8B
Date: June 17, 2025
To: Honorable Mayor and Members of the City Council
From: Aram Chaparyan, City Manager
By: Danny E. Santana, Assistant City Manager | [email protected] Subject: City Manager – Adopt Categorical Exemption 15301, Approve Security Agreement, Adopt RESOLUTION and Approve Second Amendment to Lease Agreement (2004-0154) for City-owned property located at 2600 Skypark Drive. Expenditure:
None.
RECOMMENDATION
Recommendation of the City Manager that City Council:
1. Adopt California Environmental Quality Act (CEQA) Categorical Exemption 15301 (Existing Facilities); and
2. Approve Security Agreement by and between Hi-Shear Corporation, a Delaware Corporation, and the City of Torrance; and
3. Adopt a RESOLUTION determining certain City-owned property is not required for City purposes and that extending an existing ground lease of the property is in the public interest; and
4. Approve a second amendment to Ground Lease (C2004-154) with Hi-Shear Corporation for City-owned property located at 2600 Skypark Drive in the City of Torrance.
FUNDING
Funding is not required for this item. Subject to and effective upon Court approval of a settlement (“Consent Decree”) between the City and Hi-Shear Corporation (“Hi-Shear”), approval of the Amended Lease and Security Agreement, both of which are a part of an overall settlement between the City and Hi-Shear, will result in the City receiving: (1) an immediate approximately 91% increase in rent effective retroactively to January 1, 2025 and future Fair Market Valuations every five years effective 2029 in the City’s lease with Hi-Shear for the property located at 2600 Skypark Drive, Torrance, CA; and (2) a lien on Hi-Shear’s fixtures, equipment and inventory in the amount of $30 million, as security to secure Hi-Shear’s remediation obligations under the Consent Decree and lease amendment.
DISCUSSION
Background
The subject Lease is for a 14-acre area north of the Torrance Municipal Airport operational area.
The lease was entered into on July 27, 2004, with Hi-Shear Corporation, now doing business as Lisi Aerospace, was developed as the prior 1959 Lease with Hi-Shear was expiring. This 2004 lease was set to expire June 30, 2029, and included three 5-year options. A first amendment was 1 City Council
June 17, 2025
approved on May 13, 2014, which deleted the three 5-year Options in favor of entering a 15-year extension (commencing July 1, 2014) and one additional 15-year Option that could be exercised in 2029. The first amendment also adjusted the monthly rent to $47,082.74 per month or $564,992.88 per year.
The current Minimum Basic Rent (MBR) is $79,945.49 per month or $959,345.88 per year. Staff conducted an appraisal on the property setting a current MBR value of between $152,458 and $167,708. Through negotiations, in exchange for the addition of one additional 15-year option (through June 30, 2059 provided the Lessee is in substantial compliance with a Court approved Consent Decree), the Lessee has agreed to a new $152,500 MBR ($1,830,000 per year) retroactive to January 1, 2025, to continue with annual CPIs, to a Fair Market Valuation every 5-years starting in 2029 and continuation of all prior lease terms and obligations except for enhanced remediation and indemnification obligations to be imposed on Hi-Shear under the Consent Decree, which are additionally and separately enforceable pursuant to the Second Amendment to Lease. The City will commence receiving an additional $870,654.12 per year starting in 2025, as this includes the retroactive $435,327.06 MBR increase to cover January through July 2025.
Finally, pursuant to the California Environmental Quality Act (CEQA), the Second Amendment to Lease is exempt under CEQA (2013) Categorical Exemption 15301, Class 1 – Existing Facilities.
The subject request, the Second Amendment to Lease, is the letting of property involving existing facilities with no expansion of an existing use is planned.
The Second Amendment to Lease before Your Honorable Body this evening allows for an increase in revenue over time and the retention of a long-term employer that will retain manufacturing jobs in the City of Torrance.
The Second Amendment will not become enforceable and effective unless and until the City’s settlement of its lawsuit against Hi-Shear, as documented in a Consent Decree to be approved by the U.S. District Court in the case of City of Torrance v. Hi-Shear et. al. USDC Case No. 2-17-CV-07732-FWS-JPR, has first been approved by the District Court and is no longer subject to appeal.
Security Agreement
In order to secure Hi-Shear’s various obligations under the Consent Decree, including Hi-Shear’s obligations to further investigate, remediate and mitigate environmental contamination in and around the current leased premises located at 2600 Skypark Drive, effective upon final approval by the U.S. District Court of the Consent Decree, Hi-Shear is providing the City with a broad security lien on all of Hi-Shear’s fixtures, equipment and inventory at its current facility.
The City’s lien will have a cap of $30 million and will attach to all of Hi-Shear’s fixtures, equipment and inventory at its present facility. After 5 years, Hi-Shear may apply for a reduction in the cap, generally based on the amount of remedial work Hi-Shear has completed in prior years and the expected remaining amount of remedial work to be completed.
The City’s lien under the Security Agreement is to be released upon a showing by Hi-Shear that the total remaining amount of remediation and mitigation work to be conducted by Hi-Shear under 2 City Council
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the Consent Decree, and the other remaining obligations of Hi-Shear under the Consent Decree, are less than $5 MM.
The City Manager recommends that City Council adopt a 15301 Categorical Exemption, approve the security agreement, adopt the associated RESOLUTION and approval of the Second lease amendment.
ENVIRONMENTAL FINDINGS
Pursuant to the California Environmental Quality Act (CEQA), the subject Amendment to Lease is exempt under CEQA (2025) Categorical Exemption 15301, Class 1 Existing Facilities. The subject Amendment to Lease, is the letting of property involving existing facilities with no expansion of an existing use presently planned.
ATTACHMENTS
1. Security Agreement
2.Second Amendment to Lease
3.First Amendment and Original Lease C2004-154 (Limited Distribution) 3 21886673 -1-
SECURITY AGREEMENT
This SECURITY AGREEMENT, is made as of June 17, 2025 (as amended, supplemented or otherwise modified from time to time in accordance with the provisions hereof, this “Agreement”), by and between Hi-Shear Corporation, a Delaware corporation (the “Grantor” or “Hi-Shear”), in favor of City of Torrance , a municipal corporation (the “Secured Party ” or “City”). Hi-Shear and City are hereafter referred to individually as “ Party” and collectively as “Parties”.
WHEREAS, the Secured Party is a municipal corporation located in the County of Los Angeles, and the owner of certain real property located on and within the vicinity of the Torrance Municipal Airport/Zamperini Field, including specifically real property the Secured Party leases on a long term basis to various tenants (collectively, the “Airport Property”).
WHEREAS, pursuant to that certain Lease Agreement dated July 27, 2004, as amended by the First Amendment to Lease dated May 13, 2014, and the Second Amendment to Lease dated April 15, 2025 (“Second Lease Amendment”), and as it may be further amended, supplemented or otherwise modified from time to time (collectively, the “Lease”), by and between the Secured Party, as lessor, and the Grantor, as lessee, the Secured Party leases an approximately 14 acre portion of the Airport Property to the Grantor located at 2600 Skypark Drive, Torrance, CA, as more specifically described in the Lease (the “Premises”).
WHEREAS, on October 23, 2017, the Secured Party filed its original complaint against the Grantor in the United States District Court for the Central District of California (the “Court”), entitled City of Torrance v. Hi-Shear Corporation, et. al., Case No. 2-17-CV-07732-FWS-JPR (the “Action”), in connection with a dispute over environmental contamination existing on and migrating from the Airport Property, including specifically, contamination on and migrating from the Premises and other Airport Property (collectively, the “Contamination”).
WHEREAS, on June 18, 2021, the California Regional Water Quality Control Board, Los Angeles Region issued Cleanup and Abatement Order No. R4-2021- 0019 (“ CAO”) under California Water Code sections 13304 and 13267, and naming the Grantor and the Secured Party as responsible parties for the Contamination, among other parties.
WHEREAS, the Parties have agreed to a final settlement of the Secured Party ’s claims against the Grantor and the Grantor’s counter-claims against the Secured Party in the Action, as more fully set forth in that certain Consent Decree submitted by the Secured Party and the Grantor to the Court in the Action for approval (the “Consent Decree”).
WHEREAS, this Agreement shall become effective as of the “ Effective Date” of the Consent Decree, as defined therein.
WHEREAS, under the terms of this Agreement, the Grantor desires to grant to the Secured Party a security interest in the Collateral (as defined below) to secure the payment and performance of all of the Secured Obligations (as defined below).
Attachment 1
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NOW THEREFORE, in consideration of the mutual covenants, terms and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. DEFINITIONS. All capitalized terms used herein without definitions shall have the respective meanings set forth in the Consent Decree. Unless otherwise defined herein, terms used herein that are defined in the Uniform Commercial Code as in effect from time to time in the State of California (the “UCC”) shall have the meanings assigned to them in the UCC. However, if a term is defined in Article 9 of the UCC differently than in another Article of the UCC, the term has the meaning specified in Article 9.
2. GRANT OF SECURITY INTEREST. The Grantor hereby pledges and grants to the Secured Party, and hereby creates a continuing first priority lien and security interest in favor of the Secured Party, in and to all of Grantor’s right, title and interest in the following, wherever located, whether now existing or hereafter from time to time arising or acquired (collectively, the “Collateral”): all inventory, fixtures, equipment, machinery, raw materials, and finished goods and products of every kind or nature (including without limitation, all such collateral that is listed on that certain certificate, dated as of the date of this Agreement, delivered by the Grantor to the Secured Party pursuant to Section 4 of this Agreement ), and all parts, accessions, additions, replacements, insurance proceeds and all other proceeds thereof.
3. SECURED OBLIGATIONS. This Agreement secures , up to a cap amount of Thirty Million Dollars ($30,000,000), the prompt and full performance and payment of all of the indebtedness, obligations, liabilities, and undertakings of the Grantor to the Secured Party, of any kind or description, individually or collectively, whether direct or indirect, joint or several, absolute or contingent, due or to become due, voluntary or involuntary, now existing or hereafter arising (including, all costs, fees, interest , and expenses of whatever kind or nature, including attorneys ’ and consultant fees), that concern or relate to the payment or performance of the “ Hi-Shear Security Obligations ” ( as defined and more fully set forth in the Consent Decree ), whether accruing before and/or after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to the Grantor, and whether or not a claim for post-petition interest, fees, costs or expenses is allowed in such proceeding (collectively, the “Secured Obligations ”). For the avoidance of doubt, the Secured Obligations under this Agreement shall not exceed Thirty Million Dollars ($30,000,000), plus the amount of the cost of any collection and any other amounts that may become due under the terms of this Agreement (the “Security Cap”).
4. LOCATION OF COLLATERAL; CHANGE IN COLLATERAL. The Grantor shall notify the Secured Party, in writing or via electronic communication, immediately upon any change in the location of any Collateral and provide the Secured Party with the new location of such Collateral. Grantor shall also provide the Secured Party with a complete and accurate list of all Collateral, certified by an authorized officer of Grantor, on the date of this Agreement and on or before every September 30th and March 31
st thereafter, as well as upon any other reasonable
written request by the Secured Party in the interim, for the same.
5. CHANGES IN GRANTOR. The Grantor hereby agrees to notify the Secured Party, in writing or via electronic communication, at least thirty ( 30) days before any of the 5 21886673 -3-
following actions: (a) change in the location of the Grantor ’s place of business; (b) change in the Grantor’s name; (c) change in the Grantor ’s type of organization; (d) change in the Grantor ’s jurisdiction of organization; (e) change in the Grantor’s corporate structure; and (f) change in control of the Grantor.
6. TRANSFER OF COLLATERAL. Except in the ordinary course of business, the Grantor shall not sell, offer to sell, assign, lease, license, or otherwise transfer, or grant, create, permit, or suffer to exist any option, security interest, lien, or other encumbrance in, any part of the Collateral, without the prior written consent of the Secured Party, which consent may be granted or withheld in the Secured Party’s reasonable discretion.
7. GRANTOR REPRESENTATIONS AND WARRANTIES. The Grantor hereby represents, warrants, and covenants that: (a) the Grantor owns or has good and marketable title to the Collateral and no other person or organization can make any claim of ownership of any kind on the Collateral; (b) the Grantor has the full power, authority and legal right to grant the security interest in the Collateral; ( c) the Collateral is free from any and all claims, encumbrances, rights of setoff or any other security interest or lien of any kind except for the security interest in favor of the Secured Party created by this Agreement and ( d) this Agreement creates in favor of the Secured Party a valid security interest in the Collateral, securing payment of the Secured Obligations, and such security interest is first priority. The Grantor will defend the Collateral against all claims and demands made by all persons claiming either the Collateral or any interest in it.
8. GRANTOR COVENANTS AND INSURANCE . The Grantor hereby grants to the Secured Party the right to inspect the Collateral at any reasonable time, wherever located, provided that the Secured Party gives the Grantor at least two (2) business days’ notice of any such inspection, however in no case shall notice be required if the Secured Party enters the Grantor ’s premises for the purposes of remedying a breach of this Agreement or the Consent Decree as provided in Section 11 of this Agreement. The Grantor hereby waives presentment, demand, notice of dishonor, protest and notice of protest, and all other related notices. The Grantor agrees: (a) to maintain the Collateral in good order, repair, and condition at all times; (b) not to alter or remove any identifying symbol or number upon the Collateral; (c) to use the Collateral with all reasonable care and caution, and in conformity with all applicable laws, ordinances and regulations; (d) to promptly notify the Secured Party of any loss or damage to any of the Collateral or arising from its use; (e) to timely pay all taxes, judgments, levies, fees, or charges of any kind levied or assessed on the Collateral; (f) to timely pay all rent or mortgage payments of any kind as applicable to any real property upon which any part of the Collateral is located; (g) to have and maintain at all times a hazard insurance policy on the Collateral underwritten by a reputable insurance company, and in an amount of the replacement cost of the Collateral; and (h) not to, directly or indirectly, permit, create, assume, incur or suffer to be created, assumed or incurred any security interest, lien, charge, mortgage, pledge, hypothecation, assignment or encumbrance of any kind on all or any part of the Collateral other than as created by this Agreement or consented to by the Secured Party . The insurance procured in this Section shall contain a standard Lender’s Loss Payable Clause in favor of the Secured Party, and provide that the Secured Party will receive at least thirty (30) days’ notice of any cancellation of the policy. The Grantor hereby assigns to the Secured Party all rights to any proceeds of any insurance procured under this Section, and authorizes the Secured Party to receive such payments and Grantor hereby covenants and agrees it will execute any and all documents 6 21886673 -4-
required for the Secured Party to receive such payments up to the amount of the Secured Obligations. If the Grantor fails to provide for the insurance as set out in this Section, the Secured Party, in addition to any remedies as set out in Section 11 of this Agreement, may after giving Grantor ten (10) business days’ advanced notice, procure the requisite insurance on the Collateral on its own behalf and charge the Grantor with any and all costs of such procurement, and Grantor hereby agrees it will promptly reimburse the Secured Party for all such costs.
9. PERFECTION OF SECURITY INTEREST. The Grantor agrees that at any time and from time to time, at the expense of the Grantor, the Grantor will promptly execute and deliver all further instruments and documents, obtain such agreements from third parties, and take all further action, that may be necessary or desirable, or that the Secured Party may request, in order to create and/or maintain the validity, perfection or priority of and protect any security interest granted or purported to be granted hereby or to enable the Secured Party to exerc ise and enforce its rights and remedies hereunder or under any other agreement with respect to any Collateral. The Grantor hereby authorizes the Secured Party to file or record any document necessary to perfect, continue, amend, or terminate its security i nterest in the Collateral, including, but not limited to, any financing statements, including amendments, authorized to be filed under the UCC, without signature of the Grantor where permitted by law, including the filing of a financing statement describing the Collateral as all assets now owned or hereafter acquired by the Grantor, or words of similar effect.
10. POWER OF ATTORNEY. The Grantor hereby appoints the Secured Party the Grantor’s true and lawful attorney-in-fact, with full power and authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Secured Party’s discretion to take any action and to execute any instrument which the Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement (but the Secured Party shall not be obligated to and shall have no liability to the Grantor or any third party for failure to do so or take action). This appointment, being coupled with an interest, shall be irrevocable. The Grantor hereby ratifies all that said attorney in fact shall lawfully do or cause to be done by virtue hereof.
The Secured Party shall provide the Grantor with copies of all documents executed by it pursuant to this power of attorney within ten (10) business days following such execution. 11 . REMEDIES. If an event constituting a Hi-Shear Material Default (as defined in the Consent Decree) shall have occurred and be continuing, Grantor shall be deemed to be in default of its obligations under this Agreement and the Secured Party may do any or all of the following: (a) declare any or all Secured Obligations immediately due and payable; (b) enter the Grantor’s property where the Collateral is located and take possession of some or all of the Collateral without demand or legal process; (c) require the Grantor to assemble and make available the Collateral at a specific time and place designated by the Secured Party; (d) sell, lease, or otherwise dispose of any or all of the Collateral at any public or private sale in accordance with the law; and (e) enforce payment of the Secured Obligations and exercise any rights and remedies available to the Secured Party under law, including, but not limited to, those rights and remedies available to the Secured Party under Article 9 of the UCC. Any amounts received by the Secured Party in connection with the exercise of the remedies provided herein or pursuant to applicable law, shall be distributed as follows: first to payment of all out -of-pocket costs and expenses paid or incurred by the Secured Party in enforcing this Agreement and, in realizing on or protecting any Collateral and in enforcing or collecting any Secured Obligations, including, without limitation, 7 21886673 -5-
court costs and attorney’s fees and out-of-pocket expenses incurred by the Secured Party, second, to the payment of any r emaining Secured Obligations, and third, any remaining amount shall be paid to the Grantor.
12. SECURED PARTY RIGHTS. Any and all rights of the Secured Party provided by this Agreement are in addition to any and all rights available to the Secured Party by law, and shall be cumulative and may be exercised simultaneously. No delay, omission, or failure on the part of the Secured Party to exercise or enforce any of its rights or remedies, either granted under this Agreement or by law, shall constitute an estoppel or waiver of such right or remedy or any other right or remedy. Any and all rights of the Secured Party provided by this Agreement shall inure to the benefit of its successors and assigns.
13. SEVERABILITY AND MODIFICATION. If any of the provisions in this Agreement is determined to be invalid, illegal, or unenforceable, such determination shall not affect the validity, legality, or enforceability of the other provisions in this Agreement. No waiver, modification or amendment of, or any other change to, this Agreement will be effective unless done so in a separate writing signed by the Secured Party.
14. NOTICES. Any notice or other communication required or permitted to be given under this Agreement, including, without limitation, notices under Section 4 and Section 5 of this Agreement, shall be given and shall become effective in accordance with the Consent Decree.
15. ATTORNEY’S FEES . If either Party institutes any legal suit, action, or proceeding against the other to enforce this Agreement (or obtain any other remedy regarding any breach of this Agreement), including, but not limited to, contract, equity, tort, fraud, and statutory claims, the prevailing P arty in a final, non- appealable judgment regarding the suit, action, or proceeding is entitled to receive, and the non-prevailing P arty shall pay, in addition to all other remedies to which the prevailing P arty may be entitled, the co sts and expenses incurred by the prevailing Party in conducting or defending the suit, action, or proceeding, including attorneys' fees and expenses, and court costs, even if not recoverable by law (including, without limitation, all fees, taxes, costs, and expenses incident to appellate, bankruptcy, and post -judgment proceedings).
16 . ENTIRE AGREEMENT. This Agreement, the Second Lease Amendment and the Consent Decree (and including all other documents referred to herein) represents the entire agreement between the Grantor and the Secured Party, and supersedes all previous understandings and agreements between the Grantor and the Secured Party, whether oral or written, regarding the subject matter hereof.
17 . GOVERNING LAW. This Agreement will be interpreted and construed according to the laws of the State of California, including, but not limited to, the UCC, without regard to choice-of-law rules in any jurisdiction.
18. REDUCTION OF SECURITY CAP AND RELEASE OF SECURITY
INTEREST. No sooner than five (5) years from the Effective Date, and no more than annually thereafter, the Grantor, at is discretion, may apply to the Secured Party for a reduction in the Security Cap ( the “Security Cap Reduction Application ”), based on a showing by the Grantor , 8 21886673 -6-
that, excluding the Hi -Shear Settlement Payment Obligations, the Grantor has made substantial progress in complying with the Hi -Shear Security Obligations, and that a reduction in the then existing Security Cap is justified , based on the reasonable expected cost of completing the remaining Hi-Shear Security Obligations, inclusive of appropriate cost contingencies for future Remedial Work and/or Mitigation Work. Any Security Cap Reduction Application must be supported by the Grantor’s preceding Annual Remediation Progress Reports and a showing by the Grantor that the remaining Hi- Shear Security Obligations will be adequately secured by the Security CAP requested in the Security Cap Reduction Application, plus a premium of twenty-five percent (25%). The Secured Party shall have sixty (60) days from the date of its receipt of a Security Cap Reduction Application, in which to review and act upon the application. The Grantor and the Secured Party shall comply with the alternative dispute resolution process under Section XIV of the Consent Decree to resolve any dispute over a decision by the City on a Hi -Shear Security Cap Reduction Application. In addition, if at any time upon the request of Grantor, made no sooner than five (5) years from the Effective Date, the Grantor can prove , through its Annual Remediation Progress Reports and any other information provided by the Grantor, that the expected cost of completing the remaining Hi-Shear Security Obligations is less than five million dollars ($5,000,000) in total, the Secured Party shall release its security interest in the Collateral and file the appropriate UCC termination documents. The Grantor and the Secured Party shall comply with the alternative dispute resolution process under Section XIV of the Consent Decree to resolve any dispute over the Grantor’s request that the Secured Party release its security interest.
If the security interest granted in this Agreement has not been previously fully released, then, upon obtaining a “ Closure Letter ” or “ Closure Letters ” for each of the following “Operable Units”:
“Operable Unit 1,” “Operable Unit 2” and “Operable Unit 5;” as all such terms are defined in the Consent Decree, and providing written evidence of the same to the Secured Party and requesting that the Secured Party release its security interest in the Collateral, t he Secured Party shall make all filings and undertake all necessary actions to release its security interest in the Collateral, including, but not limited to, the filing of any UCC financing statements to terminate the Secured Party’s security interest in the Collateral.
19. EFFECTIVE DATE. This Agreement shall become effective as of the Effective Date of the Consent Decree, as set forth therein.
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