OFFICE LEASE

Exhibit 10.46

 

OFFICE LEASE

 

WARNER CENTER PLAZA

 

DOUGLAS EMMETT REALTY FUND 2000,

a California limited partnership

 

as Landlord,

 

and

 

HEALTH NET, INC.,

a Delaware corporation

 

as Tenant

 

 

WARNER CENTER TOWERS

[Health Net, Inc.]

 

INDEX

 

 

 

WARNER CENTER TOWERS

[Health Net, Inc.]

 

 

 

WARNER CENTER TOWERS

[Health Net, Inc.]

 

 

 

WARNER CENTER TOWERS

[Health Net, Inc.]

 

 

 

 

 

WARNER CENTER TOWERS

[Health Net, Inc.]

 

WARNER CENTER PLAZA

 

INDEX OF MAJOR DEFINED TERMS

 

 

 

WARNER CENTER TOWERS

[Health Net, Inc.]

 

 

 

 

WARNER CENTER TOWERS

[Health Net, Inc.]

 

WARNER CENTER TOWERS

 

SUMMARY OF BASIC LEASE INFORMATION

 

The undersigned hereby agree to the following terms of this Summary of Basic Lease Information (the “ Summary ”). This Summary is hereby incorporated into and made a part of the attached Office Lease (the “ Office Lease ”) which pertains to the “Project”, as that term is defined in the Office Lease, commonly known as “ Warner Center Towers ” located in Woodland Hills, California. This Summary and the Office Lease are collectively referred to herein as the “ Lease ”. Each reference in the Office Lease to any term of this Summary shall have the meaning set forth in this Summary for such term. In the event of a conflict between the terms of this Summary and the Office Lease, the terms of the Office Lease shall prevail. Any capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Office Lease.

 

 

 

WARNER CENTER TOWERS

[Health Net, Inc.]

 

6.	Base Rent (Article 3):

 

 

 

 

WARNER CENTER TOWERS

[Health Net, Inc.]

 

 

 

WARNER CENTER TOWERS

[Health Net, Inc.]

 

OFFICE LEASE

 

This Office Lease, which includes the preceding Summary of Basic Lease Information (the “ Summary ”) attached hereto and incorporated herein by this reference (the Office Lease and Summary are collectively referred to herein as the “ Lease ”), dated as of the date set forth in Section 1 of the Summary is made by and between, DOUGLAS EMMETT REALTY FUND 2000, a California limited partnership (“ Landlord ”), and HEALTH NET, INC., a Delaware corporation (“ Tenant ”). Tenant currently occupies the Premises (as hereinafter defined) pursuant to that certain Office Lease dated September 9, 1998 between Landlord’s predecessor in interest, AH Warner Center Properties, Limited Liability Company, a Delaware limited liability company, and Tenant’s predecessor in interest, Foundation Health Systems, Inc., a Delaware corporation, as amended by that certain First Amendment to Lease dated August 8, 2000 (“ First Amendment ”) and that certain Second Amendment to Lease dated as of the date hereof (the “ Second Amendment ” and, collectively, the “ Original Lease ”). It is the understanding and agreement of Landlord and Tenant that this Lease shall govern all of the respective rights and obligations of Landlord and Tenant regarding Tenant’s tenancy from and after the Commencement Date (as defined in the Summary) and that, from and after the Commencement Date, the Original Lease shall be terminated and shall have no force or effect.

 

ARTICLE 1

 

PREMISES, BUILDING, PROJECT, AND COMMON AREAS

 

1.1 The Premises . Upon and subject to the terms, covenants and conditions hereinafter set forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 4.2 of the Summary (the “ Premises ”). The outline of the Premises is set forth in Exhibit A attached hereto. Tenant’s rights to the Premises include the limited right to use and access the janitorial closet and the electrical and telephone rooms on the floors containing the Premises as reasonably necessary for Tenant’s effective and efficient use of the Premises, subject to Landlord’s notice and consent rights under Section 6.2 below. Tenant shall also be permitted to enter such areas to service its equipment. Tenant shall have the right to use, or access, any ceilings or space above and the ceilings and floors on the floors containing the Premises to the extent necessary to service Tenant’s equipment in the Premises and to run wires, cables and other conduits to the Premises to the extent permitted by applicable laws, subject to Landlord’s notice and consent rights under Section 6.2 below. In addition, Tenant shall be allowed to use such space as necessary for providing utility services such as the installation of computer cable conduits and core drilling, subject to Landlord’s consent rights under Section 6.2 below. Tenant’s rights to the Premises include the right to use and access any floors or walls on the floors containing the Premises to install equipment, wiring, cables, conduits and the like as necessary to service Tenant’s equipment in the Premises, subject to Landlord’s notice and consent rights under Section 6.2 below. Tenant shall be entitled to, and Landlord shall provide at no additional cost to Tenant, non-exclusive use of the riser space in the Building, in order for Tenant to achieve telephone and data network transmission connectivity between the Premises and all other premises of Tenant and its Affiliates located in the Building. Tenant acknowledges that it has independently determined that said existing conduit(s) and riser(s) shall be adequate for Tenant’s intended use, and that the Landlord does not warrant the suitability of such conduit(s) and/or riser(s) for Tenant’s use now or in the future. Furthermore, Landlord’s responsibility for maintenance and repair of said conduit(s) and riser(s) shall be limited to those maintenance and repair obligations as set forth elsewhere in this Lease. Notwithstanding anything to the contrary set forth in this Lease, in no event shall Tenant take any action in the Premises or the Building which may adversely affect the “Systems and Equipment,” as that term is defined in Section 3.3.8 of this Lease, without the prior written consent of Landlord. No provision of this Lease shall limit Landlord’s responsibility to perform Landlord’s Work in accordance with the terms of the Second Amendment.

 

1.2 The Building and The Project . The Premises are a part of the building set forth in Section 4.1 of the Summary (the “ Building ”). The Building is part of an office project known as WARNER CENTER TOWERS. The term “ Project ,” as used in this Lease, shall mean (i) the

 

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WARNER CENTER TOWERS

[Health Net, Inc.]

 

Building and the “Common Areas”, as that term is defined in Section 1.3 below, (ii) the land (which is improved with landscaping, parking facilities and other improvements as shown on Exhibit B attached hereto) upon which the Building and the Common Areas are located, and (iii) at Landlord’s reasonable discretion, any additional real property, areas, land, buildings or other improvements added thereto pursuant to the terms of Section 1.4 of this Lease; provided that no such additions shall result in an increase in Direct Expenses allocated to Tenant under this Lease.

 

1.3 Common Areas . Tenant shall have the non-exclusive right to use in common with other tenants in the Project, and subject to the rules and regulations referred to in Article 5 of this Lease, those portions of the Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas, together with such other portions of the Project designated by Landlord, in its discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the “ Common Areas ”). The Common Areas shall consist of the “Project Common Areas” and the “Building Common Areas”. The term “ Project Common Areas ”, as used in this Lease, shall mean the portion of the Project designated as such by Landlord, and may include, without limitation, any fixtures, systems, signs, facilities, parking areas, gardens, parks or other landscaping contained, maintained or used in connection with the Project, and may include any city sidewalks adjacent to the Project, pedestrian walkway system, whether above or below grade, park or other facilities open to the general public and roadways, sidewalks, walkways, parkways, driveways and landscape areas appurtenant to the Project. The location of the Project Common Areas as of the date of this Lease is shown on Exhibit B attached hereto. The term “ Building Common Areas ”, as used in this Lease, shall mean the portions of the Common Areas located within the Building designated as such by Landlord, and may include, without limitation, the common entrances, lobbies, atrium areas, restrooms, elevators, stairways and accessways, loading docks, ramps, drives, platforms, passageways, serviceways, common pipes, conduits, wires, equipment, loading and unloading areas, parking facilities and trash areas servicing the Building. The Common Areas shall be maintained and operated in a first class manner.

 

1.4 Landlord’s Use and Operation of the Building, Project, and Common Areas . Provided Landlord does not unreasonably interfere with Tenant’s normal and customary business operations and to the extent the Tenant Improvements and Alterations are not damaged and Tenant is not denied the beneficial use of its Premises, Landlord reserves the right from time to time without notice to Tenant (i) to close temporarily any of the Common Areas; (ii) to make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of street entrances, driveways, ramps, entrances, exits, passages, stairways and other ingress and egress, direction of traffic, landscaped areas, loading and unloading areas, and walkways; (iii) to expand the Building; (iv) to add additional buildings and improvements to the Common Areas; (v) to designate land outside the Project to be part of the Project, and in connection with the improvement of such land to add additional buildings and common areas to the Project and/or to delete land and improvements from the Project; (vi) to use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project or to any adjacent land, or any portion thereof; and (vii) to do and perform such other acts and make such other changes in, to or with respect to the Project, Common Areas and Building or the expansion thereof as Landlord may deem to be appropriate; provided that Landlord’s actions under items (iii), (iv), (v) and (vi) shall not result in an increase in Direct Expenses allocated to Tenant under this Lease.

 

1.5 Intentionally Omitted .

 

1.6 Right of First Offer . Landlord hereby grants to Tenant a right of first offer with respect to that certain space consisting of, collectively, any additional space contiguous to the initial Premises (including available space on floors contiguous to the floors on which the initial Premises is located) and any space on the fifteenth (15 ^th ), sixteenth (16 ^th ) and nineteenth (19th) floors of the Building which become vacant and actually available for lease during the initial Term and any extension thereof (collectively, the “ First Offer Space ”). If Tenant does not lease any increment of First Offer Space after being offered such space in accordance with the terms of

 

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WARNER CENTER TOWERS

[Health Net, Inc.]

 

this Section 1.6, Tenant shall have no further right to lease such increment of First Offer Space. Notwithstanding the foregoing, such first offer right shall be subordinate and secondary to all rights of expansion, first refusal, first offer or similar rights granted to the tenants of the Building as of the date of this Lease (collectively, the “ Superior Rights ”), which Superior Rights are set forth on Exhibit G attached to this Lease. Tenant’s right of first offer shall be on the terms and conditions set forth in this Section 1.6.

 

1.6.1 Procedure for Offer. Landlord shall notify Tenant (the “ First Offer Notice ”) the first time after the date of this Lease that Landlord receives a proposal or request for proposal for all or any portion of the First Offer Space which Landlord would seriously consider. The First Offer Notice shall describe the space which is the subject of the First Offer Notice and shall set forth the size and location of such space, the economic terms and conditions which Landlord would accept for Tenant’s lease of such space (collectively, the “ Economic Terms ”), including, without limitation, the Base Rent, any contribution by Landlord to Direct Expenses, any concessions and any contribution by Landlord to the improvement of the First Offer Space. Such Economic Terms shall constitute Landlord’s good faith determination of the then prevailing fair market economic terms for such space.

 

1.6.2 Procedure for Acceptance . If Tenant wishes to exercise Tenant’s right of first offer with respect to the space described in the First Offer Notice, then within ten (10) business days after delivery of the First Offer Notice to Tenant, Tenant shall deliver notice to Landlord of Tenant’s intention to exercise its right of first offer with respect to the entire space described in the First Offer Notice. If concurrently with Tenant’s exercise of the first offer right, Tenant notifies Landlord that it does not accept the Economic Terms set forth in the First Offer Notice, Landlord and Tenant shall, for a period of fifteen (15) business days after Tenant’s exercise, negotiate in good faith to reach agreement as to such Economic Terms. If Tenant does not so notify Landlord that it does not accept the Economic Terms set forth in the First Offer Notice concurrently with Tenant’s exercise of the first offer right, the Economic Terms shall be as set forth in the First Offer Notice. In addition, if Tenant does not exercise its right of first offer within the ten (10) business day period, or, if Tenant exercises its first offer right but timely objects to Landlord’s determination of the Economic Terms and if Landlord and Tenant are unable to reach agreement on such Economic Terms within said fifteen (15) business day period, then Landlord shall be free to lease the space described in the First Offer Notice to anyone to whom Landlord desires on any terms Landlord desires and Tenant’s right of first offer shall terminate as to the First Offer Space described in the First Office Notice; provided that, if Landlord desires to lease the same First Offer Space to any third party but increase or decrease the size of such First Offer Space by more than twenty-five percent (25%) or Landlord intends to accept an offer from a prospective tenant and the net effective rent that is at least ten percent (10%) less than the net effective rent offered to Tenant, Landlord shall be required to give Tenant another First Offer Notice with respect to such increased or decreased First Offer Space and Tenant’s rights in connection therewith shall renew under this Section 1.6, except that the ten (10) and fifteen (15) business day periods set forth above shall be reduced to five (5) and ten (10) business days, respectively. Notwithstanding anything to the contrary contained herein, Tenant must elect to exercise its right of first offer, if at all, with respect to all of the space offered by Landlord to Tenant at any particular time, and Tenant may not elect to lease only a portion thereof.

 

1.6.3 Lease of First Offer Space . If Tenant timely exercises Tenant’s right to lease the First Offer Space as set forth herein, Landlord and Tenant shall execute an amendment that is acceptable to Landlord and Tenant in the exercise of their commercially reasonable judgment adding such First Offer Space to this Lease upon the same non-economic terms and conditions as applicable to the initial Premises, and the Economic Terms and conditions as provided in this Section 1.6. Tenant shall commence payment of Rent for the First Offer Space and the Lease Term of the First Offer Space shall commence upon the date (“ First Offer Commencement Date ”) which is the earlier of (i) the expiration of a reasonable build-out period determined as a component of the Economic Terms, and (ii) the date that Tenant, or any person occupying any of the First Offer Space with Tenant’s permission, commences business operations from the First Offer Space, subject to any appropriate modification with respect to such

 

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WARNER CENTER TOWERS

[Health Net, Inc.]

 

commencement of Rent as determined as part of the Economic Terms. The Lease Term for the First Offer Space shall expire on the Lease Expiration Date, subject to extension as provided in Section 2.2 of this Lease, co-terminously with Tenant’s lease of the initial Premises.

 

1.6.4 Termination of Right of First Offer . The rights set forth in this Section 1.6, and Landlord’s obligations with respect thereto, shall be exercisable only by the originally-named Tenant (“ Original Tenant ”) and any Affiliated Assignee (as defined in Section 11.7) and any Permitted Assignee of the Original Tenant’s interest in this Lease, provided that the assignee of the subject assignment assumes Tenant’s obligations to lease the entire Premises then being leased by Tenant. Tenant’s right of first offer hereunder shall not be effective in any period during which more than forty percent (40%) of the rentable area of the Premises is subject to a sublease, other than to an Affiliated Assignee. Tenant shall not have the right to lease the First Offer Space if, as of the date of the attempted exercise of any right of first offer by Tenant, or, at Landlord’s option, as of the scheduled date of delivery of such First Offer Space to Tenant, Tenant is in default under this Lease after notice and lapse of any applicable cure periods.

 

1.7 Right to Expand . Landlord hereby grants to Tenant herein the right during the initial Term and any extensions thereof, and if exercised in accordance with this Lease, to lease any space contiguous to the initial Premises, including any space one floor immediately above or one floor immediately below the initial Premises, that is vacant and actually available for lease (the “ Expansion Space ”) upon the terms and conditions set forth in this Section 1.7. Notwithstanding the foregoing, such right to expand shall be subordinate and secondary to all Superior Rights. The expansion option contained in this Section 1.7 may be exercised only in accordance with the procedures described herein.

 

1.7.1 Method of Exercise . Tenant shall from time to time, but in no event more than two (2) times in any calendar year, deliver written notice to Landlord, stating that Tenant is interested in exercising its option hereunder and specifying the size and location of the space desired (the “ Expansion Notice ”). Within fifteen (15) business days after delivery of the Expansion Notice to Landlord, Landlord shall deliver to Tenant a list of any Expansion Space that is then vacant and available for lease, and any space that, to Landlord’s actual knowledge, will be vacant and available for lease within six (6) months after Landlord’s receipt of the Expansion Notice, along with a proposed letter of intent which shall contain Landlord’s estimate of the Expansion Rent (as hereinafter defined) for the applicable Expansion Space and such other material terms as Landlord deems appropriate (collectively, an “ Expansion Notice Response ”), provided that such letter of intent shall be non-binding and shall not create any liability for or obligation of either party. The Base Rent to be paid by Tenant for any Expansion Space shall be ninety-five percent (95%) of then prevailing fair market rent for such Expansion Space as of the date of the proposed commencement date of the term of the lease for such Expansion Space (“ Expansion Rent ”). The prevailing fair market rent shall be based on the same criteria for determining fair market rent as a basis for Option Rent as specified in Section 2.2.1 below. Landlord shall determine the Expansion Rent by using its good faith judgment. Tenant shall have five (5) business days (“ Tenant’s Expansion Rent Review Period ”) after receipt of Landlord’s Expansion Notice Response within which to accept such rental rate or to reasonably object thereto in writing. Tenant’s failure to object by written notice to Landlord within said five (5) business day period shall be deemed to constitute Tenant’s disapproval of the Expansion Rent specified by Landlord in the letter of intent. In the event Tenant timely objects in writing, or is deemed to have objected by failing to object in writing within said five (5) business day period, Landlord and Tenant shall attempt to agree upon such Expansion Rent using their diligent good faith efforts. If Landlord and Tenant fail to reach agreement within twenty (20) days following Tenant’s Expansion Rent Review Period (“ Outside Expansion Agreement Date ”), then the Expansion Rent shall be determined by arbitration in accordance with Sections 1.7.1.1 through 1.7.1.7 below.

 

1.7.1.1 Landlord and Tenant shall each appoint one arbitrator who shall by profession be a real estate broker or appraiser who shall have been active over the ten (10) year period ending on the date of such appointment in the leasing (or appraisal, as the case may be) of commercial high-rise properties in the Woodland Hills, California area. The

 

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WARNER CENTER TOWERS

[Health Net, Inc.]

 

determination of the arbitrators shall be limited solely to the issue of whether Landlord’s or Tenant’s submitted Expansion Rent is the closest to the actual Expansion Rent, as determined by the arbitrators, taking into account the requirements of this Section 1.7 (i.e., the arbitrators may only select Landlord’s or Tenant’s determination and shall not be entitled to make a compromise determination). Each such arbitrator shall be appointed within fifteen (15) business days after the applicable Outside Expansion Agreement Date.

 

1.7.1.2 The two (2) arbitrators so appointed shall within five (5) days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two (2) arbitrators.

 

1.7.1.3 The three (3) arbitrators shall within five (5) days of the appointment of the third arbitrator reach a decision as to whether the parties shall use Landlord’s or Tenant’s submitted Expansion Rent and shall notify Landlord and Tenant thereof.

 

1.7.1.4 The decision of the majority of the three (3) arbitrators shall be binding upon Landlord and Tenant.

 

1.7.1.5 If either Landlord or Tenant fails to appoint an arbitrator within fifteen (15) business days after the applicable Outside Expansion Agreement Date, the arbitrator appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such arbitrator’s decision shall be binding upon Landlord and Tenant.

 

1.7.1.6 If the two (2) arbitrators fail to agree upon and appoint a third arbitrator, or both parties fail to appoint an arbitrator, then the appointment of the third arbitrator or any arbitrator shall be dismissed, then the determination of Expansion Rent shall be forthwith submitted to arbitration under the provisions of the American Arbitration Association, but subject to the instruction set forth in this Section 1.7.1.

 

1.7.1.7 The cost of arbitration shall be paid by Landlord and Tenant equally.

 

1.7.2 Expansion Space Accepted “As-Is” . Tenant shall take the Expansion Space in its “as is” condition, subject to any latent defects.

 

1.7.3 Amendment to Lease . If Tenant timely exercises Tenant’s right to lease the Expansion Space as set forth herein, Landlord and Tenant shall within fifteen (15) business days after determination of the Expansion Rent execute an amendment adding such Expansion Space to the Lease and incorporating all of the other terms of Landlord’s letter of intent delivered as part of Landlord’s Expansion Notice Response. The term for any space leased by Tenant pursuant to the exercise of this right shall be coterminous with the initial Lease term or any extension term, as applicable.

 

1.7.4 Termination of Expansion Right . The rights set forth in this Section 1.7, and Landlord’s obligations with respect thereto, shall be exercisable only by the Original Tenant, any Affiliated Assignee (as defined in Section 11.7) and any Permitted Assignee of the Original Tenant’s interest in this Lease, provided that the assignee of the subject assignment assumes Tenant’s obligations to lease the entire Premises then being leased by Tenant. Tenant’s expansion hereunder shall not be effective in any period during which more than forty percent (40%) of the rentable area of the Premises is subject to a sublease, other than to an Affiliated Assignee. Tenant shall not have the right to lease any Expansion Space if, as of the date of the attempted exercise of any right of first offer by Tenant, or, at Landlord’s option, as of the scheduled date of delivery of such Expansion Space to Tenant, Tenant is in default under this Lease after notice and lapse of any applicable cure periods.

 

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WARNER CENTER TOWERS

[Health Net, Inc.]

 

1.8 Right to Contract . Tenant may elect to reduce the Rentable Area of the Premises by up to two (2) full floors, as such floors are identified herein (collectively, the “ Returned Space ”) by complying with all of the provisions of this Section 1.8.

 

1.8.1 Twenty-Second Floor Returned Space . Tenant may, as of the end of the seventy-second (72 ^nd ) full calendar month of the initial Term (the “ First Reduction Date ”), return possession to Landlord of up to the entire twenty-second (22 ^nd ) floor (“ Twenty-Second Floor Returned Space ”), by giving Landlord at least twelve (12) months prior written notice (the “ First Reduction Notice ”). With respect to any portion of the Twenty-Second Floor Returned Space not surrendered by Tenant as of the First Reduction Date (“ Unused Increment ”), such Unused Increment may be added to the Twenty-First Floor Returned Space (as hereinafter defined) upon delivery of not less than twelve (12) months prior written notice to Landlord.

 

1.8.2 Twenty-First Floor Returned Space . Tenant may, as of the end of the ninety-sixth (96th) full calendar month of the initial Term (the “ Second Reduction Date ”), return possession to Landlord of up to the entire twenty-first (21st) floor and any Unused Increment (collectively, the “ Twenty-First Floor Returned Space ”), by giving Landlord at least twelve (12) months prior written notice (the “ Second Reduction Notice ”).

 

1.8.3 Contingencies to Contraction . Tenant’s right to exercise its right to reduce its rentable area hereunder is subject to, in each case, the following conditions (a) the First Reduction Notice and the Second Reduction Notice, as applicable, shall be duly and timely received by Landlord; (b) as of the date Landlord receives the First Reduction Notice and/or Second Reduction Notice, as applicable, Tenant is in not default under this Lease after notice and lapse of any applicable cure periods; (c) prior to the First Reduction Date and/or Second Reduction Date, as applicable, Tenant shall execute an amendment that is acceptable to Landlord and Tenant in the exercise of their commercially reasonable judgment (“ Contraction Amendment ”), documenting the surrender of the subject Returned Space (and the commensurate reduction in Tenant’s Share and Tenant’s Common Area Share) and providing for Tenant’s agreement to surrender the space in broom clean condition, reasonable wear and tear excepted, and, at Landlord’s election, for Tenant’s removal of any Extraordinary Improvements (as such term is defined in the Second Amendment) in the subject Returned Space at Tenant’s sole cost, if, at the time such improvements or alterations were installed, Landlord provided Tenant with written notice that the same shall be removed by Tenant at Tenant’s sole cost; and (d) Tenant shall comply with all the requirements contained in this Section 1.8 (including, without limitation, the payment of funds as specified in Section 1.8.4 below). Provided that the conditions set forth above are performed, then as of the First Reduction Date or Second Reduction Date, as applicable, Tenant shall be released from liability for any of its obligations hereunder with respect to the subject Returned Space only.

 

1.8.4 Tenant’s Compensation to Landlord for Contraction . In the case of any Returned Space, Tenant shall pay to Landlord a contraction fee equal to the sum of (a) the prorated portion of the then-unamortized leasing commissions and tenant improvement allowance for the applicable Returned Space (including leasing commissions, and tenant improvement funds expended by Landlord) to be amortized based on an interest rate of eight percent (8%) per annum, (b) the sum of three (3) months’ Base Rent calculated using the rentable area of the subject Returned Space (at the rate then being paid by Tenant for such space) and (c) with respect to any Reduced Space that is on a floor on which there is no multi-tenant corridor, Landlord’s commercially reasonable estimate of the cost of installing such a corridor using Landlord’s then established standard design and materials (collectively, the “ Contraction Fee ”). The Contraction Fee shall be due on or before the effective date of the subject contraction. Assuming that (i) Tenant elects to retain the fifteenth (15 ^th ) floor portion of the Premises pursuant to Section 1.9 of this Lease and (ii) Tenant surrenders the entire twenty-second (22nd) floor on the First Reduction Date and the entire twenty-first (21 ^st ) floor on the Second Reduction Date (i.e., that there is no Unused Increment on the Second Reduction Date), then the Contraction Fee with respect to the Twenty-Second Floor Returned Space shall be $880,943.49 and the Contraction Fee with respect to the Twenty-First Floor Returned Space shall be $556,743.25, plus, in each case, with respect to any Reduced Space that is on a floor on which there is no multi-tenant corridor, Landlord’s commercially reasonable estimate of the cost of installing such a corridor using Landlord’s then established standard design and materials. As soon as is reasonably possible after Landlord’s receipt of the First Reduction Notice or Second

 

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Reduction Notice, as applicable, Landlord shall send to Tenant a final statement itemizing the amount of the Contraction Fee owed by Tenant.

 

1.8.5 Termination/Expiration of Contraction Right . If Tenant fails to comply with the requirements of this Section 1.8 or fails to pay the required amount of the Contraction Fee within the specified time period, such failure shall constitute a material default of this provision and shall serve to nullify the terms and conditions of this provision, in which case this Lease shall continue in full force and effect for the remainder of the Term for the entire Premises. The rights set forth in this Section 1.8, and Landlord’s obligations with respect thereto, shall be exercisable only by the Original Tenant and any Affiliated Assignee (as defined in Section 11.7) and any Permitted Assignee of the Original Tenant’s interest in this Lease, provided that the assignee of the subject assignment assumes Tenant’s obligations to lease the entire Premises then being leased by Tenant. Tenant shall not have the right to contract any space if, as of the date of the attempted exercise of any right by Tenant, or, at Landlord’s option, as of the scheduled effective date of such contraction, Tenant is in default under this Lease after notice and lapse of any applicable cure periods. In the event that Tenant has not delivered the Second Reduction Notice on or before the Second Reduction Date, then on the first calendar day after the Second Reduction Date, the provisions of this Section 1.8 shall be deemed null, void and of no further force or effect as to the Twenty-First Floor Returned Space.

 

1.9 Tenant’s Election Regarding the Fifteenth Floor . Provided Tenant delivers written notice to Landlord or before February 1, 2004, Tenant may elect to surrender the portion of its Premises on the fifteenth (15 ^th ) floor (as specified in Section 4.2 of the Summary of Basic Lease Information) without penalty or the payment of any costs, provided that Tenant shall comply with the provisions of Section 19.15 of this Lease. In the event Tenant elects to surrender such portion of the Premises, Tenant shall vacate and surrender the Premises in accordance with Section 19.15 on or before January 1, 2005, before which date Tenant shall perform all of its obligations with respect to such space as provided in the Original Lease, as amended prior to the date hereof.

 

ARTICLE 2

 

LEASE TERM

 

2.1 Initial Term . The terms and provisions of this Lease shall be effective as of the date of this Lease. The term of this Lease (the “ Lease Term ”) shall be as set forth in Section 5.1 of the Summary, shall commence on the dates set forth in Section 5.2 of the Summary, and shall terminate on the date set forth in Section 5.3 of the Summary (the “ Lease Expiration Date ”) unless this Lease is sooner terminated or extended as hereinafter provided. For purposes of this Lease, the term “ Lease Year ” shall mean each consecutive twelve (12) month period during the Lease Term. Landlord may deliver to Tenant a factually correct notice in the form as set forth in Exhibit D, attached hereto, which Tenant shall execute and return to Landlord within ten (10) business days after receipt thereof

 

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WARNER CENTER TOWERS

[Health Net, Inc.]

 

2.2 Option Terms . Landlord hereby grants to the Tenant one (1) option to extend the Lease Term for a period of eight (8) years (“ Option Term ”), which option shall be exercisable only by written notice delivered by Tenant to Landlord as provided in Section 2.2.2 below, provided that, as of the date of delivery of such notice and, at Landlord’s option, as of the last day of the initial Lease Term, Tenant is not in default under this Lease after notice and expiration of applicable cure periods. The right contained in this Section 2.2 shall be personal to the Original Tenant and any Affiliated Assignee or any Permitted Assignee (as such term is defined in Section 11.2), and may only be exercised by the Original Tenant or any Affiliated Assignee or any Permitted Assignee (and not any other assignee, sublessee or other transferee of the Original Tenant’s interest in this Lease) provided that the assignee of the subject assignment assumes Tenant’s obligations to lease the entire Premises then being leased by Tenant. Exercise of the right under this Section 2.2 shall not be effective if, as of the date of the Option Notice, more than forty percent (40%) of the rentable area of the Premises is subject to a sublease other than to an Affiliated Assignee.

 

2.2.1 Option Rent . The Rent payable by Tenant during the Option Term (the “ Option Rent ”) shall be equal to ninety-five percent (95%) of the then prevailing fair market rent for the Premises as of the commencement date of the Option Term. The then prevailing fair market rent shall be the rental rate, including all escalations, at which new, willing, comparable, non-equity, non-renewal, non-expansion, creditworthy tenants, as of the commencement of the Option Term, are entering into leases for non-sublease, non-encumbered space comparable in size, location and quality to the Premises for a term of approximately the Option Term, which comparable space is located in comparable buildings (“ Comparable Transactions ”) in Warner Center. In any determination of Comparable Transactions, appropriate consideration should be given to annual rental rates per rentable square foot, the standard of measurement by which the rentable square footage is measured, the ratio of rentable square feet to useable square feet, the type of escalation clause (e.g., whether increases in additional rent are determined on a net or gross basis, and if gross, whether such increases are determined according to a base year or a base dollar amount expense stop), abatement provisions reflecting free rent, length of the lease term, size and location of premises being leased, building standard work letter and/or tenant improvement allowances, if any, taking into account the value of the existing improvements in the Premises as compared to the value of the then existing improvements for the Comparable Transactions, whether or not Landlord is obligated to pay a brokerage commission in connection with Tenant’s extension and other generally applicable conditions of tenancy for such Comparable Transactions. The intent is that Tenant will obtain the same rent and other economic benefits that Landlord would otherwise give in Comparable Transactions.

 

2.2.2 Exercise of Options . If Tenant wishes to exercise a renewal option hereunder, Tenant shall, on or before the date occurring fifteen (15) months prior to the expiration of the initial Lease Term for the Premises, exercise the option by delivering notice to Landlord of such exercise by Tenant (the “ Option Notice ”). Landlord and Tenant acknowledge that if Tenant delivers the Option Notice, the Lease Term shall be extended for the Option Term for all space then leased by Tenant in the Building and any First Offer Space then leased by Tenant and that the procedure for determination of the Option Rent as provided in this Section 2.2 below shall apply in order to determine the Option Rent for the entire Premises. Failure of Tenant to deliver the Option Notice to Landlord on or before such date shall be deemed to constitute Tenant’s failure to exercise its option to extend. If Tenant timely and properly exercises its option to extend, the initial Lease Term shall be extended for the Option Term upon all of the terms and conditions set forth in this Lease, except that the Rent shall be the Option Rent determined as follows. Tenant shall be entitled to request that Landlord notify Tenant of Landlord’s estimate of the Option Rent prior to Tenant’s delivery of the Option Notice. Within thirty (30) days after such request by Tenant (but not earlier than eighteen (18). months prior to the expiration of the initial Lease Term or first Option Term, as applicable), Landlord shall notify Tenant of Landlord’s estimate of the Option Rent for the applicable Option Term (the “ Information Estimate ”); provided that neither Tenant’s request for the Information Estimate nor Landlord’s notice thereof shall create any liability for or obligation of either party. Landlord shall determine the Option Rent for the Option Term by using its good faith judgment. Whether or not Landlord has previously delivered the Information Estimate, Landlord shall provide written notice (“ Option Rent Notice ”) of Landlord’s determination of the Option Rent within thirty (30) days after Tenant provides the Option Notice to Landlord; provided, however, that Landlord shall not be obligated to provide the Option Rent Notice prior to the date which is eighteen (18) months before the commencement of the Option Term. Tenant shall have twenty (20) business days (“ Tenant’s Review Period ”) after receipt of Landlord’s Option Rent Notice within which to accept such rental or to reasonably object thereto in writing. Tenant’s failure to object by written notice to Landlord within said twenty (20) business day period shall be deemed to constitute Tenant’s disapproval of the Option Rent specified by Landlord in the Option Rent Notice. In the event Tenant timely objects in writing or is deemed to have objected by failing to object in writing within said five (5) business day period, Landlord and Tenant shall attempt to agree upon such Option Rent using their diligent good faith efforts. If Landlord and Tenant fail to reach agreement within thirty (30) days following Tenant’s Review Period (“ Outside Agreement Date ”), then the Option Rent shall be determined by arbitration in accordance with Sections 2.2.3.1 through 2.2.3.7 below.

 

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2.2.3 Determination of Option Rent . If Landlord and Tenant fail to reach agreement on the Option Rent by the Outside Agreement Date, then each party shall make a separate determination of the Option Rent within five (5) business days after the Outside Agreement Date, concurrently exchange such determinations and such determinations shall be submitted to arbitration in accordance with Sections 2.2.3.1 through 2.2.3.7 below.

 

2.2.3.1 Landlord and Tenant shall each appoint one arbitrator who shall by profession be a real estate broker or appraiser who shall have been active over the ten (10) year period ending on the date of such appointment in the leasing (or appraisal, as the case may be) of commercial high-rise properties in the Woodland Hills, California area. The determination of the arbitrators shall be limited solely to the issue of whether Landlord’s or Tenant’s submitted Option Rent is the closest to the actual Option Rent, as determined by the arbitrators, taking into account the requirements of Section 2.2.1 of this Lease (i.e., the arbitrators may only select Landlord’s or Tenant’s determination and shall not be entitled to make a compromise determination). Each such arbitrator shall be appointed within fifteen (15) business days after the applicable Outside Agreement Date.

 

2.2.3.2 The two (2) arbitrators so appointed shall within five (5) days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two (2) arbitrators.

 

2.2.3.3 The three (3) arbitrators shall within five (5) days of the appointment of the third arbitrator reach a decision as to whether the parties shall use Landlord’s or Tenant’s submitted Option Rent and shall notify Landlord and Tenant thereof.

 

2.2.3.4 The decision of the majority of the three (3) arbitrators shall be binding upon Landlord and Tenant, provided that in the event (a) such decision requires that the Option Rent submitted by Landlord shall be used and (b) Landlord’s Option Rent would result in a net effective rent that exceeds by more than ten percent (10%) the net effective rent that Tenant last offered to be paid prior to the submission of Landlord’s and Tenant’s Option Rent to the arbitrators, then Tenant shall be permitted the one-time right to revoke its Option Notice which right may be exercised by Tenant only by (i) Tenant delivering written notice to Landlord within two (2) business days of Tenant’s receipt of the arbitrators decision and (ii) Tenant paying any and all costs of the arbitration to Landlord within thirty (30) days of receipt by Tenant of the arbitrator’s decision, and such requirement to pay such costs shall survive any termination of this Lease. In the event Tenant revokes its Option Notice, Tenant shall have no further right to extend the Term of this Lease.

 

2.2.3.5 If either Landlord or Tenant fails to appoint an arbitrator within fifteen (15) business days after the applicable Outside Agreement Date, the arbitrator appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such arbitrator’s decision shall be binding upon Landlord and Tenant.

 

2.2.3.6 If the two (2) arbitrators fail to agree upon and appoint a third arbitrator, or both parties fail to appoint an arbitrator, then the appointment of the third arbitrator or any arbitrator shall be dismissed and the Option Rent be decided shall be forthwith submitted to arbitration under the provisions of the American Arbitration Association, but subject to the instruction set forth in this Section 2.2.3.

 

2.2.3.7 Subject to Section 2.2.3.4 above, the cost of arbitration shall be paid by Landlord and Tenant equally.

 

ARTICLE 3

 

RENT

 

3.1 Base Rent . Tenant shall pay, without prior notice or demand, to Landlord or Landlord’s agent at the management office of the Project, or, at Landlord’s option, at such other

 

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place as Landlord may from time to time designate in writing (provided any such notice changing the place for payment is given to Tenant no later than fifteen (15) days prior to the next date that Base Rent is due), in a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent (“ Base Rent ”) as set forth in Section 6 of the Summary, payable in equal monthly installments as set forth in Section 6 of the Summary in advance on or before the first day of each and every month during the Lease Term, commencing with respect to each floor of the Premises on the Lease Commencement Date therefor as set forth in Section 5.2 of the Summary, without any setoff or deduction whatsoever (except as otherwise expressly set forth in this Lease). If any Rent payment date falls on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any fractional month shall be a proportionate amount of a full calendar month’s rental based on the proportion that the number of days in such fractional month bears to the number of days in the calendar month during which such fractional month occurs. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.

 

3.2 Additional Rent . In addition to paying the Base Rent specified in Section 3.1 of this Lease, Tenant shall pay “Tenant’s Share” of the annual “Building Direct Expenses,” as those terms are defined in Sections 3.3.10 and 3.3.2 of this Lease, respectively, to the extent such Building Direct Expenses are in excess of Building Direct Expenses for the “Base Year,” as that term is defined in Section 3.3.1 of this Lease. Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease, are hereinafter collectively referred to as the “ Additional Rent ”, and the Base Rent and the Additional Rent are herein collectively referred to as “ Rent .” All amounts due under this Article 3 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent. Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 3 and Landlord’s obligation to reimburse Tenant for overpayments, if any, of Additional Rent shall survive the expiration of the Lease Term subject, however, to the limitations set forth in Section 3.3.7.2 below.

 

3.3 Definitions of Key Terms Relating to Additional Rent . As used in this Article 3, the following terms shall have the meanings hereinafter set forth:

 

3.3.1 “ Base Year ” shall be as set forth in Section 7.1 of the Summary.

 

3.3.2 “ Building Direct Expenses ” shall mean “Building Operating Expenses” and “Building Tax Expenses”, as those terms are defined in Sections 3.3.3 and 3.3.4, below, respectively.

 

3.3.3 “ Building Operating Expenses ” shall mean the portion of “Operating Expenses,” as that term is defined in Section 3.3.7 below, allocated to the tenants of the Building pursuant to the terms of Section 3.4.1 below.

 

3.3.4 “ Building Tax Expenses ” shall mean that portion of “Tax Expenses”, as that term is defined in Section 3.3.9 below, allocated to the tenants of the Building pursuant to the terms of Section 3.4.1 below.

 

3.3.5 “ Expense Year ” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires, provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period, and, in the event of any such change, Tenant’s Share of Building Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change.

 

3.3.6 “ Direct Expenses ” shall mean “Operating Expenses” and “Tax Expenses”.

 

3.3.7 “ Operating Expenses ” shall mean all reasonable and actually incurred expenses, costs and amounts of every kind and nature which Landlord pays during

 

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any Expense Year because of or in connection with the ownership, management, maintenance, repair, or operation of the Project, or any portion thereof. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities, the cost of operating, maintaining, repairing, complying with conservation measures in connection with, and managing the utility systems, mechanical systems, sanitary and storm drainage systems, and elevator systems, and the cost of supplies and equipment and maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting the validity or applicability of any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with the implementation and operation of a transportation system management program or a municipal, private or public shuttle service or parking program; (iii) the cost of all insurance carried by Landlord in connection with the Project, or any portion thereof; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) the cost of parking area repair, restoration, and maintenance including, but not limited to, resurfacing, repainting, restriping, and cleaning; (vi) fees, charges and other costs, including consulting fees, legal fees and accounting fees, of all contractors and consultants engaged by Landlord or reasonably incurred by Landlord in connection with the management, operation, maintenance and repair of the Project, or any portion thereof including the fair market rental value of any office space utilized for such purpose (where the size of such office space is competitive with the size of management office space included in Operating Expenses in other comparable projects of comparable size in the Los Angeles, California area and in no event more than 2,000 rentable square feet (provided further that such fair market rental value shall not exceed the prevailing rents in the Building at that time)) and a commercially reasonable management/administrative fee not to exceed, in the aggregate, the greater of (x) three percent (3%) of the Building’s gross rents, or (y) the percentage of the Building’s gross rents charged as a management fee in the Base Year; (vii) payments under any equipment rental agreements; (viii) wages, salaries and other compensation and benefits of all persons engaged in the operation, maintenance or security of the Project, or any portion thereof, including employer’s Social Security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages, salaries, compensation and benefits; provided, that if any employees of Landlord provide services for more than one project of Landlord, then a prorated portion of such employees’ wages, benefits and taxes shall be included in Operating Expenses based on the portion of their working time devoted to the Project, or any portion thereof; provided further that no portion of any employee’s wages, benefits, or taxes allocable to time spent on the development, marketing, financing, re-financing, sale, or leasing of the Project shall be included in Operating Expenses; (ix) payments, fees or charges under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Project, or any portion thereof; (x) operation, repair and maintenance of all “Systems and Equipment,” as that term is defined in Section 3.3.8 of this Lease, and components thereof; (xi) the cost of janitorial services, alarm and security service, window cleaning, trash removal, replacement of wall and floor coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and other common or public areas or facilities, maintenance and replacement of curbs and walkways and repair to roofs; (xii) amortization (including interest on the unamortized cost at Landlord’s actual cost of funds) of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof; (xiii) the cost of capital improvements or other costs incurred in connection with the Project (A) which are intended to effect economies in the operation or maintenance of the Project, or any portion thereof, to the extent of the actual cost savings achieved by Landlord, or (B) that are required under any governmental law or regulation that was not enacted prior to the Commencement Date of this Lease was fully executed and delivered or that was not applicable to the Project on the Commencement Date of this Lease; provided, however, that any capital expenditure shall be amortized over its useful life as reasonably determined in accordance with applicable Internal Revenue Service regulations, and the unamortized cost of the same shall bear interest at Landlord’s actual cost of funds; and (xiv) costs, fees, charges or assessments imposed by any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute “Tax Expenses” as that term is defined in Section 3.3.9, below. If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant. If the Building is not one hundred percent (100%) occupied (calculated as if all tenants were paying full rent and irrespective of any free-rent, partial-rent or other abatement that might be in effect at that time, it being the intention of Landlord and Tenant that the management fee, gross receipts tax, and any other expense that varies with the amount of rent collected, shall

 

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be calculated in the Base Year as if the all tenants were paying full rent) during all or a portion of any Expense Year, Landlord shall make an appropriate adjustment to the variable components of Operating Expenses for such year employing sound accounting and management principles, to determine the amount of Operating Expenses that would have been paid had the Building been one hundred percent (100%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year. Landlord (x) shall not collect or be entitled to collect from Tenant an amount in excess of Tenant’s Share of one hundred percent (100%) of the Operating Expenses; and (y) shall reduce the amount of the Operating Expenses by any refund or discount received by Landlord. If, in any Expense Year following the Base Year (a “Subsequent Year”), a new expense item is included in Operating Expenses which was not included in the Base Year Operating Expenses, then the cost of such new item shall be added to the Base Year Operating Expenses for purposes of determining the Operating Expenses payable hereunder for such Subsequent Year. During each Subsequent Year, the same amount shall continue to be included in the computation of Operating Expenses for the Base Year, resulting in each such Subsequent Year Operating Expenses only including the increase in the cost of such new item over the Base Year, as so adjusted. However, if in any Subsequent Year thereafter, such new item is not included in Operating Expenses, no such addition shall be made to Base Year Operating Expenses.

 

Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, except as otherwise set forth in this Section 3.3, include:

 

(A) Any payments under a ground or master lease relating to the Building or the Project;

 

(B) Costs of items considered capital repairs, replacements, improvements and equipment under generally accepted accounting principles consistently applied or otherwise except for the capital improvements identified in clause (xiii), above, in Section 3.3.7;

 

(C) Costs of structural repairs exceeding $10,000, including, but not limited to roof replacement;

 

(D) Depreciation of the Building and other real property structures in the Project;

 

(E) Cost arising from correction of latent defects in the Tenant Improvements installed by Landlord or latent defects in the base, shell or core of the Building/Project or improvements installed by Landlord or the repair thereof;

 

(F) Marketing costs including, without limitation, attorneys’ fees in connection with the negotiation and preparation of letters, deal memos, letters of intent, leases, subleases and/or assignments, space planning costs, leasing commissions paid to agents of Landlord, other brokers or any other persons, and other commissions, costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transactions with present or prospective tenants of the Building or any other portion of the Project;

 

(G) Costs, including permit, license and inspection costs, incurred with respect to the installation of tenants’ or other occupants’ improvements in the Building (including Tenant’s) or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Building;

 

(H) Interest, principal, points, closing costs and fees on debt or amortization payments on any real property mortgages or deeds of trust and ground lease payments or any other debt instrument encumbering the Building or the Project, and other costs and charges in connection therewith such as, without limitation, environmental investigation or reports, legal fees and brokerage fees;

 

(I) Any costs associated with the purchase or rental of furniture, fixtures or equipment for marketing and leasing offices;

 

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(J) The cost of services, utilities or other benefits including, but not limited payroll, material and contract costs which are not offered to Tenant or for which Tenant is charged directly but which are provided to another tenant or occupant of the Building, including, but not limited to, after hours HVAC, above-building standard HVAC, janitorial services and exclusive use of Common areas;

 

(K) The cost of painting and decorating the Premises or premises of other tenants, including the costs for sculpture, paintings or other objects of art;

 

(L) Overhead and profit increment payable to Landlord, its subsidiaries or affiliates, or to any subsidiary or affiliate of Landlord, for goods and/or services in the Building, to the extent such overhead and profit increments exceed the costs of comparable first-class, high quality goods and/or services, delivered or rendered by unaffiliated third parties of comparable reputation, stature, experience and quality to Landlord, on a competitive basis;

 

(M) Legal, accounting, auditing and other related expenses associated with the enforcement of leases or the defense of Landlord’s title to the Land, the Building or other portions of the Project;

 

(N) Tax penalties interest charges and fines incurred in connection with the payment or non-payment of taxes;

 

(O) Advertising costs and promotional expenditures incurred directly for leasing individual space in the Building or other portions of the Building/Project and promotional gifts, events or parties for existing or future occupants, and the costs directly related to signs for other tenants, other than building standard identification and directional signage and building lobby directory signage and any costs related to the celebration or acknowledgement of holidays, other than reasonable costs for refreshments and food served to all tenants of the Building for such holiday celebrations or acknowledgements;

 

(P) Costs associated with the operation of the business of the partnership or entity which constitutes Landlord as the same are distinguished from the costs of operation of the Building, including partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord’s interest in the Building, costs of any disputes between Landlord and its employees (if any) not engaged in Building operation, disputes of Landlord with Building management, or outside fees paid in connection with disputes with other tenants;

 

(Q) Landlord’s general corporate overhead and general administrative expenses not related to the operation of the Building/Project, including costs relating to legal, accounting, payroll and computer services which are partially or totally rendered in locations outside of the Building;

 

(R) Any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord;

 

(S) All items and services for which Tenant or any other tenant in the Building reimburses Landlord and all items and services provided to any tenant with or without reimbursement, in excess of those which Landlord is required to provide under this Lease, provided that, any item or service supplied selectively to Tenant shall be paid for by Tenant; and costs which are covered by and reimbursable under any contractor, manufacturer or supplier warranty or service contract;

 

(T) Any expenditures for which the Landlord has been or is entitled to be reimbursed by third parties such as insurance companies or would have been compensated through proceeds of insurance had the Landlord maintained insurance required to be maintained by Landlord under the terms of this Lease;

 

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(U) Electric power or other utility costs for which any tenant directly contracts with the local public service company;

 

(V) Costs incurred by Landlord due to the violation by Landlord or any tenant of the terms and conditions of any lease of space in the Building;

 

(W) Reserves of any kind, including but not limited to replacement reserves, and reserves for bad debts or lost rent or any similar charge not involving the payment of money to third parties, or for other fixture improvements, repairs, additions and similar items;

 

(X) Costs incurred by Landlord in connection with rooftop communication equipment of Landlord or other persons, tenants or occupants of the Building if such communications equipment is not generally available to all tenants or occupants of the Building;

 

(Y) Costs incurred in connection with upgrading the Building to comply with disability, life, fire and safety codes, ordinances, statutes or other laws in effect with respect to the Building/Project prior to the date of the Commencement Date of this Lease;

 

(Z) Costs of any “tap fees” or any sewer or water connection fees for the benefit of any particular tenant in the Building;

 

(AA) Costs incurred in connection with the original construction of the Building or the Project or any addition to the Building/Project or in connection with any major renovation or major change in the Building or the Project, including but not limited to the addition or deletion of floors;

 

(BB) Costs arising from the presence of any Hazardous Materials (including costs of clean-up, remediation, monitoring, management and administration thereof and defense of claims related to the presence of such Hazardous Materials) in or about the Premises, Building/Project or Land;; provided, however, unless caused by the gross negligence or willful misconduct of Landlord, its agents or employees, Operating Expenses shall include costs incurred in connection with the clean-up, remediation, monitoring, management and administration of (and defense of claims related to) the presence of Hazardous Materials used by Landlord in connection with the operation, repair and maintenance of the Building/Project to perform Landlord’s obligations under this Lease (such as, without limitation, fuel oil for generators, cleaning solvents, and lubricants) and which are customarily found or used in first-class office buildings;

 

(CC) Any expenses incurred by Landlord for use of any portions of the Building to accommodate events including, but not limited to shows, promotions, kiosks, displays, filming, photography, private events or parties, ceremonies, and advertising beyond the normal expenses otherwise attributable to providing Building services, such as lighting and HVAC to such public portions of the Building in normal Building operations during standard Building hours of operation;

 

(DD) Any entertainment, dining or travel expenses of Landlord, its employees, agents, partners and affiliated for any purpose other than such travel costs directly related to carrying out the management services of Landlord and providing the services to Tenant required under this Lease;

 

(EE) Any flowers, gifts, balloons, etc. provided to any entity whatsoever, to include, but not limited to, Tenant, other tenants, employees, vendors, contractors, prospective tenants and agents;

 

(FF) Costs of any validated parking other than such costs directly incurred in connection with the management, operation, repair and maintenance of the Building/Project to perform Landlord’s obligations under this Lease; provided that any

 

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such costs of validated parking incurred in connection with any marketing, leasing or public relations for the Building/Project shall be excluded from Operating Expenses;

 

(GG) Salaries of officers, executives or other employees of Landlord, any affiliate of Landlord, or partners or affiliates of such partners or affiliates other than any personnel engaged exclusively in the management, operation, maintenance and repair of the Building (but not leasing and marketing), and working in the Building management office and not typically included in the management fee being paid and included in Operating Expenses; provided such individuals do not hold a position which is generally considered to be higher in rank than the position of the general manager of the Building or the chief engineer of the Building;

 

(HH) The cost of any “tenant relations” parties, events or promotion not consented to by an authorized representative of Tenant in writing;

 

(II) Costs arising from Landlord’s charitable or political contributions;

 

(JJ) All Operating Costs incurred in connection with any area of the Building or the Project devoted to retail use;

 

(KK) Costs for the acquisition (but maintenance charges may be passed through) of sculpture, paintings or other objects of art;

 

(LL) Costs incurred in connection with any governmental laws or regulations applicable to the Building/Project which were enacted prior to the Commencement Date of this Lease including, but not limited to life, fire, and safety codes, environmental and Hazardous Materials laws, and federal, state or local laws or regulations relating to disabled access, including, but not limited to, the Americans With Disabilities Act;

 

(MM) Costs, including in connection therewith, all attorney’s fees and costs of settlement judgments and payments in lieu thereof) arising from and claims, disputes or potential disputes in connection with potential or actual claims, litigation or arbitration pertaining to the Landlord and/or the Building;

 

(NN) Costs, fines, awards or penalties incurred by or assessed against Landlord as a result of Landlord’s negligence in operation of the Building/Project, violations of law, negligence or inability or unwillingness to make payments and/or to file any income tax, or other tax or informational returns when due; for failure to comply with Applicable Laws;

 

(OO) Any costs for which Landlord has been reimbursed or receives a credit, refund or discount, provided if Landlord receives the same in connection with any costs or expenditures previously included in Operating Expenses for a fiscal year, Landlord shall immediately credit against Base Rent any overpayment for such previous fiscal year; and

 

(PP) The cost of payroll for parking clerks and parking attendants, garage keepers liability insurance, parking tickets and parking attendants’ and clerks’ uniforms;

 

(QQ) Any other expense which, in accordance with generally accepted accounting principles, consistently applied, would not be treated as operating expenses by landlords in comparable buildings.

 

3.3.7.1 Landlord agrees that except for the management fee and management office rental described above, Landlord shall make no profit from Landlord’s collection of Operating Expenses. All assessments and premiums which are not specifically charged to Tenant because of what Tenant has done, which can be paid by Landlord in installments, shall be paid by Landlord in the maximum number of installments permitted by law

 

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and not included as Operating Expenses except in the year in which the assessment or premium installment is actually paid; provided, however, that if the prevailing practice in comparable buildings is to pay such assessments or premiums on an earlier basis, and Landlord pays on such basis, such assessments or premiums shall be included in Operating Expenses as paid by Landlord, and Landlord may, in such event, include any accrued interest (resulting from such assessments or premiums) in its computation of Operating Expenses. Each time Landlord provides Tenant with an actual and/or estimated statement of Operating Expenses, such statement shall be in a format containing at least the level of detail as such statements normally provided by Landlord as of the date hereof.

 

3.3.7.2 Landlord may not include in Operating Expenses or Tax Expenses attributable to a Lease Year any cost or tax which was incurred by Landlord and paid by Landlord more than two (2) years prior to the date Landlord seeks to include such item as Operating Expenses and/or Tax Expenses unless such circumstance results from governmental action or inaction (e.g., an error in the computation of Tax Expenses by the assessor).

 

3.3.8 “ Systems and Equipment ” shall mean any plant, machinery, transformers, duct work, conduit, pipe, bus duct, cable, wires, and other equipment, facilities, and systems designed to supply heat, ventilation, air conditioning and humidity or any other services or utilities, or comprising or serving as any component or portion of the electrical, gas, steam, plumbing, sprinkler, communications, alarm, security, or fire/life safety systems or equipment, or any other mechanical, electrical, electronic, computer or other systems or equipment which serve the Project in whole or in part.

 

3.3.9 “ Tax Expenses ” shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof. Real Property taxes shall be calculated as if the Project and parking facility were fully completed and fully assessed.

 

3.3.9.1 Tax Expenses shall include, without limitation:

 

(i) Any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof;

 

(ii) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election as Article XIII-A of the California Constitution (together with implementing legislation and as the same may be from time to time amended, “ Proposition 13 ”), and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the Project’s contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies. It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies, and charges and all similar

 

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assessments, taxes, fees, levies and charges be included within the definition of Tax Expenses for the purposes of this Lease;

 

(iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any gross income tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; and

 

(iv) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises.

 

3.3.9.1.1 Proposition 13. Notwithstanding any other provision of the Lease, if at any time commencing on the Commencement Date and expiring five (5) years thereafter (“ Full Protection Period ”), or if at any time commencing on the sixth (6th) anniversary of the Commencement Date and expiring two (2) years thereafter (“ Partial Protection Period ”), any sale of the Building is consummated and, solely as a result of such sale, all or part of the Building is reassessed (“Reassessment”) for real estate tax purposes by the appropriate government authority under the terms of Proposition 13, the terms of this Section 3.3.9.1.1 shall apply. In the event Proposition 13 is repealed or modified, the provisions of this Section 3.3.9.1.1 shall be applied as if no such repeal or modification was effective.

 

(i) For purposes of this Section 3.3.9.1.1, the term Tax Increase (“Tax Increase”) shall mean that portion of Operating Expenses, as calculated immediately following any such the Reassessment that is attributable solely to the Reassessment. Accordingly, a Tax Increase shall not include any portion of the Operating Expenses, as calculated immediately following the Reassessment, that is attributable to:

 

(A) the assessment immediately prior to the Reassessment of the value of the Building, the base Building, or the tenant improvements constructed by Tenant to its Premises (it being agreed that Operating Expenses do not include any taxes or assessments resulting from or allocable to tenant improvements made by other tenants to their respective premises); or

 

(B) assessments pending immediately before the Reassessment that were conducted during, and included in, that Reassessment or that were otherwise rendered unnecessary following the Reassessment; or

 

(C) attributable to the annual inflationary increase in real estate taxes; or

 

(D) any real property taxes and assessments incurred during the Base Year as determined under the Lease which are included in the calculation of Operating Expenses for the Base Year.

 

(ii) During the Full Protection Period, Tenant shall not be obligated to pay any portion of the Tax Increase relating to a Reassessment allocable to the Full Protection Period.

 

(iii) During the Partial Protection Period, (A) Tenant shall be obligated to pay thirty-three and one-third percent (33 1/3 ^rd %) of the Tax Increase relating to a Reassessment allocable to the first (1 ^st ) year of the Partial Protection Period; (B) Tenant shall be obligated to pay sixty-seven percent (67%) of the Tax Increase relating to a Reassessment allocable to the

 

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