Utilities........................................................................................21

01181.0024/948177.6 JWP -iiiArticle 9 CONDEMNATION..................................................................................................21 Section 9.01 Total Condemnation....................................................................21 Section 9.02 Condemnation Award. ................................................................22 Section 9.03 Termination for Partial Taking. ..................................................23 Section 9.04 Rent Abatement for Partial Taking.............................................23 Section 9.05 Conveyance in Lieu of Eminent Domain....................................23 Section 9.06 Temporary Taking. .....................................................................24 Article 10 ASSIGNMENT AND SUBLEASING .....................................................................24 Section 10.01 No Assignment Without CITY'S Consent. .................................24 Section 10.02 Change of Ownership as Assignment.........................................25 Section 10.03 Application for Assignment........................................................25 Section 10.04 Probate Transfer of Assignment. ................................................26 Section 10.05 No Sublease Without CITY'S Consent.......................................26 Section 10.06 Subtenant Subject to Lease Terms..............................................26 Section 10.07 Consent to Sublease Agreement. ................................................27 Section 10.08 TENANT and Guarantor Remain Liable....................................27 Section 10.09 Nondisturbance. ..........................................................................27 Article 11 DEFAULT AND TERMINATION..........................................................................27 Section 11.01 Abandonment by TENANT........................................................27 Section 11.02 Termination for Breach by TENANT.........................................28 Section 11.03 Termination for Failure to Pay Rent. ..........................................28 Section 11.04 Lender May Cure Default. ..........................................................28 Section 11.05 Damages for Breach....................................................................28 Section 11.06 Cumulative Remedies. ................................................................29 Section 11.07 Waiver of Breach. .......................................................................29 Section 11.08 Surrender of Premises.................................................................29

01181.0024/948177.6 JWP -ivArticle 12 MISCELLANEOUS .................................................................................................30 Section 12.01 Notices. .......................................................................................30 Section 12.02 Governing Law and Jurisdiction.................................................30 Section 12.03 Binding on Successors. ...............................................................31 Section 12.04 Partial Invalidity..........................................................................31 Section 12.05 Sole and Only Agreement...........................................................31 Section 12.06 Modification................................................................................31 Section 12.07 Time of Essence..........................................................................32 Section 12.08 Memorandum of Lease for Recording........................................32 Section 12.09 Force Majeure. ............................................................................32 Article 13 SPECIAL PROVISIONS PECULIAR TO THIS LEASE SITE.................................32 Section 13.01 Description and Timing of Required Improvements..................32

01181.0024/948177.6 JWP

L E A S E
This LEASE is made and entered into by and between the CITY OF MORRO BAY, a municipal corporation of the State of California herein called CITY, and ORIETTA M.

DEGARIMORE, AS TRUSTEE OF MICHAEL G. AND ORIETTA M. DEGARIMORE REVOCABLE TRUST, UNDER DECLARATION DATED JUNE 30, 2005, herein called TENANT. (CITY and TENANT, at times, are referred to herein individually as Party and collectively as Parties)

WITNESSETH
WHEREAS, the State of California granted certain tide and submerged lands located within the CITY limits of CITY to the County of San Luis Obispo and to its successors, being Chapter 1076, Statutes of 1947, as amended by Chapter 413, Statutes of 1955, Chapter 1874, Statutes of 1957, and Chapter 70, Statutes of 1960, first extraordinary session; which Statutes may be amended from time to time by the Legislature of the State of California; all of which Statutes are expressly recognized and agreed to be in full force and effect by the Parties; and WHEREAS, the Parties hereto recognize and agree, on July 17, 1964, CITY succeeded to all of the right, title and interest of the County of San Luis Obispo in and to all of the tide and submerged lands conveyed to said County by the State of California pursuant to the above mentioned acts; and
WHEREAS, judgment has been entered on October 14, 1968, in the case of City of Morro Bay, Plaintiff, versus County of San Luis Obispo, and State of California, Defendants, by the Superior Court of the State of California in and for the County of San Luis Obispo, #30417, adjudging and decreeing, among other things, the title to said tide and submerged lands so conveyed by the State of California to the County of San Luis Obispo in trust, as set forth above, passed automatically to CITY upon the date of its incorporation as a city on the 17th day of July, 1964; and
WHEREAS, TENANT accepts the within Lease with full knowledge there is no warranty of title in and to the within described premises by CITY to TENANT; and WHEREAS, in order to develop and improve Morro Bay Harbor and to assist in carrying out the provisions of the tideland grant as aforesaid, and in order to provide facilities for the accommodation of those using Morro Bay Harbor, CITY desires to lease to TENANT the within described property upon the terms and conditions set forth herein;

01181.0024/948177.6 JWP -2-
NOW, THEREFORE, in consideration of the covenants to be performed and the rental to be paid by TENANT to CITY, CITY leases to TENANT, and TENANT leases from CITY, all of the following premises (herein collectively referred to as the "Premises") in the CITY of Morro Bay, County of San Luis Obispo, State of California, described as follows:

Lease Site 105.1W-105.2
This Premises is delineated on Parcel Map of the CITY of Morro Bay No. 68-30, which map was recorded on October 10, 1968, in Book 3, Page 10 of Parcel Maps in the Office of the County Recorder, San Luis Obispo County, California. A copy of said Map is attached hereto as Exhibit A and made a part hereof by reference.

Article 1 FIXED TERM
Section 1.01 Term.

The term of this Lease is for a period of 20 years, commencing July 1, 2024 (the “Commencement Date”). The term of this Lease will terminate without notice on June 30, 2044.

Section 1.02 No Extensions.

Except as provided in except as noted in the last sentence of this Section, the term of this Lease will not be extended nor will this Lease be renewed. Requests for continued use of the Premises, after expiration of the term, will be treated as an application for a new lease and will require appropriate application to CITY with all required supporting information and documents, City Council approval and the execution of a new lease, containing the then most current terms, covenants, conditions and rent schedules. If the Parties renegotiate a new Rent for that site, then the term for the Lease for that site will be extended 5 years to June 30, 2049.

Section 1.03 Hold Over.

If TENANT holds the Premises after the expiration of the term of this Lease for a Lease Site with the consent of CITY, express or implied, then such holding over (in the absence of a written agreement between CITY and TENANT with respect thereto) will be deemed to create a tenancy from month-to-month, terminable on 30-days’ written notice from either Party to the other, at a monthly rental equal to two hundred percent (200%) of the average total Rent per month for the twelve (12) months immediately preceding the expiration of this Lease for that Lease Site, and otherwise subject to each and every term, covenant and condition of this Lease.

01181.0024/948177.6 JWP -3-
Section 1.04 Replacement.

Subject to the next paragraph, as of the Commencement Date, this Lease will extinguish and replace every prior lease between CITY and TENANT respecting the Premises, if any. Any right or interest held by TENANT pursuant to any existing lease with respect to the Premises, which is not granted pursuant to this Lease, will be extinguished as of the Commencement Date of this Lease.

Article 2 RENT
Section 2.01 Annual Minimum Rent.

TENANT agrees to pay to CITY a minimum guaranteed annual rental for the use and occupancy of the Lease Site, as described below (the “Minimum Rent”):

A. A combined initial amount of $4,000 per year, payable in advance and at the option of TENANT either in equal semiannual installments or equal monthly instalments.

B. If Minimum Rent is paid in equal semiannual installments, then such installments must be on January 1 and July 1 each year during the term of the Lease. If the Commencement Date is other than January 1 or July 1, then TENANT must pay, on the Commencement Date, the proportionate amount of the Minimum Rent payable for the period from the Commencement Date until the next payment date of January 1 or July 1, as the case may be. If the term of the Lease expires on a date other than December 31 or June 30, then TENANT'S final installment of Minimum Rent must be proportionate to the time remaining in the term. If paid in equal monthly installments, then each monthly installment must be paid no later than the tenth day of each applicable month. All Rent, including the Minimum Rent and the Percentage Rent, must be paid in lawful money of the United States of America, without offset or deduction and must be paid to CITY at City Hall located at 595 Harbor Street, Morro Bay, California, or at such other place or places CITY may from time to time designate by written notice delivered to TENANT.

Section 2.02 CPI Adjustment to Annual Minimum Rent.
(1) The Parties agree, as of every July 1 following the Commencement Date (each, a "CPI Adjustment Date"), the annual Minimum Rent will be adjusted in direct proportion to any upward or downward movement in the Consumer Price Index for calendar year 2022, which is hereby agreed to be 310.782 (Base Index). The percentage adjustment for any given year will be based on the monthly average Index for the calendar year immediately preceding the CPI Adjustment Date as compared with the Base Index. The Consumer Price Index referred to herein

01181.0024/948177.6 JWP -4-
is the Consumer Price Index (all items indexes, all urban consumers) for Los Angeles – Long Beach – Anaheim, California, compiled and published by the United States Department of Labor, Bureau of Labor Statistics, 1982-84 Base Year = 100 (the "Index") (2) The Annual Minimum Rent will be adjusted as of each CPI Adjustment Date, and will remain in effect as adjusted until the next CPI Adjustment Date. As an illustration only, if the Base Index (Jan. 1, 1999 CPI) is 166.1 and the monthly average CPI for 2000 is 171.6, then the percentage increase is equal to 3.31%. Therefore, the Minimum Rent would be increased by

3.31% as of July 1, 2001, and would continue at that rate through June 30, 2002. (3) If the United States Department of Labor, Bureau of Labor Statistics, ceases to compile and make public the Index as now constituted and issued, but substitutes another index in its place, then said substituted index must be used for the purpose of adjusting the Minimum Rent for the Premises. If the Index is changed so the base year differs from that in effect on the Lease Commencement Date, then the Index must be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics.

Section 2.03 Special Slip Rate.

In 1989, CITY previously agreed to a special rate for two slips associated with the Premises. That agreement was memorialized by a letter date September 19, 1989, which is attached hereto as Exhibit B and incorporated herein by this reference.

Section 2.04 Additional Rent for the Premises.

A. In addition to the Minimum Rent for the Premises, TENANT agrees to pay to CITY, at the time and in the manner hereinafter specified, as Additional Rent for the use and occupancy of those lease sites, a sum equal to $0.02 per gallon of fuel sold (excepting U.S. Army Corp of Engineers purchases from direct fuel supplies) if that amount, as calculated at the end of each fiscal year, exceeds the Minimum Rent, Within thirty (30) days after the close of each fiscal year, TENANT shall provide CITY a report of all fuel sales generated from, at or on the fuel dock and pay the Additional Rent, as outlined above, if any is due, at the time of submittal of each report.

For example only, if TENANT sells 250,000 gallons of fuel, as described above, in the period from July 1, 2023 to June 30, 2024, then TENANT will submit a report stating such with a payment of $1,000 in Additional Rent (250,000 X $0.02 equals $5,000, less the $4,000 prepaid Minimum Rent) within 30 days after June 30, 2024.

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B. TENANT ,must keep or cause to be kept full, complete, and accurate records, and books of account in accordance with accepted accounting practices showing the total amount of fuel sales, as discussed above, made each calendar month at, on or from the Premises. TENANT must keep said records and books of account within San Luis Obispo County and will notify CITY in advance of their location at all times. Furthermore, TENANT must, at the time of sale of the fuel and in the presence of the customer, cause the full selling price of the fuel sold at, on or from the Premises to be recorded in a cash register or cash registers that have cumulative totals and are sealed in accordance with standard commercial practices. Said records, books of account and cash register tapes, including any sales tax reports or income tax returns TENANT may be required to furnish any government or governmental agency, and income and bank statements must, at all reasonable times, be open to the inspection of CITY, CITY'S auditor, or other authorized representative or agent of CITY, if necessary. TENANT consents to the release of sales tax information to CITY and on demand will furnish to CITY a copy of the sales tax reports, quarterly reports and any audit reports of sales for confidential internal use of CITY in determining fuel sales for TENANT. TENANT consents and authorizes CITY to request such information directly from the State Board of Equalization or other state agency with which sales tax information is filed.

C. By July 31 of each year, TENANT must furnish CITY with a statement, to be certified by TENANT as current, true and accurate, which must set forth the fuel sales in, on or from the Premises for the previous twelve (12) calendar months, ending June 30, just concluded; and with it TENANT must pay to CITY the amount of the Additional Rent, which is due to CITY as shown thereby. If TENANT, at any time, causes an audit of fuel sales to be made by a public accountant, then TENANT must furnish CITY with a copy of said audit without cost or expense to CITY. CITY may, once in any twelve-month period, cause an audit of the fuel sales of TENANT to be made by a certified public accountant or CITY personnel of CITY'S own selection. TENANT must, upon receiving written notice of CITY'S desire for such an audit, deliver and make available all such books, records and cash register tapes to the certified public accountant or CITY personnel selected by CITY. Furthermore, TENANT must promptly, on demand, reimburse CITY for the full cost and expense of said audit, if the audit discloses the questioned statement or statements understated fuel sales five percent (5%) or more but less than ten percent. In the event an audit performed at CITY'S request discloses TENANT understated fuel sales by less than five percent (5%), the cost of such audit will be paid by CITY. In the event any audit or other review of records discloses the amounts reported as fuel sales were understated by TENANT by ten percent (10%) or more, CITY will not only be entitled to recover from TENANT all costs of audit and review, but will also be entitled to recover from TENANT a penalty equal to two times the Additional Rent due pursuant to this Lease on such

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unreported amounts. Whenever any audit discloses that Gross Sales were understated by any amount, TENANT must immediately pay the Additional Rent therein shown to be payable by TENANT to CITY, together with interest at the Default Rate thereon, from the date the Additional Rent was payable until the date paid.

D. CITY will be entitled at any time within five years after the receipt of any such Additional Rent payment, to question the sufficiency of the amount thereof or the accuracy of the statement or statements furnished by TENANT to justify the same. For the purpose of enabling CITY to check the accuracy of any such statement or statements, TENANT must, for said period of five (5) years after submission to CITY of any such statement, keep all of TENANT'S records, including sales tax returns, all cash register tapes, income tax returns and income and bank statements and other data which in any way bear upon or are required to establish in detail TENANT'S fuel sales and any authorized deductions therefrom as shown by any such statements and must, upon request, make the same available to CITY for examination.

Section 2.05 Reimbursements.

If TENANT fails to perform any term or covenant of this Lease following thirty-days’ (30-days’) written notice by CITY pursuant to Section 12.01, then CITY may, but is not obligated to, perform such term or covenant, and TENANT must reimburse CITY therefore as additional Rent hereunder. As an illustration and not as a limitation, if TENANT fails to procure the insurance required by this Lease, then CITY may, but is not obligated to, obtain such insurance, with the cost of the premiums being due to CITY upon demand as additional Rent.

Section 2.06 Penalty and Interest.
(1) If any Rent is not received within ten (10) days following the date on which the Rent first became due, then TENANT must pay a late penalty of ten percent (10%) of the total Rent due and payable in addition to the total amount of the unpaid Rent. (2) In addition to the penalty, TENANT must pay interest at the rate of one percent (1%) per month or fraction thereof or the maximum amount permitted by law as of the date this Lease is signed, whichever is greater (the "Default Rate"), on the amount of the Rent, exclusive of the penalty, from the date on which Rent first became delinquent until paid. The term "Rent" includes any sums advanced by the CITY and any unpaid amounts due from TENANT to the CITY.

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Article 3 USE OF PREMISES
Section 3.01 Permitted Uses.

A, Lease Site 105.1W, during the term of this Lease, is are to be used for the purpose of operating and conducting thereon only commercial seafood unloading and dock and marine fuel service.

B. Lease Site 105.2, during the term of this Lease, is to be used for the purpose of operating and conducting thereon only commercial seafood unloading and dock and marine fuel service; provided, that if Lot 31 (adjoining Lease Site 105.2, as depicted on Exhibit A) receives all required land use entitlements for one or more other uses, then Lease Site 105.2 may be used for those other uses, notwithstanding the enumerated uses herein, concurrent with issuance of appropriate and necessary entitlements and permits for such other uses on Lease Site 105.2.

Section 3.02 Unauthorized Use.

TENANT agrees to allow only those uses authorized in Section 3.01, hereinabove and any unauthorized use thereof constitutes a breach of this Lease and may, at the option of CITY, terminate this Lease.

Section 3.03 Operation of Business - Hours of Operation.

Failure to actively and diligently conduct the business authorized herein constitutes a breach of this Lease and may, at the option of CITY, terminate this Lease. (1) TENANT must, during the term of this Lease, conduct business of the nature specified in Section 3.01 of this Lease on the Premises, including operation of the fuel dock, in an efficient and diligent manner and keep the Premises open for the conduct of those businesses continuously and without interruption for at least six hours each day of the year, except one day each week and legal holidays for all businesses except the fuel docks. This provision does not apply if the Premises is closed and those businesses of TENANT are temporarily shut down for a period not to exceed 14 calendar days in any calendar year to make necessary repairs, maintenance or other construction deemed necessary by TENANT. This provision does not apply if the Premises is closed and those businesses of TENANT are temporarily shut down as authorized or required by the City Manager or on account of strikes, walkouts, or causes beyond the control of TENANT or for not more than three days out of respect to the memory of an officer, employee, or close relative of any officer or employee of TENANT.

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(2) TENANT must operate TENANT'S those businesses on the Premises with due diligence and efficiency and in like manner as comparable businesses operated in CITY or the coastal area of San Luis Obispo County, so as to produce the maximum amount of fuel sales, which may be produced from TENANT'S businesses; and TENANT at all times must carry on the Premises fuel of such amount, character, and quality as is reasonably, designed to produce the maximum return to TENANT in fuel sales.

Section 3.04 Competition.

During the term of this Lease, TENANT must not directly nor indirectly acquire or establish any similar or competing business within a radius of five miles from the location of the Premises; provided, however, that TENANT may, with prior written approval from CITY, own or operate more than one business, whether or not competing and similar, along the Embarcadero upon one or more CITY lease sites. The purpose of this section is to prevent and prohibit TENANT from reducing revenue to CITY by diverting business from the operation at the Premises to another similar business owned by TENANT within the CITY, but not upon a CITY lease site from which CITY is paid rent based on Gross Sales.

Section 3.05 Environmental Considerations and Hazardous Materials. (1) TENANT must, at all times, comply with all applicable environmental regulations. (2) TENANT must not transport, use, store, maintain, generate, dispose, release, treat or discharge any "Hazardous Material" (as defined below) upon or about the Premises (such activities being hereafter referred to as "Hazardous Materials Activities"), nor permit TENANT'S employees, agents, or contractors to engage in Hazardous Materials Activities upon or about the Premises, except as allowed by applicable law. The term "Hazardous Material" for purposes hereof means any chemical, substance, material or waste or component thereof which is now or hereafter listed, defined or regulated as a hazardous or toxic chemical, substance, material or waste or component thereof by any federal, state or local governing or regulatory body having jurisdiction, or which would trigger any employee or community "right-to-know" requirements adopted by any such body. All Hazardous Materials Activities at the Premises must be conducted strictly in accordance with all applicable laws and regulations. If TENANT transports, or has transported, any hazardous waste from the Premises, then such transportation must be done only by a contractor duly licensed to haul hazardous waste and only a duly licensed site approved by TENANT'S liability insurer must be used for disposal of that hazardous waste.

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(3) TENANT must promptly notify CITY of: (i) any enforcement, cleanup or other regulatory action taken or threatened by any governmental or regulatory authority with respect to the presence of any Hazardous Material on the Premises or the migration thereof from or to other property, (ii) any demands or claims made or threatened by any party against TENANT or the Premises relating to any loss or injury resulting from any Hazardous Material on or from the Premises, and (iii) any matters where TENANT is required by applicable law to give a notice to any governmental or regulatory authority respecting any Hazardous Material on the Premises.

CITY has the right (but not the obligation) to inspect the Premises, to take such remedial action on the Premises, as CITY may deem appropriate, and to join and participate, as a party, in any legal proceedings or actions affecting the Premises initiated in connection with any environmental, health or safety law.
(4) If any Hazardous Material is released, discharged or disposed of by TENANT or its employees, agents or contractors, on or about the Premises in violation of the foregoing provisions, TENANT must immediately notify CITY. CITY may elect either to take such remedial action as CITY deems appropriate, in which event TENANT must reimburse CITY for all costs thereof within ten days after demand, or direct TENANT to perform such remediation.

If CITY directs TENANT to perform the remediation, then TENANT must immediately take such remedial action, as CITY directs. TENANT must, properly and in compliance with applicable laws, clean up and remove the Hazardous Material from the Premises and any other affected property at TENANT'S expense. If CITY directs TENANT to perform remediation hereunder and if TENANT fails to comply with the provisions of this Section within five days after written notice by CITY, or such shorter time as may be required by applicable law or in order to minimize any hazard to persons or property, then CITY may (but is not be obligated to) arrange for such compliance directly or as TENANT'S agent through contractors or other parties selected by CITY at TENANT'S expense (without limiting CITY'S other remedies under this Lease or applicable law).

Section 3.06 Tidelands Trust.

In addition to the obligations set forth in this Article, TENANT must use and occupy the Premises in strict compliance with the Tidelands Trust purposes, as established by law or interpretation of the California State Lands Commission.

Section 3.07 Compliance with Law.

TENANT must, at no cost to CITY, comply with all of the requirements of all local, municipal, county, state and federal authorities now in force, or which may hereafter be in force,

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pertaining to the Premises, and faithfully observe in the use of the Premises all local, municipal and county rules, regulations and ordinances and state and federal statutes, rules, regulations and orders now in force or which may hereafter be in force (collectively, "Legal Requirements"); provided, however, that TENANT shall not be required to comply with any Legal Requirement imposed by CITY that would substantially deprive TENANT of a material benefit under this Lease, unless such Legal Requirement has been imposed or required (i) by a county, state or federal authority or (ii) to preserve public health and safety and applied to similar businesses within CITY’S jurisdiction. The judgment of any court of competent jurisdiction, or the admission of TENANT in any action or proceeding against TENANT, whether CITY be a party thereto or not, that TENANT has violated any such Legal Requirement in the use of the Premises will be conclusive of that fact as between CITY and TENANT.

Section 3.08 Waste or Nuisance.

TENANT must not commit or permit the commission by others of any waste on the Premises; TENANT must not maintain, commit, or permit the maintenance or commission of any nuisance as defined by law on the Premises; and TENANT must not use or permit the use of the Premises for any unlawful purpose.

Section 3.09 Use by CITY.
(1) Subject to TENANT'S rights hereunder to possession of the Premises, CITY may grant licenses to, or otherwise authorize, other persons and entities permitting uses of the Morro Bay Harbor.
(2) CITY also retains and reserves for itself, its successors and assigns, all oil, gas, petroleum and other mineral or hydrocarbon substances in and under the lands leased hereby together with right to prospect and extract all such substances.

Article 4 CONSTRUCTION, ALTERATION AND REPAIRS
Section 4.01 Construction Approval.
(1) TENANT must not make or permit any other person to make any alterations or structural additions or structural modifications to the Premises or to any structure thereon or facility appurtenant thereto if the cost thereof exceeds Fifty Thousand Dollars ($50,000), without the prior written consent of CITY. The consent to be obtained pursuant to this Section 4.01(1) must be requested from the Harbor Director, or the City’s designee, for CITY. If the Harbor Director or any future successor to the duties of the City’s Harbor Director, or the City’s

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designee, gives such consent to proceed, then it is understood such consent is given by CITY only in its capacity as the landlord under this Lease and not as the permit-issuing authority.

TENANT remains obligated to obtain any needed building permits and comply with all applicable land use entitlement processes.
(2) Where required by the Morro Bay Municipal Code, California Coastal Act, Corps of Engineers or any other state or federal agency having authority over the proposed project, then all Conditional Use Permits, Concept Plans, Precise Plans, Coastal Development Plans, and any other required plans or permits must be applied for and approved prior to any construction, alteration or repairs.

Section 4.02 Construction Bond.
(1) Prior to the commencement of any construction the cost of which is greater than the amount of One Hundred Thousand Dollars ($100,000), TENANT must file, with CITY’S City Clerk, a final detailed Civil Engineer's, Registered Architect's or Licensed and Bonded General Contractor's estimate of the cost of construction and installation of improvements on the Premises. Said estimate must be submitted to CITY’S City Engineer for approval, in the exercise of their reasonable discretion, and if not approved or conditionally approved within ten (10) days after their receipt, shall be deemed denied. TENANT must file with the City Clerk a faithful performance bond, in a form and issued by a corporate surety company satisfactory to CITY, in an amount satisfactory to CITY, but not in excess of 100% of the final detailed cost estimate, securing the faithful performance of TENANT or its contractor in the completion of said construction.
(2) TENANT must also file with the City Clerk a labor and materials bond, in a form and issued by a corporate surety company satisfactory to CITY, in an amount satisfactory to CITY, but not in excess of 100% of the final detailed cost estimate, securing the payment of all claims for the performance of labor or services on, or the furnishing of materials for, the performance of said construction.
(3) In lieu of the above referenced bonds, TENANT may post cash deposits or may make other mutually satisfactory arrangements to guarantee the completion of construction projects.

In the event the contractor bonds the project, CITY may be named as additional indemnitee to comply with these requirements.

Section 4.03 Mechanics' Liens.

At all times during the term of this Lease, TENANT must keep the Premises and all buildings, installations and other improvements now or hereafter located on the Premises free

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and clear of all liens and claims of liens for labor, services, materials, supplies, or equipment performed on or furnished to the Premises. TENANT further agrees to, at all times, save CITY free and harmless and indemnify and defend CITY against all claims for labor or materials in connection with any improvement, repairs, or alterations on the Premises, and the cost of defending against such claims, including reasonable attorneys' fees. If TENANT fails to pay and discharge or cause the Premises to be released from such liens or claim of liens within 10 days after the filing of such lien or levy, then TENANT must, upon written notification, immediately deposit with CITY a bond conditioned for payment in full of all claims on which said lien or levy has been filed. Such bond must be acknowledged by TENANT as principal and by a company or corporation, licensed by the Insurance Commissioner of the State of California to transact the business of a fidelity and surety insurance company as surety. The beneficiary of any security instrument, which instrument is on record with CITY, must have the right to file a claim for payment from such a bond on behalf of TENANT. CITY has the right to post and keep posted on the Premises notices of non-responsibility and any other notices that may be provided by law or which CITY may deem proper for the protection of CITY and Premises from such liens.

TENANT must give CITY notice at least 20 days prior to commencement of any work on the Premises to afford CITY the opportunity to post such notices.

Section 4.04 Ownership of Improvements.

The Parties agree, if the Lease terminates or expires, then CITY has the option and right to require TENANT to remove all buildings, structures, installations, improvements (“Improvements”) of any kind or other property placed upon the Premises by TENANT, however occurring, providing CITY gives notice, in writing, no later than thirty (30) days prior to the termination or expiration of this Lease, of its decision to require the Improvements or other property be removed upon termination or expiration of this Lease. The Parties agree, if CITY exercises its option, then at the termination or expiration of this Lease, however occurring, TENANT will have sixty (60) days thereafter to remove all buildings, structures, facilities, installations, improvements and other property belonging to TENANT from the Premises. If CITY exercises such option and TENANT fails to remove all such improvements and other property within sixty days after the termination of this Lease, then CITY has the right to have any or all the Improvements and other property removed at the expense of TENANT. If CITY does not exercise its option to remove (or require the removal of) the Improvements and other property, then title to the Improvements and other property vests in CITY and TENANT must not remove same.

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Article 5 LEASEHOLD MORTGAGES
Tenant must not mortgage, securitize or hypothecate the leasehold interest created by this Lease, in whole or any part, without the prior written approval of CITY, as evidenced by a resolution of the City Council of CITY.

CITY will not approve financing related to or using that leasehold interest created by this Lease as collateral, unless such financing is (i) to install or construct capital improvements on the Premises, (ii) to install or construct CITY-requested public improvements or provide other benefits in the Tidelands Trust area, the latter as approved by the Harbor Director or (iii) to reduce the interest rate of existing, approved debt secured by leasehold interest created by this Lease without redeeming any equity in the leasehold interest.

Article 6 REPAIRS, MAINTENANCE AND RESTORATION
Section 6.01 Maintenance by TENANT.

At all times during the term of this Lease, TENANT must, at TENANT'S own cost and expense, keep and maintain, in good order and repair and in a safe and “broom clean” condition, all improvements utilized for TENANT’S or TENANT’S subtenant’s operation, now or hereafter on the Premises, including any public spaces, common areas, rights-of-way, sidewalks and other areas or spaces, even if not on the Premises but utilized as part of TENANT’S business operations. Furthermore, TENANT must, at TENANT'S own cost and expense, maintain at all times during the term of this Lease the whole of the Premises and other areas utilized for TENANT’S business operations as described above in a clean, sanitary, neat and orderly “broom clean” condition. CITY may, at the sole option of CITY, but not obligation,, clean, clear, maintain or repair the Premises, any improvements thereon or areas used by TENANT, as described above, at TENANT'S cost and expense, in the event TENANT fails to clean, clear maintain or make repairs, in accordance with this Section to the satisfaction of CITY, after 15- days' written notice to TENANT from CITY of CITY'S intent to exercise this option.

Section 6.02 Seawalls and Revetment.

In addition to the Project, as defined in Section 13.01, at all times during the term of this Lease, TENANT must, at TENANT'S own cost and expense, repair, maintain, replace and rebuild, as necessary, the improvements, pilings, bulkheads, seawalls, revetment, piers, posts and any structures or other improvements located in the water portion of the Premises. Further, TENANT must, at TENANT'S own cost and expense, conduct maintenance and structural

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inspections, evaluations or surveys, by a qualified individual or firm, at reasonable intervals not to exceed ten years, to locate and determine needed maintenance, repairs or replacements of these improvements.

Section 6.03 Legal Requirements.

At all times during the term of this Lease, TENANT, at no cost to CITY, must:
(1) Make all alterations, additions, or repairs to the Premises or the improvements or facilities on the Premises required by any Legal Requirements (as defined in Section 3.07, above);
(2) Observe and comply with all Legal Requirements respecting the Premises or the improvements or facilities located thereon;
(3) Obtain all required permits pursuant to the Morro Bay Municipal Code or State law prior to the initiation of any repair or maintenance activity; and (4) Indemnify, defend and hold harmless CITY and the property of CITY, including the Premises, from any and all liability, loss, damages, fines, penalties, claims and actions resulting from TENANT'S failure to comply with and perform the requirements of this section.

Section 6.04 Failure to Repair.

In the event failure to repair results in a hazardous or unsafe condition, CITY has the right and option, but not the obligation, to close and prohibit access to the unsafe portion of the Premises until such repairs are completed and accomplished and the Premises rendered safe for public use. In addition, if TENANT fails to repair any hazardous or unsafe condition within ten days after written notice thereof from CITY, then CITY has the right, but not the obligation, to perform such repair at TENANT'S expense. TENANT must reimburse CITY for any such repair undertaken by CITY, promptly upon CITY'S demand, as additional Rent. Failure by CITY to enforce any of the provisions of this Article does not constitute a waiver of these provisions and CITY may, at any time, enforce all of the provisions of this Article, requiring all necessary repairs, rebuilding or replacement.

Section 6.05 Inspection by CITY.

CITY or CITY'S agents, representatives, or employees may enter the Premises at all reasonable times for the purpose of inspecting the Premises to determine whether TENANT is complying with the terms of this Lease and for the purpose of doing other lawful acts that may be necessary to protect CITY'S interest in the Premises under this Lease or to perform CITY'S duties under this Lease or in its governmental capacity.

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Section 6.06 TENANT'S Duty to Restore Premises.
(1) Except as provided in Section 6.07 below, if at any time during this Lease, any improvements now or hereafter on the Premises are destroyed in whole or in part by the elements, or any other cause not the fault of TENANT or CITY, then this Lease will continue in full force and effect and TENANT, at TENANT'S own cost and expense, must repair and restore the damaged or destroyed improvement(s) according to the original plan thereof or according to such modified plans therefor as are approved in writing by CITY. The work of permitting, repair and restoration must be (i) commenced by TENANT within 180 days after the damage or destruction occurs, (ii) pursued with due diligence, and (iii) completed not later than 12 full calendar months after the work is commenced, unless the Parties mutually agree, in writing, to an extension. In all other respects, the work of repair and restoration must be done in accordance with the requirements for construction work on the Premises set forth in Article 4 of this Lease.

Any failure by TENANT either to commence or to complete repair and restoration as required by this Section 6.06 constitutes a material default under this Lease. (2) Any and all insurance proceeds that become payable at any time during the term of this Lease because of damage to or destruction of any improvements on the Premises will be paid to TENANT and applied by TENANT toward the cost of repairing and restoring the damaged or destroyed improvements in the manner required by this Section 6.06, or, if this Lease is terminated, then applied as provided in Section 6.07. Except as set forth in Section 6.08 below, TENANT'S obligation to restore pursuant to this Section exist whether or not funds are available from insurance proceeds.

Section 6.07 Termination of Lease for Destruction.
(1) Notwithstanding the provisions of Section 6.06 of this Lease, TENANT has the option of terminating this Lease as provided in this Section 6.07 if:
(a) During the last 15 years of the term of this Lease, any improvement now or hereafter on the Premises are so damaged or destroyed by the elements or any cause, not the fault of TENANT or CITY, the improvement cannot be repaired and restored as required by Section 6.06 of this Lease at a cost not exceeding 35 percent of the cost of replacing all improvements if they had been totally destroyed at the time of such damage; or (b) During the last 10 years of the term of this Lease, any improvement now or hereafter on the Premises are so damaged or destroyed by the elements or any cause, not the fault of TENANT or CITY, the improvement cannot be repaired and restored as required by

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Section 6.06 of this Lease at a cost not exceeding 15 percent) of the cost of replacing all improvements if they had been totally destroyed at the time of such damage. (2) TENANT may exercise its right to terminate pursuant to this Section 6.07 by providing written notice to CITY within 180 days following damage or destruction as described herein. Such termination is effective on the last day of the calendar month following the month in which TENANT provides its notice.
(3) If TENANT fails to commence or complete repair and restoration as required by Section 6.06, then CITY has all rights and remedies with respect to TENANT’S default, including, but not limited to, termination of this Lease pursuant to Article 11. (4) If this Lease is terminated as a result of damage or destruction, then any insurance proceeds received with respect to the improvements will be applied or distributed in the following order:
(a) first, to the demolition of the improvements and removal of all demolition debris; then
(b) to any accrued and unpaid Rent as of the effective date of the termination; then
(c) to each Lender under a Leasehold Encumbrance, in order of lien priority, an amount not to exceed the amount due under such Leasehold Encumbrance; then (d) to CITY, an amount equal to the present value, as of the date of termination, of the total Minimum Rent for the remainder of the Term; then (e) the remaining proceeds, if any, to TENANT.

Section 6.08 Destruction Due to Risk Not Covered by Insurance.

Notwithstanding anything to the contrary in Section 6.06 of this Lease, TENANT has the right to terminate this Lease, at any time, if the improvements on the Premises are damaged or destroyed by a casualty for which TENANT is not required under this Lease to carry insurance and the cost to repair or restore such improvements exceeds 50 percent of the fair market value of all the improvements on the Premises immediately prior to the damage or destruction.

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Article 7 INDEMNITY AND INSURANCE
Section 7.01 Indemnity Agreement.
(1) TENANT hereby agrees to indemnify, defend and hold harmless CITY, and the property of CITY (including the Premises and any improvements now or hereafter on the Premises), and CITY'S officers, officials, employees and volunteers from any and all liability, claims, loss, damages, and expenses, including reasonable attorney’s fees and litigation expenses, resulting from TENANT'S occupation and use of the Premises or any negligent act or omission of the TENANT or any of its officers, subtenants, employees, contractors, invitees or anyone for whom TENANT may be liable, specifically including, without limitation, any liability, claim, loss, damage, or expense arising by reason of:
(a) The death or injury of any person, including TENANT or any person who is an officer, employee, contractor, subtenant, invitee or agent of TENANT, or by reason of the damage to or destruction of any property, including property owned by TENANT or by any person who is an employee or agent of TENANT, from any cause whatever while such person or property is in or on the Premises or in any way connected with the Premises or with any of the improvements or personal property on the Premises;
(b) The death or injury of any person, including TENANT or any person who is an officer, employee, contractor, subtenant, invitee or agent of TENANT, or by reason of the damage to or destruction of any property, including property owned by TENANT or any person who is an officer, employee, contractor, subtenant, invitee or agent of TENANT, caused or allegedly caused by either (i) the condition of the Premises or any improvement placed on the Premises by TENANT, or (ii) any act or omission on the Premises by TENANT or any person in, on, or about the Premises with or without the permission and consent of TENANT; (c) Any work performed on the Premises or materials furnished to the Premises at the insistence or request of TENANT or any person or entity acting for or on behalf of TENANT;
(d) TENANT'S failure to perform any provision of this Lease or to comply with any Legal Requirement imposed on TENANT or the Premises. (2) TENANT'S obligations pursuant to this Section to indemnify and hold harmless do not extend to any liability, claim, loss, damage or expense arising from CITY'S negligence or willful misconduct, as finally determined by a court or arbitrator.

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Section 7.02 Liability Insurance.

During the term of this Lease, TENANT must maintain at its cost Commercial General Liability insurance with coverages as described in CITY’S HARBOR DEPARTMENT LEASE MANAGEMENT POLICY, as may be updated or changed from time to time at the sole discretion of the CITY. Such coverages must insure against claims for bodily injury (including death), property damage, contractual liability, personal injury and advertising injury occurring on the Premises or from operations located in any part of the Premises. Such insurance must afford protection in amounts no less than One Million Dollars ($1,000,000) per occurrence for bodily injury, personal injury and property damage; provided, that if insurance with a general aggregate limit is used, then either the general aggregate limit will apply separately to the Premises or the general aggregate limit will be twice the occurrence limit stated in this Section. All liability insurance carried by TENANT hereunder will name CITY, its officers, officials, employees and volunteers as additional insureds, and be primary insurance with respect to such additional insureds. TENANT must include all its subtenants as insureds under TENANT'S liability policies or furnish separate certificates and endorsements for each subtenant. All coverages for subtenants must comply with all requirements of this Article Seven.

Section 7.03 Worker's Compensation.

TENANT must maintain at TENANT'S own expense and keep in full force and effect during the term of this Lease, Worker's Compensation Insurance as provided by law. Said insurance must contain a waiver of subrogation rights against CITY. TENANT must also maintain employer's liability insurance with minimum coverage of $1,000,000 per accident for bodily injury or disease.

Section 7.04 Property Insurance.

TENANT must, at its cost, at all times during the term of this Lease keep all improvements and other structures on the Premises, as well as any and all additions, improvements and betterments thereto, insured for 100 percent) of their full replacement cost with no co-insurance provision against loss or destruction by the perils covered by "all risk" (excluding earthquake) property damage insurance policies. Any loss coverage under such insurance must be payable to TENANT, CITY, and any Lender under a Leasehold Encumbrance approved pursuant to Article 5 of this Lease, as their interests may appear, and such proceeds must be used and applied in the manner required by Article 6 of this Lease.

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Section 7.05 Additional Coverage.

TENANT must also maintain, at its sole expense, the insurance described in this Section 7.05.
(1) If TENANT has (or is required by any Legal Requirement to have) a liquor license and is selling or distributing alcoholic beverages on the Premises, then TENANT must maintain liquor liability coverage in appropriate amounts. TENANT must require any subtenant who has (or is required by any Legal Requirement to have) a liquor license and who is selling or distributing alcoholic beverages on the Premises, to maintain such coverage. (2) TENANT must maintain "all risk" (excluding earthquake) property damage insurance covering TENANT'S personal property located at the Premises, in amounts not less than the full replacement value of such personal property. CITY has no interest in the proceeds of such insurance.
(3) TENANT must obtain and maintain any additional insurance coverages CITY may reasonably require. As illustration only and not as a limitation, in appropriate circumstances such additional insurance may include increased general liability limits, business interruption coverage, business automobile liability, boiler and machinery insurance or builder's risk insurance. TENANT, however, is not required to maintain additional coverages that are in excess of those typically maintained by similarly situated tenants in the Morro Bay area.

Section 7.06 General Requirements.

Except as specifically provided to the contrary, all the insurance required pursuant to this Article Seven is subject to the requirements of this Section 7.06. (1) Maintenance of proper insurance coverage is a material element of this Lease and failure to maintain or renew coverage or to provide evidence of coverage and/or renewal may be treated by the CITY as a material breach of contract. TENANT must forward CITY”S specifications and forms to TENANT’S insurance agent for compliance. (2) CITY may, at any time, require TENANT to increase the minimum coverage limits for insurance required by this Lease, but every such increase must be reasonable under the circumstances.
(3) All policies must be issued by insurance companies authorized to issue such insurance in California, with an A.M. Best's rating of no less than A:VII. (4) Any deductibles or self-insured retentions must be declared to and approved by CITY. At the option of CITY, either: (i) the insurer must reduce or eliminate such deductibles

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or self-insured retentions as respects CITY, its officers, officials, employees and volunteers or (ii) TENANT must provide a financial guarantee satisfactory to CITY guaranteeing payment of losses and related investigations, claim administration and defense expenses. (5) Each insurance policy required by this Lease must be endorsed to state coverage will not be cancelled or reduced, except after 30-days' prior written notice by certified mail, return receipt requested, has been given to CITY.
(6) TENANT must furnish CITY with certificates and amendatory endorsements effecting the coverage required by this Lease. The endorsements must be on forms provided by CITY or on other than CITY'S forms; provided, that those endorsements or policies conform to the requirements. All certificates and endorsements are to be received and approved by CITY before use of the Premises, and promptly following any renewal or replacement. CITY reserves the right, at any time, to require complete, certified copies of all required insurance policies, including endorsements effecting the coverage required by these specifications. (7) TENANT'S insurance coverage must be primary insurance as respects CITY, its officers, officials, employees, and volunteers. Any insurance or self-insurance maintained by CITY, its officers, officials, employees, or volunteers will be excess of TENANT'S insurance and will not contribute with it.

Section 7.07 No Subrogation.

TENANT agrees, in the event of loss due to any of the perils for which it has agreed to provide insurance, TENANT will look solely to its insurance for recovery. TENANT hereby grants to the CITY, on behalf of any insurer providing insurance to either TENANT or CITY with respect to TENANT'S occupancy of the Premises, a waiver of any rights to subrogation, which any such insurer of TENANT may acquire against CITY by virtue of the payment of any loss under such insurance. Each insurance policy required under this Lease, including those insuring TENANT against claims, expense, or liability for injury to persons or property, must provide the insurer will not acquire by subrogation any right to recovery.

Section 7.08 TENANT'S Waiver.

TENANT hereby waives any right of recovery against CITY for each claim, expense, liability, or business interruption, or other loss, except where caused by CITY'S active negligence or willful misconduct. TENANT agrees, to the extent TENANT fails to acquire insurance, TENANT will not have any claim against CITY for any loss that results from a risk or peril that would have been included in such insurance.

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Section 7.09 Insurance Not a Limit.

The insurance requirements of this Article 7 are independent of, and do not limit or modify, TENANT'S indemnification, defense, hold harmless and other obligations pursuant to this Lease.

Article 8 TAXES AND FEES
Section 8.01 TENANT to Pay Taxes.

TENANT must pay, before delinquency, all taxes and assessments levied upon or assessed to TENANT on the Premises by reason of this Lease or of any equipment, appliances, improvement, or other development of any nature whatsoever, erected, installed, or maintained by TENANT or by reason of the business or other activity of TENANT upon or in connection with the Premises. TENANT must pay all possessory interest taxes applicable to the Premises.

Section 8.02 TENANT to Pay License and Permit Fees.

TENANT must pay any fees imposed by Legal Requirements for licenses or permits for any business or activities including construction by TENANT upon the Premises.

Section 8.03 Utilities.

TENANT must (i) pay, or cause to be paid and (ii) hold harmless CITY and the property of CITY, including the Premises, from all charges for the furnishing of gas, water, electricity, telecommunication service, and for other public utilities to the Premises during the term of this Lease and for the removal of garbage and rubbish from the Premises during the term of this Lease.

Article 9 CONDEMNATION
Section 9.01 Total Condemnation.

If title and possession to all of the Premises is permanently taken for any public or quasipublic use under any statute, or by the right of eminent domain, then this Lease will be considered terminated on the date that possession of the Premises is taken; and both CITY and TENANT will thereafter be released from all obligations, including Rent, all of which will be prorated to the date of termination, except as specified in Section 9.02 of this Lease.

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Section 9.02 Condemnation Award.

Any compensation or damages awarded or payable because of the permanent taking of all or any portion of the Premises by eminent domain will be allocated between CITY and TENANT as follows:
(1) All compensation or damages awarded or payable for the taking by eminent domain of any land that is part of the Premises will be paid to and be the sole property of CITY free and clear of any claim of TENANT or any person claiming rights to the Premises through or under TENANT.
(2) All compensation or damages awarded or payable which is specifically attributed by the taking party to the "goodwill" of TENANT'S business will be paid to and be the sole property of TENANT.
(3) All compensation or damages awarded or payable because of any improvements constructed or located on the portion of the Premises taken by eminent domain where only a portion of the Premises is taken by eminent domain, and TENANT is not entitled to or does not terminate this Lease, will be applied in the manner specified in Section 9.04 toward the replacement of such improvements with equivalent new improvements on the remaining portions of the Premises.
(4) All compensation or damages awarded or payable because of any improvements constructed or located on the portion of the Premises taken by eminent domain where this Lease is terminated because of the taking by eminent domain, whether all or only a portion of the Premises is taken by eminent domain, will be allocated between CITY and TENANT as follows:
(a) That percentage of the compensation or damages awarded or payable because of the improvements that equals the percentage of the full term of this Lease that has, at the time of the taking, not expired will belong to and be the sole property of TENANT. (b) That percentage of the compensation or damages awarded or payable because of the improvements that equals the percentage of the full term of this Lease that has, at the time of the taking, expired will belong to and be the sole property of CITY. (c) The term "time of taking," as used in this Section, means 12:01 a.m. of the date the agency or entity exercising the eminent domain power, takes title to or the date it takes physical possession of the portion of the Premises, whichever first occurs. (5) Any severance damages awarded or payable because only a portion of the Premises is taken by eminent domain will be the sole and separate property of CITY.

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Section 9.03 Termination for Partial Taking.

If, during the term of this Lease, title and possession of only a portion of the Premises is taken for any public or quasi-public use under any statute, or by right of eminent domain, then TENANT may, at TENANT'S option, terminate this Lease by serving written notice of termination on CITY within ninety (90) days after TENANT has been deprived of actual physical possession of the portion of the Premises taken for such public use. This Lease will terminate on the first day of the calendar month following the calendar month in which the notice of termination described in this section is served on CITY. On termination of this Lease, pursuant to this Article, all subleases and subtenancies in or on the Premises or any portion of the Premises created by TENANT under this Lease will also terminate and the Premises must be delivered to CITY free and clear of all such subleases and subtenancies; provided, however, that CITY may, at CITY'S option, by mailing written notice to a subtenant allow any subtenant to attorn to CITY and continue such subtenant's occupancy on the Premises as a TENANT of CITY. On termination of this Lease pursuant to this section, however, both CITY and TENANT will be released from all obligations under this Lease, except those specified in Section 9.02 of this Lease.

Section 9.04 Rent Abatement for Partial Taking.

If, during the term of this Lease, title and possession of only a portion of the Premises is taken under the power of eminent domain by any public or quasi-public agency or entity and TENANT does not terminate this Lease, then this Lease will terminate as to the portion of the Premises taken under eminent domain on the date actual physical possession of the portion taken by eminent domain is taken by the agency or entity exercising the eminent domain power.

Furthermore, the Rent payable under this Lease will, as of that time be reduced in the same proportion of the Premises taken by eminent domain bears to the full value of the Premises at that time; provided however, that TENANT will make a good faith effort to replace any improvements or facilities with equivalent new facilities on the remaining portion of the Premises and do all other acts at TENANT'S own cost and expense required by the eminent domain taking to make the remaining portion of the Premises fit for the use specified in this Lease.

Section 9.05 Conveyance in Lieu of Eminent Domain.

A voluntary conveyance by CITY, with the consent of TENANT, of title to all or a portion of the Premises to a public or quasi-public agency or entity in lieu of and under threat by such agency or entity to take the same by eminent domain proceedings will be considered a

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taking of title to all or such portion of the Premises under the power of eminent domain subject to the provisions of this Article.

Section 9.06 Temporary Taking.

If the possession of the Premises or any portion thereof are taken under the power of eminent domain by any public or quasi-public agency or entity for a limited period not extending beyond the term of this Lease, then this Lease will not terminate (except as provided in this Section 9.06) and TENANT must continue to perform all its obligations hereunder, except only to the extent TENANT is prevented from performing such obligations by reason of such taking.

TENANT will be entitled to receive the entire amount of compensation or damages awarded because of such temporary taking. If a temporary taking extends for more than 36 months, then TENANT will have the right to terminate this Lease, and TENANT will be entitled to receive, out of the compensation or damages awarded because of such temporary taking, the amount that is attributable to the period of time up until the effective date of TENANT'S termination of this Lease.

Article 10 ASSIGNMENT AND SUBLEASING
Section 10.01 No Assignment Without CITY'S Consent.

Except as provided in this Article 10, TENANT must not assign or otherwise transfer this Lease, any right or interest in this Lease, or any right or interest in the Premises or any of the improvements that may now or hereafter be constructed or installed on the Premises without the express written consent of CITY first had and obtained. Any assignment or transfer by TENANT without the prior written consent of CITY, as evidenced by a resolution of the City Council, whether it be voluntary or involuntary, by operation of law or otherwise, is void and may, at the option of CITY, terminate this Lease. A consent by CITY to one assignment will not be deemed to be a consent to any subsequent assignment of this Lease by TENANT. CITY will not unreasonably nor arbitrarily withhold its approval to the assignment or transfer of this Lease to an assignee who is financially reliable and qualified to conduct the business for which this Lease was granted. It is mutually agreed TENANT'S qualifications are a part of the consideration for granting of this Lease and said party does hereby agree to maintain active control and supervision of the operation conducted on the Premises.

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Section 10.02 Change of Ownership as Assignment.

For purposes of this Article 10, the following transactions will be deemed to be assignments or transfers:
(1) If TENANT is a partnership or limited liability company:
(a) A change in ownership effected voluntarily, involuntarily, or by operation of law, within a 12-month period, of 25 percent or more of the partners or members or 25 percent or more of the partnership or membership interests; or
(b) The dissolution of the partnership or limited liability company without its immediate reconstitution.
(2) If TENANT is a closely held corporation (i.e., one whose stock is not publicly held and not traded through an exchange or over the counter):
(a) The sale or other transfer, within a 12-month period, of more than an aggregate of 25 percent of the voting shares of TENANT (other than to immediate family members by reason of gift or death); or
(b) The dissolution, merger, consolidation, or other reorganization of TENANT.

Section 10.03 Application for Assignment.

A condition of an assignment is TENANT must file with CITY an application to assign its leasehold interest prepared by the prospective assignee. Concurrently with filing the application, TENANT must pay a reasonable fee associated with the cost of processing said application, in cash or certified or cashier's check to enable CITY adequately to investigate the proposed assignee's qualifications, financial reliability and suitability as a permitted assignee.

CITY is not required to account for the use of the sum paid. If the proposed assignee's net worth, financial reliability and qualifications on the date of assignment are not sufficient to reasonably guarantee successful operation of the Premises in compliance with all applicable CITY, County, State and federal requirements, then CITY may withhold approval of the assignment or condition it upon TENANT'S guarantee of such assignee's obligations hereunder for such period as CITY deems advisable. Net worth means the amount by which the total of all assets exceed the total of all liabilities as determined in accordance with general accepted accounting principles as approved by CITY'S auditor, or other authorized representative or agent.

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Section 10.04 Probate Transfer of Assignment.

If TENANT is an individual, nothing herein contained will prevent the transfer of this Lease by trust, will, or by operation of law under the intestacy provisions of the California Probate Code as it may be amended from time to time. Probate sale of the leasehold interest will not be permitted without the consent of the CITY, evidenced by a City Council resolution, first had and obtained.

Section 10.05 No Sublease Without CITY'S Consent.

TENANT shall not sublease the whole nor any part of the Premises, or license, permit, or otherwise allow any other person (the employees of TENANT excepted) to occupy or use the Premises, or any portion thereof, without the prior written consent of CITY’S Harbor Director, or any future successor to the duties of the City’s Harbor Director. The process for obtaining that consent will not begin until TENANT has filed an application to sublease and paid a reasonable fee, as determined by CITY, associated with the cost of processing the application. A consent to one subletting, occupation, licensing or use will not be deemed to be a consent to any subsequent subletting, occupation, licensing or use by another person. Any sublease or license without CITY'S written consent is void, and may, at CITY'S option, terminate this Lease. CITY will not unreasonably nor arbitrarily withhold its consent to sublet to one who is qualified and financially reliable. CITY'S consent to any occupation, use, or licensing will be in CITY'S sole and absolute discretion. Notwithstanding any provisions herein to the contrary, the terms "assignment," "subletting," "occupation," or "use," are not to be construed or interpreted to mean or include the temporary, short-term renting or leasing of boat slips, motel, hotel, or apartment accommodations, if any, on the Premises.

Section 10.06 Subtenant Subject to Lease Terms.

Any and all subleases must be expressly made subject to all the terms, covenants, and conditions of this Lease. In no event will the term of any sublease extend beyond the term of this Lease. Subject to Section 10.09, termination of this Lease prior to the expiration of this Lease term also terminates any and all subleases. A breach of the terms of this Lease by a subtenant constitutes a breach on the part of TENANT and subjects both the subtenant and TENANT to all the remedies provided to CITY herein and by law. Failure by any subtenant to report Gross Sales or to pay Percentage Rent due from subtenant constitutes a breach of this Lease. TENANT hereby agrees to and does guarantee payment of such Percentage Rent due by a subtenant under the terms of this lease.

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Section 10.07 Consent to Sublease Agreement.

Prior to any consent by CITY to any sublease hereof, TENANT, CITY and any subtenant must have executed the CITY’S Consent to Sublease Agreement making CITY a third party beneficiary, whereby the subtenant agrees to be bound by all of the terms, covenants and conditions of this Lease. Further, it is agreed by TENANT any default by the subtenant of any of the terms, covenants and conditions of this Lease will be a violation by TENANT of this Lease and all remedies of CITY for such violation, including termination of this Lease, may immediately be enforceable by CITY against TENANT. TENANT must apply any and all monies received from any subtenant first to the payment of obligations of the subtenant to CITY.

Section 10.08 TENANT and Guarantor Remain Liable.

Prior to approval by CITY to any sublease hereof, TENANT must agree to be primarily and jointly and severally liable to CITY for all obligations due CITY by any subtenant, including the payment of rents; and TENANT must agree CITY may proceed directly against TENANT for any obligation owed to CITY by the subtenant. If this Lease is guaranteed, then neither the sublease nor CITY'S approval thereof will release the guarantor from its obligations pursuant to the guaranty.

Section 10.09 Nondisturbance.

On the terms set forth below, CITY may enter into agreements with subtenants establishing, in the event of any termination of this Lease prior to the expiration date, CITY will not terminate or otherwise disturb the rights of the subtenant under such sublease, but will instead honor such sublease as if that sublease had been entered into directly between CITY and such subtenant, conditioned upon such subtenant's agreement to attorn to CITY and full performance of all obligations under the sublease in question ("Non-Disturbance Agreement").

CITY agrees to execute a Non-Disturbance Agreement in connection with a particular sublease; provided, that Tenant provides CITY with a copy of the sublease, and the Non-Disturbance Agreement is customary in form and substance and otherwise reasonably acceptable to CITY.

Article 11 DEFAULT AND TERMINATION
Section 11.01 Abandonment by TENANT.

If TENANT breaches this Lease and abandon all or any part of the Premises prior to the scheduled expiration of the term of this Lease, then CITY may continue this Lease in effect by not terminating TENANT'S right to possession of the Premises, in which event CITY may, at its

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option, enforce all CITY'S rights and remedies under this Lease including the right to recover the Rent specified in this Lease as it becomes due under this Lease.

Section 11.02 Termination for Breach by TENANT.

All covenants and agreements contained in this Lease are declared to be conditions to this Lease and to the term hereby demised to TENANT. If TENANT fails to perform any covenant, condition, or agreement contained in this Lease, except for payment of any Rent or other monetary amount due, and such failure is not cured within thirty (30) days after written notice thereof is served on TENANT or if such failure cannot reasonably be cured within thirty (30) days, and TENANT has not commenced curing the failure within 30 days and diligently pursued and completed the cure within on hundred twenty (120) days thereafter, then CITY may terminate this Lease immediately, and in the event of such termination, TENANT will have no further rights hereunder and TENANT must thereupon forthwith remove from the Premises and will have no further right or claim thereto and CITY will immediately thereupon have the right to re-enter and take possession of the Premises, subject only to appropriate legal process.

Section 11.03 Termination for Failure to Pay Rent.

If any payment of Rent is not made as herein provided and such failure to pay is not cured within three days after written notice thereof is served on the TENANT, then CITY will have the option to immediately terminate this Lease; and in the event of such termination, TENANT will have no further right or claim thereto and CITY will immediately thereupon have the right to re-enter and take possession of the Premises, subject only to appropriate legal process.

Section 11.04 Lender May Cure Default.

CITY hereby affords the lender under any Leasehold Encumbrance of record with CITY the right to cure any default by TENANT of the covenants, conditions, or agreements hereof, as provided in Article 5 of this Lease.

Section 11.05 Damages for Breach.

If TENANT defaults in the performance of any covenant, condition or agreement contained in this Lease and the default be incurable or not be cured within the time period set forth hereinabove, then CITY may terminate this Lease and:
(1) Bring an action to recover from TENANT:

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(a) The worth at the time of award of the unpaid Rent which had been earned at the time of termination of the Lease;
(b) The worth at the time of award of the amount by which the unpaid Rent, which would have been earned after termination of the Lease until the time of award exceeds the amount of rental loss that TENANT proves could have been reasonably avoided; (c) The worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss that TENANT proves could be reasonably avoided; and
(d) Any other amount necessary to compensate CITY for all detriment proximately caused by TENANT'S failure to perform its obligations under this Lease; and (2) Bring an action, in addition to or in lieu of the action described in subparagraph (1) of this Section, to re-enter and regain possession of the Premises in the manner provided by the laws of unlawful detainer of the State of California then in effect.

Section 11.06 Cumulative Remedies.

The remedies available to CITY in this Article are not exclusive, but are cumulative with and in addition to all remedies now or hereafter allowed by law or elsewhere provided in this Lease.

Section 11.07 Waiver of Breach.

The waiver by CITY of any breach by TENANT of any of the provisions of this Lease does not constitute a continuing waiver or a waiver of any subsequent breach by TENANT either of the same or a different provision of this Lease.

Section 11.08 Surrender of Premises.

On expiration or sooner termination of this Lease, TENANT must surrender the Premises, and, subject to Section 4.04, all improvements in or on the Premises, and all facilities in any way appertaining to the Premises, to CITY in good, safe, and clean condition, reasonable wear and tear excepted.

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Article 12 MISCELLANEOUS
Section 12.01 Notices.

Any and all notice or demands by or from CITY to TENANT, or TENANT to CITY, must be in writing. They must be served either personally, or by registered or certified mail.

Any notice or demand to CITY must be given to:

Harbor Director
1275 Embarcadero
Morro Bay, CA 93442
with a copy to:

City Manager of the City of Morro Bay
City Hall
595 Harbor Street
Morro Bay, CA 93442
Any notice or demand to TENANT must be given at:

Orietta M. DeGarimore, as trustee of Michael G. and
Orietta M. DeGarimore Revocable Trust, under declaration dated June 30,2005
2239 Lake Isabel Road
Templeton, CA 93465
[email protected]
with a copy to:

Giovanni Comin
2223 Lake Isabel Road
Templeton, CA 93465
[email protected]
Such addresses may be changed by written notice by either Party to the other Party.

Section 12.02 Governing Law and Jurisdiction.

This Lease, and all matters relating to this Lease, are governed by the laws of the State of California in force at the time any need for interpretation of this Lease or any decision concerning this Lease arises. CITY and TENANT consent to exclusive personal and subject matter jurisdiction in the Superior Court of the State of California in and for the county where the Premises are located, and each Party waives any claim such court is not a convenient forum.

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Each Party hereby specifically waives the provisions of California Code of Civil Procedure Section 394, and any successor statute thereto.

Section 12.03 Binding on Successors.

Subject to the provisions herein relating to assignment and subletting, each and all of the terms, conditions, and agreements herein contained will be binding upon and inure to the benefit of the successors and assigns of any and all of the Parties; and all of the Parties hereto are jointly and severally liable hereunder.

Section 12.04 Partial Invalidity.

If any provision of this Lease is held by a court of competent jurisdiction to be either invalid, void, or unenforceable, then the remaining provisions of this Lease will remain in full force and effect unimpaired by the holding.

Section 12.05 Sole and Only Agreement.

This Lease, including all exhibits incorporated by reference, constitutes the sole and only agreement between CITY and TENANT respecting the Premises and the leasing of the Premises to TENANT and (ii) any other agreements or representations respecting the Premises and their leasing to TENANT by CITY, which are not expressly set forth in this Lease, are null and void.

The lease terms herein specified correctly set forth the obligations of CITY and TENANT as of the date of this Lease.

Section 12.06 Modification.

This Lease can only be modified, amended or altered pursuant to a written amendment executed by the Mayor and attested to by City Clerk, pursuant to prior City Council approval.

Notwithstanding City Council approval, no amendment will become effective until it is in fact executed by the Mayor and attested to by City Clerk and approved as to form by the City Attorney (or designee). TENANT understands this Lease cannot be modified, amended or altered by oral statements by any person representing CITY, including the Mayor and City Clerk.

TENANT specifically agrees not to rely on oral statements, purported oral waivers, or purported oral modifications and agrees not to rely upon purported written modifications unless they meet the requirements of this Section. If the title of any person authorized to act for CITY under this Lease is changed during the term of this Lease, then the person who succeeds to substantially the same responsibilities with respect to CITY will have the authority to act for CITY under this Lease.

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Section 12.07 Time of Essence.

Time is expressly declared to be the essence of this Lease.

Section 12.08 Memorandum of Lease for Recording.

CITY and TENANT agree, at the request of either at any time during the term of this Lease, to execute a Memorandum of Lease or "short form" of this Lease, which shall describe the Parties, set forth a description of the Premises, specify the term of this Lease, and incorporate this Lease by reference.

Section 12.09 Force Majeure.

If either Party hereto is delayed or hindered in or prevented from the performance of any act required hereunder by reason of a strike, lock-out, labor trouble, inability to procure materials, failure of power, governmental moratorium, riot, insurrection, war, pandemic or other reason of a like nature not the fault of the Party delaying in performing work or doing any act required under the terms of this Lease, then performance and doing of such act will be excused for the period of such delay. The Parties understand and agree, the foregoing will not extend any period of time for the payment of Rent or other sums payable by either Party or any period of time for the written exercise of an option or right by either Party.

Article 13 SPECIAL PROVISIONS RELATING TO

THE PREMISES
Section 13.01 Description and Timing of Required Improvements TENANT agrees to commence and complete the permanent repair of the seawall/revetment to a remaining life of at least 25 years, as designed and verified by a waterfront civil engineer (the “Project”), with the timeframes noted below:

A. If required by the Legal Requirements, then file a complete application for a Precise Plan and diligently pursue review by the Planning Commission for the Project no later than January 10, 2026.

B. If a Precise Plan is required by the Legal Requirements, then diligently pursue approval of a Precise Plan from the Planning Commission for the Project no later than June 10, 2026.

C. File a complete application for a Coastal Development permit from the California Coastal Commission, as necessary, for the Project no later than September 10, 2026.

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D. Obtain all necessary Coastal Development Permit approvals for the Project no later than January 10, 2027.

E. File a complete application for construction drawings and plans to obtain a Building Permit for the Project no later than April 10, 2027.

F. In addition to complying with the bonding requirements set forth in Section

4.02, no later than September 1, 2027, provide objective evidence that shows committed and unconditional funding will be available for commencement and completion of the Project, as reasonably approved by the Harbor Director, Finance Director and City Attorney.

G. Obtain Building Permits for the Project no later than September 10, 2027.

H. Commence construction of the Project no later than December 10, 2027.

Commencement shall mean when the TENANT has incurred at least $50,000 of hard construction costs for actual work satisfactorily completed for the Project on the site pursuant to the approved Building Permit.

I. Completion construction of all components of the Project no later than December 31, 2028. Completion shall mean when the Project is entitled to be issued a final Certificate of Occupancy.

During construction of the Project, TENANT shall take all measures to:

A. Avoid any pollution of the atmosphere or littering of land or water by or originating in or about the Premises or caused by TENANT’S construction activities.

B. Keep the noise level on the Premises to a minimum so that persons in the neighborhood will be able to comfortably enjoy business and facilities in the area.

C. Prevent any pollutants, including but not limited to petroleum products, from entering Morro Bay waters.

D. Avoid negative impacts on surrounding businesses.

E. Prohibit storage of materials or equipment on public property and avoid parking or traffic delays or impairment without prior consent of CITY.

F. Keep the construction site in a slightly, orderly, and safe manner at all times.