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INDEMNITY DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT

Lease Assignment Agreement

INDEMNITY DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT | Document Parties: CORPORATE OFFICE PROPERTIES TRUST | AIRPORT SQUARE II, LLC | AIRPORT SQUARE IV, LLC | AIRPORT SQUARE V, LLC | AIRPORT SQUARE X, LLC | AIRPORT SQUARE XI, LLC | AIRPORT SQUARE XIII, LLC | AIRPORT SQUARE XIV, LLC | AIRPORT SQUARE XIX, LLC | AIRPORT SQUARE XX, LLC | AIRPORT SQUARE XXI, LLC | My Commission | TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA | TECH PARK I, LLC | TECH PARK II, LLC | TECH PARK IV, LLC You are currently viewing:
This Lease Assignment Agreement involves

CORPORATE OFFICE PROPERTIES TRUST | AIRPORT SQUARE II, LLC | AIRPORT SQUARE IV, LLC | AIRPORT SQUARE V, LLC | AIRPORT SQUARE X, LLC | AIRPORT SQUARE XI, LLC | AIRPORT SQUARE XIII, LLC | AIRPORT SQUARE XIV, LLC | AIRPORT SQUARE XIX, LLC | AIRPORT SQUARE XX, LLC | AIRPORT SQUARE XXI, LLC | My Commission | TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA | TECH PARK I, LLC | TECH PARK II, LLC | TECH PARK IV, LLC

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Title: INDEMNITY DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT
Governing Law: Maryland     Date: 10/29/2010
Industry: Real Estate Operations     Sector: Services

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Exhibit 10.1

 

INDEMNITY DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS

AND SECURITY AGREEMENT

 

by and between

 

AIRPORT SQUARE II, LLC

AIRPORT SQUARE IV, LLC

 

AIRPORT SQUARE V, LLC

AIRPORT SQUARE X, LLC

 

AIRPORT SQUARE XI, LLC

AIRPORT SQUARE XIII, LLC

 

AIRPORT SQUARE XIV, LLC

AIRPORT SQUARE XIX, LLC

AIRPORT SQUARE XX, LLC

AIRPORT SQUARE XXI, LLC

 

TECH PARK I, LLC

TECH PARK II, LLC

 

and

 

TECH PARK IV, LLC

 

as Grantor

 

and

 

WILLIAM H. GOEBEL and MATTHEW T. MURPHY,

 

as Trustees

for the benefit of

 

TEACHERS INSURANCE AND ANNUITY ASSOCIATION

OF AMERICA,

 

As Lender

 

Property Known As

Airport Square II

Airport Square IV

Airport Square V

Airport Square X

Airport Square XI

 

Airport Square XIII

Airport Square XIV

Airport Square XIX

 

Airport Square XX

Airport Square XXI

 

Tech Park I

Tech Park II

Tech Park IV

 

This Indemnity Deed of Trust Was Prepared By

And After Recordation This Indemnity Deed of Trust Should be

Returned To:

 

William H. Goebel, Esquire

c/o Teachers Insurance and Annuity

 

Association of America

730 Third Avenue

 

New York, New York 10017

 



 

INDEMNITY DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS

AND SECURITY AGREEMENT

 

THIS INDEMNITY DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT (this “DEED OF TRUST”) made this 30 day of September, 1999, by Airport Square II, LLC, Airport Square IV, LLC, Airport Square V, LLC, Airport Square X, LLC, Airport Square XI, LLC, Airport Square XIII, LLC, Airport Square XIV, LLC, Airport Square XIX, LLC, Airport Square XX, LLC, Airport Square XXI, LLC, Tech Park I, LLC, Tech Park II, LLC, and Tech Park IV, LLC (collectively, “GRANTOR”), each, a Maryland limited liability company, having their principal place of business at 8815 Centre Park Drive, Suite 400, Columbia, Maryland 21045 to WILLIAM H. GOEBEL and MATTHEW T. MURPHY having an office at c/o 730 Third Avenue, New York, New York 1007 (“TRUSTEES”), for the benefit of TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA (“LENDER”), a New York corporation, having an address at 730 Third Avenue, New York, New York l0017.

 

RECITALS:

 

A. Lender agreed to make a loan to Corporate Office Properties, L.P. a Delaware limited partnership (the “BORROWER”) and Borrower has agreed to accept a loan (the “LOAN”) in the maximum principal amount of $60,000,000.

 

B. To evidence the Loan, Borrower executed and delivered to Lender Borrower’s promissory note (the “NOTE”), dated of even date herewith, in the principal amount of Sixty Million Dollars ($60,000,000) (that amount or so much as is outstanding from time to time is referred to as the “PRINCIPAL”). Pursuant to the Note, Borrower promises to pay the Principal with interest thereon to the order of Lender as set forth in the Note and with the balance, if any, of the Debt being due and payable on October 1, 2006 (the “MATURITY DATE”).

 

C. Grantor has executed a Conditional Guaranty Agreement of even date herewith, to and for the benefit of Lender (the “GUARANTY”), pursuant to which Grantor has, jointly and severally, conditionally guaranteed to Lender the Borrower’s obligations under the Note. The Guarantor is not primarily obligated under the Loan.

 

D. To secure the Grantor’s obligations under the Guaranty, this Deed of Trust conveys, among other things, Grantor’s fee interest in the certain real property located in the County of Anne Arundel, State of Maryland more particularly described in EXHIBIT A as Parcels 1 through 13 (the “LAND”).

 

E. As a condition precedent to making the Loan to Borrower, Lender required Grantor to execute and deliver this Deed of Trust to secure the Guarantor’s Obligations under the Guaranty. As used herein, “OBLIGATIONS” means and includes: (a) all present and future liabilities and obligations of Grantor under the Guaranty, this Deed of Trust and the other Financing Documents, including principal, interest and all other amounts due or to become due

 



 

under the Guaranty, this Deed of Trust and the other Financing Documents, and (b) all present and future liabilities and obligations of Grantor under the provisions of this Deed of Trust including (i) all Expenses, and (ii) any and all other amounts and indemnifications which are included as a part of the Obligations pursuant to the provisions of this Deed of Trust. The Guaranty, this Deed of Trust, and any other agreements or documents both now and hereafter furnished or executed by Grantor or any other person or persons to evidence, secure, guaranty or in connection with the Obligations are hereinafter collectively referred to as the “FINANCING DOCUMENTS”.

 

ARTICLE I

 

DEFINITIONS AND RULES OF CONSTRUCTION

 

SECTION 1.1. DEFINITIONS. Capitalized terms used in this Deed of Trust are defined in EXHIBIT B or in the text with a cross-reference in EXHIBIT B.

 

SECTION 1.2. RULES OF CONSTRUCTION. This Deed of Trust will be interpreted in accordance with the rules of construction set forth in EXHIBIT C.

 

ARTICLE II

 

GRANTING CLAUSES

 

SECTION 2.1. ENCUMBERED PROPERTY. Grantor irrevocably grants, mortgages, warrants, conveys, assigns and pledges to Trustees, in trust, WITH POWER OF SALE and the right of entry and possession, and grants to Trustees a security interest in, the following property, rights, interests and estates now or in the future owned or held by Grantor (the “PROPERTY”) for the uses and purposes set forth in this Deed of Trust forever:

 

(i) the Land;

 

(ii) all buildings and improvements located on the Land (the “IMPROVEMENTS”);

 

(iii) all easements; rights of way or use, including any rights of ingress and egress; streets, roads, ways, sidewalks, alleys and passages; strips and gores; sewer rights; water, water rights, water courses, riparian rights and drainage rights; air rights and development rights; oil and mineral rights; and tenements, hereditaments and appurtenances, in each instance adjoining or otherwise appurtenant to or benefitting the Land or the Improvements;

 

(iv) all materials intended for construction, re-construction, alteration or repair of the Improvements, such materials to be deemed included in the Land and the Improvements

 

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immediately on delivery to the Land; all fixtures and personal property that are attached to, contained in or used in connection with the Land or the Improvements (excluding personal property owned by tenants and excluding removable fixtures and appurtenances), including: furniture; furnishings; machinery; motors; elevators; fittings; microwave ovens; refrigerators; office systems and equipment; plumbing, heating, ventilating and air conditioning systems and equipment; maintenance and landscaping equipment; lighting, cooking, laundry, dry cleaning, refrigerating, incinerating and sprinkler systems and equipment; telecommunications systems and equipment; computer or word processing systems and equipment; security systems and equipment; and equipment leases for any of the property described in this subsection (the “FIXTURES AND PERSONAL PROPERTY”);

 

(v) all agreements, ground leases, grants of easements or rights-of-way, permits, declarations of covenants, conditions and restrictions, disposition and development agreements, planned unit development agreements, cooperative, condominium or similar ownership or conversion plans, management, leasing, brokerage or parking agreements or other material documents affecting Borrower of the Land, the Improvements or the Fixtures and Personal Property, including the documents described in EXHIBIT D but expressly excluding the Leases (the “PROPERTY DOCUMENTS”);

 

(vi) all inventory (including all goods, merchandise, raw materials, incidentals, office supplies and packaging materials) held for sale, lease or resale or furnished or to be furnished under contracts of service, or used or consumed in the ownership, use or operation of the Land, the Improvements or the Fixtures and Personal Property, all documents of title evidencing any part of any of the foregoing and all returned or repossessed goods arising from or relating to any sale or disposition of inventory;

 

(vii) all intangible personal property relating to the Land, the Improvements or the Fixtures and Personal Property, including choses in action and causes of action (except those personal to Grantor), corporate and other business records, inventions, designs, promotional materials, blueprints, plans, specifications, patents, patent applications, trademarks, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, claims for refunds or rebates of taxes, insurance surpluses, refunds or rebates of taxes and any letter of credit, guarantee, claim, security interest or other security held by or granted to Grantor to secure payment by an account debtor of any of the accounts of Grantor arising out of the ownership, use or operation of the Land, the Improvements or the Fixtures and Personal Property, and documents covering all of the foregoing; all accounts, accounts receivable, documents, instruments, money, deposit accounts, funds deposited in accounts established with a bank, savings and loan association, trust company or other financial institution in connection with the ownership, use or operation of the Property, including any reserve accounts or escrow accounts, and all investments of the funds and all other general intangibles;

 

(viii) all awards and other compensation paid after the date of this Deed of Trust for any Condemnation (the “CONDEMNATION AWARDS”);

 

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(ix) all proceeds of and all unearned premiums on the Policies (the “INSURANCE PROCEEDS”);

 

(x) all licenses, certificates of occupancy, contracts, management agreements, operating agreements, operating covenants, franchise agreements, permits and variances relating to the Land, the Improvements or the Fixtures and Personal Property;

 

(xi) all books, records and other information, wherever located, which are in Borrower’s possession, custody or control or to which Grantor is entitled at law or in equity and which are related to the Property, including all computer or other equipment used to record, store, manage, manipulate or access the information;

 

(xii) all deposits held from time to time by the Accumulations Depositary to provide reserves for Taxes and Assessments together with interest thereon, if any (the “ACCUMULATIONS”);

 

(xiii) all after-acquired title to or remainder or reversion in any of the property described in this Section; all additions, accessions and extensions to, improvements of and substitutions or replacements for any of such property; all products and all cash and non-cash proceeds, immediate or remote, of any sale or other disposition of any of such property, excluding sales or other dispositions of inventory in the ordinary course of the business of operating the Land or the Improvements; and all additional lands, estates, interests, rights or other property acquired by Grantor after the date of this Deed of Trust for use in connection with the Land and Improvements, all without the need for any additional mortgage, assignment, pledge or conveyance to Lender but Grantor will execute and deliver to Lender, upon Lender’s request, any documents reasonably requested by Lender to further evidence the foregoing; and

 

(xiv) all deposits for reserves held from time to time by an escrow holder in accordance with the Pledge and Security Agreement described in the Section entitled “RESERVES” and all accounts established to maintain the deposits together with investments thereof and interest thereon.

 

SECTION 2.2. HABENDUM CLAUSE. The Property is conveyed to Trustees, and the Trustees’ successors and assigns, to have and to hold forever in fee simple, but subject, however, to defeasance as described in Section 2.4 of this Deed of Trust.

 

SECTION 2.3. SECURITY AGREEMENT.

 

The Property includes both real and personal property and this Deed of Trust is a real property mortgage and also a “security agreement” and a “financing statement” within the meaning of the Maryland Uniform Commercial Code. By executing and delivering this Deed of Trust, Grantor grants to Lender, as security for the Obligations, a security interest in the Property to the full extent that any of the Property may be subject to the Uniform Commercial Code.

 

SECTION 2.4. CONDITIONS TO GRANT. This Deed of Trust is made on the express condition

 

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that if Grantor pays and performs the Obligations in full in accordance with the Loan Documents, whether such obligations are now existing or hereafter arising, then, the lien of this Deed of Trust will be released at Grantor’s expense. Any contractual provisions of a Loan Document that expressly provides in such Loan Document to continue beyond the repayment of the Loan and release of lien of the Deed of Trust shall continue in accordance with their terms.

 

ARTICLE III

 

OBLIGATIONS SECURED

 

SECTION 3.1. THE OBLIGATIONS. This Deed of Trust secures the Obligations, PROVIDED that the foregoing does not limit, qualify or affect in any way the present, absolute nature of the Assignment.

 

ARTICLE IV

 

TITLE AND AUTHORITY

 

SECTION 4.1. TITLE TO THE PROPERTY.

 

(a) Subject to the conveyance effectuated by this Deed of Trust, Grantor has and will continue to have good and marketable title in fee simple absolute to the Land and the Improvements and good and marketable title to the Fixtures and Personal Property, all free and clear of liens, encumbrances and charges except the Permitted Exceptions, and has the right to mortgage, give, grant, bargain, sell, lien, setoff, convey, confirm, pledge, assign and hypothecate the same. To Grantor’s knowledge, there are no facts or circumstances that might give rise to a lien, encumbrance or charge on the Property. Subject to the Permitted Exceptions, Grantor shall forever specially warrant, defend and preserve such title and the validity and priority of the lien of this Deed of Trust and shall forever warrant and defend the same to Lender against the claims of all persons whomsoever.

 

(b) Grantor owns and will continue to own all of the other Property free and clear of all liens, encumbrances and charges except the Permitted Exceptions.

 

(c) This Deed of Trust is and will remain a valid and enforceable first lien on and security interest in the Property, subject only to the Permitted Exceptions.

 

SECTION 4.2. AUTHORITY.

 

(a) Grantor is and will continue to be (i) duly organized, validly existing and in good standing under the Laws of the state or commonwealth in which it was organized or incorporated and (ii) duly qualified to conduct business, in good standing, in the state or commonwealth where the Property is located.

 

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(b) Grantor has and will continue to have all approvals required by Law or otherwise and full right, power and authority to (i) own and operate the Property and carry on Grantor’s business as now conducted or as proposed to be conducted; (ii) execute and deliver those of the Financing Documents to which it is a party; (iii) grant, mortgage, warrant the title to, convey, assign and pledge the Property to Lender pursuant to the provisions of this Deed of Trust; and (iv) perform the Obligations.

 

(c) The execution and delivery of the Financing Documents and the performance of the Obligations do not and will not conflict with or result in a default under any Laws or any Leases or Property Documents and do not and will not conflict with or result in a default under any agreement binding upon any party to the Financing Documents.

 

(d) The Financing Documents constitute and will continue to constitute legal, valid and binding obligations of all parties to the Financing Documents enforceable in accordance with their respective terms.

 

SECTION 4.3. NO FOREIGN PERSON. Grantor is not a “foreign person” within the meaning of Section 1445(f)(3) of the Code. Borrower is not a “foreign person” within the meaning of Section 1445(f)(3) of the Code.

 

SECTION 4.4. LITIGATION. There are no Proceedings or, to Grantor’s knowledge, investigations against or affecting Grantor or the Property and, to Grantor’s knowledge, there are no facts or circumstances that might give rise to a Proceeding or an investigation against or affecting Grantor or the Property. Grantor will give Lender prompt notice of the commencement of any Proceeding or investigation against or affecting the Property or Grantor which could have a material adverse effect on the Property or on Lender’s interests in the Property or under the Financing Documents. Grantor also will deliver to Lender such additional information relating to the Proceeding or investigation as Lender may request from time to time.

 

ARTICLE V

 

PROPERTY STATUS, MAINTENANCE AND LEASES

 

SECTION 5.1. STATUS OF THE PROPERTY.

 

(a) Grantor has obtained and will maintain in full force and effect all certificates, licenses, permits and approvals that are issued or required by Law or by any entity having jurisdiction over the Property or over Grantor or that are necessary for the Permitted Use, for occupancy and operation of the Property for the conveyance described in this Deed of Trust and for the conduct of Grantor’s business on the Property in accordance with the Permitted Use.

 

(b) The Property is and will continue to be serviced by all public utilities required for the Permitted Use of the Property.

 

(c) All roads and streets necessary for service of and access to the Property for the current or contemplated use of the Property have been completed and are and will continue to be

 

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serviceable, physically open and dedicated to and accepted by the Government for use by the public.

 

(d) The Property is free from damage caused by a Casualty.

 

(e) All costs and expenses of labor, materials, supplies and equipment used in the construction of the Improvements have been paid in full.

 

SECTION 5.2. MAINTENANCE OF THE PROPERTY. Grantor will maintain the Property in thorough repair and good and safe condition, suitable for the Permitted Use, including, to the extent necessary, replacing the Fixtures and Personal Property with property at least equal in quality and condition to that being replaced. Grantor will not erect any new buildings, building additions or other structures on the Land or otherwise materially alter the Improvements without Lender’s prior consent which may be withheld in Lender’s sole discretion. The Property will be managed by a property manager satisfactory to Lender pursuant to a management agreement satisfactory to Lender and terminable by Grantor upon 30 days notice to the property manager.

 

SECTION 5.3. CHANGE IN USE. Grantor will use and permit the use of the Property for the Permitted Use and for no other purpose.

 

SECTION 5.4. WASTE. Grantor will not commit or permit any waste (including economic and non-physical waste), impairment or deterioration of the Property or any alteration, demolition or removal of any of the Property without Lender’s prior consent which may be withheld in Lender’s sole discretion.

 

SECTION 5.5. INSPECTION OF THE PROPERTY. Subject to the rights of tenants having a highly restrictive entry provision under the Leases in GSA or other United States government leases in Airport Square IV, X, XI, XIV, XIX, XX and XXI, Lender has the right to enter and inspect the Property on reasonable prior notice, except during the existence of an Event of Default, when no prior notice is necessary. Lender has the right to engage an independent expert to review and report on Grantor’s compliance with Grantor’s obligations under this Deed of Trust to maintain the Property, comply with Law and refrain from waste, impairment or deterioration of the Property and the alteration, demolition or removal of any of the Property except as may be permitted by the provisions of this Deed of Trust. If the independent expert’s report discloses material failure to comply with such obligations or if Lender engages the independent expert after the occurrence of an Event of Default, then the independent expert’s review and report will be at Grantor’s expense, payable on demand.

 

SECTION 5.6. LEASES AND RENTS.

 

Grantor assigns the Leases and the Rents to Lender absolutely and not merely as additional collateral or security for the payment and performance of the Obligations, but subject to a license back to Grantor of the right to collect the Rents unless and until an Event of Default occurs at which time the license will terminate automatically, all as more particularly set forth in the Assignment, the provisions of which are incorporated in this Deed of Trust by reference.

 

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SECTION 5.7. PARKING. Grantor will provide, maintain, police and light parking areas within the Property, including any sidewalks, aisles, streets, driveways, sidewalk cuts and rights-of-way to and from the adjacent public streets, in a manner consistent with the Permitted Use and sufficient to accommodate the greatest of: (i) the number of parking spaces required by Law; (ii) the number of parking spaces required by the Leases and the Property Documents; or (iii) for each of the parcels constituting the Property, the following number of spaces: (A) Parcel 1 - 435 spaces, (B) Parcel 2 - 212 spaces, (C) Parcel 3 - 353 spaces, (D) Parcel 4 - 263 spaces, (E) Parcel 5 - 242 spaces, (F) Parcel 6 - 250 spaces, (G) Parcel 7 - 260 spaces, (H) Parcel 8 - 286 spaces, (I) Parcel 9 - 374 spaces, (J) Parcel 10 - 278 spaces, (K) Parcel 11 - 198 spaces, (L) Parcel 12 - 187 spaces; and (M) Parcel 13 - 206 spaces; subject, however, in each instance to temporary reduction resulting from repairs or alterations at the Property. The parking areas will be reserved and used exclusively for ingress, egress and parking for Grantor and the tenants under the Leases and their respective employees, customers and invitees and in accordance with the Leases and the Property Documents.

 

SECTION 5.8. SEPARATE TAX LOT. Each of the Parcels constituting the Property is and will remain assessed for real estate tax purposes as one or more wholly independent tax lots, separate from any property that is not part of the Property.

 

SECTION 5.9. CHANGES IN ZONING OR RESTRICTIVE COVENANTS. Grantor will not (i) initiate, join in or consent to any change in any Laws pertaining to zoning, any restrictive covenant or other restriction which would restrict the Permitted Uses for the Property; (ii) permit the Property to be used to fulfill any requirements of Law for the construction or maintenance of any improvements on property that is not part of the Property; (iii) permit the Property to be used for any purpose not included in the Permitted Use; or (iv) impair the integrity of each of the Parcels of the Property as a single, legally subdivided zoning lot separate from all other property.

 

SECTION 5.10. LENDER’S RIGHT TO APPEAR. Lender has the right to appear in and defend any Proceeding brought regarding the Property and to bring any Proceeding, in the name and on behalf of Borrower or Grantor or in Lender’s name, which Lender, in its sole but reasonable discretion, determines should be brought to protect Lender’s interest in the Property.

 

ARTICLE VI

 

IMPOSITIONS AND ACCUMULATIONS

 

SECTION 6.1. IMPOSITIONS. Subject to the requirements of any separate agreement between Grantor and Lender as described in Sections 6.2 and 6.4:

 

(a) Grantor will pay each Imposition at least 5 days before the date (the “IMPOSITION PENALTY DATE”) that is the earlier of (i) the date on which the Imposition becomes delinquent and (ii) the date on which any penalty, interest or charge for non-payment of the Imposition accrues.

 

(b) Before each Imposition Penalty Date, Grantor will deliver to Lender a receipted bill

 

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or other evidence of payment.

 

(c) Grantor, at its own expense, may contest any Taxes or Assessments, PROVIDED that the following conditions are met:

 

(i) not less than 15 days prior to the Imposition Penalty Date, Grantor delivers to Lender notice of the proposed contest;

 

(ii) the contest is by a Proceeding promptly initiated and conducted diligently and in good faith;

 

(iii) there is no Event of Default;

 

(iv) the Proceeding suspends the collection of the contested Taxes or Assessments or Grantor otherwise secures assurances reasonably satisfactory to Lender from the taxing authority that the taxation will be stayed pending such proceeding;

 

(v) the Proceeding is permitted under and is conducted in accordance with the Leases and the Property Documents;

 

(vi) the Proceeding precludes imposition of criminal or civil penalties and sale or forfeiture of the Property and Lender will not be subject to any civil suit; and

 

(vii) Grantor either deposits with the Accumulations Depository reserves or furnishes a bond or other security satisfactory to Lender, in either case in an amount sufficient to pay the contested Taxes or Assessments, together with all interest and penalties or Grantor pays all of the contested Taxes or Assessments under protest.

 

(d) INSTALLMENT PAYMENTS. If any Assessment is payable in installments, Grantor will nevertheless pay the Assessment in its entirety on the day the first installment becomes due and payable or a lien, unless Lender, in its sole discretion, approves payment of the Assessment in installments.

 

SECTION 6.2. ACCUMULATIONS.

 

(a) Grantor made an initial deposit with either Lender or a mortgage servicer or financial institution designated or approved by Lender from time to time to receive, hold and disburse the Accumulations in accordance with this Section (the “ACCUMULATIONS DEPOSITORY”) and in accordance with the Pledge and Security Agreement (the “Pledge and Security Agreement”) to be entered into among Grantor, Lender and a pledge agent for the Accumulations Depository. On the first day of each calendar month during the Term Grantor will deposit with the Accumulations Depository an amount equal to one-twelfth (1/12) of the annual Taxes and Assessments as determined by Lender or its designee. At least 30 days before each Imposition Penalty Date, Grantor will deliver to the Accumulations Depository any bills and other documents that are necessary to pay the Taxes and Assessments.

 

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(b) The Accumulations will be applied to the payment of Taxes and Assessments. Any excess Accumulations after payment of Taxes and Assessments will be returned to Grantor or credited against future payments of the Accumulations, at Lender’s election or as required by Law. If the Accumulations are not sufficient to pay Taxes and Assessments, Grantor will pay the deficiency to the Accumulations Depository within 5 days of demand. At any time after an Event of Default occurs, Lender may apply the Accumulations as a credit against any portion of the Obligations selected by Lender in its sole discretion.

 

(c) The Accumulations Depository will hold the Accumulations as additional security for the Obligations until applied in accordance with the provisions of this Deed of Trust. If Lender is not the Accumulations Depository, the Accumulations Depository will deliver the Accumulations to Lender upon Lender’s demand at any time after an Event of Default.

 

(d) If the Property is sold or conveyed other than by foreclosure or transfer in lieu of foreclosure, all right, title and interest of Grantor to the Accumulations will automatically, and without necessity of further assignment, be held for the account of the new owner, subject to the provisions of this Section and Grantor will have no further interest in the Accumulations.

 

(e) The Accumulations Depository has deposited the initial deposit and will deposit the monthly deposits into a separate interest bearing account in the name of Borrower, as pledged to the Lender as secured party, all in accordance with the Pledge and Security Agreement.

 

(f) Lender has the right to pay, or to direct the Accumulations Depository to pay, any Taxes or Assessments unless Grantor is contesting the Taxes or Assessments in accordance with the provisions of this Deed of Trust, in which event any payment of the contested Taxes or Assessments will be made under protest in the manner prescribed by Law or, at Lender’s election, will be withheld.

 

(g) If Lender assigns this Deed of Trust, Lender will pay, or cause the Accumulations Depository to pay, the unapplied balance of the Accumulations to or at the direction of the assignee. Simultaneously with the payment, Lender and the Accumulations Depository will be released from all liability with respect to the Accumulations and Grantor will look solely to the assignee with respect to the Accumulations. When the Obligations have been fully satisfied, any unapplied balance of the Accumulations will be returned to Grantor.

 

SECTION 6.3. CHANGES IN TAX LAWS. If a Law requires the deduction of the Obligations from the value of the Property for the purpose of taxation or imposes a tax, either directly or indirectly, on the Obligations, any Financing Document or Lender’s interest in the Property, Grantor will pay the tax with interest and penalties, if any. If Lender determines that Grantor’s payment of the tax may be unlawful, unenforceable, usurious or taxable to Lender, the Obligations will become immediately due and payable on 90 days’ prior notice unless the tax must be paid within the 120-day period, in which case, the Obligations will be due and payable within the lesser period, but in such latter event, without the payment of the Prepayment Premium or the Evasion Premium, if then applicable.

 

SECTION 6.4. RESERVES. Grantor made an initial deposit and will make periodic deposits

 

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into an account established as additional security for the payment and performance of the Obligations and further deposits towards potential obligations of capital improvement costs at the Property, each to be held and disbursed in accordance with the Pledge and Security Agreement.

 

ARTICLE VII

 

INSURANCE, CASUALTY, CONDEMNATION

AND RESTORATION

 

SECTION 7.1. INSURANCE COVERAGES.

 

(a) Borrower and Grantor will maintain such insurance coverages and endorsements in form and substance and in amounts as Lender may require in its sole reasonable discretion, from time to time. Until Lender notifies Borrower or Grantor of changes in Lender’s requirements, Borrower and Grantor will maintain not less than the insurance coverages and endorsements Lender required for closing of the Loan.

 

(b) The insurance, including renewals, required under this Section will be issued on valid and enforceable policies and endorsements reasonably satisfactory to Lender (the “POLICIES”).

 

Each Policy will contain a standard waiver of subrogation and a replacement cost endorsement and will provide that Lender will receive not less than 30 days’ prior written notice of any cancellation, termination or non-renewal of a Policy or any material change other than an increase in coverage and that Lender will be named under a standard mortgage endorsement as loss payee.

 

(c) The insurance companies issuing the Policies (the “INSURERS”) must be authorized to do business in the State or Commonwealth where the Property is located, must have been in business for at least 5 years, must carry an A.M. Best Company, Inc. policy holder rating of A or better and an A.M. Best Company, Inc. financial category rating of Class X or better and must be otherwise satisfactory to Lender. Lender may select an alternative credit rating agency and may impose different credit rating standards for the Insurers. Notwithstanding Lender’s right to approve the Insurers and to establish credit rating standards for the Insurers, Lender will not be responsible for the solvency of any Insurer.

 

(d) Notwithstanding Lender’s rights under this Article, Lender will not be liable for any loss, damage or injury resulting from the inadequacy or lack of any insurance coverage.

 

(e) Grantor and Borrower will each comply with the provisions of the Policies and with the requirements, notices and demands imposed by the Insurers and applicable to Grantor, Borrower or the Property.

 

(f) Grantor and Borrower will pay the Insurance Premiums for each Policy not less than 30 days before the expiration date of the Policy being replaced or renewed and will deliver to Lender a certified copy of each Policy (for the initial closing or any replacements of the original policy, with an ACORD 27 certificate for any renewals thereafter) marked “Paid” not less than

 

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10 days prior to the expiration date of the Policy being replaced or renewed.

 

(g) Neither Grantor nor Borrower will carry separate insurance concurrent in kind or form or contributing in the event of loss with any other insurance carried by Grantor or Borrower.

 

(h) If Grantor and/or Borrower carries any insurance under a blanket policy, it will deliver to Lender prior to the date hereof or for any replacement policy a certified duplicate copy of the blanket policy (and certificates as described in paragraph (f), above, for renewals) which will allocate to the Property the amount of coverage required under this Section and otherwise will provide the same coverage and protection as would a separate policy insuring only the Property.

 

(i) Grantor will give the Insurers prompt notice of any change in ownership or use of the Property. This subsection does not abrogate the prohibitions on transfers set forth in this Deed of Trust.

 

(j) If the Property is sold at a foreclosure sale or otherwise is transferred so as to extinguish the Obligations, all of Grantor’s right, title and interest in and to the Policies then in force will be transferred automatically to the purchaser or transferee.

 

SECTION 7.2. CASUALTY AND CONDEMNATION.

 

(a) Grantor will give Lender notice of any Casualty immediately after it occurs and will give Lender notice of any Proceeding in Condemnation immediately after Grantor receives notice of commencement or notice that such a Proceeding will be commencing. Grantor immediately will deliver to Lender copies of all documents Grantor delivers or receives relating to the Casualty or the Proceeding, as the case may be.

 

(b) If the amount of any Insurance Proceeds or Condemnation Awards, as estimated by Lender in its sole but reasonable discretion, is equal to or less than Five Hundred Thousand Dollars ($500,000), and if Grantor is not at the date of the Casualty subject of an Event of Default beyond any applicable notice and cure period, then in the event of both such instances Grantor shall be authorized to act without Lender’s review or consent in collecting, adjusting and compromising any claims for loss, damage or destruction under the Policies or with any Condemnation Proceeding, as may be applicable. If Grantor is entitled to settle such claims without Lender’s review or consent, Grantor shall still be required to have the Insurance proceeds or Condemnation Awards, as the case may be, held and applied in accordance with the terms of this Section 7.2

 

(c) If the amount of any Insurance Proceeds or Condemnation Award exceeds $500,000, in Lender’s sole but reasonable estimation, or if any Event of Default under any Loan Document then remains uncured beyond any applicable notice or cure period (each such event, a “Consent Trigger”), then Grantor authorizes Lender, at Lender’s option, to act on Grantor’s behalf to collect, adjust and compromise any claims for loss, damage or destruction under the Policies on such terms as Lender determines in Lender’s sole discretion. Further, in the event of any

 

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Consent Trigger, Grantor authorizes Lender to act, at Lender’s option, on Grantor’s behalf in connection with any Condemnation Proceeding. Grantor will execute and deliver to Lender all documents requested by Lender and all documents as may be required by Law to confirm such authorizations. Nothing in this Section will be construed to limit or prevent Lender from joining with Grantor either as a co-defendant or as a co-plaintiff in any Condemnation Proceeding.

 

(c) If a Consent Trigger occurs but Lender elects not to act on Grantor’s behalf as provided in this Section, then Grantor promptly will file and prosecute all claims (including Lender’s claims) relating to the Casualty and will prosecute or defend (including defense of Lender’s interest) any Condemnation Proceeding. Grantor will have the authority to settle or compromise the claims or Proceeding, as the case may be, PROVIDED that Lender has approved in Lender’s sole discretion any compromise or settlement that exceeds $500,000.00. Any check for Insurance Proceeds or Condemnation Awards, as the case may be (the “PROCEEDS”) will be made payable to Lender and Grantor. Grantor will endorse the check to Lender immediately upon Lender presenting the check to Grantor for endorsement or if Grantor receives the check first, will endorse the check immediately upon receipt and forward it to Lender. If any Proceeds are paid to Grantor, Grantor immediately will deposit the Proceeds with Lender, to be applied or disbursed in accordance with the provisions of this Deed of Trust. Lender will be responsible for only the Proceeds actually received by Lender.

 

SECTION 7.3. APPLICATION OF PROCEEDS. After deducting the costs incurred by Lender in collecting the Proceeds, Lender may, in its sole discretion, (i) apply the Proceeds as a credit against any portion of the Debt selected by Lender in its sole discretion of the Debt (in which event neither the Prepayment Premium nor the Evasion Premium, if any, shall apply); (ii) apply the Proceeds to restore the Improvements, PROVIDED that Lender will not be obligated to see to the proper application of the Proceeds and PROVIDED FURTHER that any amounts released for Restoration will not be deemed a payment on the Debt; or (iii) deliver the Proceeds to Grantor.

 

SECTION 7.4. CONDITIONS TO AVAILABILITY OF PROCEEDS FOR RESTORATION.

 

Notwithstanding the preceding Section, after a Casualty or a Condemnation (a “DESTRUCTION EVENT”), Lender will make the Proceeds (less any costs incurred by Lender in collecting the Proceeds) available for Restoration in accordance with the conditions for disbursements set forth in the Section entitled “RESTORATION”, PROVIDED that the following conditions are met:

 

(i) Each of the entities described above as an original Grantor hereunder, or the transferee under a Permitted Transfer, if any, continues to be Grantor at the time of the Destruction Event and at all times thereafter until the Proceeds have been fully disbursed;

 

(ii) no default under the Financing Documents exists at the time of the Destruction Event;

 

(iii) all Leases in effect immediately prior to the Destruction Event and all Property Documents in effect immediately prior to the Destruction Event that are essential to the use and operation of the Property continue in full force and effect, subject to any rental

 

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abatements provided in the leases, notwithstanding the Destruction Event;

 

(iv) the annual Rents (excluding security deposits) under Leases in effect on the date of the Destruction Event, plus any rental insurance proceeds paid or to be paid to Grantor, plus any additional collateral satisfactory to Lender in its sole but reasonable discretion, are providing debt service coverage for the annual Debt Service Payments of 1.40 after payment of annual Insurance Premiums, Impositions and operating expenses of the Property (including ground rent, if any), PROVIDED that, if the combined Rents, rental insurance and other approved collateral, if any, do not provide such debt service coverage, then Grantor expressly authorizes and directs Lender to apply an amount from the Proceeds to reduction of Principal in order to reduce the annual Debt Service Payments sufficiently for such debt service coverage to be achieved (in which event neither the Prepayment Premium nor the Evasion Premium, if any, shall apply). The reduced debt service payments will be calculated using the Fixed Interest Rate and an amortization schedule that will achieve the same proportionate amortization of the reduced Principal over the then remaining Term as would have been achieved if the Principal and the originally scheduled Debt Service Payments had not been reduced. Grantor will execute any documentation that Lender deems reasonably necessary to evidence the reduced Principal and debt service payments.

 

SECTION 7.5. RESTORATION.

 

(a) If the total Proceeds for any Destruction Event are $500,000.00 or less and Lender elects or is obligated by Law or under this Article to make the Proceeds available for Restoration, Lender will disburse to Grantor the entire amount received by Lender and Grantor will commence Restoration promptly after the Destruction Event and complete Restoration not later than the Restoration Completion Date.

 

(b) If the Proceeds for any Destruction Event exceed $500,000.00 and Lender elects or is obligated by Law or under this Article to make the Proceeds available for Restoration, Lender will disburse the Proceeds and any Additional Funds (the “RESTORATION FUNDS”) upon Grantor’s request as Restoration progresses, generally in accordance with normal construction lending practices for disbursing funds for construction costs, PROVIDED that the following conditions are met:

 

(i)

Grantor commences Restoration promptly after the Destruction Event and completes Restoration on or before the Restoration Completion Date;

 

 

(ii)

if Lender requests, Grantor delivers to Lender prior to commencing Restoration, for Lender’s approval, plans and specifications and a detailed budget for the Restoration;

 

 

(iii)

Grantor delivers to Lender satisfactory evidence of the costs of Restoration incurred prior to the date of the request, and such other documents as Lender may request including mechanics’ lien waivers and title insurance endorsements;

 

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(iv)

Grantor pays all costs of Restoration whether or not the Restoration Funds are sufficient and, if at any time during Restoration, Lender determines that the undisbursed balance of the Restoration Funds is insufficient to complete Restoration, Grantor deposits with Lender, as part of the Restoration Funds, an amount equal to the deficiency (or a guaranty or other collateral reasonably satisfactory to Lender in its sole but reasonable discretion) within 30 days of receiving notice of the deficiency from Lender; and

 

 

(v)

there is no default under the Financing Documents at the time Grantor requests funds or at the time Lender disburses funds.

 

(c) If an Event of Default occurs at any time after the Destruction Event, then Lender will have no further obligation to make any remaining Proceeds available for Restoration and may apply any remaining Proceeds as a credit against any portion of the Debt selected by Lender in its sole discretion.

 

(d) Lender may elect at any time prior to commencement of Restoration or while work is in progress to retain, at Grantor’s expense, an independent engineer or other consultant to review the plans and specifications, to inspect the work as it progresses and to provide reports. If any matter included in a report by the engineer or consultant is unsatisfactory to Lender, Lender may suspend disbursement of the Restoration Funds until the unsatisfactory matters contained in the report are resolved to Lender’s satisfaction.

 

(e) If Grantor fails to commence and complete Restoration in accordance with the terms of this Article, then in addition to the Remedies, Lender may elect to restore the Improvements on Grantor’s behalf and reimburse itself out of the Restoration Funds for costs and expenses incurred by Lender in restoring the Improvements, or Lender may apply the Restoration Funds as a credit against any portion of the Debt selected by Lender in its sole discretion.

 

(f) Lender may commingle the Restoration Funds with its general assets but shall assure that any Restoration Funds so commingled shall nonetheless be made available by Lender for application under this Section 7.5; and Lender will not be liable to pay any interest or other return on the Restoration Funds unless otherwise required by Law. Lender will not hold any Restoration Funds in trust. Lender may elect to deposit the Restoration Funds with a depository satisfactory to Lender under a disbursement and security agreement satisfactory to Lender, which Agreement shall provide for a segregation of funds and obligation to pay interest.

 

(g) Grantor will pay all of Lender’s expenses incurred in connection with a Destruction Event or Restoration. If Grantor fails to do so, then in addition to the Remedies, Lender may from time to time reimburse itself out of the Restoration Funds.

 

(h) If any excess Proceeds remains after Restoration, Lender may elect, in its sole discretion either to apply the excess as a credit against any portion of the Debt as selected by Lender in its sole discretion or to deliver the excess to Grantor.

 

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ARTICLE VIII

 

COMPLIANCE WITH LAW AND AGREEMENTS

 

SECTION 8.1. COMPLIANCE WITH LAW. Grantor, the Property and the use of the Property complies and will continue to comply with Law and with all agreements and conditions necessary to preserve and extend all rights, licenses, permits, privileges, franchises and concessions (including zoning variances, special exceptions and non-conforming uses) relating to the Property or Grantor. Grantor will notify Lender of the commencement of any investigation or Proceeding relating to a possible violation of Law promptly (but in no event beyond five (5) business days) after Grantor receives notice thereof and, will deliver promptly to Lender copies of all documents Grantor receives or delivers in connection with the investigation or Proceeding. Grantor will not alter the Property in any manner that would increase Grantor’s responsibilities for compliance with Law.

 

SECTION 8.2. COMPLIANCE WITH AGREEMENTS. There are no defaults, events of defaults or events which, with the passage of time or the giving of notice, would constitute an event of default under the Property Documents. Grantor will pay and perform all of its obligations under the Property Documents as and when required by the Property Documents. Grantor will cause all other parties to the Property Documents to pay and perform their obligations under the Property Documents as and when required by the Property Documents. Grantor will not amend or waive any provisions of the Property Documents; exercise any options under the Property Documents; give any approval required or permitted under the Property Documents that would adversely affect the Property or Lender’s rights and interests under the Financing Documents; cancel or surrender any of the Property Documents; or release or discharge or permit the release or discharge of any party to or entity bound by any of the Property Documents, without, in each instance, Lender’s prior approval (excepting therefrom all service contracts or other agreements entered into in the normal course of business that are cancelable upon not more than 30 days notice). Grantor promptly will deliver to Lender copies of any notices of default or of termination that Grantor receives or delivers relating to any Property Document.

 

SECTION 8.3. ERISA COMPLIANCE.

 

(a) Neither Grantor nor any of its constituent entities is or will be an “employee benefit plan” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”) that is subject to Title I of ERISA or a “plan” as defined in Section 4975(e)(1) of the Code that is subject to Section 4975 of the Code, and neither the assets of Borrower, Grantor or of any of their constituent entities are or will constitute “plan assets” of one or more such plans for purposes of Title I of ERISA or Section 4975 of the Code.

 

(b) Grantor is not and will continue to not be a “GOVERNMENTAL PLAN” within the meaning of Section 3(32) of ERISA and transactions by or with Grantor or Borrower are not and will not be subject to any Laws regulating investments of and fiduciary obligations with respect to governmental plans.

 

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(c) Grantor will not engage in any transaction which would cause any obligation or any action under the Financing Documents or the Loan Documents, including Lender’s exercise of the Remedies, to be a non-exempt prohibited transaction under ERISA.

 

SECTION 8.4. SECTION 6045(e) FILING. Grantor will supply or cause to be supplied to Lender either (i) a copy of a completed Form 1099-S, Statement for Recipients of Proceeds from Real Estate, Broker and Barter Exchange Proceeds prepared by Grantor’s attorney or other person responsible for the preparation of the form, together with a certificate from the person who prepared the form to the effect that the form has, to the best of the preparer’s knowledge, been accurately prepared and that the preparer will timely file the form; or (ii) a certification from Grantor that the Loan is a refinancing of the Property or is otherwise not required to be reported to the Internal Revenue Service pursuant to Section 6045(e) of the Code. Under no circumstances will Lender or Lender’s counsel be obligated to file the reports or returns.

 

ARTICLE IX

 

ENVIRONMENTAL

 

SECTION 9.1. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES.

 

Except as disclosed in the Environmental Report and to Grantor’s knowledge as of the date of this Deed of Trust:

 

(i)

no Environmental Activity has occurred or is occurring on the Property other than the use, storage, and disposal of Hazardous Materials which (A) is in the ordinary course of business consistent with the Permitted Use; (B) is in compliance with all Environmental Laws and (C) has not resulted in Material Environmental Contamination of the Property; and

 

 

(ii)

no Environmental Activity has occurred or is occurring on any property in the vicinity of the Property which has resulted in Material Environmental Contamination of the Property.

 

SECTION 9.2. ENVIRONMENTAL COVENANTS.

 

(a) Grantor will not cause or permit any Material Environmental Contamination of the Property.

 

(b) No Environmental Activity will occur on the Property other than the use, storage and disposal of Hazardous Materials which (A) is in the ordinary course of business consistent with the Permitted Use; (B) is in compliance with all Environmental Laws; and (C) does not create a risk of Material Environmental Contamination of the Property.

 

(c) Grantor will notify Lender immediately upon Grantor becoming aware of (i) any Material Environmental Contamination of the Property or (ii) any Environmental Activity with

 

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respect to the Property that is not in accordance with the preceding subsection (b). Grantor promptly will deliver to Lender copies of all documents delivered to or received by Grantor regarding the matters set forth in this subsection, including notices of Proceedings or investigations concerning any Material Environmental Contamination of the Property or Environmental Activity or concerning Grantor’s status as a potentially responsible party (as defined in the Environmental Laws). Grantor’s notification of Lender in accordance with the provisions of this subsection will not be deemed to excuse any default under the Financing Documents resulting from the violation of Environmental Laws or the Material Environmental Contamination of the Property or Environmental Activity that is the subject of the notice. If Grantor receives notice of a suspected violation of Environmental Laws in the vicinity of the Property that poses a risk of Material Environmental Contamination of the Property, Grantor will give Lender notice and copies of any documents received relating to such suspected violation.

 

(d) From time to time at Lender’s request, Grantor will deliver to Lender any information known and documents available to Grantor relating to the environmental condition of the Property.

 

(e) Lender may perform or engage an independent consultant to perform an assessment of the environmental condition of the Property and of Grantor’s compliance with this Section at any time for reasonable cause or after an Event of Default (if, in both instances, Lender has reasonable suspicion to believe that an Environmental Activity has occurred which could result in a Material Environmental Contamination). In connection with the assessment: (i) Lender or consultant may enter and inspect the Property and perform tests of the air, soil, ground water and building materials; (ii) Grantor will cooperate and use best efforts to cause tenants and other occupants of the Property to cooperate with Lender or consultant; (iii) Grantor will receive a copy of any final report prepared after the assessment, to be delivered to Grantor not more than 10 days after Grantor requests a copy and executes Lender’s standard confidentiality and waiver of liability letter; (iv) Grantor will accept custody of and arrange for lawful disposal of any Hazardous Materials required to be disposed of as a result of the tests; (v) Lender will not have liability to Grantor with respect to the results of the assessment; and (vi) Lender will not be responsible for any damage to the Property resulting from the tests described in this subsection and Grantor will look solely to the consultants to reimburse Grantor for any such damage. The consultant’s assessment and reports will be at Grantor’s expense (i) if the reports disclose any material adverse change in the environmental condition of the Property from that disclosed in the Environmental Report; (ii) if Lender engaged the consultant when Lender had reasonable cause to believe Grantor was not in compliance with the terms of this Article and, after written notice from Lender, Grantor failed to provide promptly reasonable evidence that Grantor is in compliance; or (iii) if Lender engaged the consultant or after the occurrence of an Event of Default.

 

(f) If Lender has reasonable cause to believe that there is Environmental Activity at the Property, Lender may elect in its sole discretion to direct the Trustees to Reconvey any portion of the Property affected by the Environmental Activity and Grantor will accept the reconveyance.

 

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ARTICLE X

 

FINANCIAL REPORTING

 

SECTION 10.1. FINANCIAL REPORTING.

 

(a) Grantor will deliver to Lender within 90 days after the close of each Fiscal Year an annual financial statement (the “ANNUAL FINANCIAL STATEMENT”) for the Property and for Corporate Office Properties Trust, upon request of Lender, for the Fiscal Year, which will include a comparative balance sheet, a cash flow statement, an income and expense statement, a detailed breakdown of all receipts and expenses and all supporting schedules. The Annual Financial Statement will be:

 

(i) unaudited, but certified by the Chief Financial Officer of Corporate Office Properties Trust, on a GAAP basis;

 

(ii) accompanied by an opinion of such Chief Financial Officer that, in all material respects, the Annual Financial Statement fairly presents the financial position of the Property; and

 

(iii) separate and distinct from any consolidated statement or report for Grantor, Borrower or any other entity or any other property.

 

(b) Grantor will keep full and accurate Financial Books and Records for each Fiscal Year. Grantor will permit Lender or Lender’s accountants or auditors to inspect or audit the Financial Books and Records from time to time and without notice. Grantor will maintain the Financial Books and Records for each Fiscal Year for not less than 3 years after the date Grantor delivers to Lender the Annual Financial Statement and the other financial certificates, statements and information to be delivered to Lender for the Fiscal Year. Financial Books and Records will be maintained at Grantor’s (as applicable) address set forth in the section entitled “NOTICES” or at any other location as may be approved by Lender.

 

ARTICLE XI

 

EXPENSES AND DUTY TO DEFEND

 

SECTION 11.1. PAYMENT OF EXPENSES.

 

(a) Grantor is obligated to pay all fees and expenses (the “EXPENSES”) incurred by Lender, Trustees or that are otherwise payable in connection with the Loan, the Property or Grantor, including attorneys’ fees and expenses and any fees and expenses relating to (i) the preparation, execution, acknowledgment, delivery and recording or filing of the Loan Documents; (ii) any Proceeding or other claim asserted against Lender; (iii) any inspection,

 

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assessment, survey and test permitted under the Financing Documents; (iv) any Destruction Event; (v) the preservation of Trustees’ title, Lender’s security and the exercise of any rights or remedies available at Law, in equity or otherwise; and (vi) the Leases and the Property Documents.

 

(b) Grantor will pay the Expenses immediately on demand, together with any applicable interest, premiums or penalties. If Lender pays any of the Expenses, Grantor will reimburse Lender the amount paid by Lender immediately upon demand, together with interest on such amount at the Default Interest Rate from the date Lender paid the Expenses through and including the date Grantor reimburses Lender. The Expenses together with any applicable interest, premiums or penalties constitute a portion of the Obligations secured by this Deed of Trust.

 

SECTION 11.2. DUTY TO DEFEND. If Lender or any of its trustees, officers, participants, employees or affiliates is a party in any Proceeding relating to the Property, Grantor, Borrower or the Loan, Grantor will indemnify and hold harmless the party and will defend the party with attorneys and other professionals retained by Grantor and approved by Lender. Lender may elect to engage its own attorneys and other professionals, at Grantor’s expense, to defend or to assist in the defense of the party. In all events, case strategy will be determined by Lender if Lender so elects and no Proceeding will be settled without Lender’s prior approval which may be withheld in its sole discretion.

 

SECTION 11.3. FUTURE ADVANCES. Lender may make future advances to Grantor or to Borrower under the Loan guaranteed by Grantor, and all such future advances and readvances shall be fully secured by the lien and security interest of this Deed of Trust.

 

ARTICLE XII

 

TRANSFERS LIENS AND ENCUMBRANCES

 

SECTION 12.1. PROHIBITIONS ON TRANSFERS, LIENS AND ENCUMBRANCES.

 

(a) Grantor acknowledges that in making the Loan, Lender is relying to a material extent on the business expertise and net worth of Grantor and its general partners, members or principals and on the continuing interest that it has, directly or indirectly, in the Property. Accordingly, except as specifically set forth in this Deed of Trust, Grantor (i) will not, and will not permit its partners or members to, effect a Transfer without Lender’s prior approval, which may be withheld in Lender’s sole discretion and (ii) will keep the Property free from all liens and encumbrances other than the lien of this Deed of Trust and the Permitted Exceptions. A “TRANSFER” is defined as any sale, grant, lease (other than bona fide third-party space leases with tenants), conveyance, assignment or other transfer of, or any encumbrance or pledge against, the Property, any interest in the Property, any interest of Grantor’s partners, members or principals in the Property, or any change in Grantor’s composition, in each instance whether voluntary or involuntary, direct or indirect, by operation of law or otherwise and including the grant of an option or the execution of an agreement relating to any of the foregoing matters.

 

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(b) Grantor represents, warrants and covenants that:

 

(i) Each entity constituting Grantor is a Maryland limited liability company whose managing member is the Borrower, a Delaware limited partnership owning 100% of the of the interests in Grantor.

 

(ii) If Grantor’s member is in turn a partnership, corporation or limited liability company, the general partner, principal or member thereof and the percentage of partnership interest, stock or membership interest held by each (and so on at each level) are as follows: the sole general partner of the Borrower is COPT (defined below); the percentage of interest in the Borrower currently held by COPT varies because its shares are traded due to its “upreit” structure.

 

SECTION 12.2. PERMITTED TRANSFERS.

 

(a) Notwithstanding the prohibitions regarding Transfers, transfer of shares in Corporate Office Properties Trust (“COPT”), an affiliate of Grantor and the Borrower, and transfers of limited partnership interests and pledges of both general and limited partnership interests in the Borrower, (each, a “Permitted Transfer”) may occur without Lender’s prior consent, PROVIDED that the following conditions are met:

 

(i) at all times COPT remains the sole general partner in the Borrower and Borrower delivers to Lender on a quarterly basis notices of changes in the ownership interests of limited partners owning one percent (1%) or more of the Borrower; and

 

(ii) a Permitted Transfer does not permit a disposition in a single transfer or a series of related transfers of all or substantially all of the shares of COPT or of all of the limited partnership interests in the Borrower and does not permit a merger of COPT with one or more entities without Lender’s prior written consent unless COPT is the surviving and controlling entity or unless such successor is a real estate company having the same standards of professional expertise and net worth as that of COPT as of the date of this Deed of Trust or as of the date immediately prior to the Transfer, whichever is greater;

 

(iii) at least 30 days prior to the proposed Permitted Transfer (other than transfers of shares of COPT on the open market or of any limited partnership interests in the Borrower), Grantor or Borrower delivers to Lender a notice that is sufficiently detailed to enable Lender to determine that the proposed Permitted Transfer complies with the terms of this Section;

 

(iv) there is no default under the Financing Documents either when Lender receives the notice or when the proposed Permitted Transfer occurs;

 

(v) the proposed Permitted Transfer (other than transfers of shares of COPT on the open market or of any limited partnership interests in the Borrower) will not result in a violation of any of the covenants contained in the Section entitled, “ERISA

 

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COMPLIANCE” and Grantor or Borrower will deliver to Lender such documentation of compliance as Lender requests in its sole discretion;

 

(vi) other than in instances of transfers of shares in COPT or of transfers of any limited partnership interests in the Borrower, when Lender receives the notice and when the proposed Permitted Transfer occurs, the transferee (other than a transferee that is a publicly traded entity) has never been an adverse party to Lender in any litigation to which Lender was a party; the transferee has never defaulted on a loan from Lender or on any contract or other agreement with Lender; and the transferee has never threatened litigation against Lender (for purposes of this subsection “transferee” includes the transferee’s constituent entities at all levels and “Lender” includes Lender’s subsidiaries);

 

(vii) Grantor or Borrower pays all of Lender’s expenses relating to the Transfer including Lender’s attorneys’ fees; and

 

(viii) Lender is satisfied that the Property will continue to be managed by a manager satisfactory to Lender.

 

SECTION 12.3. RIGHT TO CONTEST LIENS. Grantor, at its own expense, may contest the amount, validity or application, in whole or in part, of any mechanic’s, materialmen’s or environmental liens in which event Lender will refrain from exercising any of the Remedies, PROVIDED that the following conditions are met:

 

(i) Grantor delivers to Lender notice of the proposed contest not more than 30 days after the lien is filed;

 

(ii) the contest is by a Proceeding promptly initiated and conducted in good faith and with due diligence;

 

(iii) there is no Event of Default other than the Event of Default arising from the filing of the lien;

 

(iv) the Proceeding suspends enforcement of collection of the lien, imposition of criminal or civil penalties and sale or forfeiture of the Property and Lender will not be subject to any civil suit;

 

(v) the Proceeding is permitted under and is conducted in accordance with the Leases and the Property Document;

 

(vi) Grantor furnishes a bond or other security satisfactory to Lender, in either case in an amount sufficient to pay the claim giving rise to the lien, together with all interest and penalties, and secures an endorsement to Lender’s policy of title insurance insuring against sale of the Property by the lienor to collect its lien, or Grantor pays the contested lien under protest; and

 

(vii) with respect to an environmental lien, Grantor is using best efforts to mitigate or

 

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prevent any deterioration of the Property resulting from the alleged violation of any Environmental Laws or the alleged Environmental Activity.

 

SECTION 12.4. SUBSTITUTE COLLATERAL.

 

Upon request from Grantor, and at Grantor’s expense, Trustees shall release from the lien of this Deed of Trust any one or more of the parcels constituting the Property, upon conveyance by Grantor and/or its affiliates of substitute collateral property (the “Substitute Collateral”) from time to time, but not more than one time for each parcel, and not more than four times during the duration the lien of this Deed of Trust, upon the following terms and subject to the following conditions:

 

(i) the quality of the Substitute Collateral shall be comparable to or greater than that of the parcel of Property for which the Substitute Collateral is replacing the current-to-be-released Property;

 

(ii) No Event of Default shall exist under this Deed of Trust or any other Loan Document;

 

(iii) The appraised value of the Substitute Collateral shall be equal to or greater than the greater of (A) the appraised value of current-to-be-released Property, as determined at the time of the closing of the substitution of collateral, or (B) the appraised value of the current-to-be released Property at the time of such substitution;

 

(iv) the Debt Service Coverage Ratio (as defined below) for the aggregate Property (inclusive of the Substitute Collateral) shall be greater than or equal to the actual Debt Service Coverage Ratio for the aggregate Property (inclusive of the current-to-be released Property), for the one year prior to the substitution, and Grantor shall execute and deliver appropriate amendments to this Deed of Trust and Loan Documents making the Substitute Collateral part of the security for the Guaranty, and Lender shall have received such title assurances and endorsements to its then-existing policies confirming the priority of its lien under this Deed of Trust on the Substitute Collateral, consenting to the release of the released Property, and otherwise confirming no adverse changes in title coverage or the amount thereof.

 

(v) the Substitute Collateral shall satisfy each of the covenants and conditions to closing set forth in the commitment letter with the Lender for the Loan guaranteed under the Guaranty, that would have been applicable had such Substitute Collateral been an original parcel of the Property;

 

(vi) the Substitute Collateral shall conform in all respects to such other underwriting standards and criteria of the Lender and criteria such as other appraisal, legal, business, environmental, engineering, diversification, leasing or title requirements, all as Lender may determine in its sole discretion.

 

As used herein, the following defined term shall apply:

 

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“DEBT SERVICE COVERAGE RATIO” means the Net Operating Income of the Property divided by the amount of scheduled annual payments of Debt Service on the Loan guaranteed by the Guaranty.

 

“NET OPERATING INCOME” means the total gross rental income received in the most recent twelve month period, plus other income received during the most recent twelve month period, less actual operating expenses for the most recent twelve month period.

 

ARTICLE XIII

 

ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS

 

Section 13.1. FURTHER ASSURANCES.

 

(a) Grantor will execute, acknowledge and deliver to Lender or to any other entity Lender designates any additional or replacement documents and perform any additional actions that Lender determines are reasonably necessary to evidence, perfect or protect Lender’s first lien on and prior security interest in the Property or to carry out the intent or facilitate the performance of the provisions of the Financing Documents and the Note.

 

(b) Grantor appoints Lender as Grantor’s attorney-in-fact to perform, at Lender’s election, any actions and to execute and record any of the additional or replacement documents referred to in this Section, in each instance only at Lender’s election and only to the extent Grantor or Borrower has failed to comply with the terms of this Section.

 

(c) Grantor shall pay upon demand of Lender all costs of, and incidental to, the recording of this Deed of Trust and any such documents described above, whether now or hereafter due and payable, including, without limitation, the Maryland recordation tax and any other tax required to be paid at any time with respect to such recording. The Grantor hereby agrees to indemnify and hold the Trustees and Lender harmless from and against any liability or loss incurred by the Trustees or Lender resulting from the failure of the Grantor to pay when due and payable any such amounts. The foregoing indemnity will survive the payment of the Obligations and the Guaranty and the release of this Deed of Trust. The obligations of the Grantor pursuant to such indemnity will bear interest payable upon demand of Lender from the date due until paid in full at the Default Interest Rate and such obligations with interest thereon as aforesaid shall be a part of the Obligations secured hereby.

 

Section 13.2. ESTOPPEL CERTIFICATES.

 

(a) Within 10 days of Lender’s request, Grantor will deliver to Lender or to any entity Lender designates a certificate certifying (i) the original principal amount of the Note; (ii) the unpaid principal amount of the Note;  (iii) the Fixed Interest Rate; (iv) the amount of the then current Debt Service Payments; (v) the Maturity Date; (vi) the date a Debt Service Payment was last made; (vii) that, except as may be disclosed in the statement, there are no defaults or events which, with the passage of time or the giving of notice, would constitute an Event of Default; and (viii) there are no offsets or defenses against any portion of the Obligations except as may be disclosed in the statement.

 

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(b) If Lender requests, Grantor promptly will deliver to Lender or to any entity Lender designates a certificate from each party to any Property Document, certifying that the Property Document is in full force and effect with no defaults or events which, with the passage of time or the giving of notice, would constitute an event of default under the Property Document and that there are no defenses or offsets against the performance of its obligations under the Property Document.

 

(c) If Lender requests, Grantor promptly will use its commercially reasonable efforts to obtain and deliver to Lender, or to any entity Lender designates, a certificate from each tenant under a Lease then affecting the Property, certifying to any facts regarding the Lease as Lender may require, including that the Lease is in full force and effect with no defaults or events which, with the passage of time or the giving of notice, would constitute an event of default under the Lease by any party, that the rent has not been paid more than one month in advance and that the tenant claims no defense or offset against the performance of its obligations under the Lease; provided, that Lender shall not request such certificates more often than one time in any two calendar year period except for the purpose of a sale of the Loan.

 

ARTICLE XIV

 

DEFAULTS AND REMEDIES

 

Section 14.1. EVENTS OF DEFAULT. The term “EVENT OF DEFAULT” means the occurrence of any of the following events:

 

(i) if Grantor fails to pay any amount due, as and when required, under any Financing Document and the failure continues for a period of 5 days;

 

(ii) if Grantor makes a general assignment for the benefit of creditors or generally is not paying, or is unable to pay, or admits in writing its inability to pay, its debts as they become due; or if Grantor or any other party commences any Proceeding (A) relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, in each instance with respect to Grantor; (B) seeking to have an order for relief entered with respect to Grantor; (C) seeking attachment, distraint or execution of a judgment with respect to Grantor; (D) seeking to adjudicate Grantor as bankrupt or insolvent; (E) seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to Grantor or Grantor’s debts; or (F) seeking appointment of a Receiver, trustee, custodian, conservator or other similar official for Grantor or for all or any substantial part of Grantor’s assets, PROVIDED that if the Proceeding is commenced by a party other than Grantor or any of Grantor’s general partners or members, Grantor will have 120 days to have the Proceeding dismissed or discharged before an Event of Default occurs;

 

(iii) if Grantor is in default beyond any applicable grace and cure period under any other

 

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mortgage, deed of trust, deed to secure debt or other security agreement encumbering the Property whether junior or senior to the lien of this Deed of Trust;

 

(iv) if a Transfer occurs except in accordance with the provisions of this Deed of Trust;

 

(v) if Grantor abandons the Property or ceases to conduct its business at the Property; or

 

(vi) if Grantor fails to deposit either the letter of credit required under the letter agreement of even date herewith between Grantor and Lender, or fails to make the deposits required or otherwise defaults under the Pledge and Security Agreement of even date among, INTER ALIA, Grantor and Lender; or

 

(vii) if there is a default in the performance of any other provision of any Financing Document or if there is any inaccuracy or falsehood in any representation or warranty contained in any Financing Document which is not remedied within 15 days after Grantor receives notice thereof, PROVIDED that if the default, inaccuracy or falsehood is of a nature that it cannot be cured within the 15-day period and during that period Grantor commences to cure, and thereafter diligently continues to cure, the default, inaccuracy or falsehood, then the 15-day period will be extended for a reasonable period not to exceed 120 days after the notice to Grantor.

 

SECTION 14.2. Remedies.

 

(a) If an Event of Default occurs, Lender may take any of the following actions (the “REMEDIES”) without notice to Grantor or Borrower:

 

(i) declare all or any portion of the Obligations immediately due and payable (“ACCELERATION”);

 

(ii) pay or perform any Obligation;

 

(iii) institute a Proceeding for the specific performance of any Obligation;

 

(iv) apply for the appointment of a Receiver to be vested with the fullest powers permitted by Law, without bond being required, which appointment may be made EX PARTE, as a matter of right and without regard to the value of the Property, the amount of the Debt or the solvency of Grantor or Borrower or any other person liable for the payment or performance of any portion of the Obligations;

 

(v) directly, by its agents or representatives or through a Receiver appointed by a court of competent jurisdiction, enter on the Land and Improvements, take possession of the Property, dispossess Grantor and exercise Grantor’s rights with respect to the Property, either in Grantor’s name or otherwise;

 

(vi) institute a Proceeding for the foreclosure of this Deed of Trust or, if applicable, sell by power of sale all or any portion of the Property;

 

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(vii) institute proceedings for the partial foreclosure of this Deed of Trust for the portion of the Obligations then due and payable, subject to the continuing lien of this Deed of Trust for the balance of the Obligations not then due;

 

(viii) deliver to Trustees a declaration of default and demand for sale and a notice of default and election to cause Grantor’s interest in the Property or any portion of the Property to be sold, which notice Trustees or Lender will file in the official records of the county in which the Property is located or any parcel comprising the same is located;

 

(ix) exercise any and all rights and remedies granted to a secured party under the Uniform Commercial Code; and

 

(x) pursue any other right or remedy available to Lender at Law, in equity or otherwise.

 

(b) If an Event of Default occurs, the license granted to Grantor in the Financing Documents to collect Rents will terminate automatically without any action required of Lender.

 

SECTION 14.3. GENERAL PROVISIONS PERTAINING TO REMEDIES.

 

(a) The Remedies are cumulative and may be pursued by Lender or Trustees concurrently or otherwise, at such time and in such order as Lender or Trustees may determine in their sole discretion and without presentment, demand, protest or further notice of any kind, all of which are expressly waived by Grantor.

 

(b) The enumeration in the Financing Documents of specific rights or powers will not be construed to limit any general rights or powers or impair Lender’s or Trustees’ rights with respect to the Remedies.

 

(c) If Lender or Trustees exercise any of the Remedies, Lender will not be deemed a mortgagee-in-possession unless Lender has elected affirmatively to be a mortgagee-in-possession.

 

(d) Lender and Trustees will not be liable for any act or omission of Lender or Trustee in connection with the exercise of the Remedies.

 

(e) Lender’s and Trustees’ right to exercise any Remedy will not be impaired by any delay in exercising or failure to exercise the Remedy and the delay or failure will not be construed as extending any cure period or constitute a waiver of the default or Event of Default.

 

(f) If an Event of Default occurs, Lender’s payment or performance or acceptance of payment or performance will not be deemed a waiver or cure of the Event of Default.

 

(g) Lender’s acceptance of partial payment or receipt of Rents will not extend or affect any grace period or constitute a waiver of a default or Event of Default or constitute a recision of Acceleration.

 

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SECTION 14.4. FORECLOSURE; ASSENT TO DECREE AND POWER OF SALE.

 

In the event the Trustee or Lender elects to institute foreclosure proceedings upon the occurrence of an Event of Default, the Grantor and Acquisition Grantors each assent to the passage of a decree for the sale of the Property and any or all of the parcels comprising the same and further authorizes the Trustee to sell the Property. Any sale of the Property or any of the parcels so being sold, whether by way of the assent to decree or po


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