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OFFICE LEASE AGREEMENT

Office Lease Agreement

OFFICE LEASE AGREEMENT | Document Parties: CAPITALSOURCE INC | CapitalSource Finance LLC | May Department Stores Company | WISCONSIN PLACE OFFICE LLC | Wisconsin Place Office Manager LLC You are currently viewing:
This Office Lease Agreement involves

CAPITALSOURCE INC | CapitalSource Finance LLC | May Department Stores Company | WISCONSIN PLACE OFFICE LLC | Wisconsin Place Office Manager LLC

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Title: OFFICE LEASE AGREEMENT
Governing Law: Maryland     Date: 3/2/2009
Industry: Misc. Financial Services     Sector: Financial

OFFICE LEASE AGREEMENT, Parties: capitalsource inc , capitalsource finance llc , may department stores company , wisconsin place office llc , wisconsin place office manager llc
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Exhibit 10.4

OFFICE LEASE AGREEMENT

BY AND BETWEEN

WISCONSIN PLACE OFFICE LLC

AND

CAPITALSOURCE FINANCE LLC

WISCONSIN PLACE
5404 WISCONSIN AVENUE
CHEVY CHASE, MARYLAND

 


 

TABLE OF CONTENTS

 

 

 

 

 

ARTICLE I THE PREMISES

 

 

2

 

ARTICLE II TERM

 

 

4

 

ARTICLE III BASE RENT

 

 

10

 

ARTICLE IV ADDITIONAL RENT

 

 

12

 

ARTICLE V SECURITY DEPOSIT

 

 

23

 

ARTICLE VI USE OF PREMISES

 

 

28

 

ARTICLE VII ASSIGNMENT AND SUBLETTING

 

 

30

 

ARTICLE VIII TENANT’S MAINTENANCE AND REPAIRS

 

 

35

 

ARTICLE IX TENANT ALTERATIONS

 

 

36

 

ARTICLE X SIGNS AND FURNISHINGS

 

 

39

 

ARTICLE XI TENANT’S EQUIPMENT

 

 

41

 

ARTICLE XII ENTRY AND INSPECTION BY LANDLORD

 

 

42

 

ARTICLE XIII INSURANCE

 

 

43

 

ARTICLE XIV SERVICES AND UTILITIES

 

 

44

 

ARTICLE XV LIABILITY OF LANDLORD

 

 

48

 

ARTICLE XVI RULES AND REGULATIONS

 

 

50

 

ARTICLE XVII DAMAGE OR DESTRUCTION

 

 

51

 

ARTICLE XVIII CONDEMNATION

 

 

53

 

ARTICLE XIX DEFAULT BY TENANT

 

 

54

 

ARTICLE XX BANKRUPTCY

 

 

58

 

ARTICLE XXI SUBORDINATION

 

 

59

 

ARTICLE XXII HOLDING OVER

 

 

61

 

ARTICLE XXIII COVENANTS OF LANDLORD

 

 

61

 

ARTICLE XXIV PARKING

 

 

62

 

ARTICLE XXV GENERAL PROVISIONS

 

 

63

 

ARTICLE XXVI COMMUNICATIONS AND ACCESS; BUILDING RISERS

 

 

70

 

ARTICLE. XXVII ROOF RIGHTS

 

 

72

 

ARTICLE XXVII [INTENTIONALLY DELETED]

 

 

 

 

ARTICLE, XXIX [INTENTIONALLY DELETED]

 

 

 

 

ARTICLE XXX TENANT’S EXPANSION SPACE — OPTION SPACE

 

 

75

 

ARTICLE XXXI TENANT’S RIGHT OF FIRST OFFER

 

 

78

 

ARTICLE XXXII STORAGE SPACE

 

 

82

 

ARTICLE XXXIII GENERATOR AND AIR CONDITIONER RIGHTS

 

 

82

 

ARTICLE XXXIV GOVERNMENTAL INCENTIVES

 

 

85

 

 


 

LEASE

     THIS OFFICE LEASE AGREEMENT (this “ Lease ”) is dated as of the 27th day of April, 2007 (the “Effective Date”) by and between Wisconsin Place Office LLC, a Delaware limited liability company (“Landlord”), and CapitalSource Finance LLC, a Delaware limited liability company (“ Tenant ”).

     A. WP Project Developer LLC, a Delaware limited liability company (the “ Fee Owner ”), is the owner of fee simple title in and to a certain parcel of land described as the Project Developer Parcel in that certain Construction, Operation and Reciprocal Easement Agreement dated August 2, 2004 (as the same may be amended from time to time, the “ REA ”) between WP Owner Trust, a Delaware statutory trust (“Owner Trust”) , the predecessor-in-interest to Fee Owner, and The May Department Stores Company, a New York corporation.

     B. Pursuant to the REA, the Project Developer Parcel is being developed as a mixed use development consisting of certain improvements (including a below-grade parking structure) and a Retail Component, a Residential Component and an Office Component, all as more particularly defined and described in the REA (collectively the “ Project ”).

     C. Pursuant to that certain Development Ground Lease dated August 2, 2004 between Owner Trust and Landlord (as the same may be amended from time to time, the “Ground Lease ”), Fee Owner leases certain real property described on Exhibit A attached hereto (the “Land”) to Landlord, and Landlord intends to construct an office building (the “ Building ”) on the Land. The Building (which will include office and retail space) is the “Office Component”, as defined in the REA.

     D. The Building, known as Wisconsin Place and located at 5404 Wisconsin Avenue, Chevy Chase, Maryland, will contain a total of Three Hundred Fifty Thousand Four Hundred Thirteen (350,413) gross square feet, of which approximately Three Hundred Five Thousand (305,000) gross square feet will be office space (the “Office Portion”) and Forty-Five Thousand Four Hundred Thirteen (45,413) gross square feet will be retail space, which is defined as “Retail C” and “Retail D” under the REA (the “ Retail Portion ”).

     E. Tenant desires to lease space in the Building from Landlord, and Landlord is willing to lease space in the Building to Tenant, upon the terms, conditions, covenants and agreements set forth herein.

     NOW, THEREFORE, the parties hereto, intending legally to be bound, hereby covenant and agree as set forth below:

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ARTICLE I
THE PREMISES

     1.1 Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, for the term and upon the terms, conditions, covenants and agreements herein provided, a total of One Hundred Sixty Thousand Six Hundred Thirty-Four (160,634) square feet of rentable area, comprising Fifty-Six Thousand Four Hundred Seventy-Eight (56,478) square feet of rentable area on the second (2nd) floor, and Twenty-Six Thousand Thirty-Nine (26,039) square feet of rentable area on each of the eighth (8 th ), ninth (9 th ), tenth (10’ th ) and eleventh (11 th ) floors of the Building (“ Premises ”). The location and configuration of the Premises are outlined on Exhibits A-l (second floor) and A-2 (floors 8-11) attached hereto and made a part hereof.

     1.2 (a) The lease of the Premises includes the non-exclusive right to use (a) certain specified common and public areas within the Building as more particularly shown on Exhibit A-3 attached hereto and made a part hereof (the “Office Common Areas” ) that are designated for common use by tenants and occupants of the Office Portion of the Building, provided, however, Tenant shall not have the right to use certain designated areas as shown on Exhibit A-3 ; (b) certain specified common and public areas within the Building as more particularly shown on Exhibit A-4 (the “Building Common Areas” ) that are designated for common use by tenants and occupants of both the Office Portion and the Retail Portion of the Building; and (c) all of the Common Areas and Common Area Improvements (as such terms are defined in the Ground Lease) with respect to the Project (collectively, the “project Common Areas” ) to the extent that Landlord has the right to use, and to permit others to use, such Project Common Areas pursuant to the Ground Lease (and subject to the same restrictions and conditions set forth in the Ground Lease applicable to Landlord’s use of such Project Common Areas), but includes no other rights not specifically set forth herein. Tenant shall not have any right to use any of the common and public areas within the Building that are not specifically designated as Office Common Areas or Building Common Areas. The lease of the Premises also is subject to any covenants, conditions and restrictions (i) set forth in the Ground Lease, and (ii) of record (including, without limitation, the REA). In the event of any conflict between the terms of this Lease and the REA, such conflict shall be resolved in favor of the REA. Tenant has reviewed the REA and the Ground Lease as existing on the date hereof. Landlord hereby represents that none of the provisions of the REA or the Ground Lease will now or in the future (notwithstanding the occurrence or non-occurrence of any events and/or the passage of time) materially impair Tenant’s rights under this Lease or Tenant’s ability to utilize the Premises, the Terrace, the garage, and the interior of the Building for the purposes described in this Lease; provided, however, that the Ground Lease and the REA have existing provisions that may affect the use of the common areas of the Project, the use of the garage, exterior signage on the Building, or other matters that affect the Project and the exterior of the Building. Landlord hereby covenants that Landlord will not, without Tenant’s consent, agree to any amendments or revisions to the Ground Lease or the REA that would impair Tenant’s ability to utilize the Premises, or adversely affect Tenant’s ability to use the Building, the Terrace, or the garage for the purposes described in this Lease for the Term, restrict Tenant’s ability to design and construct is signage as contemplated hereunder, or modify or conflict with any of the provisions contained in this Lease. Landlord has obtained all necessary approvals under the REA and the Ground Lease for Tenant’s signage, provided that it is consistent with the requirements indicated in Exhibit G .

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           (b) In the event Tenant elects, at its option, to construct an outdoor terrace on the roof of the portion of the Building known as “Retail C” adjacent to the Premises (the “ Terrace ”), then Tenant shall have the exclusive right to use the Terrace. In such event construction shall be at Tenant’s sole cost and expense (subject to the application of the’ Allowance in accordance with Exhibit B ) , and shall be completed as part of the Leasehold Work in accordance with approved Leasehold Plans and the other provisions of Exhibit Q and/or shall be completed thereafter as an Alteration. During the Lease Term, Landlord shall not lease, license or utilize the Terrace or place or permit the placement of any signage on any portion of the Building façade immediately overlooking the Terrace. The Terrace shall be deemed to be part of the Premises for all purposes of this Lease, except that (x) the Terrace shall not be included as part of the rentable area of the Premises for purposes of determining the Base Rent or Tenant’s Proportionate Share of Operating Charges or Real Estate Taxes, (y) Landlord shall not be obligated to perform any alterations or improvements, or to provide any allowance, to or for the Terrace other than the roof pavers, drains, railings and light fixtures that are identified in the plans for the Base Building Work, and (z) Landlord shall not be obligated to furnish any services to the Terrace, other than electricity and water suitable for use of the Terrace the cost of which shall be borne by Tenant. In addition, the pavers, drains, railings and light fixtures associated with the Terrace shall be included as part of the Base Building Modifications in the Work Letter. Tenant’s use of the Terrace shall be subject to reasonable rules and regulations established from time to time by Landlord for the protection (which term shall include protection from physical harm as well as protection from unreasonable noise, odors, debris and unsightliness that are not consistent with a Class A mixed-use development) of the Building the Project and the other tenants therein. Tenant shall not place any furniture or other items on the Terrace without the prior approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant shall not be permitted to install any fixtures or permanently affix any items on or to the Terrace without the prior approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, it being understood and agreed that Tenant may install any such items that are shown on Tenant’s Leasehold Plans which have been approved by Landlord in accordance with Exhibit B . Tenant shall be responsible for cleaning and maintaining all elements of the Terrace and shall be responsible for taking all diligent efforts to prevent trash or debris from falling or escaping from the Terrace. In the event Tenant uses or permits the use of all or any portion of the Terrace in violation of any condition or provision of this Section or any other condition or provision of this Lease or in any manner that causes damage to the Building or interferes with any other tenant’s business operations, Landlord shall give notice of such violation(s) to Tenant. In the event Landlord gives notice of such violations and Tenant does not take appropriate action to cure such violation(s) (including without Limitation, diligently attempting to enforce such standards with respect to Tenant’s employees and Invitees) within ten (10) days after any such notice, then Landlord may send Tenant a follow-up notice with bold type indicating that failure of Tenant to take appropriate action to cure the violation(s) may result in the forfeiture of Tenant’s right to use the Terrace, and if Tenant fails to take appropriate action to cure the violation(s) within ten (10) days after such follow-up notice, then Landlord shall have the right in addition to all other rights and remedies available to Landlord under this Lease, to revoke Tenant’s right to use the Terrace. Furthermore, if Landlord has given notice of Tenant’s violation of the provisions of this Section more than three (3) times within any twelve (12) month period (even if such violations are cured within the

3


 

foregoing ten (10) day period), then Landlord shall have the right in addition to all other rights and remedies available to Landlord under this Lease, to revoke Tenant’s right to use the Terrace. In addition, in the event Tenant fails to clean and maintain the Terrace, and such failure continues for ten (10) days after Landlord gives notice of such failure to Tenant then Landlord shall have the right to provide such cleaning and/or maintenance services and Tenant shall reimburse Landlord for the cost thereof within ten (10) days of demand therefor.

     1.3 The rentable area in the Premises and the Building have been calculated in accordance with the American National Standards Institute, Inc./Building Owners and Managers Association standard method of measuring floor area, ANSI/BOMA Z65.1-1996 (“ BOMA ”), pursuant to the BOMA measurement table attached hereto as Schedule 1.3 . The rentable area of the Premises has been conclusively determined between Landlord and Tenant, and shall not be subject to further modification or remeasurement (except in the case of an occurrence, such as casualty, condemnation, expansion or contraction, that results in a change in the amount of space constituting the Premises).

ARTICLE II
TERM

     2.1 All of the provisions of this Lease shall be in full force and effect from and after the Effective Date. The term of this Lease (“Lease Term” ) shall be for one hundred eighty (180) full calendar months, commencing on the Lease Commencement Date, as determined pursuant to Section 2.2 hereof, and continuing for a period of one hundred eighty (180) full calendar months thereafter, unless such Lease Term shall be terminated earlier in accordance with the provisions hereof or shall be extended in accordance with the provisions of Rider No. 1 to this Lease. Notwithstanding the foregoing, if the Lease Commencement Date shall occur on a day other than the first day of a month, the Lease Term shall commence on such date and continue for the balance of such month and for a period of one hundred eighty (180) full calendar months thereafter. The term “Lease Term” shall include any and all renewals and extensions of the term of the Lease.

      2.2 (a) Subject to Tenant Delay (as defined in Exhibit B ), the Lease Commencement Date shall be the earlier to occur of (i) the date on which Landlord substantially completes the Phase I Leasehold work (as defined in Exhibit B ) in accordance with the provisions of Exhibit E , but in no event earlier than the Anticipated Substantial Completion Date (defined in Section 2.3(a) ), or (ii) the date on which Tenant commences beneficial use of Phase I (as defined in) of the Premises. Tenant shall be deemed to have commenced beneficial use of Phase I of the Premises when Tenant begins the conduct of its customary business in Phase I of the Premises. Tenant and its contractors shall be allowed access to any floor of the Premises as well as the Office Common Areas and the Building Common Areas thirty (30) days prior to the anticipated date of substantial completion of the Phase I Leasehold Work in the Premises (or earlier, if appropriate and reasonably approved by Landlord) for the purpose of installing Tenant’s computers, telephones or other special equipment and fixtures, and to perform other related activity (including, without limitation, installation and testing of Tenant’s network operations center, data/telecom systems, and backup power facilities), and such installation and related activity shall not be considered the commencement of beneficial use of any portion of the Premises by Tenant. Notwithstanding the foregoing, (i) in the event such

4


 

access by Tenant’s contractors prior to substantial completion of the Phase I Leasehold ‘Work would cause any delay in the completion of the Phase I Leasehold Work, then the completion of the Phase I Leasehold Work shall take priority; and (ii) if Landlord is delayed in completing the Phase I Leasehold Work as a result of any Tenant Delay, then for purposes of determining the Lease Commencement Date, the Phase I Leasehold Work shall be deemed to have been substantially completed on the date that the Phase I Leasehold Work would have been substantially completed if such Tenant Delay had not occurred. In the event that delivery of possession of the Premises to Tenant with the Base Building Work and Phase I Leasehold Work substantially complete is delayed, regardless of the reasons or causes of such delay, except as otherwise provided in Section 2.3 below, this Lease shall not be rendered void or voidable as a result of such delay, and the term of this Lease shall commence on the Lease Commencement Date as determined pursuant to this Section 2.2 (a. Furthermore, Landlord shall not have any liability whatsoever to Tenant on account of any such delay, except as otherwise set forth herein. Any Phase of the Leasehold Work shall be deemed to be substantially complete when (x) the Phase I Leasehold Work or Phase II Leasehold Work, as applicable, has been completed in conformity in all material aspects with the Phase I Leasehold Plans or Phase II Leasehold Plans (as such terms are defined in Exhibit B ), as applicable, as certified by Tenant’s architect in its professional judgment, except for long-lead specialty items and punchlist items (as defined in Section 9 of Exhibit B ), and (y) Tenant may lawfully occupy the applicable portion of the Premises.

     (b) All terms and conditions of this Lease, including, without limitation, the insurance, release and waiver of liability provisions of Articles XIII and XV hereof, shall apply to and be effective during any period of occupancy or access to the Premises by Tenant prior to the Lease Commencement Date, except for Tenant’s obligation to pay any Base Rent or Additional Rent attributable to Operating Expenses or Real Estate Taxes.

     (c) All work required to prepare the Premises for Tenant’s occupancy shall be performed in accordance with the terms of Exhibit B hereof.

     2.3 (a)(i) On or before the earlier to occur of (i) Commencement of Construction (as defined below), or (ii) January 31, 2008 (the “Completion Notice Date” ), Landlord shall give notice (the “Completion Notice’) to Tenant of the date that Landlord anticipates that the Phase I Leasehold Work will be substantially completed (the “Anticipated Substantial Completion Date” ), which Anticipated Substantial Completion Date shall be no earlier than fourteen (14) months and no later than eighteen (18) months after the date Landlord gives Tenant the Completion Notice. If Landlord fails to give such notice within such time period, then the Anticipated Substantial Completion Date shall be the date that is eighteen (18) months after the Completion Notice Date. In the event the Anticipated Substantial Completion Date is earlier than sixteen (16) months after the Completion Notice Date, then for any period between the Lease Commencement Date and the date that is sixteen (16) months after the Completion Notice Date, one-half (1/2) of the Base Rent (but not any additional rent) otherwise due hereunder shall be abated.

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     (ii) Landlord anticipates that Commencement of Construction (as hereinafter defined) of the Building shall occur between October l, 2007 and January 31, 2008. Prior to Commencement of Construction, and upon written request of Tenant, Landlord shall give Tenant updates on when Landlord anticipates Commencement of Construction to occur. As used herein, the term “Construction Commencement Deadline” shall mean May 31, 2008; however, (i) in the event Commencement of Construction is delayed as a result of Force Majeure Delay, then the Construction Commencement Deadline shall be extended by one day for each such day of Force Majeure Delay, but in no event by more than sixty (60) days, and (ii) in the event Commencement of Construction is delayed as a result of Tenant Delay, then the Construction Commencement Deadline shall be extended by one day for each such day of Tenant Delay. In the event Commencement of Construction has not occurred on or before the Construction Commencement Deadline (as defined in, and as the same may be extended pursuant to the provisions of, this Section 2.3(b) ), and an Event of Default has not occurred under this Lease, Tenant shall have the right to terminate this Lease by delivering written notice of the exercise of such right to Landlord. Such right of termination may be exercised by Tenant only during the period commencing on the Construction Commencement Deadline and continuing through ten (10) business days after the Construction Commencement Deadline, and if such right is not exercised by Tenant, such right shall thereafter lapse and be of no further force or effect. If this Lease is terminated pursuant to this Section 2.3(a) , then neither party shall have any further obligations or liability hereunder to the other party, except that Landlord shall be obligated to disburse to Tenant all portions of the Phase I Allowance that have been expended or irrevocably committed prior to the date of such termination.

     (b) In the event the Commencement of Construction has not occurred on or before July 31, 2008 as a result of Force Majeure Delay and/or Tenant Delay and Landlord reasonably determines that Commencement of Construction cannot occur within one hundred twenty (120) days thereafter, Landlord shall have the right to terminate this Lease by delivering written notice of the exercise of such right to Tenant. If this Lease is terminated pursuant to this Section 2.3(b) , then neither party shall have any further obligations or liability hereunder to the other party, except that Landlord shall be obligated to disburse to Tenant all portions of the Allowance that have been expended or irrevocably committed prior to the date of such termination.

     (c) “ Commencement of Construction” shall mean commencement of work on the structural concrete for the Building on top of the pad that constitutes the top of the parking structure by a contractor under contract to Landlord to perform such work.

     (d) Landlord anticipates that the Building will be rendered water-tight by the three hundredth (300 th ) day after Commencement of Construction (the “Anticipated Watertight Date” ). As used herein, the term “Watertight Deadline” shall mean the date that is one hundred twenty (120) days after the Anticipated Watertight Date; however (i) in the event the Building being rendered water-tight is delayed as a result of Force Majeure Delay, then the Watertight Deadline shall be extended by one day for each such day of Force Majeure Delay, but in no event by more than sixty (60) days, and (ii) in the event the Building being rendered water-tight is delayed as a result of Tenant Delay, then the Watertight Deadline shall be extended by one day for each such day of Tenant Delay. In the event the Building has not been rendered water-tight

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on or before the Watertight Deadline (as defined in, and as the same may be extended pursuant to the provisions of this Section 2.3(d) ), and an Event of Default has not occurred under this Lease, Tenant shall have the right to terminate this Lease by delivering written notice of the exercise of such right to Landlord. Such right of termination may be exercised by Tenant only during the period commencing on the Watertight Deadline and continuing through ten (10) business days after the Watertight Deadline, and if such right is not exercised by Tenant on or before ten (10) business days after the Watertight Deadline, such right shall thereafter lapse and be of no further force or effect. If this Lease is terminated pursuant to this Section, then neither party shall have any further obligations or liability hereunder to the other party, except that Landlord shall be obligated to disburse to Tenant all portions of the Phase I Allowance that have been expended or irrevocably committed prior to the date of such termination.

     (e) In the event the Building is not rendered water-tight within one hundred eighty (180) days following the Anticipated Watertight Date as a result of Force Majeure Delay and/or Tenant Delay, and Landlord reasonably determines that the Building cannot be rendered watertight within one hundred twenty (120) days thereafter, Landlord shall have the right to terminate this Lease by delivering written notice of the exercise of such right to Tenant. If this Lease is terminated pursuant to this Section 2.3(e) , then neither party shall have any further obligations or liability hereunder to the other party, except that Landlord shall be obligated to disburse to Tenant all portions of the Phase I Allowance that have been expended or irrevocably committed prior to the date of such termination.

     (f) As used herein, the term “Substantial Completion Deadline” shall mean the date that is one hundred twenty (120) days after the Anticipated Substantial Completion Date; however, (i) in the event Landlord’s substantial completion of the Phase I Leasehold Work is delayed as a result of Force Majeure Delay, then the Substantial Completion Deadline shall be extended by one day for each such day of Force Majeure Delay, but in no event by more than sixty (60) days, and (ii) in the event Landlord’s substantial completion of the Phase I Leasehold Work is delayed as a result of Tenant Delay, then the Substantial Completion Deadline shall be extended by one day for each such day of Tenant Delay. In the event Landlord fails to substantially complete the Phase I Leasehold Work on or before the Substantial Completion Deadline (as defined in, and as the same may be extended pursuant to the provisions of this Section 2.3(f) , then Tenant shall have the option to terminate this Lease. In the event Tenant elects to terminate this Lease pursuant to this Section 2.3(f) , such right of termination may be exercised by Tenant only during the period commencing on the Substantial Completion Deadline and continuing through ten (10) business days after the Substantial Completion Deadline, and if such right is not exercised by Tenant on or before ten (10) days after the Substantial Completion Deadline, such right shall thereafter lapse and be of no further force or effect. If this Lease is terminated pursuant to this Section 2.3, then neither parry shall have any further obligations or liability hereunder to the other party, except that Landlord shall be obligated to disburse to Tenant all portions of the Allowance that have been expended or irrevocably committed prior to the date of such termination and except for any obligations that accrued prior to the effective date of such termination and any other obligations that expressly survive termination hereunder.

     (g) In the event the Phase I Leasehold Work is not substantially completed within one hundred eighty (180) days following the Anticipated Substantial Completion Date as a result of Force Majeure Delay and/or Tenant Delay, and Landlord reasonably determines that the Phase I

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Leasehold Work cannot be substantially completed within one hundred twenty (120) days thereafter, Landlord shall have the right to terminate this Lease by delivering written notice of the exercise of such right to Tenant. If this Lease is terminated pursuant to this Section 2.3(g), then neither party shall have any further obligations or liability hereunder to the other party, except that Landlord shall be obligated to disburse to Tenant all portions of the Allowance that have been expended or irrevocably committed prior to the date of such termination.

     (h) In the event (i) Tenant does not terminate this Lease pursuant to Section 2.3(f) above, and (ii) Landlord does not terminate this Lease pursuant to Section 2.3(g) above as a result of a Tenant Delay, then Landlord agrees to reimburse Tenant for all loss, cost, damage or liability incurred by Tenant during the Applicable Accrual Period (defined below) as a result of the delay in substantially completing the Phase I Leasehold Work. The damages recoverable by Tenant shall include (without limitation) any damages or losses suffered by Tenant due to Tenant’s inability to timely vacate the premises currently occupied by Tenant at 4445 Willard Avenue, Chevy Chase, Maryland, which damages or losses may relate (without limitation) to Tenant’s inability to deliver possession of such space to an intended assignee or subtenant(s) or Tenant’s inability to surrender possession of such space to the landlord thereof if Tenant has agreed to or is otherwise obligated to surrender possession of such space to such landlord. Notwithstanding the foregoing, and subject to Section 4(f) of Exhibit B, the damages recoverable by Tenant pursuant to this Section 2.3(h) shall be subject to the Damages Cap (hereinafter defined). The “Damages Cap” shall mean (i) an overall cap of One Million Nine Hundred Thousand Dollars ($1,900,000.00) for all damages of any kind in the aggregate; and (ii) a cap on the amount of damages that can be incurred by Tenant and recovered from Landlord in any one month of Four Hundred Thousand Dollars ($400,000.00). The “Applicable Accrual Period” shall commence on the Anticipated Substantial Completion Date, unless substantial completion is delayed beyond such date as a result of (i) Force Majeure Delays, in which event the commencement of the Applicable Accrual Period shall be extended by one day for each such day of Force Majeure Delay, but in no event by more than sixty (60) days; and/or Tenant Delays, in which event the commencement of the Applicable Accrual Period shall be extended by one day for each such day of Tenant Delay. The Applicable Accrual Period shall expire on the earlier to occur of (x) the termination of this Lease pursuant to a provision other than Section 2.3(f) or (g)), or (y) the Lease Commencement Date.

     (i) If the Phase I Leasehold Work is not substantially completed within one year after the Substantial Completion Deadline for any reason, then either party shall have the right to terminate this Lease by notice delivered to the other party given prior to the date the Premises are delivered to Tenant with the Phase I Leasehold Work substantially complete; provided, however, that Landlord may terminate this Lease pursuant to this Section 2.3(i) only if Landlord is terminating all leases that Landlord has entered into with tenants or prospective tenants of the Building. If this Lease is terminated pursuant to this Section, then neither party shall have any further obligations or liability hereunder to the other party, except that (i) Landlord shall be obligated to disburse to Tenant all portions of the Allowance that have been expended or irrevocably committed prior to the date of such termination and (ii) all liabilities accruing prior to the date of such termination, including Landlord’s liabilities pursuant to Section 2.3(h) above, shall survive such termination.

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     2.4 Declaration and Determination of Lease Commencement Date . Promptly after the Lease Commencement Date is ascertained, Landlord and Tenant shall execute and deliver a written declaration (the “Declaration”) setting forth, among other items, the Lease Commencement Date, the date upon which the initial term of this Lease will expire, and the other information set forth therein. The form of the Declaration is attached hereto as Exhibit D , and is made a part hereof. Any failure of the parties to execute such Declaration shall not affect the validity of the Lease Commencement Date as determined in accordance with this Section. If Tenant disagrees with the Lease Commencement Date and/or any other information set forth in the reasonably proposed Declaration delivered by Landlord to Tenant, Tenant shall have thirty (30) days from the receipt thereof to provide Landlord with notice of Tenant’s objection to such Lease Commencement Date and/or other information, and Tenant shall have thirty (30) days from the receipt of such Declaration delivered by Landlord to Tenant to provide Landlord with Tenant’s reasonable determination of what the Lease Commencement Date and/or any other information should be and any reasons therefore; however, in the event of any such dispute Tenant shall pay Base Rent based on Landlord’s determination until such dispute is resolved in accordance with this Section 2.4 (subject to Tenant’s right to receive a refund of any overpayment within thirty (30) days following resolution of such dispute). If Tenant does not notes Landlord in writing within such thirty (30) day period of any objection to the Lease Commencement Date and/or any other information set forth in the proposed Declaration and/or or fails to provide Tenant’s determination and reasons therefor within such thirty (30) day period, then Tenant shall be deemed to have waived such objection and the Lease Commencement Date and other information set forth in Landlord’s proposed Declaration shall be final and conclusive. The parties shall have ten (10) business days after Landlord receives Tenant’s reasonable determination of what the Lease Commencement Date and./or other information should be in which to agree on what such date and or other information should be. The parties shall be obligated to conduct such negotiations in good faith. If during such ten (10) business day period, the parties are unable to agree on what the Lease Commencement Date and/or other information should be, then either party may provide the other (the “Notice Recipient”) with written notice (the “LCD Dispute Notice”) thereof. To the extent the dispute rests on a determination of when the Phase I Leasehold Work was actually substantially completed (but not with respect to any other determinations such as the occurrence of a Tenant Delay or Landlord Delay), then such date shall be determined in accordance with the following procedure: Within three (3) business days following the Notice Recipient’s receipt of the LCD Dispute Notice, the parties shall appoint an independent, unaffiliated architect who shall be mutually agreeable to both Landlord and Tenant shall have at least ten (10) years relevant experience, and shall be knowledgeable in office construction in the Market Area (as hereinafter defined). If the parties are unable to agree on an architect within such three (3) business day period, then each party, within five (5) business days following the Notice Recipient’s receipt of the LCD Dispute Notice, shall appoint an independent, unaffiliated architect (with the same qualifications) and such two (2) architects shall attempt to agree on the date of substantial completion of the Phase I Leasehold Work. if within five (5) business days after their appointment such two architects are unable to agree, then the two (2) architects shall together appoint a third independent, unaffiliated architect with the same qualifications within three (3) business days after expiration of such five (5) business day period. The third (3rd) architect so appointed then shall determine, within three (3) business days after the appointment of such architect, the date of substantial completion of the Phase I Leasehold Work and the

9


 

determination of such third architect shall be final and conclusive. Landlord and Tenant shall each bear the cost of its architect and shall share equally the cost of the third architect.

     2.5 For purposes of this Lease, the term “Lease Year” shall mean a period of twelve (12) consecutive calendar months, commencing on the Lease Commencement Date and each successive twelve (12) month period, except that if the Lease Commencement Date shall occur on a date other than the first day of a month, then the first Lease Year shall also include the period from the Lease Commencement Date to the first day of the following month.

ARTICLE III
BASE RENT

     3.1 During the Lease Term, Tenant shall pay to Landlord as base rent (used interchangeably as “Base Rent” or “base rent” ) for the Premises, without set off, deduction or demand (except as otherwise expressly provided in Section 3.6 of this Lease), an amount per annum equal to the product of Thirty-Four and 50/100ths Dollars ($34.50) multiplied by the total number of square feet of rentable area in the Premises as set forth in Section 1.1 . (as the same may be modified in accordance with Section 1.3 ), which amount shall be increased as provided in Section 3.2 below and may be abated as provided in Section 2.3(a), if applicable. In addition, Tenant shall pay to Landlord along with each monthly installment of Base Rent an amount equal to the Additional Allowance Rent Payments (if applicable) as defined in Section 3.5 below and the Storage Space Rent as defined in Article XXXII below. The annual Base Rent, the Additional Allowance Rent Payments and the Storage Space Rent payable hereunder during each Lease Year shall be divided into equal monthly installments and such monthly installments shall be due and payable in advance on the first day of each month during such Lease Year. If the Lease Term begins on a date other than on the first day of a month, rent from such date until the first day of the following month shall be prorated on a per diem basis at the Base Rent rate payable during the first Lease Year, and such prorated rent shall be payable in advance on the Lease Commencement Date.

     3.2 Commencing on the first (1st) day of the second (2nd) Lease Year and on the first day of each and every Lease Year thereafter during the Lease Term, the annual Base Rent shall be increased by two and one-half percent (2.5%) of the amount of annual Base Rent payable for the preceding Lease Year. The annual Base Rent for the initial Lease term shall be as follows:

 

 

 

 

 

 

 

Annual Base

 

 

Rent Per

 

 

Rentable

Lease Year

 

Square Foot

 

 

 

 

 

1

 

$

34.50

 

2

 

$

35.36

 

3

 

$

36.24

 

4

 

$

37.15

 

5

 

$

38.08

 

6

 

$

39.03

 

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Annual Base

 

 

Rent Per

 

 

Rentable

Lease Year

 

Square Foot

 

7

 

$

40.01

 

8

 

$

41.04

 

9

 

$

42.04

 

10

 

$

43.09

 

11

 

$

44.17

 

12

 

$

45.27

 

13

 

$

46.40

 

14

 

$

47.56

 

15

 

$

48.75

 

     3.3 All rent shall be paid to Landlord in legal tender of the United States by wire transfer of immediately available funds pursuant to the wire instructions set forth on Schedule 3.3 attached hereto, or pursuant to such other instructions as Landlord may provide to Tenant from time to time in writing. If Landlord shall at any time accept rent after it shall become due and payable, such acceptance shall not excuse a delay upon subsequent occasions, or constitute or be construed as a waiver of any of Landlord’s rights hereunder.

     3.4 Landlord and Tenant agree that no rental or other payment for the use or occupancy of the Premises is or shall be based in whole or in part on the net income or profits derived by any person or entity from the Building or the Premises. Tenant further agrees that it will not enter into any sublease, license, concession or other agreement for any use or occupancy of the Premises which provides for a rental or other payment for such use or occupancy based in whole or in part on the net income or profits derived by any person or entity from the Premises so leased, used or occupied. Nothing in the foregoing sentence, however, shall be construed as permitting or constituting Landlord’s approval of any sublease, license, concession, or other use or occupancy agreement not otherwise approved by Landlord or otherwise permitted in accordance with the provisions of Article VII.

     3.5 If Tenant elects to use all or any portion of the Additional Allowance (as defined in Exhibit B attached hereto), then Tenant shall pay to Landlord as Additional Rent the total amount of (i) the Additional Allowance so accepted by Tenant in accordance with Exhibit B , and (ii) interest thereon at a fixed annual rate equal to eleven percent (11%) per annum (such amount, the “Additional Allowance Rent Payments”). Sub Additional Allowance Rent Payments shall be paid by Tenant in equal monthly installments over a fifteen (15) year period commencing on the Lease Commencement Date, and continuing for fifteen (15) years thereafter. Tenant shall pay to Landlord such monthly installments of Additional Allowance Rent Payments at the same time and in the same manner as Base Rent for the Premises is payable hereunder; provided, however, that the Additional Allowance Rent Payments shall not be subject to the annual escalations that apply to Base Rent pursuant to Section 3.2 of this Lease. The amount of the Additional Allowance and the amount of the Additional Allowance Rent Payments shall be confirmed on the declaration attached to this Lease as Exhibit D . Notwithstanding anything herein to the contrary, (i) under no circumstances shall any abatement, set off or reduction whatsoever apply to the Additional Allowance Rent Payments, and (ii) in the event this Lease is

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terminated prior to its scheduled expiration date, Tenant shall reimburse Landlord, not later than the termination date, for the full amount of the unamortized Additional Allowance.

     3.6 Notwithstanding anything in this Lease to the contrary, and subject to the limitation set forth below in this Section 3.6 , Tenant shall have the right to offset against Base Rent any sums owed by Landlord to Tenant, if and when a final, non-appealable judgment is entered by a court of competent jurisdiction holding that Landlord owes such sums (the “Judgment Amount”) to Tenant, and Landlord fails to pay such Judgment Amount to Tenant within thirty (30) days following entry of such judgment. Tenant’s right to offset against Base Rent shall be limited to twenty percent (20%) of the Base Rent due in any particular month until the Judgment Amount is fully paid. The Judgment Amount (or any portion thereof that remains outstanding from time to time) shall bear interest at the Default Rate (as defined in Section 19.5 below) from the date judgment is entered through the date such amount is recovered by Tenant through payment or through Tenant’s exercise of its right of offset pursuant to this Section 3.6 .

ARTICLE IV
ADDITIONAL RENT

     4.1 Operating Expenses and Real Estate Taxes .

          (a) Commencing on the Lease Commencement Date and continuing with each calendar year thereafter during the Lease Term, Tenant shall pay Landlord, as additional rent (the “Additional Rent” or “additional rent”) for the Premises (i) Tenant’s Proportionate Share of Operating Expenses (as such terms are defined below) during any calendar year (and a pro rata share of such expenses for any calendar year falling partly within the Lease Term); and (ii) Tenant’s Proportionate Share (as defined in Section 4.1(b)) of Real Estate Taxes (as defined in Section 4.1(h)) determined in accordance with Section 4.1(h) (and a pro rata share of such Real Estate Taxes for any calendar year falling partly within the Lease Term).

          (b) “Tenant’s Proportionate Share” or “Tenant’s proportionate share” shall be that percentage which is equal to a fraction, the numerator of which is the rentable area of the Premises from time to time and the denominator of which is the rentable area of the Office Portion of the Building from time to time; however, it is understood that the number comprising such denominator is subject to change because of changes in the use or configuration of space in the Building or the addition of space to the Office Portion of the Building or the deletion of space from the Office Portion of the Building; provided, however, that any such change in rentable area shall be determined in accordance with the standard set forth in Section 1.3 of this Lease Tenant’s Proportionate Share shall increase or decrease from time to time in the event the rentable area of the Premises expands or contracts during the Lease Term (for example, by reason of casualty, condemnation, expansion or contraction). The specific obligations of Tenant with respect to Operating Expenses shall be governed by the remaining sections of this Article IV .

          (c) “Operating Expenses” shall mean the Office Common Expenses, the Building Common Expenses, and the Project Common Expenses (as such terms are hereinafter defined).

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          (d) “Office Common Expenses” shall mean costs and expenses that Landlord reasonably determines to be attributable to the maintenance, repair, ownership and/or operation of the Office Portion of the Building and the Office Common Areas, including but not limited to, the costs and expenses set forth in Section 4.1(g)(l) , but excluding the costs and expenses set forth in Section 4.1(g)(2) .

          (e) “Building Common Expenses” shall mean the Office Portion Share (as hereinafter defined) of costs and expenses that Landlord reasonably determines to be attributable to the Building Common Areas or the entire Building that benefit the tenants and occupants of both the Office Portion and the Retail Portion of the Building. Building Common Expenses shall include (without limitation) the following expenses with respect to the Building: (A) premiums, commercially-reasonable deductibles actually incurred (provided that deductibles that are carried on a blanket policy that covers at least twenty (20) buildings shall be deemed to be commercially reasonable), and other charges for insurance applicable to the Building shell; (B) fifty percent (50%) of the cost of the maintenance, operation, repair and replacement of (x) the telephone and electric rooms shown on Exhibit J attached hereto (the “Utility Rooms” ), and (y) the building shared exit corridors shown on Exhibit K attached hereto (the “Shared Exit Corridors” ); (C) operation, maintenance, repair and replacement expenses for (i) the Building’s base fire alarm system (including, without limitation, the Building’s fire command center), (ii) the Building’s storm water management system, (iii) the Building’s exterior facade, (iv) exterior Building lighting systems, (v) Building Common Area lighting systems, (vi) the Building’s emergency generator and associated equipment (including associated electrical panels), (vii) the Building’s electrical switchgear and bussduct, (viii) the Building’s fire sprinkler system, water connection, sanitary sewer connection, building common exits and gas utility system, (ix) the doors listed on Exhibit L attached hereto (the “Common Doors” ), and (x) the Building’s roof and exterior façade (other than cleaning, maintenance, repair or replacement of windows or doors that are not Common Doors), capital expenditures due to breakage, casualty or normal wear and tear to the extent the capital replacement cost is less than the costs of repair then immediately required and (E) Building personnel costs to the extent reasonably attributable to Building Common Areas. The “Office Portion Share” shall be that percentage which is equal to a fraction, the numerator of which is the rentable area of the Office Portion of the Building from time to time and the denominator of which is the rentable area of the Building from time to time; however, it is understood that the numbers comprising such numerator and denominator are subject to change because of changes in the use or configuration of space in the Building or the addition of space to the Building (or to the Office Portion) or the deletion of space from the Building (or the Office Portion) so that Tenant actually pays its fair share of Building Common Expenses; provided, however, that any such change in rentable area shall be determined in accordance with the standard set forth in Section 1.3 of this Lease.

          (f) “Project Common Expenses” shall mean the Office Portion Share of the Building’s Share (as hereinafter defined) of all costs and expenses attributable to the maintenance, repair, and operation of the Project Common Areas (and appurtenant areas such as adjacent sidewalks) that would be included as “Operating Expenses” as defined in Subsection 4.1(g) below (and subject to the exclusions set forth therein) if the entire Project were part of the same parcel of Land on which the Building is located. In addition, “Project Common Expenses”

13


 

shall include all “Common Area Maintenance Costs” as defined in the excerpt from the REA attached hereto as Schedule 4.1(f). The term “Building’s Share” shall mean the share of Project Common Expenses allocated to the Building pursuant to the terms and conditions of the Ground Lease and the REA.

          (g) Operating Expenses shall include, without limitation, the costs and expenses described in subsection (1) below, but shall not include the costs and expenses described in subsection (2) below.

               (1) Included costs and expenses (which shall in all cases be net of any discounts, credits, reimbursements (other than payments of additional rent by tenants [including Tenant] pursuant to “pass-through” provisions such as this Section 4.1 ) and rebates received by Landlord):

                    (i) Gas, water, sewer, electricity and other utility charges (including surcharges) of every type and nature.

                    (ii) Insurance premiums paid by Landlord.

                    (iii) Personnel costs of the Building, including, but not limited to, salaries, wages, fringe benefits and other direct and indirect costs of engineers, superintendents, watchmen, porters, property accountants and any other personnel related to the management, maintenance, repair and operation of the Building (“ Personnel ”).

                    (iv) Costs of service and maintenance contracts, including, but not limited to, chillers, boilers, controls, elevators, mail chute, windows, access control service, landscaping, snow and ice removal, management fees (such management fees shall be three percent (3%) of the rental revenues of the Building for the first ten (10) Lease Years and thereafter shall be based on prevailing market rate management fees for buildings in the Market Area managed to a comparable Class-A standard by an owner or owner-affiliate but in no event greater than five percent (5%) of the rental revenues of the Building), and air and water quality testing.

                    (v) All other maintenance and repair expenses and supplies which are deducted by Landlord in computing its Federal income tax liability.

                    (vi) Amortization over the Approved Period (as defined below), with interest at Landlord’s cost of borrowing, or, if the improvement is not debt financed, at the prime rate reported by the Bank of America on the date of such expenditure) for capital expenditures made by Landlord (A) to reduce operating expenses if and to the extent the annual reduction in Operating Expenses will be equal to or will exceed the annual amortization and financing costs therefor, or (B) to comply with all present and future laws, ordinances (including zoning ordinances and land use requirements), regulations and orders of Montgomery County, Maryland, the United States of America and any other public or quasi-public authority having jurisdiction over the Premises (collectively, “Legal Requirements” ), which Legal Requirements are first applicable to the Building after the Lease Commencement Date; the “Approved

14


 

Period” shall mean the time period equal to the longest allowable useful life of the improvement permitted under generally accepted accounting principles, except that with respect to an improvement made for the purpose of reducing Operating Expenses, Landlord may reduce such time period to the number of years that it will take to fully amortize the cost of the capital expenditure if the yearly amortization amount (including interest as aforesaid) is equal to the projected annual savings as reasonably estimated by Landlord.

                    (vii) Any other costs and expenses reasonably incurred by Landlord in maintaining or operating the Building, except as provided in (2) below.

                    (viii) The costs of any additional category of services not provided to the Building at the Lease Commencement Date, provided that Landlord shall not add any such additional category of service that will result in an additional expense to Tenant pursuant to this Section 4.1(g)(viii) of more than $30,000 per year without Tenant’s approval, which Tenant shall not unreasonably withhold, condition or delay; provided however, that Tenant’s approval shall not be required for services required by Legal Requirements or for any service relating to security of the Building or tenants if such security service is comparable to security services then typically being provided at other Class A mixed-use buildings in the Market Area.

                    (ix) Charges for concierge, access control, janitorial, char and cleaning services and supplies and for operation and maintenance of the Building and/or loading dock serving the Building.

                    (x) Personnel costs of the regional building property manager, even if such person works off-site, so long as such manager is not part of the corporate office and only if and to the extent such manager’s time is reasonably allocable to the Building.

                    (xi) Costs of maintaining on-site management or engineering offices for the Building, including, without limitation, the costs of telephone services, office equipment, including upgrades and replacements thereof, and office supplies, but excluding any cost for imputed rent or the initial furnishing of such offices.

                    (xii) Accounting expenses reasonably incurred by Landlord in calculating Operating Expenses and legal fees and expenses reasonably incurred by Landlord in connection with proceedings undertaken to reduce Operating Expenses.

                    (xiii) Capital expenditures due to breakage, casualty or normal wear and tear, if the capital expenditure is less than the cost of repair would have been.

               (2)  Excluded costs and expenses :

                    (i) Principal or interest payments on, and any other charges paid by Landlord in connection with, any mortgages, deeds of trust or other financing encumbrances.

15


 

                    (ii) Rental payments (including percentage rent and any increases in base rent) made under any ground lease, except to the extent such rental payments represent payment of Real Estate Taxes (as hereinafter defined) or Operating Expenses.

                    (iii) Leasing commissions and other marketing and leasing costs payable by Landlord.

                    (iv) Deductions for depreciation for the Building.

                    (v) Depreciation and amortization of capital improvements that are not deducted by Landlord in computing its federal income tax liability, except to the extent included in subsection (l) above.

                    (vi) The costs of special services, tenant improvements and concessions, repairs, maintenance items or utilities separately chargeable to, or specifically provided for, individual tenants of the Building, including, without limitation, the cost of preparing any space in the Building for occupancy by any tenant and,/or for altering, renovating, repainting, decorating, planning and designing spaces for any tenant in the Building in connection with the renewal of its lease and/or costs of preparing or renovating any vacant space for lease in the Building (including permit license and inspection fees).

                    (vii) Attorneys’ fees and disbursements, recording costs, mortgage recording taxes, title insurance premiums, title closer’s gratuity and other similar costs, incurred in connection with any mortgage financing or refinancing or execution, modification or extension of any ground lease; loan prepayment penalties, premiums, fees or charges.

                    (viii) Salaries and all other compensation (including fringe benefits and other direct and indirect personnel costs) of partners, officers and executives above the grade of regional property manager or building manager of Landlord or the managing agent.

                    (ix) The costs of repairs, replacements and alterations for which and to the extent that Landlord is actually reimbursed therefor from any source; it being understood that any rent payments or other payments by tenants in the nature of additional rent as provided in this Section 4.1 shall not be deemed sources of reimbursement to Landlord for such costs.

                    (x) Fees, costs and expenses incurred by Landlord in connection with or relating to claims against or disputes with tenants of the Building or the negotiation of leases with tenants or prospective tenants, including, without limitation, legal fees and disbursements.

                    (xi) Capital expenditures due to breakage, casualty o¡ normal wear and tear, except to the extent includable pursuant to subsection (1) above.

                    (xii) Costs incurred by Landlord for the original construction and development of the Building or the Project and for the completion of any work relating to a

16


 

zoning condition or requirement of any governmental agency in connection with the original approval of the construction and development of the Building or the Project.

                    (xiii) Any costs and expenses incurred by Landlord in connection with causing the common and public areas of the Building and the Project which are within Landlord’s sole and exclusive control to comply with applicable Legal Requirements, except to the extent included in subsection (1) above.

                    (xiv) Costs and expenses incurred by Landlord for services which are duplicative of any management fees paid by Landlord.

                    (xv) That portion of any Operating Expenses which is paid to any entity affiliated with Landlord which is in excess of the amount which would otherwise be paid to an entity which is not affiliated with Landlord for the provision of the same service.

                    (xvi) Sums paid by Landlord for any indemnity, damages, fines, late charges, penalties or interest for any late payment or to correct violations of building codes or other laws, regulations or ordinances applicable to the Building, except for expenditures for repairs, maintenance and replacement or other items that would otherwise reasonably constitute Operating Expenses and except as otherwise provided in subsection (l) above.

                    (xvii) Costs attributable to any “tap fees” or one-time lump sum sewer or water connection fees payable in connection with the initial construction of the Building or the Project.

                    (xviii) Costs and expenses incurred by Landlord in connection with damage, casualty or condemnation of all or a portion of the Building; provided, however, that with respect to the cost to repair damage, Landlord may include in Operating Expenses (1) the amount of a commercially reasonable deductible applied to each such occurrence and (2) if Landlord determines, in its reasonable judgment, that the effect of making a claim under Landlord’s insurance policy or policies would be to increase, in the aggregate, the future cost of insurance premiums and repair and maintenance expenses relating to the Building, Landlord may include in Operating Expenses the cost to repair such damage to the extent such cost does not exceed two hundred percent (200%) of the commercially reasonable deductible amount applicable under Landlord’s insurance policy or policies to such occurrence in any calendar year; provided, however that Landlord may only include such cost in Operating Expenses, if Landlord actually makes such repair and does not submit an insurance claim in connection therewith.

                    (xix) Rental for personal property leased to Landlord except for rent for personal property leased to Landlord the purchase price for which, if purchased, would be fully includable in Operating Expenses in the year of purchase.

                    (xx) Any costs actually reimbursed under the warranty of any general contractor, subcontractor or supplier and realized by Landlord.

17


 

                    (xxi) Attorneys’ fees and disbursements, brokerage commissions, transfer taxes, recording costs and taxes, title insurance premiums, title closer’s fees and gratuities and other similar costs incurred in connection with the sale or transfer of an interest in Landlord or the Building.

                    (xxii) Costs and expenses of administration and management of partnership and/or limited liability company activities of Landlord.

                    (xxiii) Nonrecurring costs and expenses incurred by Landlord in curing, repairing or replacing any structural portion of the Building made necessary as a result of defects in design, workmanship or materials.

                    (xxiv) costs of staffing and managing parking operations in the garage; gas, water, sewer, electricity and other utility charges allocable to the garage; and costs of cleaning, lighting and signage for the garage.

                    (xxv) General corporate overhead and administrative expenses of Landlord or its managing agent that are unrelated to the operation, management, or maintenance of the Building.

                    (xxvi) costs incurred as a result of Landlord’s breach of its obligations under this Lease.

                    (xxvii) Costs and expenses attributable to any testing, investigation, management, maintenance, remediation, or removal of Hazardous Materials, other than any testing or monitoring customarily conducted by owners of buildings comparable to the Building in the ordinary course of operating and managing the same and any reasonable testing required by the holder of any mortgage encumbering the Building or the Land (except to the extent any such testing or monitoring is required as a result of Landlord’s failure to comply with its obligations under Section 6.4 hereof).

                    (xxviii) The purchase price or rental of sculptures, paintings, and other works of art (but not the reasonable costs of maintaining the same).

                    (xxix) Costs actually reimbursed by insurers or by governmental authorities in eminent domain proceedings and realized by Landlord.

                    (xxx) Costs incurred for any items to the extent Landlord recovers under a manufacturer’s, materialman’s, vendor’s or contractor’s warranty.

                    (xxxi) Charitable or political contributions.

18


 

                    (xxxii) Costs (including costs, such as, but not limited to, attorneys’ fees and disbursements, associated with any court judgment or arbitration award obtained against Landlord) directly resulting from the breach of any other lease or agreement by Landlord, the negligence or willful misconduct of Landlord and its employees, or the gross negligence or willful misconduct of Landlord’s agents or contractors (including the costs of increased insurance premiums as a result thereof).

                    (xxxiii) Compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord or by the operator thereof (i.e., newsstands).

                    (xxxiv) “Takeover expenses” (i.e., expenses of another tenant or prospective tenant incurred by Landlord with respect to space located in the Building or another building of any kind or nature in connection with the leasing of space in the Building).

                    (xxxv) Accounting and legal expenses, except if and to the extent that the same are directly related to operating the Building.

                    (xxxvi) Excess personnel costs due to any overlapping of staff during a staff transition, other than the costs of staffing property management positions in anticipation of impending turnover of staff.

                    (xxxvii) the Retail Common Expenses, as hereinafter defined.

          (h) “Real Estate Taxes” shall mean (i) all real estate taxes and other impositions, including general and special assessments, and other similar taxes and assessments if any, which are imposed upon Landlord or assessed against the Office Portion of the Building and the Land upon which the Office Portion of the Building is situated; (ii) any other present or future taxes or governmental charges that are imposed upon Landlord or assessed against the Office Portion of the Building or the Land, including, but not limited to, any tax levied on or measured by the rents payable by tenants of the Office Portion of the Building, which are in the nature of, or in substitution for, real estate taxes; (iii) all taxes which are imposed upon Landlord, and which are assessed against the value of any improvements to the Premises made by Tenant or any machinery, equipment, fixtures or other personal property of Tenant used therein; and (iv) reasonable expenses (including attorneys’ fees) incurred in reviewing, protesting, negotiating or seeking (whether formally or informally) a reduction or abatement of Real Estate Taxes. If the entire Building (including the Retail Portion and the Office Portion) is assessed together, or if any of the buildings that may comprise the Project are assessed together, then Real Estate Taxes for the Office Portion of the Building shall be a fraction thereof, the numerator of which is the number of square feet of rentable area in the Office Portion of the Building and the denominator of which is the number of square feet of rentable area in the Building or the Project, as applicable. Real Estate Taxes shall not include any income taxes, excess profits taxes, excise taxes, franchise taxes, estate taxes, succession taxes and transfer taxes, except to the extent any of such taxes are in the nature of or are in substitution for or recharacterization or replacement of Real Estate Taxes. If Landlord contests the Real Estate Taxes for any calendar year, and such

19


 

contest results in an increase in Real Estate Taxes for such calendar year, then Landlord shall have the right to bill Tenant for prior underpayments of Real Estate Taxes thereby resulting. If Landlord contests the Real Estate Taxes for any calendar year, and such contest results in a refund of Real Estate Taxes for such calendar year, then Landlord shall credit to Tenant Tenant’s share of such refund, net of the expenses incurred by Landlord in connection with obtaining such refund. landlord shall notify Tenant each year whether or not Landlord intends to contest the Real Estate Taxes for such year. In making a final determination whether or not to contest the Real Estate Taxes in any particular year, Landlord agrees that it will consult with Tenant and in good faith take Tenant’s wishes into account; provided, however, that the final determination whether or not to contest the Real Estate Taxes shall be made by Landlord. Landlord shall deliver to Tenant a copy of each real estate tax bill received by Landlord with respect to the Building, promptly following Landlord’s receipt thereof, and shall furnish Tenant with such supporting documentation with respect thereto or with respect to the calculation of Tenant’s Pro Rata Share of Real Estate Taxes as Tenant may reasonably request from time to time. Notwithstanding anything in this Article IV to the contrary, any abatement of Real Estate Taxes negotiated by Tenant in accordance with Article XXXIII below shall not be treated as a reduction in .Real Estate Taxes hereunder, but shall accrue solely to Tenant as provided in Article XXXIII.

     (i) As used above, the term “Retail Common Expenses” shall mean any cost or expense that Landlord determines to be solely attributable to the maintenance, repair, ownership or operation of the Retail Portion of the Building, and any cost or expense which is incurred on behalf of or for the sole benefit of one or more retail tenants, including but not limited to, the cost of providing utilities or janitorial services to any retail tenant space.

     4.2 In the event the average occupancy rate for the entire Building shall be less than one hundred percent (100%) or if any tenant is paying separately for electricity or other utilities or services for any calendar year, for purposes of calculating the Additional Rent payable by Tenant pursuant to this Article IV for each calendar year, the Operating Expenses for such calendar year shall be increased by the amount of additional costs and expenses that Landlord reasonably estimates would have been incurred if the average occupancy rate for the entire Building had been one hundred percent (100%) and as if no tenants had separately paid for electricity or other utilities and services for such calendar year. It is the intent of this provision to permit Landlord to recover from Tenant its proportionate share of Operating Expenses attributable to occupied space in the Building even though the aggregate of such expenses shall have been reduced as a result of vacancies in the Building. In no event will Landlord recover more than one hundred percent (100%) of the actual Operating Expenses for the Building. In the event any portion of the Premises leased by Tenant hereunder is at any time vacant but is still included in the Premises, then this section 4.2 shall be applied to Tenant in an equitable manner such that Tenant pays a sum equal to the actual cost (as nearly as such cost can practicably be determined) of the utilities and services furnished to the Premises.

     4.3 Commencing on the Lease Commencement Date and at the beginning of each calendar year thereafter during the Lease Term, Landlord shall submit to Tenant a statement setting forth Landlord’s reasonable estimate of (a) the amount of Operating Expenses and Real Estate Taxes that are expected to be incurred during such calendar year, and (b) the computation

20


 

of Tenant’s proportionate share of such anticipated Operating Expenses and Real Estate Taxes. Except as otherwise provided herein, Tenant shall pay to Landlord on the first day of each month following receipt of such statement (provided that Tenant’s obligation to make the first of such payments shall commence on the later to occur of (x) the first day of the first month following receipt of such statement, or (y) twenty (20) days after receipt of such statement) during such calendar year an amount equal to Tenant’s proportionate share of the anticipated Operating Expenses and Real Estate Taxes multiplied by a fraction, the numerator of which is l, and the denominator of which is the number of months during such calendar year which fall entirely or partly within the Lease Term and follow the date of the foregoing statement. Landlord shall have the right, upon twenty (20) days’ notice to Tenant to adjust the estimated payments of Operating Expenses and Real Estate Taxes during any Lease Year based on Landlord’s reasonable good faith estimate of changes in such Operating Expenses and Real Estate Taxes. Within approximately one hundred twenty (120) days after the expiration of each calendar year falling entirely or partly within the Lease Term, Landlord shall submit to Tenant a statement showing (i) the actual Operating Expenses and Real Estate Taxes paid or incurred by Landlord during the immediately preceding calendar year, (ii) a computation of Tenant’s proportionate share if the Operating Expenses and Real Estate Taxes actually incurred during the preceding calendar year, and (iii) the aggregate amount of the estimated payments made by Tenant on account thereof. If the aggregate amount of such estimated payments exceeds Tenant’s actual liability, then Tenant shall deduct the net overpayment from its next estimated payment or payments due under this Article IV for the then current year or, in the case of the reconciliation for the calendar year in which the Lease Term expires, Landlord shall pay Tenant the net overpayment (after deducting therefrom any amounts then due from Tenant to Landlord). If Tenant’s actual liability for such amounts exceeds the estimated payments made by Tenant on account thereof, then Tenant shall pay to Landlord the total amount of such deficiency as Additional Rent due hereunder in accordance with Section 25.16 below.

     4.4 In the event the Lease Term begins or expires on a day other than the first and last day of a calendar year, respectively, the Operating Expenses and Real Estate Taxes for such calendar year shall be apportioned by multiplying the amount of Tenant’s proportionate share thereof for the full calendar year by a fraction, the numerator of which is the number of days during such calendar year falling within the Lease Term, and the denominator of which is 365.

     4.5 All payments required to be made by Tenant pursuant to this Article IV shall be paid to Landlord, without setoff or deduction, in the same manner as annual Base Rent is payable pursuant to Article III hereof.

     4.6 Tenant’s liability for its proportionate share of Operating Expenses and Real Estate Taxes described in Section 4.1 hereof for the last calendar year falling entirely or partly within the Lease Term shall survive the expiration of the Lease Term. Similarly, Landlord’s obligation to refund to Tenant the excess, if any, of the amount of Tenants estimated Payments on account of such Operating Expenses and Real Estate Taxes for such last calendar year over Tenant’s actual liability therefor shall survive the expiration of the Lease Term.

     4.7 Tenant shall have the right, for a period of one hundred eighty (180) days (the “Review Period” ) following the receipt by Tenant of any statement required of Landlord pursuant to Section 4.3 hereof (the “Operating Expense Statement” ), to cause Landlord’s

21


 

books and records relating to Operating Expenses to be inspected by Tenant’s personnel or by an accountant or real estate consultant employed by Tenant on a non-contingency basis. In the event that Tenant, following such inspection, in good faith, believes that the amounts paid by Tenant to Landlord relating to Operating Expenses during any calendar year failing within the Lease Term exceeded the amounts to which Landlord was entitled hereunder and Tenant details the alleged discrepancy, in writing to Landlord, then, if Landlord disputes the existence of such discrepancy, an independent, certified public accountant designated by Tenant (which independent, certified public accountant shall be employed by a nationally or regionally recognized full-service accounting firm, or another firm reasonably acceptable to Landlord, which shall be hired by Tenant on a non-contingency basis) shall have the right, during regular business hours and after giving ten (10) days’ advance written notice to Landlord, to inspect and complete an audit of Landlord’s books and records relating to such Operating Expenses during the Review Period. If such audit shows that the amounts paid by Tenant to Landlord on account of such charges exceeded the amounts to which Landlord was entitled hereunder, or that Tenant is entitled to a credit with respect to any such charges, Landlord shall promptly refund to Tenant the amount of such excess or the amount of such credit, as the case may be. Similarly, if it is determined that the amounts paid by Tenant to Landlord on account of Operating Expenses were less than the amounts to which Landlord was entitled hereunder, then Tenant shall promptly Pay to Landlord, as Additional Rent hereunder, the amount of such deficiency in accordance with Section 25.16 below. Tenant shall (and shall cause its agents to) keep the results of such audit strictly confidential and shall execute Landlord’s reasonable standard form of Confidentiality Agreement. All costs and expenses of any such audit shall be paid by Tenant except that if such audit shows that the aggregate amount of Operating Expenses (excluding Project Common Expenses and Real Estate Taxes) was overstated by Landlord by more than three percent (3%), Landlord shall reimburse tenant for the reasonable out-of-pocket costs and expenses incurred by tenant in such audit, up to a maximum of the amount of the overstatement of Tenant’s proportionate share of Operating Expenses. If such audit shows that the amounts paid by Tenant to Landlord on account of such charges exceeded the amounts to which Landlord was entitled hereunder, or that Tenant is entitled to a credit with respect to any such charges, then (x) after at least ten (10) days prior written notice to Landlord, for a period of sixty (60) days following the completion of Tenant’s audit Tenant may also examine in such manner Landlord’s books and records for the previous two (2) calendar years with respect solely to line items for which a discrepancy was found, and (y) Landlord shall refund to Tenant the amount of such excess or the amount of such credit, as the case may be within twenty (20) days after the date it is determined that a refund is due. Subject to the immediately preceding sentence, if Tenant does not notify Landlord in writing of any objection to the Operating Expense Statement within the Review Period, then Tenant shall be deemed to have waived any such objection, except that, in the event Landlord revises any Operating Expense Statement then Tenant shall have an additional one hundred eighty (180) day Review Period, commencing as of the date such revised Operating Expense Statement is delivered to Tenant, but solely to review the portions of the Operating Expense Statement that were revised from the originally delivered Operating Expense Statement . Any Operating Expense Statement shall become binding upon Landlord (except with respect to Real Estate Taxes), and shall not be subject to further modification by Landlord (except with respect to Real Estate Taxes), twelve (12) months after the issuance of such Operating Expense Statement by Landlord. In addition, notwithstanding the foregoing, Tenant acknowledges that Landlord has no control over the calculation of “Project Common Expenses,” and that “Project

22


 

common Expenses” are determined by a statement prepared by Project Developer (as defined in the REA) regarding the amount of Project Common Expenses that are allocated to the Building pursuant to the Ground Lease and the REA. Tenant shall have no right to audit the Project Common Expenses.

ARTICLE V
SECURITY DEPOSIT

     5.1 (a) Within five (5) business days after Tenant’s execution of this Lease, Tenant shall post a Letter of Credit (as defined below) in an amount equal to One Million Nine Hundred Eighty-Three Thousand Four Hundred Twenty-Eight and 32/100ths Dollars ($1,983,428.12), as a security deposit (hereinafter referred to as “security deposit” or “Security Deposit” ). The foregoing initial Security Deposit is calculated as three (3) months’ of Full Service Rent (as defined below) based on the Premises containing 160,634 square feet of rentable area. In addition, if Tenant elects to accept any Additional Allowance pursuant to (and as defined in) Exhibit B hereto, then, within ten (10) business days of Tenant making such election, the Security Deposit shall be increased by adding thereto a Letter of Credit in an amount equal to one hundred percent (100%) of the Additional Allowance. The term “Full service Rent” shall mean, collectively, all Base Rent Operating Expenses, and Real Estate Taxes payable by Tenant hereunder based upon Landlord’s reasonable estimate for Operating Expenses and Real Estate Taxes pursuant to Section 4.3 hereof, which, for purposes of determining the Security Deposit due upon execution of this Lease, shall be deemed to be Fourteen and 89/100ths Dollars ($14.89) per rentable square foot.

          (b) In the event at any time during the Term hereof, the Revenues Requirement (as defined in Section 5.1(f) below) is not satisfied, then Tenant shall provide an additional security deposit (the “Additional security Deposit”) (in the form of a letter of credit meeting the requirements of this Article V ) in the amount of nine (9) months of Full service Rent based upon the configuration of the Premises as of the end of the calendar quarter in which the Revenue Requirement was not satisfied (with no other notice or grace period being applicable thereto, notwithstanding anything in the Lease to the contrary). Such Additional Security Deposit shall be provided by Tenant to Landlord within fifteen (15) days after the end of any calendar quarter in which the Revenues Requirement was not satisfied. The foregoing Additional Security Deposit shall be part of the Security Deposit and shall be in addition to the applicable Security Deposit required pursuant to the provisions set forth above and in addition to the Additional Allowance Security Deposit, if any, for a total Security Deposit of ten (10) or twelve (12) months’ Full Service Rent (plus the Additional Allowance Security Deposit. if any), as applicable, based upon whether the Security Deposit was previously reduced pursuant to Section  5.1(f)(i) below. In the event Tenant is required to post the Additional Security Deposit hereunder, such Additional Security Deposit shall be held by Landlord until such time thereafter as the quarterly net income of the Guarantor (as defined in Section 5.1(f) below) meets the Revenues Requirement for eight (8) consecutive quarters, at which time the Additional Security Deposit shall be released.

          (c) [Intentionally Omitted]

23


 

          (d) The Security Deposit shall be security for the performance by Tenant of all of Tenant’s obligations, covenants, conditions and agreements under this Lease. Within ninety (90) days after the expiration of the Lease Term, and provided Tenant has vacated the Premises and is not in default hereunder, Landlord shall return the Security Deposit to Tenant, less such portion thereof as Landlord shall have appropriated to satisfy any default by Tenant hereunder, including any required estimated payments of Operating Expenses and Real Estate Taxes that have not been paid by Tenant. Upon the occurrence of an Event of Default by Tenant hereunder, Landlord shall have the right, but shall not be obligated, to use, apply or retain all or any portion of the Security Deposit for (i) the payment of any annual Base Rent or Additional Rent or any other sum as to which Tenant is in default, (ii) the payment of any amount which Landlord may spend or become obligated to spend to repair physical damage to the Premises or the Building pursuant to Section 8.2 hereof, or (iii) other than the payment of annual Base Rent or Additional Rent or any other sum pursuant to clause (i) herein, the payment of any amount Landlord may spend or become obligated to spend, or for the compensation of Landlord for any losses incurred, by reason of Tenant’s default hereunder, including, but not limited to, any damage or deficiency arising in connection with the relating of the Premises. Notwithstanding anything in this Lease to the contrary, in the event Tenant does not timely pay any amounts when due pursuant to Article IX below and Exhibit B attached hereto or otherwise in connection with the Alterations and such failure continues for five (5) Business Days after notice of such failure from Landlord, then Landlord shall have the right to immediately draw upon the Letter of Credit with notice to Tenant (it being understood that Landlord shall not be obligated to provide Tenant with prior notice, and that no other notice or cure or grace period shall be applicable with respect to Landlord’s right to immediately draw upon the Letter of Credit as aforesaid) and apply the proceeds to the payment of any amount Landlord may spend or become obligated to spend, or for the compensation of Landlord for any losses incurred, by reason of Tenant’s failure to timely pay such amounts. If any portion of the Security Deposit is so used or applied, within ten (10) business days after written notice to Tenant of such use or application, Tenant shall restore the Security Deposit by providing a replacement or additional Letter of Credit such that Landlord is holding one or more Letters of Credit or cash in the aggregate amount of the Security Deposit required hereunder, and Tenant’s failure to do so shall constitute an Event of Default under this Lease. Among other things, Landlord intends to assign to the holder of the mortgage now or hereafter encumbering the Building, all of Landlord’s interest in this Lease, including, without limitation, the Security Deposit. Tenant hereby authorizes Landlord to deposit the Security Deposit with the holder of any mortgage (as defined in Section 21.1) if and to the extent required by said holder; provided, however, that such holder shall hold the Security Deposit subject to Tenant’s rights with respect to the Security Deposit set forth herein.

          (e) The Security Deposit shall be in the form of one or more unconditional, irrevocable letters of credit (each, a “Letter of Credit” ), subject to the following terms and conditions. Such Letter of Credit shall be (i) substantially in the form attached hereto as Exhibit F or otherwise in form and substance satisfactory to Landlord in its reasonable discretion; (ii) at all times in the amount of the Security Deposit, and shall permit multiple draws; (iii) issued by a commercial bank reasonably acceptable to Landlord from time to time; (iv) made payable to, and expressly transferable and assignable by, the owner from time to time of the Building or, at Landlord’s option, the holder of any mortgage (which transfer/assignment shall be conditioned only upon the execution of a written document in connection therewith;

24


 

provided, however, that in the event the issuing bask of the Letter of Credit charges a fee for a transfer and/or assignment, any and all such reasonable fees shall be payable by Landlord); (v) payable at sight upon presentation of a simple sight draft; (vi) of a term not less than one year; and (vii) at least thirty (30) days prior to the then-current expiration date of such Letter of Credit, renewed (or automatically and unconditionally extended) from time to time through the ninetieth (90th) day after the expiration of the Lease Term. Notwithstanding anything in this Lease to the contrary, any cure or grace periods set forth in this Lease shall not apply to any of the foregoing, and, specifically, if Tenant fails to timely comply with the requirements of subsection (vii) above, then Landlord shall have the right to immediately draw upon the Letter of Credit without notice to Tenant and hold the proceeds thereof as a cash Security Deposit until Tenant delivers to Landlord a substitute Letter of Credit satisfying the requirements of this Section. Each Letter of Credit shall be issued by a commercial bank that has a credit rating with respect to certificates of deposit, short term deposits or commercial paper of at least P-2 (or equivalent) by Moody’s Investor Service, Inc., or at least A-2 (or equivalent) by Standard & Poor’s Corporation. If the issuer’s credit rating is reduced below P-2 (or equivalent) by Moody’s Investors Service, Inc. or below A-2 (or equivalent) by Standard & Poor’s Corporation, then Landlord shall have the right the require that Tenant obtain from a different issuer a substitute letter of credit that complies in all respects with the requirements of this Section, and Tenant’s failure to obtain such substitute letter of credit within fifteen (15) days following Landlord’s written demand therefor (with no other notice or cure or grace period being applicable thereto, notwithstanding anything in this Lease to the contrary) shall entitle Landlord to immediately draw upon the then existing Letter of Credit in whole or in part, without notice to Tenant, and hold the proceeds thereof as a cash Security Deposit until Tenant delivers to Landlord a substitute Letter of Credit satisfying the requirements of this Section. In the event, the issuer of any Letter of Credit held by Landlord is placed into receivership or conservatorship by the Federal Deposit Insurance Corporation or any successor or similar entity, then, effective as of the date such receivership or conservatorship occurs, said Letter of Credit shall be deemed to not meet the requirements of this Section, and, within fifteen (15) days thereof, Tenant shall replace such Letter of Credit with a substitute Letter of Credit satisfying the requirements of this Section (and Tenant’s failure to do so shall, notwithstanding anything in this Lease to the contrary, constitute an Event of Default for which there shall be no notice or grace or cure periods being applicable thereto other than the aforesaid fifteen (15) day period). Any failure or refusal of the issuer to honor the letter of credit shall be at Tenant’s sole risk and shall not relieve Tenant of its obligations hereunder with respect to the Security Deposit.

          (f) (i) Provided that, as of the Reduction Date (as defined and extended below) (i) no Event of Default (as defined in Section 19.1) has occurred and is continuing hereunder, and (ii) the Revenues Requirement (as defined below) is satisfied, Tenant shall have the right to reduce the Security Deposit (excluding any Additional Allowance Deposit) to one (1) month of Full Service Rent based upon the configuration of the Premises as of the Reduction Date. The fifth (5th) anniversary of the Lease Commencement Date shall be the “Scheduled Reduction Date” ; provided however, in the event Tenant is in monetary or material non- monetary default hereunder (without the expiration of any applicable grace or cure period) as of the Scheduled Reduction Date, then Landlord shall have the right to extend the Scheduled Reduction Date until the earlier to occur of (x) such default being cured by Tenant prior to the expiration of any applicable grace or cure periods (in which event the Security Deposit shall be

25


 

reduced as set forth in this subsection (i)), or (y) the expiration of any applicable grace or cure periods without such default being cured (in which latter event, an Event of Default shall have occurred, and Landlord shall not be obligated to reduce the Security Deposit). The Scheduled Reduction Date, as so extended, if applicable, shall be the “Reduction Date” . The “Revenues Requirement” shall mean that no calendar quarter has occurred in which the net income of the Capitalsource Inc., a Delaware corporation (“Guarantor”) (as set forth in the Guarantor’s financial statement filed with the U.S. Securities and Exchange Commission) has dropped below Twenty-One Million Dollars ($2 1,000,000.00).

          (ii) In addition, provided that, as of the Additional Allowance Reduction Date (as defined below) (i) no Event of Default has occurred and is continuing hereunder, Tenant shall have the right to reduce the Additional Allowance Deposit portion of the Security Deposit, if any , by the amount set forth below with respect to each Scheduled Additional Allowance Reduction Date set forth below, provided however, in the event Tenant is in monetary or material non-monetary default hereunder (without the expiration of any applicable grace or cure period) as of any Scheduled Additional Allowance Reduction Date, then Landlord shall have the right to extend such Scheduled Additional Allowance Reduction Date until the earlier to occur of (x) such default being cured by Tenant prior to the expiration of any applicable grace or cure periods (in which event the Security Deposit shall be reduced as set forth in this subsection (ii)), or (y) the expiration of any applicable grace or cure periods without such default being cured (in which event, an Event of Default shall have occurred, and Landlord shall not be obligated to reduce the Security Deposit). The Scheduled Additional Allowance Reduction Date, as so extended, if applicable, shall be the “Additional Allowance Reduction Date.”

 

 

 

 

 

 

 

 

 

 

 

Percentage Reduction

 

 

 

 

Scheduled Additional

 

of Additional

 

 

 

 

Allowance Reduction Date

 

Allowance Deposit

 

 

 

 

 

First day of second Lease Year

 

 

2.78

%

 

 

 

 

First day of third Lease Year

 

 

3.10

%

 

 

 

 

First day of fourth Lease Year

 

 

3.46

%

 

 

 

 

First day of fifth Lease Year

 

 

3.86

%

 

 

 

 

First day of sixth Lease Year

 

 

4.30

%

 

 

 

 

First day of seventh Lease Year

 

 

4.80

%

 

 

 

 

First day of eighth Lease Year

 

 

5.36

%

 

 

 

 

26


 

 

 

 

 

 

 

 

 

 

 

 

Percentage Reduction

 

 

 

 

Scheduled Additional

 

of Additional

 

 

 

 

Allowance Reduction Date

 

Allowance Deposit

 

 

 

 

 

First day of ninth Lease Year

 

 

5.98

%

 

 

 

 

First day of tenth Lease Year

 

 

6.67

%

 

 

 

 

First day of eleventh Lease Year

 

 

7.44

%

 

 

 

 

First day of twelfth Lease Year

 

 

8.30

%

 

 

 

 

First day of thirteenth Lease Year

 

 

9.26

%

 

 

 

 

First day of fourteenth Lease Year

 

 

10.33

%

 

 

 

 

First day of fifteenth Lease Year

 

 

11.53

%

 

 

 

 

End of initial Lease Term

 

Balance

 

 

 

 

     (iii) With respect to a reduction of the Security Deposit pursuant to Subsections 5.1(f)(i) or (ii) above, if all of the applicable conditions are met, upon Tenant’s request, Landlord shall promptly notify the issuer of the Letter of Credit that the Letter of Credit may be reduced in the amount of the reduction so authorized, and the Security Deposit shall be so reduced in accordance with this Section 5.1(f) . Such reduction shall occur by means of delivery by Tenant to Landlord of an amendment to the Letter of Credit reducing the amount thereof as directed by Landlord, or a substitute Letter of Credit in such amount and in strict conformity with the terms of this Article V, in which latter event, the original Letter of Credit will be simultaneously returned to Tenant. Notwithstanding anything contained herein to the contrary, in no event shall the Letter of Credit be reduced unless the issuing bank receives prior written notice from Landlord, authorizing a reduction by a certain amount (it being understood that in no event shall the reduction exceed the amount so authorized by Landlord). Furthermore, and notwithstanding anything contained herein to the contrary, if an Event of Default has occurred, then there shall occur no further reduction in the Security Deposit. Landlord agrees that, in the event Tenant is entitled to a reduction in the Letter of Credit pursuant to the terms hereof but no notice of reduction has been delivered to the issuing bank pursuant to the terms of this Section 5.1(f)(iii) , then Landlord shall be entitled to draw only the portion of such Letter of Credit to which Landlord would have been entitled hereunder had the notice of reduction been delivered to the issuing bank pursuant to this Section 5.1(f)(iii) (and if Landlord has erroneously drawn more than such reduced amount under the Letter of Credit, then Landlord shall deliver the excess to Tenant promptly upon demand).

     5.2 In the event of the sale or transfer of Landlord’s interest in the Building, Landlord shall have the right to transfer the Security Deposit to the purchaser or assignee, and, Tenant shall, at Tenant’s sole expense, within ten (10) business days after Landlord’s request therefor, have the Letter of Credit amended or reissued by the issuing bank to indicate the new beneficiary; provided, however, that Landlord shall reimburse Tenant for any reasonable transfer

27


 

fee. If Landlord transfers the Security Deposit to a purchaser or assignee, Tenant shall look only to such purchaser or assignee for the return of the Security Deposit, and Landlord shall thereupon be released from all liability to Tenant for the return of the Security Deposit.

     5.3 Tenant hereby acknowledges that Tenant will not look to the holder of any mortgage (as defined in Section 21.1) encumbering the Building for return of the Security Deposit if such holder, or its successors or assigns, shall succeed to the ownership of the Building, whether by foreclosure or deed in lieu thereof, except if and to the extent the Security Deposit is actually transferred to such holder.

ARTICLE VI
USE OF PREMISES

     6.1 Tenant shall use and occupy the Premises solely for general office use (including ancillary uses, such as food service for Tenant’s employees) consistent with other office tenant uses in Class A office buildings in the Market Area, and for no other use or purpose. Tenant shall not use or occupy the Premises for any unlawful purpose or in any manner that will constitute waste, nuisance or unreasonable annoyance to the Landlord or other tenants of the Building. Tenant shall comply with all Legal Requirements concerning the use, occupancy or condition of the Premises and all machinery, equipment and furnishings therein, and any Alterations made by Tenant, including, but not limited to the Americans with Disabilities Act and regulations promulgated from time to time thereunder applicable to the Premises, but excluding (i) common areas, Base Building Systems and the Base Building Work to be performed by Landlord, and (ii) alterations to the Base Building Work that apply to the Building as a whole, as opposed to Tenant’s particular use of the Premises (as distinct from office use generally). If any Legal Requirement requires an occupancy or use permit or license for the Premises or the operation of the business conducted therein, then Tenant shall! obtain and keep current such permit or License at Tenant’s expense and shall promptly deliver a copy thereof to Landlord. It is expressly understood that if any change in the use of the Premises by Tenant, or any alterations to the Premises by Tenant, or any future law, ordinance, regulation or order requires a new or additional permit from, or approval by, any governmental agency having jurisdiction over the Building, such permit or approval shall be obtained by Tenant on its behalf and at its sole expense. Further, Tenant shall comply with all Legal Requirements which shall impose a duty on Landlord or Tenant relating to or as a result of the use or occupancy of the Premises (subject to the exclusions to Tenant’s obligation set forth above). Tenant shall pay all fines, penalties and damages that may arise out of or be imposed on Landlord or Tenant because of Tenant’s failure to comply with the provisions of this Lease.

     6.2 Tenant shall pay any business, rent or other taxes that are now or hereafter levied upon Tenant’s use or occupancy of the Premises, the conduct of Tenant’s business at the Premises, or Tenant’s equipment, fixtures or personal property. In the event that any such taxes are enacted, changed or altered so that any of such taxes are levied against Landlord or the mode of collection of such taxes is changed so that Landlord is responsible for collection or payment of such taxes, Tenant shall pay any and all such taxes to Landlord upon written demand from Landlord.

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     6.3 Tenant shall not cause or permit any Hazardous Materials (as defined below) to be generated, used, released, stored or disposed of in or about the Building, provided that Tenant may use and store in accordance with all Environmental Laws reasonable quantities of standard cleaning and office materials as may be reasonably necessary for Tenant to conduct normal general office use operations in the Premises. At the expiration or earlier termination of this Lease, Tenant shall surrender the Premises to Landlord free of Hazardous Materials and in compliance with all Environmental Laws. “Hazardous Materials” means (a) asbestos and any asbestos containing material and any substance that is then defined or listed in, or otherwise classified pursuant to, any Environmental Law or any other applicable Law as a “hazardous substance,” “hazardous material,” “hazardous waste,” “infectious waste,” “toxic substance,” “toxic pollutant” or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, or Toxicity Characteristic Leaching Procedure (TCLP) toxicity, (b) any petroleum and drilling fluids, produced waters, and other wastes associated with the exploration, development or production of crude oil, natural gas, or geothermal resources, and (c) any petroleum product, polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive material (including any source, special nuclear, or byproduct material), medical waste, chlorofluorocarbon, lead or lead-based product, and any other substance whose presence could be detrimental to the Building or the Land or hazardous to health or the environment. “Environmental Law” means any present and future law and any amendments (whether common law, statute, rule, order, regulation or otherwise), permits and other requirements or guidelines of governmental authorities applicable to the Building or the Land and relating to the environment and environmental conditions or to any Hazardous Material (including, without limitation, CERCLA, 42 U.S.C. § 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq., the Clean Air Act, 33 U.S.C. § 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Safe Drinking Water Act, 42 U.S.C. § 300 feet seq., the Emergency Planning and Community Right-To-Know Act, 42 U.S.C. § 1101 et seq., the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., and any so-called “Super Fund” or “Super Lien” law, any Law requiring the filing of reports and notices relating to hazardous substances, environmental laws administered by the Environmental Protection Agency, and any similar state and local laws, all amendments thereto and all regulations, orders, decisions, and decrees now or hereafter promulgated thereunder concerning the environment, industrial hygiene or public health or safety). Notwithstanding any termination of this Lease, Tenant shall indemnify and hold Landlord, its employees and agents harmless from and against any damage, injury, loss, liability, charge, demand or claim based on or arising out of the presence or removal of, or failure to remove, Hazardous Materials generated, used, released, stored or disposed of by Tenant or any invitee in or about the Building, whether before or after Lease Commencement Date. In addition, Tenant shall give Landlord immediate verbal and follow-up written notice of any actual or threatened Environmental Default (as defined below), which Environmental Default Tenant shall cure in accordance with all Environmental Laws and to the satisfaction of Landlord and only after Tenant has obtained Landlord’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed. An “Environmental Default” means any of the following by Tenant or any Invitee: a violation of an Environmental Law; a release, spill or discharge of a Hazardous Material on or from the Premises, the Land or the Building; an environmental

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condition requiring responsive action; or an emergency environmental condition. Upon any Environmental Default, in addition to all other rights available to Landlord under this Lease, at law or in equity, Landlord shall have the right but not the obligation to immediately enter the Premises, to supervise and approve any actions taken by Tenant to address the Environmental Default, and, if Tenant fails to immediately address same to Landlord’s satisfaction, to perform, at Tenant’s sole cost and expense, any lawful action necessary to address same. If any fender or governmental agency shall require, as a result of any act or omission by Tenant or its Invitees, testing to ascertain whether an Environmental Default is pending or threatened, then Tenant shall pay the reasonable costs therefor as Additional Rent. Promptly upon request, Tenant shall execute from time to time affidavits, representations and similar documents concerning Tenant’s best knowledge and belief regarding the presence of Hazardous Materials at or in the Building, the Land or the Premises. Landlord represents that, except as specified in that certain Phase I Environmental Site Assessment prepared by O’Brien & Gere dated May 1, 1995, that certain Phase I Environmental Site Assessment prepared by Engineering Consulting Services dated September 22, 1998 and Addendum dated December 17, 1998, and that certain Phase I Environmental Site Assessment prepared by Blackstone Consulting dated December 27, 2002 (collectively, the “Environmental Report” ),to its actual knowledge as of the date of this Lease, based solely and exclusively on the Environmental Report and no further or additional. inspection or inquiry having been made, neither the Premises, nor the Land (collectively, “Property” ) contain any Hazardous Materials nor have any Hazardous Materials been used in the construction or development of the Property, nor will the use of any such materials knowingly be permitted by Landlord. In the event Landlord is advised, or it shall come to Landlord’s attention, that Hazardous Materials exist in the Property (i.e., in the Building or in, on, or about the Land), if mandated by any Legal Requirement, Landlord shall take all reasonable steps necessary to promptly remove or otherwise abate, at Landlord’s expense, all such Hazardous Materials, and in doing so, Landlord shall use its reasonable efforts not to materially interfere with the conduct of Tenant’s business; provided, however, that Landlord shall remove, at Tenant’s expense, any Hazardous Materials from the Premises which Tenant, its employees, agents, subcontractors or subtenants shall have introduced or otherwise brought in, on or about the Premises.

ARTICLE VII
ASSIGNMENT AND SUBLETTING

     7.1 (a) Tenant shall not have the right to assign, transfer, mortgage or otherwise encumber this Lease or its interest herein without first obtaining the prior written consent of Landlord (except as otherwise provided in this Article VII) . No assignment or transfer of this Lease or the right of occupancy hereunder may be effectuated by operation of law or otherwise without the prior written consent of Landlord (except as otherwise provided in this Article VII) . If Tenant is a partnership or a limited liability company, a withdrawal or change, whether voluntary, involuntary or by operation of law , of partners or members owning, individually or collectively, a controlling interest in Tenant (occurring in one transaction or in a series of related transactions) shall be deemed a voluntary assignment of this Lease and shall be subject to the foregoing provisions. If Tenant is a corporation, any dissolution, merger, consolidation or other reorganization of Tenant, or the sale or transfer of a controlling interest of the capital stock of Tenant (occurring in one transaction or in a series of related transactions), shall be deemed a voluntary assignment of this Lease and subject to the foregoing provisions. However, the

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preceding sentence shall not apply to corporations the stock of which is traded through a national or regional stock exchange. Any attempted assignment or transfer by Tenant of this Lease or its interest herein without Landlord’s consent shall, .at the option of Landlord, terminate this Lease; however, in the event of such termination, Tenant shall remain liable for all rent and other sums due under this Lease and all damages suffered by Landlord on account of such breach by Tenant.

          (b) In the event of any assignment or sublease of this Lease, Tenant shall remain fully liable as a primary obligor and principal for Tenant’s obligations and responsibilities under this Lease, including without limitation, the payment of all rent and other charges required hereunder and the performance of all conditions and obligations to be performed under this Lease.

     7.2 (a) Tenant shall have the right to assign this Lease or to sublease all or any portion of the Premises with Landlord’s approval, which shall not be unreasonably withheld, delayed, or conditioned; provided however it shall not be unreasonable for Landlord to withhold its consent if it reasonably determines that (1) the character of the proposed assignee or subtenant or the nature of the activities to be conducted by the proposed assignee or subtenant would materially adversely affect the other tenants of the Building or would impair the reputation of the Building as a Class A office building, or (2) the character of the assignee’s or subtenant’s business to be conducted in the Premises or the proposed use of the Premises (i) is likely to materially increase Operating Expenses (unless Tenant agrees to be responsible for any such increase in Operating Expenses); (ii) is likely to materially increase the burden on elevators or other Building systems (unless Tenant agrees to be responsible for this increase, whether financial or otherwise, and such terms are agreeable to Landlord, in its sole but reasonable discretion); (iii) is likely to violate any use or occupancy restriction contained in the Lease or in retail leases with other tenants in the Building or the Project; or (iv) is likely to result in the use of the Premises for a Medical Use (hereinafter defined). Tenant shall give Landlord written notice in the event Tenant enters into (or intends to enter into) an assignment or sublease, which notice shall include the party it intends to assign or sublet to, along with sufficient information about the proposed assignee or subtenant to enable Landlord to make a determination. In such case, within twenty (20) days after receipt of such notice and sufficient information about the proposed assignee or subtenant to enable Landlord to make a determination, Landlord shall notify Tenant in writing whether or not Landlord is granting its approval of the proposed assignee or sublessee. Notwithstanding the foregoing, Tenant shall in no event have the right to sublease the Premises, or any portion thereof, to more than ten (10) subtenants at any one time; provided that subleases to Relationship Subtenants (as defined in Section 7.6 below) shall not be counted against such limitation.

     (b) Tenant shall give Landlord written notice of its desire to assign or sublease all or a portion of the premises at least-thirty (30) days prior to listing the Premises (or portion thereof) on the market for assignment or sublease. Such notice shall specify the portion of the Premises proposed to be assigned or sublet and the date such portion is to be made available for subleasing. If (i) Tenant desires to assign or sublease all or a portion of the Premises for ninety percent (90%) or more of the remainder of the Lease Term, or (ii) Tenant occupies, or as a result of such sublease would occupy, less than fifty percent (50%) of the rentable area in the original Premises, then Landlord shall have the right to retake possession of the portion of the Premises

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proposed to be assigned or sublet (the “ Proposed Sublet Space ”) Within twenty (20) days after receipt of such notice, Landlord shall notify Tenant in writing whether or not Landlord will retake possession of the Proposed Sublet Space and thereby delete the Proposed Sublet Space from the Premises being leased to Tenant hereunder. If Landlord elects to retake possession of the Proposed Sublet Space, then, (i) Landlord shall retake possession of the Proposed Sublet Space on the date specified in Tenant’s notice, (ii) Tenant’s obligation to pay rent for the Proposed Sublet Space shall cease on such date and (iii) Landlord and Tenant shall promptly execute an amendment to the Lease setting forth the new square footage of the reduced premises to be occupied by Tenant. Thereafter, Tenant shall not have any further rights of any kind, including any rights of renewal, in or to the Proposed Sublet Space so retaken. If Landlord elects to recapture said space, it shall be solely responsible for the demising of the Proposed Sublet Space.

     (c) Tenant’s right to assign or sublease the Proposed Sublet Space shall expire two hundred ten (210) days after the giving of the notice required pursuant to subsection (b) above. Thereafter, Tenant shall have no right to assign or sublease the Proposed Sublet Space described in the notice furnished pursuant to subsection (b), unless Tenant shall have again complied with the procedures set forth in Section 7.2(b); provided, however, that in the event Tenant is in active negotiation of a sublease or assignment upon the expiration of such two hundred ten (210) day period, then Tenant shall be entitled to pursue such negotiations for an additional one hundred twenty (120) day period before Tenant must again comply with the procedures set forth in Section 7.2(b).

     (d) Provided no Event of Default has occurred and is continuing, Tenant shall be entitled to retain fifty percent (50%) of any profit derived from assigning this Lease or subletting the Premises or any part thereof, after first deducting reasonable advertising costs, brokerage commissions, improvement allowances and other reasonable costs associated with the assignment of this Lease or subletting of the Premises. Landlord shall have the right to reasonably inspect and audit Tenant’s books and records relating to any sublease or assignment and expenses incurred by Tenant in connection therewith. Upon Landlord advising Tenant of any potential adverse effect of any proposed sublease or assignment on the real estate investment trust qualification tests applicable to Landlord and its affiliates or unrelated business taxable income concerns of its lender, and proposing one or more solutions to such effect, Tenant will exercise reasonable efforts to structure any such proposed sublease or assignment so that the portion of the excess rents that become payable to Landlord will not have such adverse effect, and if Tenant is unable so to structure any proposed sublease or assignment, then Landlord shall have the right in its sole and absolute discretion to withhold its consent to the proposed sublease or assignment. .

     7.3 Notwithstanding the provisions of Section 7.1 or 7.2 hereof to the contrary, if consent to any assignment or subletting is required by the holder of any mortgage on the Building, no assignment of this Lease or sublease of all or any portions of the Premises shall be permitted without the prior written consent of such holder. Landlord shall not grant any such holder approval rights with respect to proposed assignments or subleases that are more restrictive in terms of the standards of approval than the approval rights reserved by Landlord hereunder, provided, however, that Landlord shall be entitled to give the holder a longer response time than the response time required of Landlord hereunder, up to a maximum of ten (10) additional days.

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     7.4 The consent by Landlord to any assignment or subletting shall not be construed as a waiver or release of Tenant from any and all liability for the performance of all covenants and obligations to be performed by Tenant under this Lease, nor shall the collection or acceptance of rent from any assignee, transferee or subtenant constitute a waiver or release of Tenant from any of its liabilities or obligations under this Lease. Landlord’s consent to any assignment or subletting shall not be construed as relieving Tenant from the obligation of complying with the provisions of Sections 7.1 or 7.2 hereof, as applicable, with respect to any subsequent assignment or subletting. For any period during which Tenant is in default hereunder, Tenant hereby assigns to Landlord the rent due from any subtenant of Tenant and hereby authorizes each subtenant to pay said rent directly to Landlord. Tenant further agrees to submit any and all instruments of assignment and sublease to Landlord for Landlord’s prior written approval as to form and substance, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant shall reimburse Landlord for all reasonable, out-of-pocket costs incurred by Landlord in connection with any request by Tenant to sublease all or any portion of the Premises or to assign this Lease, up to a maximum of One Thousand and 00/100 Dollars ($1,000.00) per request (whether or not Landlord’s consent thereto is granted).

     7.5 Notwithstanding the above restrictions on subletting and assignments, Landlord’s prior consent shall not be required, and Sections 7.2(b), (c) & (d) shall be inapplicable, with respect to any assignment or subletting to an “Affiliate of Tenant” (as hereinafter defined) or a “Successor of Tenant” (as hereinafter defined), provided (i)the Guarantor has a creditworthiness (e.g., assets and capitalization) and net worth (which shall be determined on a pro forma basis using generally accepted accounting principles consistently applied and using the most recent financial statements) immediately following the effectiveness of any assignment pursuant to this Section 7.5 which are at least as strong as such standards were for the Guarantor immediately prior to the effectiveness of such assignment pursuant to this Section 7.5 , (ii) the assignee Affiliate (if such Affiliate falls under the definition in subclause (i) of clause (b) below) or Successor of Tenant, as applicable, has a creditworthiness and net worth (determined as set forth above) immediately following the effectiveness of such assignment pursuant to this Section 7.5 which is at least as strong as such standards were for the Tenant immediately prior to the effectiveness of such assignment pursuant to this Section 7.5 , (iii) the original Tenant shall not be released from its obligations hereunder (it being acknowledged, however, that the original Tenant may cease to exist in a transaction resulting in the substitution of a Successor of Tenant for the original Tenant hereunder); (iv) that such assignee or sublessee agrees in writing to be bound by the terms and conditions of this Lease and to assume all of the obligations and liabilities of Tenant under this Lease (or, in the case of a sublessee, to assume the non-economic obligations under this Lease to the extent applicable to the sublet premises), (v) that such assignee or sublessee shall use the Premises in a manner permitted pursuant to Article VI of this Lease, (vi) that Tenant provides Landlord at least fifteen (15) days’ prior written notice of its intent to assign or sublease all or a portion of the Premises (unless Tenant is not permitted to do so by applicable Legal Requirements, in which case such notice shall be given as soon as legally permissible), which notice shall certify that each condition required to met by this Section 7.5 has been satisfied or will be as of the effective date of such assignment and/or sublease (it being understood and agreed that Tenant shall provide such information as reasonably requested by Landlord, if any, in support of such certification), (vii) that the character

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of such person or entity and the nature of its activities on the Premises and in the Building will not adversely affect other tenants in the Building or impair the reputation of the Building as a Class A office building, and (viii) that the sublease with .such person or entity is not a so-called “sham” transaction intended by Tenant to circumvent the provisions of this Article VII .

          (a) In the event of any such assignment or subletting pursuant to this Section 7.5 , Tenant shall remain fully liable as a primary obligor and principal for Tenant’s obligations and responsibilities under this Lease, including without limitation, the payment of all rent and other charges required hereunder and the performance of all conditions and obligations to be performed under this Lease.

          (b) For purposes of this Section 7.5 , an “Affiliate of Tenant” shall mean any corporation, association, trust, partnership or other entity (i) which Controls (as herein defined) Tenant or (ii) which is under the Control of Tenant through stock ownership or otherwise or (iii) which is under common Control with Tenant. For the purposes hereof, a “Successor of Tenant” shall mean any corporation, association, trust, partnership or other entity into which or with which Tenant is merged or consolidated or which acquires all or substantially all of the assets of Tenant or all or substantially all of the stock, shares, membership interests or other ownership interests in Tenant. The terms “Control” or “Controls” as used in this Section 7.5 shall mean the power directly or indirectly to influence the direction, management or policies of Tenant or such other entity.

     7.6 Notwithstanding the above restrictions on subletting, Landlord’s prior consent shall not be required, and Sections 7.2(b), (c) & (d) shall be inapplicable, with respect to any subleasing of an aggregate of not more than 20,000 rentable square feet in the Premises to Relationship Subtenants (as hereinafter defined), provided (i) that each such Relationship Subtenant agrees in writing to be bound by the terms and conditions of this Lease and to assume all of the non-economic obligations under this Lease to the extent applicable to its sublet premises, (ii) that each such Relationship Subtenant shall use the Premises in a manner permitted pursuant to Article VI of this Lease, (iii) that Tenant provides Landlord with prior written notice of its intent to sublease a portion of the Premises to a Relationship Subtenant, which notice shall certify that each condition required to met by this Section 7.6 has been satisfied or will be satisfied as of the effective date of such sublease (it being understood and agreed that Tenant shall provide such information as reasonably requested by Landlord, if any, in support of such certification), (iv) that the character of each such Relationship Subtenant and the nature of its activities on the Premises and in the Building will not adversely affect other tenants in the Building or impair the reputation of the Building as a Class A office building. For purposes hereof, a “Relationship Subtenant” shall mean a person or entity with which Tenant has an ongoing business relationship (such as, without limitation, a client of Tenant, a service provider to Tenant , an entity in which Tenant holds an investment interest, or a partner or other participant in business ventures with Tenant), where the nature of such business relationship between Tenant and such other person or entity makes it desirable for such other person or entity to be co-located with Tenant in the Premises.

     7.7 No part of the rent payable under this Lease shall be based in whole or in part on the income or profits derived from the Premises. If the holder of any Mortgage or any lender

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providing financing in connection with all or any portion of the Premises, the Land and/or the Building succeeds to Landlord’s interests under this Lease and such holder and/or lender’s counsel advises Landlord that all or any portion of the rent payable under this Lease is or may be deemed to be unrelated business income within the meaning of the Internal Revenue Code or regulations issued thereunder, such holder and/or lender may elect to amend unilaterally the calculation of rent so that none of the rent payable to such holder and/or lender under this Lease will constitute unrelated business income but the amendment shall not increase Tenant’s payment obligations or other liability under this Lease or reduce Landlord’s obligations under this Lease. At such holder’s or lender’s request, Tenant shall execute any document such holder and/or lender deems necessary to effect such amendment of this Lease. Any sublease of all or any portion of the Premises shall be consistent with the foregoing provisions of this Section 7.6 .

ARTICLE VIII
TENANT’S MAINTENANCE AND REPAIRS

     8.1 Tenant will keep and maintain the Premises and all fixtures and equipment located therein in clean, safe and sanitary condition, will take good care thereof and make all required repairs thereto, and will suffer no waste or injury thereto, all in a manner consistent with a Class A office Building. Tenant acknowledges the importance of maintaining a uniform and attractive appearance in all areas of the Premises that are visible from: (i) common or public areas of the Building; (ii) the lobby areas serving the Building; (iii) other tenant premises; and (iv) the exterior of the Building, and agrees to comply with all Rules and Regulations pursuant to Section 16.1 . At the expiration or other termination of the Lease Term, Tenant shall surrender the Premises, broom clean, in the same order and condition in which they are in on the Lease Commencement Date, ordinary wear and tear and unavoidable damage by the elements excepted. Landlord shall provide and install (subject to reimbursement in accordance with Article IV ) replacement tubes and bulbs for Building standard light fixtures in the Premises, if any. All other bulbs and tubes for the Premises shall be Tenant’s responsibility; however, at Tenant’s request, Landlord shall stock and install such other bulbs and tubes and Tenant shall reimburse Landlord for its cost and expenses incurred in connection with said stocking and installation.

     8.2 Except as otherwise provided in Article XVII hereof, all injury, breakage and damage to the Premises and to any other part of the Building or Project caused by any act or omission of Tenant, or of any agent, employee, subtenant, contractor, customer, client, licensee, guest or other invitee of Tenant (each, an “Invitee” or, collectively, “Invitees”), shall be repaired by and at the sole expense of Tenant, except that Landlord shall have the right, at its option, to make such repairs of damage occurring outside the Premises and/or damage that occurs inside the Premises and affects other tenants and/or Building Systems or structural elements of the Building, and to charge Tenant for all reasonable costs and expenses incurred in connection therewith as Additional Rent hereunder. The liability of Tenant for such costs and expenses shall be reduced by the amount of any insurance proceeds received by Landlord on account of such injury , breakage or damage.

     8.3 Landlord shall keep and maintain (a) the exterior and demising walls, foundations, roof and common areas that form a part of the Building, and the Building standard mechanical, electrical, HVAC, vertical transportation, fire/life-safety and plumbing systems,

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pipes and conduits, and (b) other components or equipment that are provided or utilized (e.g. additional standard VAV boxes installed as part of the Leasehold Work) by Landlord in the provision of services to the Building or the Premises on a non-exclusive basis (collectively, the “Base Building Systems” ), in clean, safe, sanitary and operating condition in accordance with standards customarily maintained by Class A office buildings in the Bethesda-Chevy Chase, Maryland area ( “Market Area” ) and will make all required repairs thereto. All common or public areas of the Building (including without limitation the first floor lobby area) shall be maintained by Landlord in accordance with standards customarily maintained by Class A office buildings in the Market Area. Landlord shall endeavor to cause the Building garage to be maintained in accordance with standards customarily maintained by Class A mixed use developments in the Market Area. Tenant shall promptly provide Landlord with written notice of any defect or need for repairs in or about the Building of which Tenant is aware; provided, however, Landlord’s obligation to repair hereunder shall not be limited to matters of which it has been given notice by Tenant. Notwithstanding any of the foregoing to the contrary: (a) maintenance and repair of special tenant areas, facilities, finishes and equipment (including, but not limited to, any special fire protection equipment, telecommunications and computer equipment, kitchen/gallery equipment, or internal staircase(s) which may be installed by or at the request of Tenant, supplemental air-conditioning equipment serving the Premises only and all other furniture, furnishings and. equipment of Tenant and all Alterations) shall be the sole responsibility of Tenant and shall be deemed not to be a part of the Building structure and systems; and (b) Landlord shall have no obligation to make any repairs brought about by any act or neglect of Tenant or any Invitee.

ARTICLE IX
TENANT ALTERATIONS

     9.1 Landlord shall perform the Base Building Work in accordance with Exhibit B attached hereto and made a part hereof. Landlord shall perform the Leasehold Work in the P


 
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